[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] THE PRIVATE SECTOR AND GOVERNMENT RESPONSE TO THE MORTGAGE FORECLOSURE CRISIS ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION __________ DECEMBER 8, 2009 __________ Printed for the use of the Committee on Financial Services Serial No. 111-93 U.S. GOVERNMENT PRINTING OFFICE 56-236PDF WASHINGTON : 2010 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York PETER T. KING, New York LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina RON PAUL, Texas GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois BRAD SHERMAN, California WALTER B. JONES, Jr., North GREGORY W. MEEKS, New York Carolina DENNIS MOORE, Kansas JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West WM. LACY CLAY, Missouri Virginia CAROLYN McCARTHY, New York JEB HENSARLING, Texas JOE BACA, California SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas AL GREEN, Texas TOM PRICE, Georgia EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina MELISSA L. BEAN, Illinois JOHN CAMPBELL, California GWEN MOORE, Wisconsin ADAM PUTNAM, Florida PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota KEITH ELLISON, Minnesota KENNY MARCHANT, Texas RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan CHARLES A. WILSON, Ohio KEVIN McCARTHY, California ED PERLMUTTER, Colorado BILL POSEY, Florida JOE DONNELLY, Indiana LYNN JENKINS, Kansas BILL FOSTER, Illinois CHRISTOPHER LEE, New York ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota JACKIE SPEIER, California LEONARD LANCE, New Jersey TRAVIS CHILDERS, Mississippi WALT MINNICK, Idaho JOHN ADLER, New Jersey MARY JO KILROY, Ohio STEVE DRIEHAUS, Ohio SUZANNE KOSMAS, Florida ALAN GRAYSON, Florida JIM HIMES, Connecticut GARY PETERS, Michigan DAN MAFFEI, New York Jeanne M. Roslanowick, Staff Director and Chief Counsel C O N T E N T S ---------- Page Hearing held on: December 9, 2009............................................. 1 Appendix: December 9, 2009............................................. 53 WITNESSES Thursday, September 00, 2009 Allison, Herbert M., Jr., Assistant Secretary for Financial Stability, U.S. Department of the Treasury..................... 35 Goodman, Laurie S., Senior Managing Director, Amherst Securities. 13 Gordon, Julia, Senior Policy Counsel, Center for Responsible Lending........................................................ 9 Krimminger, Michael H., Special Advisor for Policy, Office of the Chairman, Federal Deposit Insurance Corporation (FDIC)......... 37 Marks, Bruce, Chief Executive Officer and Founder, Neighborhood Assistance Corporation of America (NACA)....................... 14 Roeder, Douglas W., Senior Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency (OCC)... 39 Sanders, Anthony B., Distinguished Professor of Real Estate Finance, Professor of Finance, School of Management, George Mason University............................................... 11 Schakett, Jack, Credit Loss Mitigation Strategies Executive, Bank of America..................................................... 7 Sheehan, Molly, Senior Vice President, Chase Home Finance........ 6 APPENDIX Prepared statements: Carson, Hon. Andre........................................... 54 Marchant, Hon. Kenny......................................... 56 Allison, Herbert M., Jr...................................... 58 Goodman, Laurie S............................................ 68 Gordon, Julia................................................ 73 Krimminger, Michael H........................................ 95 Marks, Bruce................................................. 115 Roeder, Douglas W............................................ 119 Sanders, Anthony B........................................... 136 Schakett, Jack............................................... 140 Sheehan, Molly............................................... 146 Additional Material Submitted for the Record Capito, Hon. Shelley Moore: Written statement of the HOPE NOW Alliance................... 156 Allison, Hon. Herbert M., Jr.: Written responses to questions submitted by Representatives Adler and Baca............................................. 162 Gordon, Julia: Written responses to questions submitted by Representatives Adler and Baca............................................. 165 Krimminger, Michael H.: Written responses to questions submitted by Representatives Adler and Baca............................................. 167 Roeder, Douglas W.: Written responses to questions submitted by Representatives Adler and Baca............................................. 170 Sheehan, Molly: Written responses to questions submitted by Representatives Adler and Baca............................................. 173 THE PRIVATE SECTOR AND GOVERNMENT RESPONSE TO THE MORTGAGE FORECLOSURE CRISIS ---------- Tuesday, December 8, 2009 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 10:08 a.m., in room 2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. Members present: Representatives Frank, Waters, Maloney, Watt, Moore of Kansas, Clay, Baca, Lynch, Miller of North Carolina, Scott, Green, Cleaver, Klein, Donnelly, Carson, Kosmas, Himes, Peters; Royce, Capito, Hensarling, Neugebauer, Marchant, Jenkins, and Paulsen. The Chairman. Good morning. I apologize for the delay, but with the major legislative product of this committee coming up, we are a little busy. We will convene this hearing today. We have had a series of conversations obviously on an ongoing basis with a variety of people. We have a great frustration at the failure of the combined efforts of elements of the Federal Government to make a substantial impact on the foreclosure issue. Programs have been put forward and revised, but no one can think we have done a satisfactory job. Part of it is mistakes of the past, and one of the things we are determined to do going forward--the gentlewoman from California, Ms. Waters and others have talked about this--is to change the law so that some of the problems we now have will not continue. Namely, we will not have situations where there are mortgages that we believe it is in the public interest to modify and no one has the authority to modify it, or at least if someone has the authority to modify it, he or she is able to dodge the responsibility by invoking some shared responsibility. That cannot be allowed to continue. So we will straighten that out going forward, but we are in a current situation with a tangle of problems. Many of us feel that bankruptcy for primary residences is ultimately going to be necessary to get a substantial improvement. Those who disagree with that have a particular burden in my mind of showing that it is possible to achieve substantial avoidance of foreclosure, with all the negative consequences that has for the society, without it. And I do want to stress that when we talk about mortgage foreclosure avoidance, we're not simply talking about compassion for individuals. Many of the individuals involved are the victims of circumstance. Many were misled. Some were themselves less than responsible. But the problem is, even if people want to say, okay, they made their bad mortgage decision, let them live with it, that has reverberating consequences for the whole society. Foreclosures create concentric circles of harm, primarily to the individual family, but then to the neighborhood, to the municipality, and to the whole economy because of the widespread dispersion of mortgage-backed securities. So slowing down the rate of foreclosures is very important. We will in the bill before us this week be including a provision--I hope that it will be accepted--that will deal with a new class of foreclosure, a relatively new class, those who took out mortgages that were not themselves problematic but who are unemployed and find that you cannot make mortgage payments out of unemployment compensation if that's your sole source of income. We will be putting forward a program modeled on a successful one in Philadelphia that will lend money to those who are unemployed and face loss of their homes for the duration of their unemployment or some other period. That will help some. But we still have the problem of those mortgages that have to be disentangled. And as I said, we are dissatisfied with the progress, and what we are doing again today, we hope, is to get specific proposals that will help us further disentangle this situation. So with that, I'm going to recognize the ranking member of the Housing Subcommittee, and we have a total of 10 minutes on each side, and we will proceed from there. The gentlewoman from West Virginia. Mrs. Capito. Thank you, Mr. Chairman. I would like to thank you for holding this hearing this morning, and I too share the chairman's frustration. And he and I are both well aware, as we had a similar meeting in the Housing and Community Opportunity Subcommittee in September of this year on the very issue of tracking progress with the Administration's foreclosure mitigation program. Introduced in early 2009, the Making Home Affordable Program was rolled out with the promise of assisting seven to nine million troubled borrowers, yet the program has thus far assisted only a small fraction of that estimate. While the Administration's plan was somewhat more successful than the troubled HOPE for Homeowners program, I have significant concerns with the overestimation of the population served by these programs. Although there are many Americans who are struggling to pay their mortgages, it has become clear that these programs simply may not be capable of handling the volume of borrowers, nor is it realistic to suggest that every struggling borrower will be able to benefit from a modification. Furthermore, there should not be a push to achieve these targets at the expense of ensuring that modifications are being processed in a manner that ensures the lender has as complete a picture of the borrower's financial situation as possible. To this end, I was very troubled to learn that some modifications are being performed with minimal documentation. After all, it was this very practice of no- or low-documentation loans that helped create the housing crisis we face today. We should not be in the business of perpetuating this practice. According to the Treasury Department, 375,000 trial modifications are set to convert to permanent modification by the end of the year. However, JPMorgan Chase recently disclosed that in November, close to 25 percent of the trial modifications failed to make the first payment, and nearly 50 percent of borrowers failed to make all 3 payments. Furthermore, the Federal Reserve Bank of Boston cites that 30 to 45 percent of borrowers who receive modifications end up in default within 6 months. This raises significant concerns about the ability of these programs to meet the long-term expectations outlined earlier this year. These challenges are greatly compromised by a shift in the root causes of foreclosures. With the downturn in the economy, as the chairman mentioned, we are now facing more traditional causes of foreclosure, namely the loss of a job. As these programs progress, we must have a realistic understanding of their capability, and we have an obligation to our taxpayers to focus our efforts first and foremost on families who truly need assistance. I look forward to hearing from our witnesses this morning, and I again want to thank the chairman for holding this important hearing. Mr. Watt. [presiding] The gentlelady yields back, and the gentleman from Georgia, Mr. Scott, is recognized for 2 minutes. Mr. Scott. Thank you very much, Mr. Chairman. I can't think of a more pressing issue for us to deal with at this time than the foreclosure situation. It is alarming. RealtyTrac, for example, reports that in the third quarter of 2009, my State of Georgia had a 25 percent increase in home foreclosures over the third quarter in 2008. That is a total of over 36,000 foreclosure filings, or 1 in every 98 households. That is absolutely devastating. But I want to turn just for a moment about what is an even more devastating situation, perhaps the most insidious side of our current foreclosure crisis and loan modification process, and that is the unfortunate scamming of vulnerable homeowners who are in desperate need of assistance in saving their homes. It is one of the most tragic aspects of human existence, in my opinion, that whenever and wherever people are downtrodden, others will move in and prey upon them and worsen their condition. I was just contacted last night by a constituent who had contracted with a group called Prodigy Law Group in Irvine, California, just to help him to navigate the loan modification process. They contacted him and said they could bring it down far better than anyone else. And unfortunately what my constituent did not know was that this firm had a reputation as being scam artists. In fact, the Better Business Bureau of California as well as numerous other outfits had identified the Prodigy Law Group as known scammers. So as we debate this issue, not only must we deal with what is before us and what we're doing, but we have to find a way to put these predatory beasts that are preying on people who are already in bad conditions out of business. I yield back the balance of my time. Mr. Watt. The gentleman yields back. Mr. Hensarling is recognized, it says for 3 minutes, but actually you have a little bit more than that. I'm not sure exactly how much time is left, 3\1/2\ minutes, I think. Mr. Hensarling. Thank you, Mr. Chairman. By any standard of measurement, the foreclosure mitigation programs of this Administration and this Congress have been abject failures. HOPE for Homeowners had $300 billion authorized at least as of summer, the latest date I have available, 1,000 applications, and 50 loans closed by July. The Home Affordable Modification Program, $75 billion cost, supposed to help 3 to 4 million homeowners, 650,000 modifications, trial modifications. The Home Affordable Refinance Program, supposed to help 4 to 5 million homeowners, latest numbers available, 116,500. Yet we know that foreclosure rates and delinquency rates continue to rise from 9.9 percent in the third quarter of 2008 to now 14.1 percent in the third quarter of 2009. Government taxpayer- funded foreclosure mitigation programs have been an abject failure. On the other hand, those who actually hold loans have a financial incentive for borrowers who can work out to make modifications. And under the HOPE NOW Program, at least as of the latest data available, 4.7 million have been afforded workout plans since August of 2007 with no cost to the taxpayer. Now there is no better foreclosure mitigation plan than a job. And unfortunately, the job creation program of this Administration has also been an abject failure, as we suffer through the highest unemployment rate that we have had in a generation, 3\1/2\ million of our fellow countrymen having lost their jobs since the President took office. The best way to have a foreclosure mitigation plan, again, is to create a job. And the best way to create a job is to tell job creators that they're not going to have to contend with a trillion dollar nationalized takeover of a health care system, that a $600 billion threatened energy tax to our economy will not take place, that the tax relief in this decade that brought upon one of the longest periods of economic prosperity will not be allowed to expire so that tax rates on income, on dividends, on capital gains increase, that some certainty will be brought to the market, and the bill that Chairman Frank will bring to the Floor tomorrow, which will be a job-crushing bailout bill, whether that too would not become law. That is a plan. That is a recipe to create jobs in our economy, to take away the looming storm clouds of Obamanomics and let this economy create jobs. And if you create jobs, then people can keep their homes. Nothing short of that will work. We have to signal to those who ultimately have to pay the bill that this is a Congress and this is an Administration ultimately that is going to be serious about the debt and the deficit. Throwing more money at programs that do not work is absolutely insane, and it does not work. Why we would be considering giving more money to the same programs is beyond me. I yield back the balance of my time. Mr. Watt. The gentleman's time has expired, and I will recognize myself for 2 minutes, and then I will go to Mr. Klein as our final opening statement. Let me just say that it is obvious that we have a serious foreclosure problem, default problem, and that has come home to all of us with the nature of the calls that have come into our offices. Generally, before this economic meltdown, our job was to intervene with the Federal Government on behalf of constituents to get Social Security checks or VA benefits or travel documents. The bulk of the business that we are now doing is calls from people trying to get credit or trying to get out from under or survive the credit that they were already extended. Disproportionately, our calls are that. And I got an even greater appreciation for that this past weekend when Mr. Marks' group, the Neighborhood Assistance Corporation of America, brought their road show to my congressional district in Charlotte and well over 50,000 people showed up from all over the country seeking to have their loans modified. We are in a serious problem, and the programs that are out there, even when they are working, are not working on a scale that's large enough to have the impact that needs to be had. And then on top of that, the loss of jobs has added a whole other wave of foreclosures and defaults that has made the problem worse. So I welcome this opportunity to hear from the witnesses today. My time has expired, and I will now recognize the gentleman from Florida, Mr. Klein, for 2 minutes. Mr. Klein. Thank you, Mr. Chairman, and thank you for holding this important hearing. I'm from South Florida, and we face serious problems with our housing market, as many other parts of the country do. And I think we all understand it's essential for both banks and servicers as well as the Federal Government to implement effective programs to increase loan modification and prevent foreclosures where they can be prevented. I'm pleased to see the increased focus on foreclosure prevention from the Obama Administration, and they have taken some steps in the right direction, but we have a long way to go. One of the problems with the Home Affordable Modification Program and other initiatives is incomplete paperwork, and we hear this over and over again. Documents are submitted for the loan modification, and we just keep hearing that it's not the right documents, and then from the borrower's side, we hear that they have been asked over and over to present the same documents. It's a communication problem, it's a dragging of the feet problem, and in some cases, it's a problem of the servicers and banks not having adequate personnel, quantity and quality, to service these loan modifications and to address the problems. I'm also concerned about the process of short sales, and I appreciate the new Treasury guidelines that have come into play to expedite the closings on short sales. Yet I still have concerns they don't go far enough to address some of the issues complicating the execution of short sales, particularly secondary liens and investor interest, which my attitude is, where there's a will, there's a way. I think these are things that can be worked through. Another issue is appraisals. This seems to be a constant issue in terms of working through difficulties in loan modifications, because some properties were overvalued on the way up and because there's very little activity at the ground level right now, appraisals are coming in exceedingly low and not necessarily reflective of the value. Again, I think this is something that's deepening the problem and prolonging the agony. Lastly, I want to point out that in many cases, banks are also sitting on foreclosure proceedings, so they don't have to necessarily write down the asset or take title and step in