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FORECLOSURE PREVENTION AND INTERVENTION:
THE IMPORTANCE OF LOSS MITIGATION
STRATEGIES IN KEEPING FAMILIES
IN THEIR HOMES

FIELD HEARING
BEFORE THE

SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE

COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION

NOVEMBER 30, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–81

(
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON

40–433 PDF

:

2008

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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
LUIS V. GUTIERREZ, Illinois
´
NYDIA M. VELAZQUEZ, New York
MELVIN L. WATT, North Carolina
GARY L. ACKERMAN, New York
JULIA CARSON, Indiana
BRAD SHERMAN, California
GREGORY W. MEEKS, New York
DENNIS MOORE, Kansas
MICHAEL E. CAPUANO, Massachusetts
´
RUBEN HINOJOSA, Texas
WM. LACY CLAY, Missouri
CAROLYN MCCARTHY, New York
JOE BACA, California
STEPHEN F. LYNCH, Massachusetts
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
AL GREEN, Texas
EMANUEL CLEAVER, Missouri
MELISSA L. BEAN, Illinois
GWEN MOORE, Wisconsin,
LINCOLN DAVIS, Tennessee
ALBIO SIRES, New Jersey
PAUL W. HODES, New Hampshire
KEITH ELLISON, Minnesota
RON KLEIN, Florida
TIM MAHONEY, Florida
CHARLES A. WILSON, Ohio
ED PERLMUTTER, Colorado
CHRISTOPHER S. MURPHY, Connecticut
JOE DONNELLY, Indiana
ROBERT WEXLER, Florida
JIM MARSHALL, Georgia
DAN BOREN, Oklahoma

SPENCER BACHUS, Alabama
RICHARD H. BAKER, Louisiana
DEBORAH PRYCE, Ohio
MICHAEL N. CASTLE, Delaware
PETER T. KING, New York
EDWARD R. ROYCE, California
FRANK D. LUCAS, Oklahoma
RON PAUL, Texas
STEVEN C. LATOURETTE, Ohio
DONALD A. MANZULLO, Illinois
WALTER B. JONES, JR., North Carolina
JUDY BIGGERT, Illinois
CHRISTOPHER SHAYS, Connecticut
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
TOM FEENEY, Florida
JEB HENSARLING, Texas
SCOTT GARRETT, New Jersey
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
JIM GERLACH, Pennsylvania
STEVAN PEARCE, New Mexico
RANDY NEUGEBAUER, Texas
TOM PRICE, Georgia
GEOFF DAVIS, Kentucky
PATRICK T. MCHENRY, North Carolina
JOHN CAMPBELL, California
ADAM PUTNAM, Florida
MICHELE BACHMANN, Minnesota
PETER J. ROSKAM, Illinois
THADDEUS G. McCOTTER, Michigan
KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel

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SUBCOMMITTEE

ON

HOUSING

AND

COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman
´
NYDIA M. VELAZQUEZ, New York
JULIA CARSON, Indiana
STEPHEN F. LYNCH, Massachusetts
EMANUEL CLEAVER, Missouri
AL GREEN, Texas
WM. LACY CLAY, Missouri
CAROLYN B. MALONEY, New York
GWEN MOORE, Wisconsin,
ALBIO SIRES, New Jersey
KEITH ELLISON, Minnesota
CHARLES A. WILSON, Ohio
CHRISTOPHER S. MURPHY, Connecticut
JOE DONNELLY, Indiana
BARNEY FRANK, Massachusetts

SHELLEY MOORE CAPITO, West Virginia
STEVAN PEARCE, New Mexico
PETER T. KING, New York
JUDY BIGGERT, Illinois
CHRISTOPHER SHAYS, Connecticut
GARY G. MILLER, California
SCOTT GARRETT, New Jersey
RANDY NEUGEBAUER, Texas
GEOFF DAVIS, Kentucky
JOHN CAMPBELL, California
THADDEUS G. McCOTTER, Michigan
KEVIN McCARTHY, California

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CONTENTS
Page

Hearing held on:
November 30, 2007 ...........................................................................................
Appendix:
November 30, 2007 ...........................................................................................