the shoes of the borrower, and that's creating another problem in the communities because people who aren't keeping up with their mortgages are not keeping up with their taxes and not keeping up with their homeowners assessments and condominium assessments, and it's creating a whole problem in terms of the marketability of properties in those communities and the value in those properties. So I just want to say that we have a lot of work to do. I appreciate everybody coming here today, and giving us their thoughts and ideas, and we need to move expeditiously on this important issue. I thank the chairman. Mr. Moore of Kansas. [presiding] The Chair recognizes Ms. Sheehan. STATEMENT OF MOLLY SHEEHAN, SENIOR VICE PRESIDENT, CHASE HOME FINANCE Ms. Sheehan. Good morning. My name is Molly Sheehan. I work for the Home Lending Division of JPMorgan Chase as the executive responsible for housing policy. At Chase, we have been working very hard to help prevent foreclosures and keep families in their homes. Since 2007, under our expansive programs, we have helped prevent over 885,000 foreclosures. Since January 1, 2009, Chase has offered over 568,000 modifications to struggling homeowners for a value of over $100 billion in mortgage loans. We have approved or completed over 112,000 permanent modifications under HAMP, Chase Proprietary Modification programs or other modification programs offered by the GSEs and FHA/VA. We have given specific details of all of that activity in our written testimony for you to review. This year alone, we have opened 30 Chase Homeownership Centers in 13 States. Over 60,000 struggling borrowers around the country have been able to meet with trained counselors face-to-face. We plan to add an additional 21 sites early next year. We have added over 2,500 loan modification counselors in 2009, bringing the total number to 5,200 loan modification counselors in 15 sites around the country. We have hired over 2,800 additional mortgage operation employees to handle the unprecedented volume. So we now have nearly 14,000 home lending employees at Chase dedicated to helping our homeowners. We have handled over 12.8 million inbound calls, and our outbound foreclosure prevention calls increased to 4 million in 2009, up from 400,000 the year earlier. And we have had 3.6 million visits to our dedicated Web site for loan modifications where borrowers have been able to download over 1.6 million modification packages that they can provide to Chase. Through HAMP alone, we have offered trial plans to over 200,000 homeowners and are working very hard to make those modifications permanent. Based on our experience, for every 100 HAMP trial plans initiated from April through September 2009, 29 borrowers did not make all required payments under their trial plan, making them ineligible for a permanent modification under HAMP. Seventy-one borrowers made all three payments under their trial plans. Of those 71, 20 borrowers did not submit yet all the documents required for underwriting. Thirty-one customers have submitted all the required documents, but the documents do not yet meet HAMP underwriting standards. Twenty borrowers have completed all required documents and are eligible for underwriting. And out of those 20, 16 will likely be approved or have already been approved for a permanent HAMP modification. To the extent a borrower is not approved for a permanent HAMP modification, we have other alternatives available to them under Chase modification programs and programs offered by the GSEs and FHA/VA. Right now, we are very focused on helping the 51 percent of borrowers who are paying but need help completing documents, and have implemented aggressive new initiatives: A coordinated program to call our customers 36 times; reach out by mail 15 times; and make at least 2 home visits, if necessary, to help complete documents. Also, ordering key documents earlier in the process so they're ready when the borrower's documents come in to expedite underwriting; targeting outreach efforts to borrowers who live near our Chase Homeownership Center so they can come in in person to get help completing their documents; and assigning specific pools of accounts to loan modification counselors to provide continuity in dealing with the customer and end processing. Under this program recently launched, we have completed over 4 million calls, letters, and home visits, for an average of 27 activities per borrower through the end of November to help the conversion process to permanent. We are also paying special attention to the 31 percent whose documents are in but don't meet HAMP requirements. And we will be working on very specific initiatives to get that process completed with the Treasury in order to simplify the documentation for our borrowers. Thank you very much. I would be happy to answer any questions you have. [The prepared statement of Ms. Sheehan can be found on page 146 of the appendix.] Mr. Moore of Kansas. Thank you, Ms. Sheehan. The Chair next recognizes Mr. Jack Schakett, credit loss mitigation strategies executive, Bank of America. Sir, you have 5 minutes. STATEMENT OF JACK SCHAKETT, CREDIT LOSS MITIGATION STRATEGIES EXECUTIVE, BANK OF AMERICA Mr. Schakett. Chairman Moore, Congresswoman Capito, and members of the committee, thank you for the opportunity to update you on Bank of America's loan modification efforts and to discuss areas where we can work together to help more homeowners stay in their homes. I am Jack Schakett, Bank of America's credit loss mitigation executive, and I have the responsibility of foreclosure prevention programs with a mortgage servicing portfolio of more than 14 million. Bank of America is a proud partner in the Administration's Home Affordable Modification Program, HAMP. With more than 160,000 customers currently active in trial modifications, HAMP has proven a valuable tool that complements the aggressive loan modification programs that Bank of America already has in place. Over the last 2 years, Bank of America, with the combined effort of HAMP, has offered help to 615,000 homeowners. In over 100,000 calls a day, we hear from our customers, their concerns and their frustrations. We believe we have improved significantly our ability to handle the large volume associated with these calls, but we also believe much more needs to be done. We fully share Treasury's commitment to convert successful trial modifications to permanent as quickly as possible. In support of that commitment, Bank of America is focusing on assisting customers and providing all the necessary documents for the underwriting process. Otherwise, homeowners are at risk of missing this opportunity to obtain a HAMP loan modification, an outcome that none of us want. As this committee knows from prior hearings, in addition to the customers making three timely trial payments, the servicer must fully underwrite the permanent modification. This includes verifying income, occupancy status, and tax returns. Specifically, Bank of America has approximately 65,000 customers who have made more than 3 trial payments on time. These modifications are set to expire on December 31st. Of those customers, 50,000 have either not submitted some or all the required documents or the documents they have submitted revealed a discrepancy that needs to be followed up on with the customer. For these customers, Bank of America last week sent by overnight mail an urgent request for the documents needed to be complete in the process and set up the timeframes required to avoid losing the Treasury's modification program benefits. We included a return, prepaid express mail envelope to make the process as easy as possible. This is in addition to the previous reminder calls and mailing attempts. We have dedicated substantial resources to these efforts, including the expansion of our default management staff to nearly 13,000. For all the customers who have now submitted their documentation, we are confident that we can meet the Treasury's requirement to fully underwrite 100 percent of these loans before the trial expiration. But despite these efforts, it was clear that some portion of these customers who are facing a December 31st expiration would not be able to complete the process and would narrowly miss the deadline. Late yesterday, after a meeting with the Treasury Department, where we discussed our concerns about the looming expiration date, Treasury released new guidance that will prove to be very helpful in relief to the customers who have submitted all their documents and where servicers are still working on completing the underwriting or the notarization process. We think this new guidance will go a long way to eliminate fallout on technical grounds, and we really appreciate the assistance from the Treasury Department. Today, I would also like to offer several areas for consideration where HAMP could be enhanced to help more customers. Based on the Treasury survey data, the total customers eligible today for assistance of the program is estimated to be 1.5 million. Bank of America's share of that is about 340,000. Bank of America has made offers to 74 percent of that population and has started trial modifications with nearly half. This compares favorably to the latest Treasury report for all servicers participating in the program. We believe this demonstrates that HAMP is an effective program in reaching certain borrowers. However, the program was not designed to assist borrowers who have vacated their homes or no longer occupy their home as their principal residence. Nor was the program structured to assist for the unemployed or those already with a relatively affordable housing payment of less than 31 percent of their income. We encourage Treasury to expand HAMP to assist in meeting some of these challenges, specifically including a program for the unemployed and allowances for a housing ratio less than 31 percent for the low- to moderate-income borrowers. In any case, Bank of America will continue to provide solutions to these customers that fall outside the reach of HAMP. At Bank of America, our goal is to keep as many customers in their homes as possible. We understand the urgency of all solutions, not only for the customers we serve, but to further encourage the housing recovery that has begun to take root. We appreciate the continued strong support and partnership with the Administration and Congress on this very important issue. Thank you. [The prepared statement of Mr. Schakett can be found on page 140 of the appendix.] Mr. Moore of Kansas. Thank you very much. We next recognize for testimony Ms. Julia Gordon, senior policy counsel for the Center for Responsible Lending. Ms. Gordon, you have 5 minutes. STATEMENT OF JULIA GORDON, SENIOR POLICY COUNSEL, CENTER FOR RESPONSIBLE LENDING Ms. Gordon. Good morning, Chairman Moore, Ranking Member Capito, and members of the committee. Thank you for inviting me today to talk about stopping foreclosures. Without stronger policy intervention, not only will millions of families lose their homes unnecessarily, but foreclosures will continue to destroy communities, especially minority communities, hamper the housing market, and slow or prevent a full economic recovery. I serve as senior policy counsel at the Center for Responsible Lending, a nonpartisan research and policy organization dedicated to protecting homeownership and family wealth. We are affiliates of Self-Help, a nonprofit financial institution that makes mortgage loans in lower-income neighborhoods, and is consequently grappling with many of the same issues encountered by other lenders. And my testimony is informed by this experience. The government's principal anti- foreclosure program, HAMP, has not reached its potential. One obstacle impeding HAMP's success is that the private servicing industry as a whole is either unable or unwilling to do what it has agreed to do. To address this problem, Congress should mandate loss mitigation prior to foreclosure. For many servicers, only a legal requirement will cause them to build the systems and safeguards necessary to ensure that such evaluations occur before the home is lost. One relatively simple way to improve the HAMP program would be for Treasury to require servicers to stop all foreclosure proceedings while borrowers are being evaluated for a HAMP modification. Right now, foreclosures may proceed up to the point of sale on a parallel track with the loss mitigation discussions. As a result, homeowners receive a confusing mix of communications from their lender, some of which tell the borrower they're being considered for a modification, but others of which warn of an impending foreclosure. Confused borrowers who think they're going to lose their homes may fail to send in their documentation, may default early on a trial modification, may not answer the phone when their servicer calls, or they may leave the home, which makes them ineligible for HAMP. It's also crucial for Treasury to make the NPV model public, so that homeowners can tell whether their HAMP evaluation was done correctly, and for Treasury to provide full public access to the HAMP database to encourage evidence-based program creation and ideas, similar to the way we get full data under the ``Home Mortgage Disclosure Act.'' Only that data will be able to tell us what works and what doesn't, what servicers are doing the best job, and whether minority homeowners are being helped to the same degree as White homeowners. The foreclosure problem also has evolved, and we must expand HAMP to meet new challenges, such as negative equity and unemployment. Others on this panel will talk more about the importance of principal reduction, something we believe would be enormously useful under this program, and we also should expand HAMP to assist homeowners who have lost their jobs and may not have the 9 months of guaranteed unemployment income that they need to be eligible for HAMP. And this is what would be done through Chairman Frank's TARP for Main Street bill. Beyond the HAMP program, we urge Congress to lift the ban on judicial modifications of principal residence mortgages. This solution costs nothing to the U.S. taxpayer. It's the only solution that cuts through the Gordian Knot of second liens, securitization, negative equity, and back-end consumer debt. It would also serve as a stick to the carrot of HAMP incentive payments. Finally, we commend this committee for its work on legislation to create the Consumer Financial Protection Agency and we urge the full House to pass that bill this week. We now know it's much less expensive and much easier to prevent these problems than to clean up after them. The CFPA would gather in one place the consumer protection authority which is currently scattered across many different agencies, and it would remain fully focused on the sole mission of protecting our families and economy from the dire consequences of predatory lending and consumer abuse. Thank you for inviting me today, and I look forward to your questions. [The prepared statement of Ms. Gordon can be found on page 73 of the appendix.] Mr. Moore of Kansas. Thank you for your testimony, Ms. Gordon. Next is Dr. Anthony B. Sanders, distinguished professor of real estate finance, professor of finance, School of Management at George Mason University. Sir, you are recognized for 5 minutes. STATEMENT OF ANTHONY B. SANDERS, DISTINGUISHED PROFESSOR OF REAL ESTATE FINANCE, PROFESSOR OF FINANCE, SCHOOL OF MANAGEMENT, GEORGE MASON UNIVERSITY Mr. Sanders. Mr. Chairman and members of the committee, thank you for the invitation to testify before you today. According to the Treasury Service Performance Report through October of 2009, 920,000 trial modification plans have been offered to borrowers, and 651,000 trial modifications have been made. Given the fall off the cliff of housing prices in many States, the surge of unemployment, and the evaporation of liquidity for banks and related institutions in the second half of 2007, I am frankly surprised that the servicing industry has moved so quickly to make loan modifications in such large numbers. With 14.4 percent of borrowers in foreclosure or delinquent on their mortgages, this creates an incredible challenge to the servicing industry. It is a real challenge to servicers to make loan modifications succeed when 70 percent of loan modifications that have only interest rate cuts have gone into default, redefault after 12 months. If the loan modification affordability calculation is done, or HAMP only uses first lien mortgages, the failure of these modifications is not unanticipated. And as I mentioned in the House TARP hearings during November 2008, the negative equity problem in the sand States of California, Arizona, Nevada, and Florida is going to be very, very challenging for the servicing industry. Loan modifications must take into account consideration for the negative equity position of households to determine the likelihood of success in making these payments. Why are so few loans expected to be permanent? Well, there are several reasons for this. The first reason for the projected failure rate is the degree to which many residential loans in the United States are in a negative equity situation. According to a Deutsche Bank research report, they are expecting 25 million homes to be in negative equity position. The second reason is the unemployment rate. While a 10 percent unemployment rate is bad enough, the true unemployment rate, including wage and salary curtailment, is closer to 17\1/ 2\ percent. This is a very challenging obstacle to overcome for the servicing industry. The third is the documentation problem, which we have heard about today. To qualify for a trial loan modification, the HAMP program is following the stated income approach that does not require documentation. Like stated income loans, qualification for temporary loan modifications is fertile ground for moral hazard problems, where borrowers/applicants who are insulated from risks may behave differently from the way they would if they were fully exposed to the risk. In this case, borrowers may not want to submit the required documentation, since they may be denied for permanent modification. This is not to say that some borrowers have not experienced true documentation problems, which would be consistent with the dramatic growth in demand for loan modifications through HAMP as servicing entities ramp up their servicing efforts to meet the demand. The fourth reason is that many borrowers are having trouble making the three consecutive payments, because they either have too much income, not enough income, or a house that has fallen too much in value. The Making Home Affordable Program provides a service performance report that rank orders the servicers in terms of active trial modifications, a share of eligible 60- plus days delinquencies, the higher the better. The problem with this accounting for success, is it does not control for servicers who are servicing loans in particularly hard areas, such as bubble States like California, Arizona, Nevada, and Florida. Servicers in these States where housing prices have collapsed by as much as 50 percent in some areas are going to be heavily challenged to perform these modifications. When you add in the already high unemployment rates in these States, these are indeed great challenges. In addition, the highest unemployment rates by metropolitan area as of September are: Detroit, 18\1/2\ percent; Warren, a suburb, 17 percent; Riverside, 14.1 percent; Las Vegas, 13.7 percent; and L.A., 12.7 percent. While Arizona has only an unemployment rate of 9.1 percent, the difficulty of modifications must be considered when combined with the crash of the housing crises that have occurred there. The States and metropolitan areas with the highest unemployment rates should be taken into consideration when determining the loan modification success rates. My recommendation is for Treasury to account for loans that are serviced in the bubble States and the Midwest economically malaised States, such as Ohio and Michigan. In short, modifying loans in Nebraska is likely to be far easier than modifying loans in Arizona, Nevada, and the Inland Empire. One thing we should consider is allowing financial institutions, rather than taking immediate hits to their capital when we have a modification or default, allowing them to amortize their losses over a 5-year period. That would enable sales of some of these distressed assets as TARP was originally intended to do and allow other participants to jump into the market to do more innovative programs like short payoffs, short sales foreclosures, conversions to leases, which Fannie Mae is considering, and broader loan modifications that make particular sense. Particularly given the vacancy rates in many States in the housing market, conversions at least make some sense when the comparatively low rental rates compare to mortgage payments. I appreciate the opportunity to speak with you. [The prepared statement of Dr. Sanders may be found on page 136 of the appendix.] Mr. Moore of Kansas. Thank you, sir. The Chair appreciates your testimony. And next, the Chair recognizes Ms. Goodman for 5 minutes. Ms. Goodman is the senior managing director for Amherst Securities. You are recognized, ma'am. STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING DIRECTOR, AMHERST SECURITIES Ms. Goodman. Mr. Chairman and members of the committee, I am honored to testify today. My name is Laurie Goodman and I am a senior managing director at Amherst Securities, a leading broker-dealer specializing in the trading of residential mortgage-backed securities. I am in charge of strategy and business development. To keep abreast of trends in the residential, mortgage-backed securities market, we do an extensive amount of data-intensive research. I will share some of our results with you today. As a result of my testimony, I hope to leave you with two points. First, the housing market is fundamentally in very bad shape. The largest single problem is negative equity. Second, the current modification program does not address negative equity and is therefore destined to fail. There is no single solution to this crisis. The arsenal of measures must include principal reduction and must explicitly address the loss allocation between first lien investors and second lien investors. In order to place today's topic into context, let's look closely at the housing market. The mortgage bankers delinquency survey for Q3 shows that 14.1 percent of borrowers are not making their mortgage payments. That is 7.9 million homeowners. This dramatic increase from several years ago is the result of three things: first, borrowers are transitioning into delinquency at a rapid rate; second, cure rates are extremely low; and third, the time between when a borrower first goes delinquent and when the home is liquidated has lengthened dramatically. Given the current trajectory, we estimate that approximately 7 million of these 7.9 million homeowners will be forced into vacating their properties. This estimate of 7 million units includes only the borrowers who have already stopped making their mortgage payments. It does not include the 250,000 new borrowers per month who are going delinquent for the first time. Modifications can't help considerably as their success rate has been low. The real problem is that many borrowers have negative equity in their home. Most borrowers don't default because of negative equity alone. Generally, a borrower experiences a change in financial circumstances, misses a payment on their mortgage, and then reevaluates their financial priorities. If the home has substantial negative equity, they will choose to walk. A few numbers will help illustrate this point. At Amherst, we did a study looking at all prime borrowers who were 30 days delinquent on their mortgage 6 months ago. Six months later, we found for prime borrowers with 20 percent equity, only 38 percent had become 60-plus days delinquent. For prime borrowers with substantial negative equity, 75 percent had become 60-plus days delinquent. There is a substantial group of people who have argued that the primary problem is not negative equity, it is unemployment. This is not supported by the evidence. First, the increase in delinquencies for subprime, Alt-A, and pay option ARM mortgages began to accelerate in Q2 2007. By contrast, we did not begin to see large increases in unemployment until Q3 2008. Further evidence of the importance of negative equity comes from another study we recently completed. We found that the combined loan to value ratio, or CLTV, plays a critical role. For Alt-A and prime loans in low unemployment areas, the default frequency was at least 4 times greater for borrowers underwater by 20 percent than it was for borrowers with at least a 20 percent equity position. We also found that if a borrower has positive equity, unemployment plays a negligible role. All borrowers with positive equity perform similarly, no matter what the local level of unemployment. Indeed, negative equity is the most important predictor of default. When the borrower has negative equity, unemployment acts as one of many possible catalysts greatly increasing the probability of default. HAMP modifications, as you are aware, are primarily a payment reduction plan. HAMP has three fatal flaws. First, the agent retained to make the modification was a mortgage servicer rather than an originator. Second, HAMP only considers the first mortgage payment, taxes, and insurance. It does not consider the borrower's total financial circumstances. Third and most importantly, the program does not emphasize the re- equification of the borrower. What can/should be done? Here are some imperatives. First, there is no ``one-size-fits-all'' approach to modifications. Second, moving principal reduction higher in the HAMP modification waterfall would be the most natural way to raise the success of the modification program. Would investors support this type of program? Absolutely. While foreclosure is devastating to a borrower, it's also devastating to an investor, because recovery rates are low. The interest of the first lien investor and the borrower are totally aligned. Third, any principal reduction program requires the Administration to address the second lien problem head on. Fourth, we endorse the revamped HOPE for Homeowners Program. Fifth, we need more transparency on the data. We are concerned that if policies continue to kick the can down the road, working with a modification program that does not address negative equity, delinquencies will continue to spiral with no end in sight. Thank you very much for allowing me to testify today. I am happy to answer any questions. It has been an honor. [The prepared statement of Ms. Goodman can be found on page 68 of the appendix.] Mr. Moore of Kansas. Thank you, Ms. Goodman, for your testimony. And finally, the Chair recognizes Mr. Bruce Marks from Neighborhood Assistance Corporation of America. Sir, you have 5 minutes. STATEMENT OF BRUCE MARKS, CHIEF EXECUTIVE OFFICER AND FOUNDER, NEIGHBORHOOD ASSISTANCE CORPORATION OF AMERICA (NACA) Mr. Marks. Thank you very much. It is very good to be here. My name is Bruce Marks and I am CEO and founder of NACA, the Neighborhood Assistance Corporation of America. We are a nonprofit homeownership advocacy organization. I am not going to read from the prepared remarks that we have done, because I think we have an interesting panel. So I want to respond to some of the points that were made in the panel. One thing I wanted to go through is we have legally binding agreements with every major servicer and the two major investors in the country for closure prevention. So we have Bank of America, Citi, Sachs, and Fannie Mae. These are legally binding agreements: Litton, GMAC, Freddie Mac, One West, Chase, Wells. We have American Homes, HSBC. Again, every one of the major servicers in the country and every one of the major investors in the country, we have a legally binding agreement. There are only two real solutions out there. One is to restructure the mortgage for someone with a stable income to make their mortgage affordable, not to refinance. To restructure by permanently reducing the interest rate or the outstanding principal to make it affordable, and I say permanent. That means not a reset in 5 years to make that payment affordable, and we agree with what Laura and some of the other people on the panel said: We should do more principal reductions so you can keep the re-interest rate at the market rate, and make it affordable by doing a principal reduction. That clearly hasn't happened. The other action, which you do when someone does not have stable income, because they are unemployed, is a forbearance agreement. Lenders have been doing the forbearance agreements for many, many years, and they really continue to do that. We have homeowners here: Dana Holmes, who is in the audience; as well as Paul Roberts. Dana went to a Save the Dream event that NACA has been doing. We have done 12 around the country. Each one has about 40,000 to 60,000 people in attendance. Paul has reduced his mortgage payment by $1,400 a month. He is at a new fixed-rate at 3 percent locked in. Dana has gone to one of the Save the Dream events, saving $833. Again, she is in the audience, with an interest rate of 3 percent fixed, as well. But I think it's really interesting to hear we have two of the major servicers here. We have Bank of America and we have Chase. So one of the things we have heard about is what is not working. Well, let's take the two examples of who we have here. We have Bank of America. What they have done at the Save the Dream events is that they are doing on-site mortgage restructures, and that means that they get all the documents, they get the verification of income. They get that piece done, and they actually have the homeowners signing the legal documents, signing them at the event so people in one place are walking away with a restructure, saving $500, $1,000, sometimes $2,000 a month, getting the job done. And almost 15 percent of the people who are coming through are doing that. Then you have Chase. Chase, out of all these servicers here, is the worst. And the fact of the matter is when you look at their documentation and you look at what they're doing, they are playing you. The fact of the matter is, when they say that they are doing these trial mods, and all of that, and all of a sudden, it's the borrower's fault because the homeowners can't get the documents there, it's because they're underwriting them after 3 months, so they refuse to do on-site, permanent restructures. They put people through the process. They're impossible to work with. Talk to the homeowners about that. So I think it's a really interesting contrast that you have the one who does the best, and that's Bank of America, and the one who does the worst, and that is Chase. So when you get Jamie Dimon up here, ask him for the facts of that. Let's talk about what the solutions are and what they really should be. Well, the Administration has to stop pleading, begging, and bribing the servicer to do the right thing, because the fact of the matter is a lot of their business models don't work. They're in the collection business. They're in the business of remitting that money to the investors. They're not in the origination business, which is what we're at now. So the fact of the matter is, where are the OCC and the Federal Reserve? They should be requiring the servicers to do the mortgage restructures, to do what they should be doing. That's their job, and that doesn't require the TARP money. Clearly, when we had a financial crisis, we required the lender to take the TARP money, because there was a safety and soundness issue. We can have that same standard, that same standard to say, let's require the servicers, the lenders, to stop the foreclosures, to restructure the mortgages and to make them affordable without use of the taxpayer money out there. So thank you very much. I would be glad to answer any other questions. [The prepared statement of Mr. Marks can be found on page 115 of the appendix.] Mr. Moore of Kansas. Thank you, Mr. Marks, and I thank all of the witnesses for their testimony here today. I will start with you, Ms. Sheehan, representing Chase. You just heard Mr. Marks's testimony. Would you have any response or any reply to some of his comments, ma'am? Ms. Sheehan. We have been working with Mr. Marks's organization for quite a while. We think they do a great job in their outreach events and bringing homeowners out to talk to us. We have a process that we have established in terms of how we do our intake for our events. It is a slightly different process, perhaps, than Bank of America. And I'm sure each of us has different processes, but we have worked very, very hard to make sure that we get the documents in. We have a dedicated portal. We image documents. We put them together and then they go through our prequalification process. I know there have been bumps along the road, absolutely, particularly in building-up capacity to manage the outreach process with Mr. Marks, but we continue to work very, very hard and we will certainly follow-up with him after this hearing and talk further about how we can do better. Mr. Moore of Kansas. Thank you. Do any other witnesses have a comment on my question? Anybody else? When it comes to foreclosures, I continue to be troubled by stories of mortgage fraud and individuals who are trying to make a quick buck by scamming innocent people. To any of our witnesses, what steps, Ms. Sheehan, or others, is Chase or others taking to ensure your customers are not taken advantage of? Is there enough information being provided to the general public about what a legitimate mortgage foreclosure mitigation plan is compared to a scam? Is there more education that needs to be done so innocent people are not taken advantage of? Any of the witnesses, Ms. Sheehan or others? Ms. Sheehan. Certainly, there is a lot of work that needs to be done in the scam process. I think we have made a lot of progress. We have worked with the FTC making sure that we are getting information to them when we learn about scams that are going on. We have put together booklets with the FTC that we include in all of our conversations with our customers. We continually remind them that they don't need to pay for a modification. Mr. Moore of Kansas. Thank you. Do any other witnesses want to answer that question? Mr. Marks? Mr. Marks. Yes. The answer is, if you consider those servicers out there who are doing the fraudulent activity, you have to reconsider them as roaches out there. You can't kill off all the roaches by stomping them all out; you have to cut off their food source. And the food source is the lack of the ability where some homeowner goes to the servicer to get a real solution right then and there. So, the focus should be on really requiring the servicers to get the job done, because if you do that, then you're going to prevent all these frauds. Clearly, it should be outlawed that no one should charge anybody to save their home because they should be working with the servicers and the nonprofits who don't charge to do that. But, we have to focus 100 percent on getting the job done. Everybody who comes to an NACA Save the Dream event has tried to work with a servicer and has failed. So, we have to really put these players out of business, and frankly, put the nonprofits, the NACA's and the like, out of business because our job should become irrelevant if the servicers are required to do these restructures and the forebearances. Thank you. Mr. Moore of Kansas. Do any other witnesses care to comment? Mr. Sanders. I just want to add to what he what he was saying. I disagree with, in part, what he's saying because, again, supposing a borrower doesn't like what they're hearing from the servicer. They may want to get legal representation or an organization to try to push the envelope. You have to be very careful about trying to regulate people out of these industries. It sounds good, but I think there might be people who want additional representation, although I really don't like the scammers, either. Mr. Marks. And we shouldn't agree with that because at these events, we also do a forensic audit of the loan, so on the pick and pay and all that, you find that 80 percent of all the pick and pays in the country that, you know, that there's something that was done illegally, so that when we do a forensic audit, we find the violations and that gives the borrower a better opportunity to get a long term solution, so absolutely. Mr. Moore of Kansas. Thank you to my witnesses. My time has just about expired. I'm going to next recognize Mrs. Capito, please. Mrs. Capito. Yes, thank you. There are two things that are troubling me here. First of all is the, I guess the conflicting information, but the information that once people, well, when I learned at the last hearing that in order to go into a trial modification, you don't have to have your documentation before you. You can go ahead and go into the trial modification for 3 months without the documentation. But, according to what Ms. Sheehan is saying, and then after you're requesting these documents, that they're not forthcoming with a large percentage of the folks who are trying to modify their loans. What is the principal reason that people aren't coming forward? Is it as the gentleman just said, they don't like what they're seeing, or they're just postponing the inevitable, or what is the reason for this? Ms. Sheehan. Certainly, a lot of the situations that we see are where they have submitted some of the documents but not all of the documents. And-- Mrs. Capito. Exactly. They have to have income tax-- Ms. Sheehan. Right. So-- Mrs. Capito. Proof of employment. Ms. Sheehan. Yes, and it could be, but frequently it may be documents that they don't have easy access to-- Mrs. Capito. Like? Ms. Sheehan. For example, a supporting death certificate or divorce decree. Mr. Marks made the point that this is a true origination process, it's really, truly underwriting a new loan and so what we are looking at, as you said, all of the different financial aspects of their situation. And so it is a challenge for borrowers and we're trying to help them, we're trying to help them overcome that challenge. Mrs. Capito. Mr. Schakett, do you have the same situation at Bank of America? Mr. Schakett. Yes. That's definitely true. I think that one thing that when they were first setting up HAMP, there was a lot of discussion around whether or not we should require full documentation, partial documentation, or no documentation to start the trial mod period. Obviously, at that time, I think there was a general consensus that we supported that we have a lot of pent-up demand right now, we need to get the customer started as soon as possible, so people erred on the easy side in the beginning of the program, they said, make it no documentation, oral commitment to what you make, start the trial period, use that trial period to gather the documentation, hopefully that you would actually then solve the documentation problem, at the same time and parallel with the 3 months' trial payments. Clearly, what we're now looking at, we're at a pretty high fall-out ratio. We think it's time probably to maybe change the process slightly. We would advocate up-front now to require some documentation, at least two documents: the hardship affidavit, which is fundamental to the program, to prove what kind of hardship, and it also has language about making sure everything you're saying is truthful; and then assign the 4506- T, which lets them know that we'll be pulling a tax return at some point in the future. So, if there are customers who potentially were trying to game the system, that might root out those customers up-front and eliminate, maybe, some of the conversion problems we have today, so this at least is our view, it may be a good time to challenge what documentation we're requiring up-front to make it a little bit tougher to get into the program, still allowing the time to finish processing the loan, this added on to the end of the trial because