1
91

WITNESSES
FRIDAY, NOVEMBER 30, 2007
Albon, Michaela, Senior Vice President and General Counsel, Home Loans
Division, Washington Mutual .............................................................................
Arnold, LeFrancis, Vice Chair, Affordable Housing Committee, California Association of Realtors .............................................................................................
Bates, Joseph C., Director, Santa Ana Homeownership Center, U.S. Department of Housing and Urban Development .........................................................
Blackwell, Brad, Executive Vice President, Wells Fargo Home Mortgage .........
Burnie, Evalyn, Leader, Los Angeles ACORN, accompanied by Richard Castro, NeighborWorks America ...............................................................................
Cho, Hee Suk, Homeowner, Camarillo, California, accompanied by Joshua
Byung An, Korean Churches for Community Development, serving as a
translator ..............................................................................................................
Clark, Yolanda, President-Elect, Multicultural Real Estate Alliance for Urban
Change ..................................................................................................................
Deutsch, Tom, Deputy Executive Director, American Securitization Forum .....
Frisbee, Margaret, Pacific District Director, NeighborWorks America ...............
Heedly, William, Homeowner, Carson, California ................................................
Herrera, Pastor, Director, Department of Consumer Affairs, Los Angeles
County ...................................................................................................................
Krimminger, Michael H., Chairman’s Special Advisor for Policy, Federal Deposit Insurance Corporation ................................................................................
Lee, Karen, Homeowner, Los Angeles, CA ............................................................
Leonard, Paul, California Office Director, Center for Responsible Lending .......
Peters, Heather, Deputy Secretary for Business Regulation, Department of
Business, Transportation, and Housing, State of California ............................
Rogan, Sean, Director, Department of Housing and Community Development,
City of Oakland, California .................................................................................
Samuels, Sandor, Executive Managing Director, Countrywide Financial Corporation .................................................................................................................
Smith, Ed, Jr., Vice President, California Association of Mortgage Brokers .....
Thomas, Anna M., Homeowner, San Pedro, CA ...................................................
Twomey, Tara, Of Counsel, National Consumer Law Center ..............................
Villaraigosa, Hon. Antonio R., Mayor of Los Angeles, California ........................
Young, Hon. Anthony, City Council President Pro Tempore, San Diego, California .....................................................................................................................

37
72
15
39
79
68
74
41
78
67
21
17
44
45
19
22
35
70
44
76
12
10

APPENDIX
Prepared statements:
Lantos, Hon. Tom .............................................................................................
Albon, Michaela ................................................................................................
Bates, Joseph C. ...............................................................................................
Blackwell, Brad .................................................................................................
Deutsch, Tom ....................................................................................................
Frisbee, Margaret .............................................................................................
Herrera, Pastor .................................................................................................

92
94
99
103
108
113
121

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VI
Page

Prepared statements—Continued
Krimminger, Michael H. ..................................................................................
Lee, Karen .........................................................................................................
Samuels, Sandor ...............................................................................................
Smith, Ed, Jr. ...................................................................................................
Twomey, Tara ...................................................................................................
Villaraigosa, Hon. Antonio R. ..........................................................................
Young, Hon. Anthony .......................................................................................
ADDITIONAL MATERIAL SUBMITTED

FOR THE

RECORD

Waters, Hon. Maxine:
Statement of the NAACP .................................................................................

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FORECLOSURE PREVENTION AND
INTERVENTION: THE IMPORTANCE
OF LOSS MITIGATION STRATEGIES
IN KEEPING FAMILIES
IN THEIR HOMES
Friday, November 30, 2007,

U.S. HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON HOUSING AND
COMMUNITY OPPORTUNITY,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., at the
California Science Center, 700 State Drive, Los Angeles, California,
Hon. Maxine Waters [chairwoman of the subcommittee] presiding.
Members present: Representatives Waters and Green.
Also present: Representatives Napolitano, Richardson, Sanchez,
and Watson.
Chairwoman WATERS. This hearing of the Subcommittee on
Housing and Community Opportunity will come to order.
Good morning, ladies and gentlemen. I would like to start by
thanking the California Science Center for once again allowing us
to use this wonderful space for our subcommittee hearing, as they
did last year.
In addition to the hearing, you all should be aware that resources are being made available next door to assist homeowners
who are in danger of foreclosure. Please stop by if you or somebody
you know is facing problems making mortgage payments, and the
good folks from Neighborhood Housing Services and others can
work with you.
I would also like to thank Congressman Al Green, from Texas—
one of our most dedicated subcommittee members—for traveling all
the way from Houston to join us today.
And, finally, without objection, Representative Grace Napolitano,
Representative Laura Richardson, and we will soon be joined by
Representative Linda Sanchez, will all be considered members of
the subcommittee for this hearing, and their opening statements
will be made a part of the record. I would like to thank them for
participating today. They are not members of the subcommittee,
but they care so much about this issue that they wanted very much
to be here and they are here. Thank you very, very much.
Before we hear from our panels, I would like to explain briefly
why we are having this hearing and what I hope to accomplish
today. Hopefully, this will help the witnesses focus on their re(1)

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2
marks and responses to members’ questions. First, with respect to
the ‘‘why’’ of holding this hearing, it would be arguably derelict of
this subcommittee not to hold hearings regarding the subprime
mortgage market and home foreclosure crisis.
This issue is not only the biggest story in housing, in the whole
housing world that this subcommittee operates in daily, it is currently the biggest economic story in the Nation, and perhaps the
world. A field hearing in California is warranted, given that our
State lies at the epicenter of the foreclosure wave. California’s third
quarter foreclosure rate of 1 filing for every 88 households ranks
second highest among all States and reflects a near quadrupling of
the number reported for the same period last year; 8 of the top 20
cities in foreclosure filings are in California.
Clearly, then, there is no better place to gauge the response to
date by public and private stakeholders than here. And the stakes
could not be higher. Having watched the turmoil in the mortgage
markets unfold over the past year, it has struck me that two assessments made at various points by key prognosticators inside
and outside government have yet to hold true.
The first such claim is anything along the lines of, ‘‘This foreclosure crisis isn’t as big as we thought it was, and we appear to
have our arms around the magnitude of the problem.’’ The second
quote is, ‘‘This problem in the housing finance sector is unlikely to
have tremendous impact on the rest of the economy and threaten
growth.’’ Rather, at every step the scope of the crisis has proven
to be larger than originally anticipated, including by the Department of Treasury and the Federal Reserve. And we have not yet
reached the crest of the wave, as millions of adjustable rate mortgages are scheduled to reset over the next 12 months.
Similarly, initial assurances that the problems of the mortgage
market are unlikely to spill over into the rest of the domestic and
global economy now seem wildly overoptimistic. Many of the Nation’s largest financial institutions find themselves heavily invested
in mortgage-backed securities of uncertain and declining value with
extraordinary ripple effects being felt across the global financial
markets.
Former Treasury Secretary Lawrence Summers now puts the
chances of avoiding recession at less than 50 percent, unless decisive action is taken. I take this warning very seriously, as I witnessed how the S&L crisis of the late 1980’s contributed directly
to the recession of the early 1990’s, which in turn brought a 20 percent drop in California housing prices during my first 6 years in
Congress.
I would note, further, that the financial services industry now
makes up nearly twice the share of gross domestic product compared to then, meaning an unredressed crisis in that sector is far
less likely to be segregated from overall economic wellbeing today.
So the magnitude and urgency of the crisis clearly merits a hearing.
Let me proceed, then, to my second point, namely what we are
trying to accomplish with this hearing. As a senior member of the
Financial Services Committee, I have obviously been involved in
the committee’s many activities around the subprime crisis spearheaded by a very able chairman from Massachusetts, Chairman

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3
Barney Frank. However, the focus of many of our hearings and legislative activities has been on preventing the next crisis.
The House recently passed H.R. 3915, the Mortgage Reform and
Anti-Predatory Lending Act of 2007, which puts in place new Federal standards for loans designed to prevent ongoing abuses in the
subprime market. While I remain concerned that the preemption
provisions of this bill may inhibit States from taking on the pioneering enforcement role they assumed in the current crisis, there
is no question that H.R. 3915 is a significant piece of prospective
legislation.
Today, though, I want to focus on the effectiveness of what is
being done to address this crisis right now. To a large extent, such
measures by Federal regulators and the major private sector stakeholders have had to take place under existing legal authority,
though we in Congress have certainly encouraged them to interpret
the authority so as to take bold rather than timid steps. This has
included, for example, House passage of my FHA modernization
bill, H.R. 1852, designed in part to make FHA insurance more
available to assist currently distressed homeowners.
Even before Senate and presidential action on this bill, HUD
heard the signal of congressional intent and created the FHA Secure Program under its current authority to give the FHA a more
central role in the current crisis. Simply put, the overarching question of the day is, how is it going? In other words, what has been
the impact on the ground to actual borrowers of the various loss
mitigation initiatives that we have heard about in Washington?
This, of course, includes such national initiatives as FHA Secure
and HOPE NOW Alliance between major mortgage servicers—and
NeighborWorks—and State efforts like the agreement announced
by Governor Schwarzenegger a few days ago. I am especially focused on the rate at which distressed borrowers are receiving timely, effective loan modifications from their servicers.
I have said from the beginning of the crisis that the mortgage
servicers are the key to any solution. They are literally where the
rubber hits the road in a system, where a homeowner’s actual
mortgage may be sitting in third tranche of a security held by an
investor 6,000 miles away.
I fully recognize that servicers face constraints on their actions,
most obviously the pooling and servicing agreements that they
have with their investors. They are under a fiduciary obligation not
to just give away the store, and efforts to help a homeowner and
avoid foreclosure, but not all homeowners are similarly situated in
terms of the appropriate loss mitigation strategies.
At the same time, however, I am concerned about reports that
servicers have not been moving as quickly as they might under
their current authority. Indeed, I fear we may have lost critical
time as servicers and the Treasury Department and the Federal
Reserve have only recently begun to concede that a plodding loanby-loan renegotiating and reunderwriting process simply won’t get
the job done fast enough to stem this crisis.
I understand that Secretary Paulson yesterday met with a number of the servicers represented here today to discuss this very
issue, and I am interested to hear more about that meeting than