that parallel processing still, I think, is a good idea, because there are a lot of documents to get and trying to get them all up-front would maybe unnecessarily delay the start of the process. Mr. Marks. And if I can add just one thing to what they're saying is that, it's not a difficult process. It's really a simple process. If we can do it in the same day, get same-day solutions, all you need is three documents: the hardship affidavit; the 4506-T authorization; and verification of income. So, we don't believe that you should do the no-docs. We believe in the trial mods, but you should underwrite it on day one, end it, get it done, after 3 months of making on-time payments, it gets done. The other problem is that homeowners have lost confidence in the servicers. And so, if the process doesn't work, people don't trust the servicers out there, and somehow, we have to re-establish the trust between the homeowners and the servicers. But, just get it done at the beginning, get the verification. I think that the fact of the matter is, they required more documentation at the beginning of the process. The Administration has made it a simpler process so-- Mrs. Capito. Well, I would certainly say that, to have some up-front documentation, like I said, I was astounded to hear there was no documentation in the beginning. This is the problem that we had when we started. And I am talking way back here. The other thing, I think that Ms. Goodman brought up, was that the negative equity situation when challenged whether it was unemployment driving a lot of this now. Well no, not really, it's more negative equity or people are underwater. I don't see how you solve that problem. Luckily, I am from a State, West Virginia, where we don't really have that problem, but these States like California, Florida, and Nevada, they are so far underwater. They are underwater by amounts that are more than the median home price where I live. And, people have to feel just desperate, that there's no way that they can get out from under. So, I think that is a huge hurdle to overcome here and it's one that you can't do overnight. It's not like, you have lost your job, you have a new job. It's like, you have time here, and I think my time's up, but anyway, that's just a comment I wanted to make. Thanks. Mr. Marks. Is it possible to respond to that? Do you mind? If I can do that quickly? Mr. Moore of Kansas. We do have other people who want to ask questions. You can respond in writing. In fact, the Chair encourages anybody who would like to provide additional testimony, to give us written testimony that will be provided to the members up here. Thank you, sir. The Chair next recognizes Ms. Waters of California for 5 minutes. Ms. Waters. Thank you very much, Mr. Chairman. And I apologize for not being able to get here earlier today. Let me just say that I have spent a lot of time trying to understand why we can't get loans modified quicker. I don't buy the White House's latest attempt to prod servicers into doing loan modifications. I don't think the jawboning and trying to embarrass these servicers into doing the right thing works. I think that we have to have stronger legislation. I think I understand a lot about loan servicing, and Mr. Marks, you're absolutely correct. I see no reason why you cannot do a loan modification in the same day that you're contacted, with limited documentation. I'm not saying no documentation. But you know, this business of the trial for 3 months and then the request for 6 months' worth of bank statements and on and on and on. In my office, we're helping people 75- and 80-years-old try to put together requests from servicers that professionals working every day can't put together very easily. And the other thing is, these many servicers, why do you lose so much? Most of the time, I'm getting calls about people having to submit papers a second and a third time. Also, I get the feeling that some of our companies have just brought in servicers and they gave them a 2\1/2\ hour training session and put them out there to try to do loan servicing, and then they tell my constituents they can't take into account certain kinds of income that are not valid. I don't care where the money comes from. Child support, unemployment, Social Security, all of that should be taken into consideration. But, I'm talking to servicers, because I get on the phone with them, and I get on the phone with my constituent, I get a waiver for my constituents to talk directly to the servicers, to assist them. I'm just amazed at what appears to be incompetence. I'm amazed at the requests for all of this documentation: the bank statements; the tax filings; and on and on and on. It is not necessary and they're not getting it done. We know that they are not getting it done. The White House is embarrassed about this and people are losing their homes who could remain in their homes. In the Recovery Bill that is going to be on the Floor tomorrow, we're going to try and do something for the unemployed because we have reverse mortgages where people get reverse mortgages, get money up-front, and then when the house is sold, or what have you, the money is paid back. We could do that with the unemployed, you know, when the house is sold, we could lend money up-front and they could pay it back when the house is sold. But, I tell you, there is not a real effort by the mortgage companies or the banks or the servicers, or whomever, the banks own most of these servicers and operations, to really do loan modifications. That's the bottom line. You don't want to do them. And so, not wanting to do them, you don't care about HAMP or anything else, you just don't want to do them, so I am looking for stronger legislation to force these modifications. I'm looking for ways to expedite, as Mr. Marks explained, and I didn't hear some of the other testimony. But, it's not a lot that can be told to me about the ``can't be done,'' that people are not getting their paperwork in, that somehow people signed on the dotted line and now they don't want to take responsibility. I have been looking at, if I may, I have been looking at some of these mortgages where they readjust in perpetuity. They readjust every year for the rest of the loan up through 2034, 2035, and on and on and on. Those should be modified on the spot. It has nothing to do with anything except that's a predatory loan. And for those servicers and those companies who have those bad products that are out on the market and they have people who are in trouble and they're saying they can't modify those loans, I'm coming after them with some real legislation to do so. Some of the loans are predatory. Some of them are, people have been defrauded and I want those loans modified even if they work every day and they can afford to pay the loan, those loans have to be modified along with people who don't have the money because they have lost their jobs, etc. I yield back the balance of my time. There is not a lot else to be said about this mess, Mr. Chairman. Mr. Moore of Kansas. I thank the gentlelady for her questions and her comments. Next the Chair recognizes-- Mr. Marks. If I can just comment-- Mr. Royce. I think we're into my time now. Mr. Moore of Kansas. It's Mr. Royce's time. The Chair will recognize Mr. Royce for 5 minutes. Mr. Royce. Thank you, Mr. Chairman. Mr. Moore of Kansas. And I want to say--excuse me--to the witnesses, that they have an opportunity to submit written statements, as well. Mr. Royce? Mr. Royce. I appreciate that, Mr. Chairman. I just make mention here, Ms. Sheehan in her testimony said that JPMorgan Chase had successfully prevented 730,000 foreclosures and Mr. Schakett mentioned that the Bank of America assisted 615,000 customers in the first 6 months of 2009 to refinance into more affordable mortgages at a lower interest rate. Now, the Administration and some of the Members of Congress here would like to change the Bankruptcy Code so that bankruptcy judges could write down principal. This doesn't just have to do with writing down an interest rate; it has to do with reducing principal on a loan. And if the borrower understands that if they wait and don't renegotiate because we might do these huge write-downs of principal, why would the borrower continue to work at the table to try to stay, try to work out an arrangement for a lower interest rate? That would be one of the questions that I would ask. Mr. Schakett, do you have any thoughts on that? What would happen, in other words, to your efforts to restructure, to continue to restructure these loans, should that kind of legislation pass? Mr. Schakett. Well, certainly there is risk if the customer believes he has two outlets to restructure his loan. One, to work with the mortgage company in existing programs like HAMP to modify or seek judicial process to modify, and if he believes he could get a better deal judicially, you're right, there is some risk it actually would undermine the HAMP program. You know, our view is if the Congress and the Administration determines we should do more in principal reductions for certain borrower segments, we have to work that into some leg of HAMP, okay? And I think there could be some borrower segments, very high LTV's, the late stage delinquencies, that because there's a large unwillingness problem, maybe there should be some sort of a principal forgiveness program that the government participates in. But, it would be best served, I believe, by putting that through a process that works for everybody and is actually sponsored by the Administration itself versus through a judicial process. Mr. Royce. You see, one of the concerns I have here is having fought in the past against some of the policies that encourage Fannie Mae and Freddie Mac to do some of the types of lending they did with zero downpayment loans, subprime loans, half of their portfolio being subprime, my concern is that we now go to a situation where if this cram-down concept goes through, it's going to have an effect in the future on mortgage rates. And I want to ask Professor Sanders about this. What's going to be the effect going forward on the secondary market? Are lenders going to have to reprice their consumer mortgage products in order to adjust for the risk to investors presented by something like bankruptcy cram down? Is that the likely consequence of legislation like this? I remember a Justice, Supreme Court Justice John Paul Stevens' comment that there's a reason the Bankruptcy Code does not treat residential mortgages like it treats credit cards or auto loans. And basically, what he said was, we want to ensure investment certainty and encourage the flow of capital into this market. If Congress keeps making mistakes, errors in judgment, that balloons the market, like what was done with Fannie Mae and Freddie Mac, and then comes back with cram-down, or legislation like that, do we drive the private capital out of the market? At the end of the day, I don't think Congress did any favors for disadvantaged people by pushing Fannie Mae and Freddie Mac and mandating that half of their goals, mandated that half of that be subprime and Alt-A loans. That was a huge mistake for Congress to make. Zero downpayment loans, frankly, by Fannie and Freddie, that was a huge mistake. We're now living with the fact that people took advantage of that, obviously, as everybody would. If you could capital at those rates and with no money down, if you could flip homes, 30 percent of the homes in 2005 were flipped in this country. So, we knew what was going on. Let me ask you, Professor, your observation on that. Mr. Sanders. Well, first of all, I think you were spot-on at the beginning that the write-down of principal, while it is desired by anyone who is in that position, has serious moral hazard implications about waiting and actually going to the default if you know you're going to get a principal write-down. But secondly, on the secondary markets, Andy Davidson and I wrote a paper for the MacArthur Foundation called, ``Securitization After the Fall.'' And what we said was, if we want to get the whole securitization market, which is really, really important for the mortgage market and the housing market to recover, we have to establish trust so investors around the world, the United States pension funds, have to trust that the securities market is going to work, etc. And the problem is, if we go to cram-downs, cram-downs, I think, will send a shock wave through the international markets that, oh, my gosh, we're going to allow judicial intervention, and they're probably not going to be consistent, they're going to vary by jurisdiction, it's just a terrible signal we're sending to the capital markets around the world, if we pursue that. Mr. Royce. As nobly intended as it is. Thank you, Professor. Thank you, Mr. Chairman. Mr. Moore of Kansas. Thank you. The Chair will next recognize Mr. Clay of Missouri for 5 minutes. Mr. Clay. Thank you so much, Mr. Chairman. Along the same lines as Ms. Waters, some of the strategy that we see now deployed by mortgage holders and banks does not make good economic sense. Why haven't we seen an effort to keep people in their homes instead of removing them? And then leaving the home vacant and reducing the value of the surrounding property in the neighborhood. If it is about the bottom line and profit motive, would it not be a better business strategy to keep people in homes? Doesn't the mortgage holder or the bank have to maintain utilities and to keep the water on in those facilities? Let me ask someone on the panel, and maybe Ms. Sheehan or Mr. Schakett could take a stab at this. What is more cost- effective for banks and mortgage holders, to evict and/or foreclose on a home, is that more cost-effective, or would it be better to work out some arrangement, even if the homeowner is reduced to paying rent in order to keep them in that house? What would be more cost-effective to the banks or the mortgage holders? Ms. Sheehan. I would say that, obviously, when we look at our distressed borrowers, the first thing we do is make a consideration about whether or not we can achieve an affordable and sustainable monthly payment for their housing under a modification program. That's what we're trying to do because generally speaking, that is going to be more cost-effective from an investor or lender perspective than a foreclosure. So, absolutely, that is part of the process that we follow. Mr. Clay. Well, but think about the difficulty when you remove a family from a home, then it's vacant, then you drop the overall value of the homes in that neighborhood. Then, your profit is reduced when, even if you're able to sell that home. It is just a strategy. Mr. Schakett, you may-- Mr. Schakett. Well, you're right. There's no question. When we make the calculation, is it better to try to make an affordable payment for the customer versus take the home away from the customer, part of the calculation of taking the home away recognizes that if we take it away, we do have to pay the bills while he's not there, there are eviction costs, it does take a while to market the property, the property could decline in value further which makes it even worse for us. So, all of those calculations are part of the math which weighs heavily in the favor of the consumer that says as long as he can make some kind of reasonable payment, it is almost always better to keep the customer in the home. That's exactly right. Mr. Clay. But we are not seeing that trend now among mortgage holders who are saying, let's make every effort to keep people in their homes. We're not seeing that. Mr. Marks. Sir, if I can respond? Mr. Clay. Yes. Mr. Marks. Because there are two separate pieces. One is the servicer. If the servicer does nothing, and it goes to foreclosure, they lose nothing. The other is the investor. And then we always hear from the servicer that says, you know, we would love to do it, but the investor says, no. The fact of the matter is, they virtually never, ever contact the investor. What they do is they go to the trustee who tends to be the same entity the servicer is and says, what does the pooling and servicing agreement say? That's the contract between the servicer and the investor. So, while they say it's the investor's problem, it's not. When you talk to PEMCO and the biggest investors out there, they say, we want to do these modifications, we actually want to do the principal reductions. But we're not seeing that. So, the fact of the matter is, the servicers lose very little if it goes to foreclosure. It's the investor who loses. And they very seldom ever talk to the investor and then the lawyers for the servicers says, well, they take the conservative approach. So, they find a reason to say no, as a reason to say yes, but reading the pooling and servicing agreement, the PSA, in a very conservative manner, which hurts everybody, as you say, sir. Mr. Clay. Well, don't the servicers have a fiduciary responsibility to the investor? Mr. Marks. That's right, and you know, from our opinion, we think that they're in violation of their fiduciary responsibility because they find a reason to say no when their approach has been the opposite, where they should be saying yes in a lot of cases. Mr. Clay. Thank you. Ms. Goodman. Let me just make one more point and that is that many borrowers are so far underwater that they don't want the modification; the current modification program doesn't work for them. You need to go to some sort of a principal reduction program. They still legally owe the money even if they're making a lower payment. Mr. Moore of Kansas. The gentleman's time has expired. Any other witnesses who with to make a comment are certainly invited to do so in writing, please, for the record, because that is helpful. The Chair next recognizes the gentleman from California, Mr. Baca, for 5 minutes, sir. Mr. Baca. Thank you, Mr. Chairman, and thank you for holding this hearing. In my area, we probably have the third or the fourth highest foreclosure rate in the Nation, so it has really impacted the Inland Empire, and in my neighborhood, I have homes that are basically vacant or have just been rented. And it seems like many individuals who have lost their homes or are in the process of losing their homes are stating, why should I continue to pay the high rates that are currently there right now when the property value has even gone down so much, so they end up vacating their home and then renting, which is a problem that we have. But my question pertains to the HAMP program. A lot has been made about the HAMP program and its inability to help families whose breadwinners have become recently unemployed because of the current economy. In many of these situations, it is actually better for the lender to foreclose on the property and I state, it is better for the lender to foreclose on the property. Moreover, there is evidence showing that permanent modifications for unemployed individuals actually end up hurting the taxpayers because of the government ownership of Fannie and Freddie. Because of this, there have been plans that actually called for limited modification for unemployment and actually called for use of housing vouchers or grants to be used. Could you comment on the feasibility of such an approach, addressing what's possible, pros and cons that may be, and I address this question to Mr. Marks. Mr. Marks. Sure. Thank you. One is that, with someone who is really unemployed, servicers have done this for many years, there's a standard practice where they do a forebearance for 3 to 6 months. And, you know, they should be doing that. So, you don't need MHA, frankly, you don't need the government subsidies to help the servicers to do that. So, it's really an enforcement part. The other problem, and I think it's a very good point, is that we are getting people locked in at a 2 percent interest rate for life. Well, that's a nice piece, but that shouldn't be the answer across-the-board. What should be the answer is, let's put someone on affordable payment at a market rate and reduce the outstanding principal because that's better for