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4
may have been reported in the press today. To be clear, I enter this
hearing with an open mind.
I hope that servicers will tell me and the members of this subcommittee about any further obstacles to decisive action that this
subcommittee might help with. And, further, that the reports we
hear today from consumer groups, regulators, and homeowner witnesses, indicate things are moving in California at an appropriately
rapid pace. But I would be less than honest if I did not share up
front my concern that they are not.
Even more distressing are reports that servicers profit from foreclosure fees far more than I think many of us suspected, adding to
my eagerness to confirm that their actions underground in California are consistent with their reports to the full committee when
it comes to engaging in effective loss mitigation strategies.
Today’s hearing, in turn, informed the subcommittee’s legislative
work in regard to mortgage servicers and loss mitigation. Indeed,
during the markup of H.R. 3837, the Escrow, Appraisal, and Mortgage Servicing Improvement Act, Subcommittee Chairman Kanjorski and I agreed to focus on the question of whether some duty
for servicers to engage in loss mitigation activities is called for and
given current circumstances.
With that, I would like to thank all of our elected officials who
may be in the audience today. I know that Assemblyman Mike
Davis is with us today. And I know that he is working on this very
issue and will be having a hearing that is coming up, I believe, on
December 8th. So we will share that information with our audience
before we leave here today.
With that, I would like to recognize Mr. Green, the Congressman
from Houston, for his opening statement.
Mr. GREEN. Thank you, Madam Chairwoman. I especially want
to thank you for convening this most timely hearing, and I would
like to, if I may, just thank you for what you have been able to do
in just a few months as Chair of the Housing Subcommittee. In a
very short period of time, Madam Chairwoman, I am grateful that
you have taken on some of the pressing issues, including issues of
2/28s and 3/27s, issues that would allow persons to get fixed financing for 2 years, and then variable financing for 28 years, 3 years
in the 3/27s and 27 years of variable financing.
I am mentioning these things because I want you to understand
that I am appreciative that you have made a difference in the lives
of people by virtue of being chair of this subcommittee. You have
truly been the harbinger of help for the helpless and a purveyor of
power to the powerless.
And, friends, I think that even in subcommittee hearings like
this it is appropriate to give an expression of appreciation to a
Chair who is working tirelessly to make life better for the least, the
last, the lost, and those who are trying to fulfill the American
dream.
So I come today, and I am honored to be here, with an understanding that Dr. Martin Luther King imparted to us. He reminded
us that life is an inescapable network of mutuality, tied to a single
garment of destiny. What impacts one directly impacts all indirectly.

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5
And that is why this subprime crisis is one that everyone must
be concerned with. Those who say, ‘‘Let them suffer. They made
their beds hard, let them lay, let them lie, let them stay,’’ friends,
they are mistaken. This problem is not one that will be localized.
There are many prime homes in areas where subprime loans have
been made.
And when the for sale signs are up, the value of property goes
down. When the value of property goes down, taxes are smaller.
When property taxes are smaller, schools, roads, and infrastructure
don’t get the repair that is needed. So you cannot conclude that because I did not get a subprime loan that may go into default that
I don’t have a problem. This is an American problem, and we all
must be involved in the solution to the problem, especially the
Housing Subcommittee and the United States Congress.
If the President decides that he is going to call together some
business persons and try to work out a system, a solution, I think
that is wonderful. If the courts rule appropriately in certain cases,
the Judiciary Branch of government, I think that is wonderful. But
I think people expect the Housing Subcommittee to do what we are
doing today, and that is to hold hearings to try to find out how we
can be of assistance to homeowners across the length and breadth
of this country.
And when we do this, we are interested in not knowing that we
have some catchy slogan, like ‘‘Hope Now,’’ which is a good one,
and I don’t want to demean the process, but I understand that people really want help now. HOPE NOW is a great way to impart a
desire for people to continue, but the people that I talked to, they
want help now. And they understand that the details are where
you either are going to have more hope that will lead to help or
you are going to find that you are stalled in a process that does
not lend itself to your getting the help that you need.
Again, this is not something that is isolated to any community
or any given neighborhood. It is something that is happening
across the length and breadth of this country.
I also want to acknowledge and appreciate very much what is
being said by members of the Administration with reference to
their desire to be of help, but I do wonder if they are aware that
we have already passed legislation through this subcommittee to do
much of what they are saying they want Congress to do. And it
may be time for people to become truthful and say they want certain aspects of Congress to act that have not acted, because this
subcommittee has been moving tirelessly to make sure that homeowners will have the opportunity to keep their homes.
So I look forward to hearing from the witnesses who are here
today, and I assure you that I will have some questions that I
think will be of interest to them and to me and to the constituents
that I serve, given that we have about 2.5 million adjustable mortgages that will adjust by the end of next year, and that is about
$600 billion. That is going to have a tremendous impact.
The U.S. Conference of Mayors has indicated that at least 1.4
million homes will enter into foreclosure next year. That is going
to have a significant impact. The size of the problem is large, but
it is one that we can manage. We only have to decide that we are
willing to work together. This chairwoman has been willing to work

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6
with whomever will work with her, and I join her, and I look forward to hearing from the witnesses today.
Thank you, Madam Chairwoman, for your time.
Chairwoman WATERS. Thank you very much. Thank you.
Next, I would like to recognize one of my colleagues that I work
very closely with—and we are so lucky to have such a wonderful
group of elected officials in this overall area—Grace Napolitano
representing the 38th Congressional District.
Mrs. NAPOLITANO. Thank you, Madam Chairwoman. I will keep
my remarks short and brief. But I echo Congressman Green’s sentiments about Chairwoman Waters, because any time I have an
issue on public service or on fairness and justice, I know I can call
her and she is sitting right there next to me trying to fight for the
ones who do not have a voice.
This is something that affects the economy of the United States.
It affects the heart of our people. People have a home, they have
roots, they have the ability to educate their children, they have the
ability to own businesses. This is economy. This is the future of
what we have been striving for, and to lose it for many will be catastrophic.
And we want to ensure that anybody who has an issue can understand that this Chair and this subcommittee has been putting
forth the propositions, and hopefully they will get out of the Senate
to be able to address what has been happening throughout the
United States. And understand that a lot of what is—I have seen
and heard is that foreign corporations are buying us up.
We cannot afford to have them do that. Land is ours. It is our
people. And as you can see, it is a very diverse America that we
must continue to be able to support in moving forward to protect
our families and our communities.
So thank you for allowing me to be part of your hearing. I may
not be able to stay the whole time, because I have other commitments, but this is a very serious matter for my area also, and I am
sure for the rest of California and the Nation. And I thank you for
your leadership and hope my colleagues will consider coming into
my area some time within the not-too-distant future, because we
need to spread the word about what is really happening and how
we can work together to address that.
So thank you, Madam Chairwoman, and I am very happy to be
here.
Chairwoman WATERS. Thank you very much.
We will be joined shortly by Ms. Sanchez, who is on her way here
and has been caught up in traffic. But next we are going to hear
from one of our newer Members of Congress. We are so pleased and
proud that Laura Richardson has joined us in the Congress of the
United States of America. She hit the ground running, and she is
focused on this issue. I think she may have cut short a trip that
she was involved in to get back here, so that she could be at this
hearing today.
Thank you, Congresswoman Laura Richardson.
I will recognize you for your opening statement.
Ms. RICHARDSON. Thank you, Chairwoman Waters, for holding
this very important hearing today. Domestically, I cannot think of
another topic that is more important to all of the citizens of Cali-

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7
fornia and the United States when you look at it nationwide than
the current crisis that is occurring in the housing market.
It was just less than 5 years ago that lenders across the country
were recording record sales, and countless Americans were experiencing the joy of becoming new homeowners as they took out
subprime loans and adjustable rate mortgages to finance their
dreams. However, as the old saying goes, ‘‘If something is too good
to be true, it probably is.’’
Preying on wide-eyed aspirations of many low-income first-time
homebuyers, some lenders disregarded industry-wide lending
standards for an opportunity to take advantage of a booming housing market that saw home prices increase dramatically at the turn
of this century. With teaser rates that are now set to explode, the
dream that many families set out to achieve has become, in less
than 2 years, an absolute nightmare.
The Center for Responsible Lending estimates that 8.4 million
neighboring homes in California will experience devaluation because of foreclosures in California. The same study reveals that the
foreclosures can bring down the values of not only that person’s
home, but their neighboring area as well.
As was stated by Representative Green, when you have the decrease in overall property value for a particular neighborhood, that
reduces the tax base, and the local government then that depends
upon those dollars is unable to adequately fund for police, firefighting services, garbage pickup, and public schooling. This clearly
illustrates that this is a community problem that we are all affected by. It is painfully obvious that we cannot sit back and do
nothing, not when the foreclosure crunch is being felt by more Californians than in any other State in the Nation.
As I get ready to close, I would like to speak to you a little bit
about my district. Statistics from the 37th Congressional District,
which includes Watts, Compton, Long Beach, Carson, and Signal
Hill, are alarming to say the least. Thirty-six percent of the loans
originated in my district were subprime loans. One in five of these
subprime loans will end in foreclosure.
That means that the 37th Congressional District, of more than
225,000 surrounding homes, will be affected by the price declines
as a result of these foreclosures. As a Member of Congress, we recently passed legislation, H.R. 3915, that was recently stated, but
you need to know on something that I feel quite passionate about
that if we were to look at this situation related to a disaster, similar to the recent fires or what happened in Katrina, stronger efforts
probably would have been taken.
And I am here to say that just because there is not a fire, just
because there is not a flood, this must be addressed in our community.
Again, I want to thank Congresswoman Waters. You should all
know, sometimes when we are involved in local government you
hear something that a person is a chair of a particular committee,
and you may not understand the magnitude of that. Congresswoman Waters has had a long history of advocacy regarding many
issues, but in particular of housing and the work that was done in
Katrina was something that was needed. We are fortunate that she