the economy, it's better for the homeowner, it's better for the community. And under MHA and under HAMP, you see virtually no solutions when there's a principal reduction or forebearance. Everything is interest rate reduction. We don't think that's the right answer across-the-board. We agree with the investors out there who say that is not the right answer across the board. They would rather have a significant principal reduction closer to the current value of the property and keep the interest rate at the market rate and we think that, you know, MHA and HAMP, should be reconfigured to re-encourage that, please. Mr. Baca. Thank you. And you're saying that the current rate of the market today, not what it was before they foreclose, is that correct? Mr. Marks. Absolutely. It's all about the affordable payments, how you get to the affordable payment, so once you look at 31 percent of the gross income or you take the net cash flow to determine an affordable payment, which is less, then how you get there is up to the servicers and the investors. And while you can reduce the interest rate to 2 percent or 3 percent, like you have heard here, to get to that, maybe you could keep it at a 5 percent interest rate and reduce the outstanding principal by $50,000 or $100,000 to get closer to the current value of the property. Mr. Baca. Mr. Sanders, would you like to tackle this? Mr. Sanders. The whole issue of the interest rates is a fascinating one. I think we are price stressing it too much and the one thing I want to add to that, though, is that I'm hoping everyone considers the fact that if we do, in fact, move to 2 percent loans for a large segment of the population who are in financial difficulty, etc., which again, is very noble sounding. So, I want to point out that somebody's going to be holding those notes, and when high inflation and high interest rates suddenly go ka-boom in a few years, which they will, whoever's sitting on that paper is going to have catastrophic losses. Right now, the Fed is sitting on that, but Freddie is insuring this and we have to again, be, I think, very careful of the long-run implications of what we're doing here. Mr. Baca. Yes, but the people who are holding those notes really have been the greedy ones who took advantage of those individuals, right? So why not make them lose? If those are the ones holding the notes, hey, I don't mind them losing because they got greedy in the first place. Mr. Sanders. Well, if pension funds and the Federal Reserve are the greedy ones, then I don't think so. This is going to hurt a lot of people and it's just not what you call the greedy folk, it's going to be folks around the world who are going to suffer when we get inflation and interest rates going up. Mr. Baca. Okay, thank you. Thank you, Mr. Chairman. Mr. Moore of Kansas. Next, the Chair recognizes the gentleman from North Carolina, Mr. Miller, for 5 minutes. Mr. Miller of North Carolina. My impression from that period is that the voluntary modifications took a huge spike, and that the total number of modifications by courts was a relatively small percentage. But it provided a template for other modifications. Ms. Gordon, are you aware of what went on during that period? Was there a dip in voluntary modifications? Ms. Gordon. No. There was not a dip in voluntary modifications. And to add to what you just said, in a number of States around the country--until the Supreme Court decision on this topic, many States permitted bankruptcy judges to ``cram- down'' principal residence mortgage debt in bankruptcy court, and those States didn't have any different situation with respect to the cost or availability of credit than the States that didn't have it. Bankruptcy is a very difficult process for an individual or a family. Chapter 13 bankruptcy is onerous. You have to live under a very strict plan. You're monitored by the court for 5 years. This is not a choice that anybody chooses lightly. We have two situations now. We have the situation in that the voluntary modifications are not happening, and it is all utterly out of control of the homeowner. They have no last resort that they can initiate themselves which would serve as a backstop to the servicer's responsibility to help them try to address whatever problems they're facing with the mortgage. So, on the one hand, the ability of the bankruptcy judge to help a homeowner out gives a homeowner a last resort. We have another situation in that many of these distressed homeowners are financially distressed generally, and already are filing for bankruptcy. They're already in bankruptcy court. It's just that the judge doesn't have the power to do the main thing that will actually ultimately make them successful in Chapter 13, and able to continue to pay back all of their other consumer debt that they owe, which is that the judge doesn't have control over their principal residence mortgages. For those homeowners, one thing that is especially important is right now most participating servicers aren't permitting folks who are already in bankruptcy to do a HAMP modification. So they're really stuck. They can't get the voluntary modification because the servicers don't want to do it for people in bankruptcy. But the bankruptcy judge can't help them out, either. So those people are really locked out of the process. Mr. Miller of North Carolina. Ms. Gordon, you mentioned studies based upon the differences from jurisdiction to jurisdiction between, I guess, 1978 and 1994. There was a study I know by a fellow named Leviton at Georgetown, and I think he had a co-author who was, I think, at Columbia. I think they were both economists and lawyers, bankruptcy lawyers, who looked at the differences and found no difference in the availability or terms of credit. Is that what you're--are there other studies, or-- Ms. Gordon. There are not that many studies on this particular issue. But there are a number of studies, some of which we have done at the Center for Responsible Lending, some of which have been done at UNC and other research institutions on related issues. You know, the fact is, every time there is a program--there is an idea to help homeowners-- Mr. Miller of North Carolina. Okay. Ms. Gordon. --the mortgage industry will come back and say, ``Well, this program is going to impact the cost and availability of credit.'' Mr. Miller of North Carolina. Right. Ms. Gordon. And for every one of those--every time that has been asserted, studies have demonstrated that it's not the case. Mr. Miller of North Carolina. In an 8th grade math class, we had to show our work. We just couldn't give an answer, we had to show how we got there. And I understand at the graduate level that's referred to as peer review. You have to set forth what your assumptions are, what your methodology was, what facts you relied upon, and then your analysis, and walk through the analysis. And then other scholars in the same field can look at it and test those assumptions. Mr. Sanders, are you--can you give me a citation to a published, peer-reviewed study that shows that judicial modification makes voluntary modifications more difficult? Mr. Sanders. That's a very good question. And I will send it back to you, saying that we are--as Laurie has testified to--we are in such unchartered waters that all that matters is, with a 50 percent decline in house prices, we will see how this works. No, I have no evidence that--Ms. Gordon was referring to-- that this was going to be terrible. However, when we're this-- with high unemployment and this far upside down in many--or 10 States, at least, in the United States--I will believe that when I see it. Mr. Miller of North Carolina. Professor Sanders, isn't it true that under the bankruptcy laws, every other kind of secure debt can be modified in exactly the same way that the legislation we talked about last year would modify home mortgages? Every other kind of secure debt? Mr. Sanders. That is true. Mr. Miller of North Carolina. Okay. Thank you. Mr. Sanders. But there is a reason why they're not. Mr. Miller of North Carolina. I'm sorry. What? Mr. Sanders. There is a reason why mortgages were not included in that-- Mr. Miller of North Carolina. That's the only reason? Mr. Sanders. No, I didn't say that is the reason. I am saying mortgages are not included. And that was a statement. Mr. Miller of North Carolina. Okay. Mr. Sanders. Not a reason. The Chairman. The gentleman from Georgia. Mr. Scott. Thank you, Mr. Chairman. Let me start with this, because we're in a terrible situation here and I have had difficulty since we have been in this crisis of understanding why there has not been a sense of urgency. Now, we have moved in good measure to save Wall Street. I had no argument with that. The credits were frozen up; we had to do that. But we did it with urgency. We did it with abundance. We did it $700 billion first. The Fed came in with another $1.2 trillion. But when we get down to the homeowner, we crunch and we worry about these things. We went outside the box to save the American economy focusing on Wall Street, and did a good job with that. No question. But when it comes down to rescuing the homeowner, which, in large measure, was the core cause of the problem, we stay in this box. Why is it that we can't intelligently look at what I think is the foremost issue here? And that is reducing the principal. Why is it--what is it about this? Here we are, at the end of this year, we will lose 2.5 million homes to foreclosure. Right now, two out of every nine homes are in foreclosure or default. This is a problem of catastrophic means. Why can't we do that? Why can't we stop the foreclosure procedures while the modification process is going on? These are simple things. I just have a problem understanding why we can't do this. Why can't we look at this home modification program, affordability program, and understand that maybe that 31 percent is too high, especially when people are losing levels of income? Can somebody help me with this? Let us start with the reduction of the principal. I would like to know, from each of you, why we can't do that. What is the problem here? Mr. Marks. Can I just ask one thing? I think one question to the servicers is, in their model, when they look at the affordable payment, do they have the process in place to do the principal reduction, as well as the interest rate reduction? And then, when it comes to the MHA program, or HAMP, why don't they encourage the principal reduction versus just the interest rate reduction? Because we agree--and we see very few of those out there. Ms. Gordon. Well, there are a few structural reasons of conflict of interest why servicers may not do this. One is that the biggest servicers, and the ones that service the vast majority of the loans out there right now are owned by the same banks that hold many of the second liens on these loans, so they have a conflict of interest, in terms of writing down the principal. Servicers generally make most of their money from their monthly servicing fee, which is a percentage of the outstanding loan principal balance, so they don't want to write down the principal balance. There are a number of other financial conflicts, too, that have to do with right to residuals or buy- backs or any number of structural things in the servicing industry that push against this. And so, the real question is, why have we not been willing to require that this happens? If we just leave it up to the banks' interests, the banks have different interests. Congress is going to need to require that this happens, and you are completely right, that we have not put the energy into this issue. You know, the foreclosure crisis has basically been something of a-- Mr. Scott. Right. Ms. Gordon. --50-State Katrina, sucking money out of communities, particularly minority communities, and just leaving husks of neighborhoods in its wake. Mr. Scott. Ms. Goodman? Ms. Goodman. I will actually second what Julia Gordon said. The conflict of interest between the borrower and the second lien-holder is huge, in terms of writing down principal. And before you can have a successful principal reduction program, you have to explicitly address the second lien. There seems to be no other option, other than extinguishment. You may want to pay the bank to extinguish the second lien, you may want to let them take the loss over a period of time, but that simply has to be done. Another problem that has often come up in terms of principal reduction is the moral hazard, or strategic default problem. How do you keep borrowers who otherwise could afford to pay their mortgage from strategically defaulting, or trying to take advantage of a principal reduction plan? There is no single option here. But, as you mentioned, we have to think outside the box. We have to think in terms of shared appreciation features, requiring all reduced principal mortgages to be made with recourse, introducing an impact on credit scores, limiting future access to credit or limiting the ability to borrow against the property. We have to consider a wide range of ideas, but certainly the strategic default issue plays a very prominent role in people's minds. Mr. Scott. Thank you. My time has expired. Thank you, Mr. Chairman. The Chairman. The gentleman from Texas. Mr. Green. Thank you, Mr. Chairman. I thank the witnesses for appearing. The 3/27s and 2/28s, are we still having a significant number of them come through the process? Ms. Goodman. The bulk of those payment shocks are behind us. It's the pay option ARM payment shocks that are left to come. Mr. Green. And are we now finding that persons who had conventional loans, reasonable rates, are also starting to default? Ms. Goodman. Absolutely. Negative equity is just a huge problem at this point. Mr. Green. And is the problem one that you can, with some degree of anecdotal evidence, indicate that certain communities have experienced to a greater extent than others? Mr. Marks. Absolutely. When you go to the-- Mr. Green. Let me just take your ``absolutely'' as the answer-- Mr. Marks. Yes. Mr. Green. --and ask another question if I may, please? Mr. Marks. Yes. Mr. Green. Can you identify communities by way of empirical and anecdotal evidence that have had a greater shock than some others? Mr. Marks. Yes. But I would also add that this has become more across-the-board in virtually every community and in every State. Mr. Green. Given that it has embraced every community and every State, but some more so than others-- Mr. Marks. Yes. Mr. Green. --kindly identify communities that have ostensibly been hit harder than others? Mr. Marks. You certainly see the minority communities, and you see-- Mr. Green. Define ``minority communities.'' Mr. Marks. The communities where the majority of the population are African American, Hispanic, and other ethnic minorities, and low- and moderate-income communities, communities where the median income is less than 80 percent of the median. Mr. Green. Whether by accident or design, this impact on these communities that seem to have been hit harder than others, what will happen, in terms of recovery, for these communities without some intervention? Mr. Marks. Absolutely devastating. You see the foreclosures, you see-- Mr. Green. Tell me about the loss of wealth for these communities. Mr. Marks. It is massive. I think there are other people on the panel who can actually empirically identify that, and they should-- Mr. Green. Is there anyone who can give some empirical evidence? Ms. Gordon. Yes. Our research reports show what we call spillover effects of the foreclosures, really, in the hundreds of billions of dollars. And, there are two types of spillover effects. There is the general reduction in everybody's property value, and-- Mr. Green. Are you talking now specifically about the communities that were referenced by Mr. Marks? Ms. Gordon. Yes. Mr. Green. Identify-- Ms. Gordon. The more foreclosures there are, the worse the-- Mr. Green. For the record, I need-- Ms. Gordon. --spillover effects. Mr. Green. --for you to identify the communities that you are talking about. Ms. Gordon. Largely communities that are African-American or Latino communities, or lower income--you know, the more lower, middle-income-- Mr. Green. Will these communities-- Ms. Gordon. --homeowner communities-- Mr. Green. Will these communities recover without some specific intervention? Ms. Gordon. Absolutely not. Mr. Green. Does someone else have an opinion that you would like to give, with reference to this? [No response.] Mr. Green. Anyone else? [No response.] Mr. Green. This is the moment. This is the moment to speak truth to power. You hear that phrase used quite a bit. People fear speaking truth to power. Somebody has to tell the truth about what's happening to certain communities in this country. This is your moment. Ms. Sheehan? Speak truth to power. Ms. Sheehan. We have established our Chase homeownership centers in the most hard-hit communities. We are there to help people through those centers in person, and address their needs. And that is the process we have used to think about how we can best be useful. Mr. Green. Do you agree that certain communities are being devastated, if not obliterated, by virtue of what happened, whether it was by accident or design that this is happening? Ms. Sheehan. I don't have that kind of data here. Mr. Green. Without data, you do have anecdotal evidence. You are involved in this process, true? Ms. Sheehan. We are involved in the process. And as I said-- Mr. Green. What does your anecdotal evidence connote? Ms. Sheehan. What our evidence, what our experience has told us, is that there are communities where we have-- Mr. Green. Are you afraid to say it, Ms. Sheehan? Are minority communities being devastated more? Ms. Sheehan. Minority communities are definitely having problems, we know that, as well as-- Mr. Green. Are they having more problems, Ms. Sheehan? The Chairman. Let me just say--I haven't used my 5 minutes. I'm not going to take the whole 5 minutes, so I'm going to yield 3 minutes of my time to the gentleman from Texas, so he can continue. Mr. Green. Thank you, Mr. Chairman. Ms. Sheehan, let us not be euphemistic about this. Let us not let our inhibitions prevent us from telling the truth. This is a moment in time when people need to hear the truth, because we have people who are suffering. Some are suffering more than others. Is the minority community suffering more than some other communities? Ms. Sheehan. We know that we have an obligation to all of our communities, including our minority communities, and we are working-- Mr. Green. So you subscribe to the notion that a rising tide raises all boats? Ms. Sheehan. We have an accountability to help our customers, and-- Mr. Green. I assume that is true. Let me ask you this: If a rising tide raises all boats--and I am putting these words in your mouth; you can extract them if you so choose--why is the Titanic still on the floor of the ocean? A rising tide--see, I'm bringing this up because this seems to be a prevailing theory, that if we do, across-the-board, the right thing, we will help everybody. And we don't seem to understand that some are being left behind, even with the best of intentions. We are leaving people behind. And this is something for which I thank God that CNN has decided that they are going to monitor and report on. Because if we wait on persons to come before us with these panels and tell the truth, we may not get the entirety of the truth. For whatever reasons, we don't want to face a fact. Whether by accident or design, some communities are suffering more. And they are not going to recover without some sort of specific intervention. That's the truth. Anybody differing with that truth, raise your hand. Let the record reflect that no one has raised a hand. My final comment, Mr. Chairman, if I may, is this. I beg you, friends. Let's get beyond splitting hairs, and let's talk about how we are going to save this country. It's really bigger than any one group of people. It's about this country. And we have to do better. We have to do better. All of