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8
happens to represent us here in California, but she is spearheading
this issue across the Nation.
I am more than happy to stand with her and the other members
of this subcommittee as we have this hearing to figure out what
additional solutions can be brought forward to address this very serious problem.
Thank you, Chairwoman Waters, for your leadership.
Chairwoman WATERS. Thank you so very much.
The other member who will be with us today, working with us
today, just arrived. And, again, as I said, we are so fortunate here
in Southern California to have such strong advocates for people, for
working people, for poor people, and such a representative is Ms.
Linda Sanchez from the 39th Congressional District.
Thank you so much for being with us today, and I will recognize
you for an opening statement.
Ms. SANCHEZ. Thank you, Madam Chairwoman.
My apologies for my tardiness, but the traffic and the rain are
a bad combination in Los Angeles.
Chairwoman WATERS. Yes.
Ms. SANCHEZ. I am pleased to be here this morning, and I really
want to thank Chairwoman Waters for organizing today’s hearing
and for inviting me to participate in it. Her leadership on this critical issue has been a key part of Congress’ effort to develop solutions for working and middle-class families who find their American dream at risk of becoming a nightmare.
The subprime mortgage crisis has inflicted severe stress on our
national financial system and has even triggered concerns in our
global economy. Falling real estate prices and a reduction in the
availability of loans are making it more difficult for overstretched
homeowners to either refinance their way out of trouble or even to
simply sell their homes.
In 2006, 1.2 million foreclosures in the United States were recorded. That is almost double the number that existed in 2005. By
this year’s end, foreclosures could reach the 2 million mark, and
statistics of this magnitude haven’t been seen in this country since
the Great Depression.
The subprime mortgage crisis has hit our economy hard and will
continue to spiral downward if we don’t address it with swift and
discernible action. If changes to the mortgage lending system are
not made, an astounding $400 billion worth of mortgage defaults
will occur in the United States between now and 2008.
In my Congressional District alone, where 31 percent of home
mortgages made in 2005 and 2006 are subprime loans, that means
that one in every five of those families will likely receive a notice
of foreclosure. One in every five. Challenges posed by the subprime
mortgage crisis don’t end with those who lose their homes.
Even those who are fortunate enough to pay their mortgages on
time and be able to maintain their homes will be affected. Foreclosures reduce property values of nearby properties and induce
lenders to tighten credit, making borrowing credit more expensive
even for those with good credit.
Approximately 198,000 homes in my district face price declines
amounting to about $2.4 billion in home equity loss due to the fallout from the foreclosures. So even if you don’t have a subprime

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mortgage, don’t think for a second that this crisis isn’t going to affect you. We must all do what we can to help prevent additional
foreclosures and to ensure that lenders no longer have incentives
to lend carelessly to subprime borrowers with shaky credit.
The Emergency Home Ownership and Mortgage Equity Protection Act of 2007, which I introduced in September along with our
colleague, Brad Miller of North Carolina, is just one of the measures that we are working on in Congress to protect American families during this financially turbulent time. This bill would protect
homeowners whose situations are so dire that they have no other
option but to declare bankruptcy.
This legislation would help at least 600,000 U.S. families and
homeowners affected by the subprime lending crisis to avoid losing
their homes as a result of foreclosure. It would allow bankruptcy
judges to restructure home mortgage debt as they concurrently do
for mortgages on investment properties, vacation homes, and family farms.
Currently, the law allows bankruptcy judges to modify mortgages
for families who are fortunate to own a second home, such as a vacation home or an investment property, but denies judges the ability to do the same for working class families whose only property
is the home they live in. And that simply doesn’t make sense to me,
given that most Americans only own one piece of property, and
that is the home that they live in.
All homeowners should be treated similarly and have access to
the full range of financial support and options available, whether
they have multiple vacation homes or just one cozy cottage. The
Emergency Home Ownership and Mortgage Equity Protection Act
provides that relief and simultaneously lessens the pressure on the
mortgage market and the broader economy.
With even more subprime loans scheduled to reset at higher interest rates in the next 18 months, mortgage servicers and Congress must act now to prevent the current wave of foreclosures
from turning into a tsunami of foreclosures.
I want to thank all of our distinguished witnesses in advance for
taking the time to be here, and I look forward to their testimony.
I thank the gentlewoman, and I yield back the remainder of my
time.
Chairwoman WATERS. Thank you very much. Thank you.
Before I introduce our first panel of witnesses, I would like to
thank all of you who have taken time to come here today, particularly in the rain. I had not expected such a turnout. You do me
proud. Thank you very much. Give yourselves a big round of applause.
Ladies and gentlemen, we are expecting the Mayor, Mayor Antonio Villaraigosa, to join us. He has a very tight schedule, and we
will try and put him on as soon as he comes in the room.
Now I would like to introduce our witnesses for the first panel:
the Honorable Anthony Young, city council president pro tempore,
from San Diego, California; Mr. Joseph Bates, Director, Santa Ana
Homeownership Center, U.S. Department of Housing and Urban
Development; Mr. Mike Krimminger, Chairman’s Special Advisor
for Policy for the Federal Deposit Insurance Corporation; Ms.
Heather Peters, deputy secretary for business regulation, Depart-

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ment of Business, Transportation, and Housing, State of California;
Mr. Pastor Herrera, director, Department of Consumer Affairs, Los
Angeles County; and Mr. Sean Rogan, director, Department of
Housing and Community Development, City of Oakland, California.
I would like to thank all of you for appearing before the subcommittee today, and without objection, your written statements
will be made a part of the record. You will now be recognized for
a 5-minute summary of your testimony. I will start with the Honorable Anthony Young. Thank you for being here.
STATEMENT OF THE HONORABLE ANTHONY YOUNG, CITY
COUNCIL PRESIDENT PRO TEMPORE, SAN DIEGO, CALIFORNIA

Mr. YOUNG. Thank you, Chairwoman Waters. And before I begin,
I wanted to let you know how much I appreciate the work that you
have done. The individuals in San Diego have recognized that, and
they sent me to tell you thank you for all of your work. I have
watched all of your careers, and I just want to say thank you for
all the work that you have done.
Chairwoman WATERS. Thank you.
Mr. YOUNG. On behalf of the City of San Diego and the CityCounty Reinvestment Task Force, I would like to thank you again
for your invitation. We appreciate your interest in a topic which for
the City of San Diego, the State, and the country is having a profound impact on people’s lives and our economy. The impact is
being felt by all segments of the population, including our military.
In the first 9 months of this year, 15,582 homes have received
notices of default from their lenders in San Diego County alone.
Forty percent of those end up in foreclosure. Between January of
2007 and September, foreclosures have increased by 100 percent in
San Diego County. We project this rate to increase and continue
unabated for the next 2 years based on the volume of subprime
loans dumped into the local market. And I say ‘‘dumped’’ onto our
local market because the majority of those loans have come from
mortgage brokers who are no longer in business.
Over 70 firms in San Diego County in our region are either—
have either gone bankrupt or are selling off over the past 2 years.
We have been victimized by an industry that functions without regulations, with minimal supervisions, that can appear and disappear
without penalty and without responsibility for the damage that
they inflict on people’s lives in this economy. It troubles me to
think that our servicemen and women who are currently fighting
and putting their lives on the line to protect our country are particularly being preyed upon.
Historically, in San Diego, crises in the housing market are
caused by a combination of external or economic factors. In this
case, the foreclosure epidemic has been caused by unregulated
funds from new State licensed mortgage lenders, most of whom are
no longer in business as I said before, home mortgage brokers
being paid double and triple commissions for subprime and predatory loans targeted to low-income, and particularly ethnic borrowers, lack of State supervision or authority to regulate interest
rates and loan terms in the absence of supervision over Fannie
Mae and Freddie Mac and their policies related to securities’ pur-

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11
chase of subprime and predatory home loan products, and lack of
national regulations related to securities, and leveraged finance obligations for Wall Street investments.
The City-County Reinvestment Task Force, which I chair, has
been following this issue for the last 2 years. We have filed comments on pending legislation with Federal bank regulators, the
Banking and Finance Committee of Congress, the State, and directly to a number of major regulated financial institutions, many
of them who actually sit on the Reinvestment Task Force that I
chair.
Seeing little if any action at any level has resulted in our adoption of local strategies to attempt to manage this serious economic
problem. For the last year, this task force has held hearings in
order to define the problem and engage in finding tangible solutions.
We have created a list of recommendations that were presented
and adopted by the City Council at the City of San Diego. Some
of the recommendations and actions were to direct the City and
county lobbyists to aggressively support Federal and State legislation which provides increased funding of nonprofits for foreclosure
counseling, that establishes rules and regulations for unregulated
mortgage companies and brokers, that the Reinvestment Task
Force will work in partnership with nonprofits and State coalitions
to negotiate with major lenders for reasonable workout programs
and loan products for customers.
And we recommend that the city, county, and State legal authorities develop an enforcement strategy for interdicting, reducing, and
removing predatory mortgage lending practices in the region, including review of potential security violations. We also requested
that the city and county establish an ordinance regarding inspection and monitoring of foreclosed properties for code violations and
ongoing maintenance.
That the FNMA and the Veterans Administration modify loan
limits to compensate for the cost of housing in the San Diego market, which I also believe that is an issue here in Los Angeles. We
encourage the FNMA and the Veterans Administration to develop
specific foreclosure alternative products, including refinancing and
engaging in aggressive marketing efforts to our veterans.
Many of our communities are now sitting with vacant properties—five to six on a block—depressing the local market and inviting blight and criminal behavior to normally pleasant communities. Following the lead of a City just south of us, Chula Vista,
which has been hit particularly hard, we have an ordinance that
requires banks to maintain these empty, vacant properties under
the threat of penalty. We want them off the market before they infect the vitality of communities that have had to struggle for
years—over the years to become—
Chairwoman WATERS. I need you to wrap up.
Mr. YOUNG. I will.
Chairwoman WATERS. Thank you.
Mr. YOUNG. Yes, ma’am. Basically, what I would say to this subcommittee—and thank you for the time that you have allotted to
me—is that this is a national problem, even an international prob-

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lem. But I would also say that local agencies really have to be a
part of this.
Home counseling, aggressive marketing to individuals, letting
people know that they do have options, and then one of the things
I would say to this subcommittee is allow the use of CDBG funds
that cities already have to be able to—to be used for the home
counseling that is so important now.
The last thing I would say, Ms. Waters—and thank you for giving me this extra time—is to also understand that there is going
to be something happening after this. And there is a tsunami that
Ms. Richardson talked about that we are in the middle of. But after
the tsunami, there are some things that we should do, including
finding opportunities for individuals to get back in their homes.
Thank you for the opportunity to speak.
Chairwoman WATERS. Thank you very much.
Mr. YOUNG. I appreciate it.
Chairwoman WATERS. Thank you.
[The prepared statement of Mr. Young can be found on page 188
of the appendix.]
Chairwoman WATERS. Ladies and gentlemen, I mentioned that
we would be joined by Mayor Antonio Villaraigosa. He is now here.
We thank you for being here, Mr. Mayor. We know how concerned
you are about this housing crisis that we have, so we will recognize
you for the next 5 minutes.
STATEMENT OF THE HONORABLE ANTONIO R. VILLARAIGOSA,
MAYOR OF LOS ANGELES, CALIFORNIA