these banks have to do better. If you don't do better at some point, you're going to force Congress to take drastic action that some would call a moral hazard, because we have to have some means of having these servicers take the responsibility and do something to help people who deserve and merit help. Thank you, Mr. Chairman, I yield-- The Chairman. I will just take my last 10 seconds here on this to give a different variant to the gentleman's metaphor. It has always been my view that while the rising tide may lift all boats, for those people who can't afford a boat and are standing on tiptoe in the water, the rising tide is very bad news, in fact. The gentleman from Missouri? Mr. Cleaver. Thank you, Mr. Chairman. Thank you, Mr. Green. I am interested in--in order that I can read it and become more familiar with it, Professor Sanders, was there an administrative order or some kind of congressional vote that directed Fannie and Freddie to make bad loans? Mr. Sanders. No, I don't believe there was any administrative order asking them or requiring them to make bad loans. Mr. Cleaver. The only reason I ask that is because earlier you, in responding to one of my colleagues, accepted in your comments that it had happened, and went on to describe how troublesome it was. We can try to get it read back. It was a question from, I think, Mr. Royce. You don't remember? Mr. Sanders. I don't believe I would say that, because I don't think Fannie and Freddie purposely went out and made bad loans, or were ordered to do so. Is that what your question is? Mr. Cleaver. Yes. Mr. Sanders. No, I didn't--wouldn't have--said that. Mr. Cleaver. So that hasn't come up today since you've been here? Mr. Sanders. No. In fact, Fannie and Freddie were only mentioned, I think, by me. And that's not what I said. Mr. Schakett. Well, I think the comment was that Mr. Royce said something like, ``Fannie and Freddie had an obligation to do 50 percent of their product in subprime or alt-A,'' and he viewed that as a problem, okay, a mandate to do that. So that's the comment, I believe, that was said. So you can imply that was to make bad loans, but I think it was to use 50 percent of their volume for subprime and alt-A is what Mr. Royce said, if I remember right. Ms. Gordon. And we did not have a chance to rebut the ongoing incorrect assertion that has been rebutted by everyone from the Board of Governors of the Federal Reserve on down. The toxic loans that caused this housing crisis were primarily private loans that were securitized into the private securities market. Mr. Cleaver. Yes, I understand that. You know, I just hear over and over and over again that, somehow, either Congress or President Bush or somebody forced Fannie and Freddie to, you know, to bundle and securitize some bad mortgages. And I-- Mr. Marks. Actually, sir, we had testified on September 12, 2000, in front of Congress right here, saying that Fannie and Freddie should not be allowed to get into those types of products out there. But no one forced them to do it. You're exactly correct. No one forced them to do it. And certainly, the entities we don't see up here are the New Centuries, the Fremonts, the First Franklins, and all those who have been in the forefront of predatory lending, because, clearly, they're out of business now. Mr. Cleaver. So I guess it doesn't matter how many times or how many people dethrone that notion, people are going to continue to say it. Is that what you hear, Ms. Gordon, is it what you believe? Ms. Gordon. Yes, it's hard to know how to stop that from coming up over and over, when it has just been clearly debunked as a reason. Mr. Cleaver. Okay. Mr. Schakett, you know, this whole term ``hell,'' you know, the word ``hell,'' it actually originated because on the west side of Jerusalem, where they--the land field where they burned the trash was called ``sheol,'' and the interpretation comes down as ``hell.'' That was the first view of what humans thought hell would be, you know, burning, constant burning of the trash. And there are people who tell me they go to phone tree hell when they are trying to talk with someone about their mortgage, and trying to get some kind of modification, that they actually go to phone tree hell, and that they are being--their concerns, their interests, their desires, their frustration of being burned, sitting on the phone. Do you believe that we have been able to put out the fire in hell? Mr. Schakett. No, I don't think we put out the fire yet. I agree that certainly we have frustrated our customers. But volume is sometimes--we haven't had the ability to handle the volume necessary, and not always provided the right answers to the customers, or moved them around from one person to another, and not given them the right answers as we try to staff-up and train people. So, I could appreciate, you know, your constituents, okay, being frustrated with that process. We obviously continue to add resources and training and try to improve. We are not-- Mr. Cleaver. But do you think that-- The Chairman. I am going to give the gentleman an additional minute-and-a-half for biblical exegesis. [laughter] Mr. Cleaver. Thank you, Rabbi. [laughter] Mr. Cleaver. I am just concerned-- The Chairman. If you stuck with the right Testament for me-- [laughter] Mr. Cleaver. You know, I am wondering if the phone tree from hell is one of the reasons for the fact that 25 percent of the borrowers who come in for modification end up losing their homes. They can't even go through the three-payment trial period. They lose their home right off. And is there a reason for that, or can the phone tree hell be part of the reason? Either you or Ms. Sheehan? Mr. Schakett. Okay, and I certainly believe that the phone tree problems clearly frustrate our customers. The only good news about that is that we clearly have not taken customers through foreclosure while we worked within the trial period. So, although we may not answer the phone in a timely manner, although we may have frustrated them, all those people are in foreclosure hold. So I assure you that nobody is getting foreclosed on because of it. That doesn't undermine that, you know, there is not huge frustration, and that we need to improve that. Our more recent mailing, we mentioned earlier, we actually sent out 50,000 letters to try to say exactly what we were still missing from these customers, and what it took to comply. It was our attempt, somewhat of our attempt, to make sure the customers that we didn't handle right in the past now knew exactly what we needed from them, and give them an easy way to respond back to us to try to get these modifications complete. So, again, I appreciate that we have frustrated our customers. But we haven't foreclosed on them in the meantime. The Chairman. The gentleman from Florida. [No response.] The Chairman. Then I will just take my last minute-and-a- half to say this: We are terribly frustrated by what's happening. We are going to move forward on the unemployed. I understand that doesn't solve all of the problems, but I do think this is helpful. And the bill that has come to the Floor will have $3 billion to be advanced to people who are unemployed, to help them avoid it. It's a program that has worked well in Philadelphia. We will continue to push for other things. But the most important thing, I think, is a point that the gentleman from California has consistently made. Going forward, this committee will make a very high priority passing legislation early next year that will prevent us from being entrapped in this again. There will have to be, for any residential mortgage, one party that is solely, fully, legally responsible for these decisions. And people who want to invest in mortgages, people who want to make second lien loans, people who want to invest in the securitization will do so, going forward, knowing that those rights are subject, whatever they have, to the responsibility of one individual to make those decisions, because it is a terrible example of our violating an important principle that ought to exist in the law: You should not have important decisions be made in this society that cannot be easily made by somebody. And so, that is something the gentleman from California identified early. And that doesn't get us out of this current thing, but we do--and we will work with many of you, going forward, to make sure that we have that, so that we will not have this shifting of the blame back and forth. Beyond that, we appreciate this hearing, and we will continue to press people in the Administration, as we will do in this next panel, to act on some of the suggestions. I also have a package of statements to put into the record without objection. The ranking Republican asked me to put in the statement from the HOPE NOW Alliance, and we also have, from the Home Ownership Preservation Foundation, the National Council of La Raza, the Brennan Center for Justice, and the PICO Network of faith-based community improvement organizations. And I note that one of those--that one--comes from people in Massachusetts, in New Bedford, Fall River, and Brockton. So, without objection, they are all part of the record. And the panel is dismissed with our thanks for a very useful discussion. We have to get people to get out and people to set up. Please take the conversations outside so we can get the panel going. No one should be standing still. They should either be walking or sitting. We will now turn to our second panel. We appreciate the attendance of the public officials who are responsible. And I did not follow the usual procedure of asking the public officials to testify first. It is not out of any lack of respect for their commitment and integrity, of which we are appreciative. But it did seem to me that today, it would be very useful if we heard some of the questions and criticisms first, and could then have them respond to them. I ask people at the door to please leave. And we will now begin with Herbert Allison, who is the Assistant Secretary for Financial Stability at the Department of the Treasury. Mr. Allison? STATEMENT OF HERBERT M. ALLISON, JR., ASSISTANT SECRETARY FOR FINANCIAL STABILITY, U.S. DEPARTMENT OF THE TREASURY Mr. Allison. Chairman Frank and members of the committee, thank you for the opportunity to testify today about the Treasury Department's comprehensive initiatives to stabilize the U.S. housing market and support homeowners. The Administration has made strong progress ramping-up the Making Home Affordable Program. But even though the number of homeowners being helped continues to grow, we recognize that the Home Affordable Modification Program, or HAMP, faces challenges in converting borrowers to permanent mortgage modifications, and in fostering effective communications between servicers and borrowers. Our most immediate challenge is converting trial mortgage modifications into permanent modifications. Servicers report that about 375,000 trial modifications will be more than 3 months old, and due to be decisioned before December 31st. Treasury has launched an aggressive conversion campaign to increase the number of permanent modifications. We have streamlined the modification process, and required conversion plans from the seven largest servicers. Treasury and Fannie Mae have assigned teams to work with each servicer, and to report daily on their progress. We are engaging all 81 HUD field offices and hundreds of State and local governments in this effort. We have enhanced our Web site to provide borrowers with a simplified way to navigate the modification process, using instructional videos, downloadable forms, and an income verification checklist. Next week, we will hold our 20 borrower event, connecting servicers, housing counselors, and homeowners. In addition, we have brought in executives from the services 4 times to Washington, including just yesterday, to discuss ways of accelerating conversions. Another challenge is helping unemployed homeowners. HAMP is designed to enable many unemployed homeowners to participate. Borrowers with 9 months or more of unemployment insurance remaining are eligible to include that income for consideration in their modification request. We recognize, however, that some unemployed borrowers will have trouble qualifying. Treasury is actively reviewing various ideas to improve program effectiveness in this area, while remaining focused on helping borrowers as quickly as possible under the current program. A third challenge is preventing foreclosures of homeowners eligible for HAMP. During the modification trial period, any pending foreclosure sale must be suspended. And no new foreclosure proceedings may be initiated. We prohibit foreclosure proceedings until the borrower has failed the trial period, and has been considered and found ineligible for other foreclosure prevention options. We are working with stakeholders to review, improve, and monitor compliance with our rules, so no borrower being evaluated for HAMP is subject to foreclosure during that process. A fourth challenge is transparency. On August 4th, our public monthly report began including trial modifications by each servicer. October's report added data on trial modifications by State. Upcoming reports will show permanent modifications by servicer, and measures of servicer's responsiveness to borrowers. We are requiring servicers to send notices that clearly explain to borrowers why they did not qualify for a HAMP modification, and how they can ask for a second look at their application. We will also provide additional transparency of the net present value, or NPV model, a key component of the eligibility test. We are increasing public access to the NPV White Paper, which explains the model's methodology. We are also working to increase transparency of the NPV model, itself, so counselors and borrowers can better understand how the model works. HAMP is on track to provide a second chance for up to 3 to 4 million borrowers by the end of 2012. Based on a recent survey of servicers, we estimate that, as of the beginning of November, up to 1.5 million homeowners were eligible for the program, meaning they were both 60-plus days delinquent, and likely to meet the HAMP requirements. To put the current stage of HAMP in context, we should compare the 1.5 million eligible homeowners to the more than 680,000 borrowers who are in active modifications, and are included among the 900,000 borrowers who have received offers to begin trial modifications. On average, borrowers and trial modifications have had their payments reduced by over $550 per month, down roughly 35 percent from their prior payments. HAMP has made great strides since modifications began in May. But we have a long way to go. We will continue to work closely with housing counselors, State and local governments, servicers, homeowners, investors, and Congress to enhance the program's performance, and to help keep Americans in their homes. Thank you. [The prepared statement of Assistant Secretary Allison can be found on page 58 of the appendix.] The Chairman. Next is Mr. Krimminger. STATEMENT OF MICHAEL H. KRIMMINGER, SPECIAL ADVISOR FOR POLICY, OFFICE OF THE CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) Mr. Krimminger. Chairman Frank and members of the committee, thank you for the opportunity to testify on behalf of the FDIC about the private sector and government response to the mortgage foreclosure crisis. Mortgage credit distress and declining home prices have been fundamental causes of uncertainty. Structurally unsound mortgages and historic home price declines, which precluded refinancing, have led to unprecedented increases in mortgage defaults and foreclosures. Chairman Bair recognized the problem early on, and strongly advocated for a program of systematic modifications in 2007. Her proposal rested on a central premise. Simply, foreclosing on defaulted loans would only add to the excess supply of housing, push down home prices, and make the mortgage credit problem worse. Where a sustainable modification can be achieved that reduces losses compared to foreclosure, it is only good business to modify the loan. Unfortunately, the crisis has shown that the large-scale modification effort that we need is hampered by contradictory incentives in securitization, inadequate resources, and, far too often, a failure to take action with new approaches to working with borrowers. In 2008, the FDIC needed to implement these principles advocated by Chairman Bair when it was named conservator for IndyMac Federal Bank, which had tens of thousands of delinquent mortgages on its books. The goal of the FDIC's loan modification program was to achieve the best recoveries possible by converting distressed mortgages into performing loans that were affordable and sustainable over the long term. To date, almost 24,000 borrowers have received a modification through this program. The problem nationwide, however, is immense. While some servicers have been effective, much more must be done. Last fall, the FDIC issued a guide to implementing streamlined loan modification programs which we call ``Mod in a Box,'' to spur servicers in applying similar modification programs. Earlier this year, the FDIC applied its practical experience in loan modifications in working with Treasury and other agencies on recommendations for the Home Affordable Modification Program, or HAMP. The FDIC supports HAMP as part of the solution. In addition, we continue to remain open to new approaches that may be necessary to respond to the scope and changing character of the mortgage problem. Our loss sharing agreements for failed banks require either the FDIC mod program or HAMP. Here, too, we have continued to push for innovative responses. For example, we have urged temporary forbearance for borrowers who lose their jobs in the recession. We also will provide loss share incentives to support principal write-downs to maximize net values. The FDIC's experience has provided a number of lessons learned that we would like to share with the committee, and I would like to emphasize one key point: mods make good business sense, and help consumers where they maximize recoveries on troubled loan mortgages. First and foremost, early communication in modification efforts give the best chance of success. Success is much more likely if you contact the borrower early, give a specific mod offer, and complete the mod before an extended delinquency. Effective communication with borrowers requires an effective information technology infrastructure, thorough staff training, and a consumer support or consumer service focus. Second, the more affordable the modification, the lower the redefault rate. Until recently, far too many mods actually increased the monthly payments. No wonder they often failed. We also must address second liens as part of the affordability question. Third, close working relationships with HUD-approved counseling groups improve borrower response and modification success. Nor surprisingly, counselors have much more credibility with borrowers. Fourth, lenders and servicers must be flexible to address new challenges. Problems caused by job loss or deeply underwater loans will require lenders and servicers to employ new approaches. Finally, modification programs should be kept as simple as possible, so that servicers can apply a streamlined approach, and borrowers can understand their options. Throughout the financial crisis, the FDIC has worked closely with consumers and many others to reduce unnecessary foreclosures and the devastating consequences they impose on our communities. Loan modifications, refinancing, temporary forbearance for out-of-work borrowers, and principal reductions are all tools to achieve these goals. We continue to support Treasury's HAMP as a major part of the solution. But we all know that we must remain open to new approaches to respond to growing unemployment and increasing numbers of underwater loans. Above all, the FDIC remains committed to achieving our core mission: protecting depositors and maintaining public confidence in our financial system. Thank you for the opportunity to testify today. And I would be happy to take any questions. [The prepared statement of Mr. Krimminger can be found on page 95 of the appendix.] The Chairman. And finally, Mr. Douglas Roeder. STATEMENT OF DOUGLAS W. ROEDER, SENIOR DEPUTY COMPTROLLER FOR LARGE BANK SUPERVISION, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) Mr. Roeder. Chairman Frank, and members of the committee, on behalf of the Comptroller of the Currency, I appreciate the opportunity to discuss the state of national bank residential mortgage modification efforts. I am the Senior Deputy Comptroller for Large Bank Supervision at the OCC. Many of the large banks supervised by the OCC are major mortgage servicers, so we have direct supervisory experience with the actions they have taken, and the issues that present challenges to sustainable mortgage modifications. In 2008, as part of our oversight, we initiated the mortgage metrics project to gain comprehensive, reliable, and comparable data on the performance of mortgages serviced by national banks. Our mortgage metrics report, which is based on validated data from 34 million loans, assesses the performance of mortgages and various foreclosure mitigation strategies, including detailed information regarding loan modification efforts. It is a valuable tool that helps us focus our supervisory actions based on validated data. For example, in March 2009, in response to high redefault rates on modifications, we directed the largest national bank servicers to review their modifications and policies for future modifications to improve their sustainability. Subsequent to that direction, we have seen both the volume and quality of loan modifications and payment plans improve. During the second quarter, home retention actions--payment plans and loan modifications--increased by more than 20 percent. We are still finalizing our next report, but we expect an even greater increase of nearly 70 percent in the third quarter. Actions taken under the Administration's Home Affordable Modification Program represent a portion of homeowner assistance provided today. National banks also help homeowners through programs that do not require taxpayer-supported incentives. Between January 1, 2008, and June 30, 2009, national banks and thrifts implemented more than 1.8 million home retention actions. Of these, less than 115,000 were made under HAMP. HAMP numbers increased in the summer and fall of 2009, but still represent only a portion of national banks' homeowner assistance efforts. In addition to the increasing volume, the character of home retention actions is changing. More than 78 percent of modifications made in the second quarter of 2009 reduced borrowers' monthly principal and interest payments. As a result, delinquency rates subsequent to modification are improving in more recent vintages. Improving sustainability of modifications and returning borrowers to a positive cash flow reduce eventual foreclosures, provide homeowners an opportunity to keep their homes, and minimize losses to banks and investors. The OCC fully supports servicer participation in HAMP and the Administration's second lien modification program. But regardless of the types of programs implemented, national banks have an obligation to ensure that their regulatory reports and financial statements accurately and fairly represent their financial condition. On Monday, we issued guidance to our examiners stating that we expect banks to follow generally accepted accounting principles, and maintain adequate allowance for loan and lease losses, regardless of whether a loan is modified. Adherence to sound underwriting practices, including adequate documentation of borrower's qualifications for and ability to repay a modified mortgage is also essential. While home retention actions are improving, we hear too many consumer complaints of lost paperwork, bad guidance, long waits, and difficulty in simply contacting servicers. The volume of complaints is unacceptable. We have directed national banks to improve operational efficiency to keep up with volume, improve their internal processes, and answer their customers' concerns accurately and promptly. As a part of our ongoing supervision, our examiners assess banks' complaint resolution processes, and require corrective action for identified deficiencies. At the same time servicers need to improve operations, other factors contribute to the low number of HAMP trial plans being converted to permanent modifications. Servicers report consumers often fail to provide necessary and verifiable documentation of ability and willingness to repay their debt. In some cases, loans are already considered affordable under HAMP's 31 percent debt-to-income guideline. In other cases, borrowers cannot demonstrate a valid financial hardship. Increasingly, the financial condition of many borrowers has deteriorated so far that it is not possible to modify a loan and meet HAMP's net present value requirement. While HAMP and other programs show progress, we must be realistic about the continuing effects of high unemployment and depreciated home values. These macroeconomic factors weigh on the performance of the residential mortgage portfolio, and they drive delinquencies and foreclosures. In these difficult economic conditions, effective loan modifications will be an important tool to help responsible homeowners avoid preventable foreclosures. But they will not help everyone. As a result, we will see further deterioration in loan performance in the months ahead. My written testimony provides additional detail on these issues. Again, I appreciate the opportunity. [The prepared statement of Mr. Roeder can be found on page 119 of the appendix.] The Chairman. All right. We will now take a recess and return. And then, the gentlewoman from California will be presiding, and we will have a chance to ask some questions. I appreciate your staying with us. [recess] Ms. Waters. [presiding] The committee will come to order. Having heard from our witnesses, I will recognize myself for 5 minutes for questions. Mr. Allison, the Honorable Herbert M. Allison, Jr., Assistant Secretary for Financial Stability, U.S. Department of the Treasury, I did have an opportunity to hear your testimony. And I heard you describe the efforts that have been put forth by the Treasury to talk with the servicers, and to encourage them to do better. Mr. Secretary, don't you think that's a waste of time? Mr. Allison. Well, Congresswoman Waters, thank you very much for your question, and for your tremendous interest in this program. And, no, we don't think it's a waste of time. We have seen--first of all, let me say again, as I said in my testimony, we are not satisfied yet with how this program is unfolding. We still have a lot of work to do. The servicers have a lot of work to do. And we are holding them accountable for their performance. I think we have to look at this program in stages. In the early stages, our main emphasis was on bringing in as many people as possible to this program to help keep people in their homes. Now, the real challenge is to migrate them from trial modifications to permanent modifications. And-- Ms. Waters. Excuse me, if I may-- Mr. Allison. Yes, ma'am. Ms. Waters. But you have not been doing that. We have people who have been in trial modifications, and somehow we can't get them into permanent modifications. It doesn't appear to be working very well. Mr. Allison. And to date--you're absolutely right. We are not satisfied with that, either. We have a relatively low number who are in permanent modifications. That's why we brought the servicers-- Ms. Waters. And, again-- Mr. Allison. Yes, ma'am. Ms. Waters. --if I may interrupt-- Mr. Allison. Yes. Ms. Waters. --because, you know, I just have to get this out of my head-- Mr. Allison. Please. Ms. Waters. --you have modifications going on. You have foreclosures going on while people are supposedly in modifications. What are you doing about that? Mr. Allison. Well, actually, as I mentioned, these servicers are prohibited under this program from foreclosing on people-- Ms. Waters. But it's a voluntary program. So if they don't do it, what do you do? Mr. Allison. We can take actions, such as-- Ms. Waters. Such as? Mr. Allison. Such as not paying them, such as clawing back prior payments, such as-- Ms. Waters. You think that $1,000 is going to be a deterrent? Mr. Allison. Well, I think what also helps here, Congresswoman Waters--and we totally agree with you, that we have to take whatever actions we can to assure that they are going to make these modifications permanent. So we have, right now, a program where we're in with the servicers in their offices where they're doing the modifications, to watch exactly what they're doing. We have Freddie Mac, who is auditing this process. We are publishing monthly reports on each servicer's performance. We are going to be expanding those reports to deal with how rapidly they are achieving modifications. We have targets for every one of them, which we outlined again yesterday, to make sure that, where they have all documentation, they will complete those modifications, or at least the decisions on the modifications, by the end of this month. And about a third of these trial modifications are ones where the servicers already have all the documentation. Ms. Waters. Okay. Mr. Allison. So there is no excuse for them not to complete-- Ms. Waters. Well, we appreciate that. However, these foreclosures have been going on for a long time now. Mr. Allison. Yes. Ms. Waters. An awful lot of people have lost their homes. And while we appreciate the stages of--people are out of their homes. Mr. Allison. Yes. Ms. Waters. And so, we are concerned about principal reduction, for example. What have you done about-- Mr. Allison. Yes. Ms. Waters. --principal reduction? Mr. Allison. Well, you know, what is not widely understood--and I think we have to do a better job of communicating this--is that from day one, last March, in our guidance for the servicers, we allow them to reduce principal as the first step in a mortgage modification-- Ms. Waters. But they don't do it. Mr. Allison. Well, we are dealing with that now. And we are talking with the servicers about the need to take a broader view of what is the best solution for each homeowner. And for some, it can be a principal modification at the outset, or a combination of principal modification and interest reduction. So, that's another area that we're going to be looking at, is are the servicers looking broadly enough at what the potential solutions are for each homeowner. Ms. Waters. Quickly, let me just say to FDIC, Mr. Krimminger, we--Barney Frank and I--signed a letter to the Administration, because we were very pleased when you took over IndyMac, and the way that you did loan modifications. And we thought, at that time, somehow it should be organized in ways that you guys should be in charge of the loan modification program. Can you identify for us what you have discovered that really works? Don't you have some ideas about how we could do this better? I hope all of the agencies are talking to each other, and you have had some opportunity for input. But it's not evident. What would you advise? What have you done to make these loan modifications real? What should be done? Mr. Krimminger. Well, thank you, Chairwoman Waters. We appreciate your support on this. We do support Treasury's following up with the HAMP program to make sure that it works. Certainly, there are times--and I think this is clearly one of them, and I think Treasury agrees--for innovations and innovative thinking. We have provided recommendations to Treasury in the development of HAMP. As you may know, the HAMP itself includes a waterfall of options which were really modeled on the ones that we used at IndyMac. I think the lessons that we learned at IndyMac--and are working to implement even more so in HAMP--include things like, early on, getting a dollar amount of the modification into the borrower's hands, making sure that, if possible, you're able to get the information to begin the verification of income immediately, the first payment from the borrower, as well as a signed agreement, so that the borrower knows what their obligations are. We think it's very important to have very continuous and very early contact with the borrowers to really make these programs work. One of the things I think that servicers are learning now that they may not have understood fully is the need for a real refocus of the servicer's whole loss mitigation process away from collections, much more to a consumer-oriented type of process, so that you reach out to borrowers. Also, servicers should be utilizing much more the counseling groups, HUD- approved counselors. We found that to be a very effective tool at IndyMac. Ms. Waters. Let me just interrupt you for a moment. As I understand it, one of the things that you did was you sent out notices to the borrowers, and you showed them in the notice what you could do for them. Mr. Krimminger. Right. Ms. Waters. For example, when some of the servicers--when the notices went out early on, when we first started doing the modifications, it would ask people to come in. ``We want to talk to you.'' And people said, ``Uh-uh, I'm not going in, because I know they want to tell me they're going to take my home.'' But when you send out a notice that says, ``You owe X amount of dollars on your loan, and we have a loan modification program that could help you reduce that loan by some percentage, and this is how it works,'' or something, that you get more people responding. Is that true? Mr. Krimminger. That is absolutely true. We have had a response rate with providing those types of notices to people with an actual dollar amount of the new modification amount of around 70 percent, which is very high for the industry. That was one of the biggest lessons we learned at IndyMac. Ms. Waters. Well, has that been adopted by the Administration, or the banks, or the servicers, or anybody as a way by which to get people coming in to talk to you about a loan modification, and not being afraid that this notice is only simply to take away their homes? Mr. Krimminger. I will have to defer to Secretary Allison, but I believe a number of servicers have begun to adopt that approach. But some have not. Ms. Waters. Well, Mr. Secretary, why haven't you included something like that? Mr. Allison. Well, actually, the servicers are reaching out in a much more effective way today. The-- Ms. Waters. No, I asked something specific. This notice that they learned to use at FDIC that said, ``This is what we can do for you,'' has that been adopted as a practice, as a way of encouraging participation? Mr. Allison. Well, they have sent out more than 900,000 offers to homeowners with the terms, in many cases, indicated. And, therefore, people have an opportunity to see what the benefit for them will be from participating in the modifications. I think that the outreach is going much better than it was. The challenge now, as I mentioned, is to convert these trial modifications, where people are benefitting. We have almost 700,000 people who have received reductions in their monthly mortgages, on average, of $550. So we have all those people benefitting today. The issue now is to convert them to permanent modifications, so those benefits continue. Ms. Waters. Well, you're right. That's a big issue, a huge issue. Mr. Allison. It is. Ms. Waters. And I want to thank you. I have more than used up my time. And I am now going to yield to the gentlelady from-- Mrs. Capito. West Virginia. Ms. Waters. West Virginia, I have been there, I should know that. Ms. Capito? Mrs. Capito. Thank you. I would like to thank the panel. I'm sorry if I missed your testimony, but I have certainly read through most of it. One of the questions that I think is complicating this issue that we haven't really--and I'm interested to see what kind of innovations you're working on, how you're addressing the issue of a second lien. Most people who are in danger of being foreclosed upon have probably run their credit cards up as high as they can to keep the payments going. They have a home equity loan going. They have other issues with their finances. And I know the second lien issue has been complicating these loan modifications. Could Secretary Allison talk about that? Or any of the rest of you? I would be interested to hear your ideas on how we get through that issue. Mr. Allison. Thank you very much, Congresswoman Capito. Yes, that is a real concern. And I know that this week--and perhaps Mr. Roeder could talk to this--the OCC is issuing guidance to the banks on how to deal with the accounting for second liens. And that's a major step, we think, toward coming up with a more comprehensive solution for homeowners who have both a first and second lien. And, obviously, there is going to be a need, too, in cases where one bank may hold the first, and another hold the second, for some type of a clearinghouse, so that banks can find out who has the other mortgage on a particular homeowner's house. Mrs. Capito. Wouldn't they-- Mr. Allison. So that they can come up with a unified solution for that particular homeowner. Mrs. Capito. Is that--is the borrower--when the documents that they're required to bring in to get the permanent modifications, do they bring in the documentations for what other liens they would have on that property? Certainly that would be a part of that. Is that correct? Mr. Allison. I don't know that in all cases they are, at least initially. The requirements for HAMP are to provide information about income, about residence, the hardship affidavit, and so forth. But I think that servicers that are doing a thorough job are inquiring about the overall financial position of the homeowner. Mrs. Capito. Mr. Roeder, did you have a-- Mr. Allison. But-- Mrs. Capito. I'm sorry. Mr. Roeder. Yes, a couple of points dealing with your question. First, on the examiner guidance, we sent the guidance to examiners. We didn't send it to the industry. The reason is, with this modification effort being so significant, we many times will go to our examiners with guidance. We have asked the examiners to share it with their banks. But it's not a broad distribution. We're dealing with a fairly focused group of institutions. So, it was examiner guidance, not banker guidance. But we did share it with the bankers, so they are aware of our expectations. And that guidance was simply to remind and clarify for our examiners that GAAP and existing supervisory policies should be followed in working with bankers to ensure that the accounting and the asset quality assessments being done are done in accordance with safe and sound banking. So that's one piece. On the second lien issue, one of the things we don't hear from the servicers is that there is an inhibition to modify the first mortgage when there is an existence of a second. Early on in the crisis, that was more of a prevalent comment. We don't hear that from the servicers directly. The focus in most cases is getting that first mortgage modification done, and not worrying about the second. To Mr. Allison's point, there is a complication here. Sometimes the servicer who is doing the mod on the first, and the bank that's holding the second may be different parties. And--unless it's surfaced by the borrower or some other means-- there is not a good mechanism to clearly know that servicer ``A'' has a mortgage and servicer ``B'' has a second lien, and they should hook up. What we have asked examiners to be mindful of is that everything they should do--if they're holding that second lien, and they're not in a position where the bank is also the first lien holder doing the mod, they have to do their best in their process to ensure that they have done diligence to seek the existence of that first lien, and appropriately account for that second lien and the risk in that, assuming that there was a mod done on the first. If there is not a mod done, they still have the responsibility to make sure that the accounting and the reserve and provisioning is accurate, given potential risk in that portfolio, alone. We don't see the servicers complaining that they're inhibited to do a first when there is an existence of a second. Ms. Waters. Thank you very much. Mr. Green? Mr. Green. Thank you, Madam Chairwoman. I thank the witnesses for appearing. Friends, I sincerely believe that Dr. King was right when he said, ``knowing that the arc of the moral universe is long but it bends toward justice.'' And I believe that President Kennedy was right when he said, ``here on earth, God's work must truly be our own.'' You three fine men, in my opinion, are doing God's work today. And, as such, you have an opportunity to make a difference in the lives of people that you will never meet and greet. So, I start by asking you this: Are you familiar with the term, disparate impact? You are. And I will ask you, Mr. Allison, just for the record, tell us what this term means. Mr. Allison. It impacts more on some segments of society than on others, for example. Mr. Green. All right. That's an acceptable definition, I believe. Now, with reference to the foreclosure crisis, is there a disparate impact? Mr. Allison. Yes, sir. There is. Mr. Green. Tell us the sector or segment of society that is experiencing the disparate impact, please. Mr. Allison. People who are in lower-income communities, I think, have been more devastated by this crisis, even than the average American. Mr. Green. Define for me who these people are who are most likely to be in the lower-income communities. Mr. Allison. Most often they are minorities, African American, Latinos-- Mr. Green. Define minorities, please. Say again. Mr. Allison. African Americans and Latinos, for example. Mr. Green. Hold your point for just a moment. Mr. Allison. Yes, sir. Mr. Green. Let's go to our next person who is going to bend the arc of the moral universe toward justice. Do you agree with what Mr. Allison said? Mr. Krimminger. Absolutely. There is clearly evidence that there is a disparate impact upon lower-income and minority communities. Mr. Green. Define minorities. Mr. Krimminger. I would define it in terms of ethnic minorities, such as African Americans. Mr. Green. Define ethnic minorities. Mr. Krimminger. African Americans, Latinos, and other ethnic minorities, in particular. Mr. Green. Let's go to our next forger of justice. Do you agree with your two colleagues? Mr. Roeder. Yes, I agree there is a problem. Mr. Green. Now, assuming that we do 100 percent of what has been called to our attention, that we are as efficacious as humanly possible, will this negate the disparate impact that we are discussing currently? Mr. Allison. I don't believe that these programs, by themselves, are going to negate the disparate impact on those communities. Mr. Green. Thank you. Mr. Krimminger. No, because when we were doing work at IndyMac, I have seen communities throughout southern California that are already dramatically impacted. So, even what we do in the future won't affect those who have already been affected. Mr. Green. Thank you. Mr. Roeder. And I would agree with that. There is much more work that needs to be done. We are not anywhere near the solution. Mr. Green. If we are going to bend the arc of the moral universe toward justice, and if, here on earth, God's work must truly be our own, would you agree that we must and should do more to negate the negative disparate impact, the invidious impact that is being felt on some communities? Do you agree that we should do more? Mr. Allison. I fully agree. Mr. Green. Yes, sir? Mr. Krimminger. I would concur. Mr. Green. Yes, sir? Mr. Roeder. And I agree. Mr. Green. Do you agree that a way can be forged if we have the will to do it, that a way can be found to negate this disparate impact? Mr. Allison? Mr. Allison. Yes, sir, I do. Mr. Krimminger. I do, yes. There are difficulties, but there are ways to overcome difficulties. Mr. Green. Mr.-- Mr. Roeder. And I agree. There are challenges, but you have to keep going after it. Mr. Green. Now, the ultimate question becomes this. Given that we acknowledge the condition, if we use a scientific approach, given that we acknowledge the condition, and given that we know that a solution can be forged, what are we going to do about it? What will we do, beyond using the rising tide raising all boats theory, which we find fatally flawed, as it relates to some who don't have boats, and who have boats that are not seaworthy? What will we do? Mr. Allison? Mr. Allison. Congressman Green, I think, first of all, we have to recognize that this is a real problem. Mr. Green. Yes, sir. Mr. Allison. And we have to focus on it. Mr. Green. Yes, sir. Mr. Allison. And devote ingenuity, and I think-- Mr. Green. Do this for me. Mr. Allison. Yes, sir. Mr. Green. My time is almost--listen, you're excellent, and I appreciate what you have said, all three of you. But when you say ``we,'' define we. You said, ``We have to focus.'' Not putting you on the spot, but we need, for the record, to define these things. Who is the ``we'' that should focus, please? Mr. Allison. Well, Congressman Green, I would first start with the American people as a whole. Also, there are government representatives and people in the Administration, for example, who are working very hard to make sure that, with this program, we are reaching people who need it the most. And that's why we're working with State and local officials, and also community groups, as well as counselors, to reach the areas most affected. And many of those, of course, are minority communities. Mr. Green. My time has expired, and I thank you, Madam Chairwoman. I will not be impolite and encroach on the time. Thank you. Ms. Waters. Thank you very much. Mr. Cleaver? Mr. Cleaver. Thank you, Madam Chairwoman. To Mr. Allison and Mr. Krimminger, I don't think either one of you are the-- none of the people at the table are the villains here. I think you represent agencies that are probably not fulfilling their responsibilities. Do you believe that the mortgage companies and the banks are doing the best they can? Mr. Allison. Congressman Cleaver, I think the banks have a long way to go to get up to their full potential to help alleviate this problem. They have been making progress, to be fair. We have people from Treasury and from Fannie Mae in the offices of the top seven servicers right now. They are stationed there, working with them, finding the facts about why this program isn't working even better. We are not satisfied, by any means. They are on notice that we are not. We intend to publish more and more information, as fast as we can, reliable information about their performance, so the public and the Congress can judge for themselves. Mr. Cleaver. Well, your-- Mr. Allison. Much more has to be done. Mr. Cleaver. Well, yes. We have, legislatively and administratively, forced them to work with homeowners who are in trouble. We forced the lion to lie with the lamb. But if you look closely, when the lion gets up, the lamb is missing. And we are saying, ``Here, kitty, kitty.'' What I think needs to happen is something needs to happen to the lion. I wrote down a quote one of you said, ``We are reaching out to the banks.'' You are reaching out--most of us are outraged. If a homeowner does not comply with the requirements of the mortgage company, they lose their home. If the mortgage companies don't comply with the requirements of Congress, what do they lose? Any of you? Mr. Allison. If I may try to respond to your question, Congressman Cleaver, first of all, we do have some financial remedies that we can apply to these servicers. One is we can deny them payments. We can claw back prior payments if they are not seen to be following the rules of the program. I think what's extremely important is to shine a light on the performance of each one of these banks, and that's exactly what we are doing. I think that one has to also recognize that the servicers, until this year, were in the business of collecting payments and foreclosing on people. They are having to change their entire business model. They have to engage with homeowners. They have to help homeowners. This has required them to change their systems, to retrain their people, to hire more people. They have moved in that direction. They have to do much more. And we are constantly pushing them in every way possible to do the best possible job. Mr. Cleaver. Yes, but maybe the system of pushing is not working. I have twin boys. And I found out early on that if I spanked one of them when they were doing something, the other would straighten up. The other one--you know, it had an impact on the other. I just think in this situation, we haven't spanked anybody. So I think they have come to the conclusion that spankings are not on the agenda. I don't miss hearings. I am here. We are here. Mr. Allison. Yes. Mr. Cleaver. I have been to a lot of these hearings. We have asked a lot of these questions over and over and over again. We have had that table packed with witnesses, and witnesses sitting behind them. We go through this over and over again. And I have to tell you that, as we move through this holiday season, this will be the second holiday season that I have been asking these questions, that we have been asking these questions. Nothing has happened. Why can't something happen to these lending institutions who took taxpayer money? They took our money. And they are--and we are talking about, well, we are--you know, we're issuing guidance, and we are reaching out to them, we are giving them some Coke and some water, and why can't we do something to one of them? And I think everybody--excuse me. You know, I was approached last night by somebody who is about to lose his business because the bank is now requiring more of him. And I am frustrated. And I get even more frustrated because you guys can't say, ``The next time we find somebody who is not doing their job, we're going to come back and recommend that the money be taken from them, the TARP money.'' Thank you, Madam Chairwoman. Mr. Allison. May I answer you, Congressman Cleaver? Let me talk very straight about this. We have worked with them to try to get them up-to-speed. We have Freddie Mac auditing their performance. Are they following the rules? Are people being denied a mortgage modification who should get one under the plan? And, as we move forward, we are putting them on notice. And then we will exact penalties of them, and be publicly outspoken about who is performing well and who is not. And you're absolutely right. We have to--we are going to move to the point where we are disciplining the banks if they don't perform better than they are today. While they are getting better, it's not nearly good enough, and it's not fast enough. We have given them clear targets for how many mods they have to make permanent by the end of this year. And in every case where they have existing documentation, there is no excuse for not getting that mod done by the end of the year--at least from their standpoint, deciding whether to make the mod or not. Ms. Waters. Mr. Scott? Mr. Scott. Yes. Let me ask a couple of questions. In the program, why can't we stop foreclosure proceedings while the modification is going on? Mr. Allison. Congressman Scott, the way the program works today is that the servicers are prohibited from foreclosing during the process. And we are enforcing that, and we are auditing that, to make sure that they do comply. The question you're asking, though, I think goes beyond that, which is, why don't we simply stop the entire foreclosure process? We have formed a group, a council, composed of foreclosure attorneys, as well as government officials and others with an interest in this problem, to try to see what more we can do to help avoid people being frightened by a foreclosure process underway, at the same time that they're being considered for a modification. And there is no doubt that this is confusing people, and scaring them unnecessarily. So, I think we have to find a better way of dealing with the problem that you are rightly pointing out. Mr. Scott. To be clear now, my information says to me that the foreclosure proceedings are continuing to go ahead, even while the modification is going forward. That's not an accurate statement? Ms. Waters. It is. Mr. Allison. I think that is the case-- Mr. Scott. Yes. Mr. Allison. --that there may be a procedure underway at the same time as a person is being considered for a mod. That is the issue that we need to engage further about. Right? And to see whether more can be done to provide assurance to the homeowner that the first priority is to modify that loan. Mr. Scott. All right. Here are the major complaints with the program. First of all, it includes, one, a lack of transparency about the criterion, the net present value test used to evaluate borrowers' eligibility, the lack of capacity of servicers to process loan modification requests on a timely basis. There is nobody there to respond in the person of a live person. There is no--in this most critical, this most essential of needs, a family going through the process of losing their home, even at the extent of calling, they get a computer. And the people most affected are the people at the middle to lower economic--and lower economic extreme. And they get a recording, no live person, and in cases where the foreclosure action is taking place while the homeowner is going through the HAMP approval process. So, Mr. Allison, I think we have to come to the conclusion that that is an area that we need to address, that we need to address that area in at least stopping the whole foreclosure procedure until we're going through. Does that require legislative action on our part? Is it something that you all can do? This program, in order to be effective, should do that. Now, my other question. Another area. We use the 31 percent. Now, how did we arrive at 31 percent? Thirty-one percent of a monthly income is the criterion for this program. In these tough economic times of soaring unemployment where, in fact, that monthly income, in many cases, goes to zero, is it practical not to be able to have an adjustment factor in there, where we can lower that 31 percent threshold? Mr. Allison. Thank you, sir. Thank you for those questions, Congressman Scott. Let me try to go down the list, one by one. In terms of lack of transparency of the program, we are making more information every available every month in our monthly reports. We are also publishing information on makinghomeaffordable.gov. With regard to the NPV tests, we intend to make the NPV model available to counselors in the first quarter of next year, and--which is coming up very soon, so that they can see how the model works, and work with homeowners to see whether they would qualify. Now, this is a complex issue, and we want to make sure that people are properly acquainted with how to use the model. But we intend to make that model available to them. And I think that will be a big step forward. In terms of the capacity of the servicers, we are looking at the relative capacities of the different servicers, comparing them, seeing who is doing the better jobs, what their capacity is, how many people they have devoted per eligible mortgagee, so that we can work with them on best practices to ramp up their capacity, and to have standards for what their capacity needs to be. In terms of no live person answering the phone, I think that has been a real problem. People can go to makinghomeaffordable.gov, they can look at our hotline. They can call our hotline if they need to get a person on the phone to work with them. And we can work with the servicers to make sure that they are being heard. In terms of facilitating--of foreclosure actions taking place while the person is still up in the air about whether they're going to have a mod or not, as I mentioned before, we have convened a group to work on that issue. Now, foreclosures can't take place before people have a decision about their MHA modification. Nonetheless, they're concerned that the process may be going forward while they're being considered. That is the issue where we want to work with servicers, and see what more can be done to provide more assurance to people that they are going to be considered. And lastly, and very quickly, on the 31 percent debt to income ratio, and the fact that many people now are unemployed, they don't have income, the program today provides that if they have at least 9 months of unemployment insurance coming their way, they can qualify for a mod if all the other qualifications are met. Nonetheless, as I said in my testimony, there are many people who won't be able to qualify because they have lost their jobs. So what can we do, and what can the servicers do for them? That's something we are looking at now, and we are exploring different alternatives, such as the Pennsylvania model and others, to see whether there is more that might be done. Some of this might require legislation, however. Mr. Scott. All right. Thank you. Ms. Waters. Thank you very much. I request unanimous consent for 1 minute for a closing on this, because I think it's very important that you gentlemen at the table understand that we are very unhappy. Our constituents are in pain. Our communities are at great risk. Treasury, you're just too slow. You talk about all of the things that you are going to do, how you are going to improve. We have been listening too long. FDIC, we are appreciative for what you have shown can be done. I don't know who is talking to whom, but it appears to me that some of the advice that the FDIC should be giving to others who are involved in trying to deal with this foreclosure issue is advice that needs to be shared. It doesn't appear that it's being looked at. And for OCC, I don't get a real sense of what you do. You do advisories. You look at what has or has not been done, and then you issue information that says what should be done, or what could be done. This is not good enough. And we did not hear a lot--do you know about the legislation tomorrow that we have, H.R. 4173, the Wall Street Reform and Consumer Protection Act? Do you know about what we have in there for the unemployed? Do you support that, Treasury, Mr. Allison? Mr. Allison. Yes, ma'am. In fact, we are working closely with staffs of the various leadership Members in the Congress on that legislation and others. Ms. Waters. What about you, Mr. Krimminger, do you support that-- Mr. Krimminger. I-- Ms. Waters. --legislation that deals with the--that portion that deals with the unemployed? Mr. Krimminger. I have to apologize to you, Madam Chairwoman. I will have to get back to you on that, because I am not familiar with that specific provision of the bill. Ms. Waters. Mr. Roeder? Mr. Roeder. Nor am I familiar with that bill, so I cannot comment. Ms. Waters. Okay. Well, this is--we are taking a strong look at what we do for people with emergency medical problems, the unemployed. But what we want to hear from you is what you are going to do to penalize. We want some specifics. We want to know what you are doing to encourage face-to-face involvement with the borrowers and the servicers. We want to know what you are doing about principal write-down. We really do need some creative proposals. We did not hear that. What we do hear is a lot of talk about how you are going to encourage the banks. The banks thumb their noses at all of us. They don't care about what you're saying. We bailed them out, and they turned around and reduced the credit limits, increased the interest rates, and said, ``We will pay you your money back, don't tell us what to do about our bonuses and our payment practices.'' And so, we are not encouraged at all when you talk about working with them and the servicers to make them do the right thing. Having said that, the Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses, and to place their responses in the record. We thank you, and this hearing is adjourned. [Whereupon, at 1:59 p.m., the hearing was adjourned.] A P P E N D I X December 8, 2009 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]