Mayor VILLARAIGOSA. Madam Chairwoman, it is good to be here
with you. Congressman Green, and Congresswomen Napolitano,
Sanchez, and Richardson, it is good to be with all of you. Thank
you for holding this hearing here in the City of Los Angeles. We
believe that it is important to put a light on the widening crisis of
home foreclosures here in the City. In the last year, we witnessed
a dramatic rise in the number of foreclosures; 2007 has been the
worst year on record here in the City of Los Angeles.
In the first quarter of 2006, there were 115 foreclosures in the
City of Los Angeles. By the first quarter of 2007, foreclosures had
increased 6-fold with 716 families losing title to their homes. Since
then, we have seen the crisis escalate in its scope and scale. Foreclosures rose to 850 in the second quarter and 1,177 in the quarter
ending in September.
Most alarmingly, we see the foreclosure crisis hurting people in
our most economically vulnerable neighborhoods. In these neighborhoods, as was mentioned a few minutes ago, we are losing dozens of homes a day. The 10 zip codes with the highest foreclosure
activity, notices of default, foreclosure notices, foreclosure sales,
were located in either South Los Angeles or the Northeast Valley.
We also see that the crisis has a distinct face. The vast majority
are subprime loans. The loans with the highest rates of foreclosure
have been made to African-American and Latino households. There
is gathering evidence that the corrosive effects of the foreclosure
crisis is spreading, and one of the most pernicious side effects of
widespread foreclosures is the increase in broken windows and
neighborhood blight caused by abandoned buildings.

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Already in Los Angeles, we are seeing an increase in the number
of abandoned building referrals to the Department of Building and
Safety and a rise in the number of nuisance building cases referred
to our Abandoned Building Task Force. The crisis is simply too big
for half-measures and tinkering at the margins.
And I do want to take a moment to go off script and acknowledge
the leadership of Congresswoman Waters on this issue. This is not
an issue that the Congresswoman first raised during this mortgage
lending crisis. I remember being with her some 5 or 6—maybe it
was 7—years ago with ACORN talking about this issue here in
South Los Angeles, and I want to acknowledge you for that effort
over the years.
As you well know, we need a concerted well-organized campaign
to demand adequate resources to address the misery that has been
caused to ensure that the needed reforms take place. For this reason, I am calling on fellow California mayors to join me in a coalition to demand State and Federal legislation to bring necessary resources to our communities and to reform lending practices.
We did not cause this crisis, but we are on the front lines of it.
Our constituents are the ones who have suffered because those who
have had the power to stop fraud and predatory lending were
asleep at the switch. A strong, collective voice is needed to make
sure this never happens again, and together with my fellow mayors, I intend to raise that voice.
We also need local lender accountability. For this reason, I will
shortly convene a meeting of our City’s largest lenders and mortgage servicers and create a program of local lender accountability.
Lenders and mortgage servicers have signaled their desire to work
with borrowers, and we believe that many of them are. However,
we also believe that much can be done and much more should be
done.
As the crisis grows, the need for a streamlined, transparent process for loss mitigation will grow even more urgent. We need lenders
to publicize their loss mitigation programs, and the criteria they
use to decide how they can help distressed borrowers. We need
lenders to tell us how they intend to manage foreclosed homes that
are vacant, so that they do not contribute to urban blight.
We need lenders to begin a meaningful discussion about creating
a process to offer foreclosed properties to the City and to nonprofit
organizations, so that these properties can be converted into community profit and affordable housing. Here in the City of Los Angeles, for 2 years running, and for the first time ever, we fully funded
our Housing Trust Fund at $100 million, half of that money dedicated to permanent support of housing for the homeless.
We believe that it is incumbent on these mortgage lenders and
banks to participate with us in an effort to convert this housing
into affordable housing. We cannot allow these properties to be
snapped up by speculators. What we need now is support for the
foreclosure counseling and legal aid agencies that help home buyers at risk of foreclosure.
Here in the City of Los Angeles, we have committed $100,000 for
foreclosure counseling, but as you know much more money is needed to expand these services. Incredibly, at the State level, these
funds were cut to $2 million for the current fiscal year. An infusion

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of Federal funds specifically designated for foreclosure counseling
and legal assistance would not only help to avert future predatory
mortgages but also help avert foreclosure of mortgages that are
currently at risk.
For this reason, we strongly support the Mortgage Reform and
Anti-Predatory Lending Act of 2007, and would urge immediate
Senate passage of your bill. Furthermore, we have to address the
needs of borrowers who are currently at risk of losing their homes,
and we have to challenge the banking industry to accept their responsibility to be a part of the solution.
Here in California, Governor Schwarzenegger is demonstrating
what is possible. A recent agreement announced between his office,
Countrywide, GMAC, Litton, and HomeEq should serve as a model
for the entire Nation to follow. Working in partnership with the
mortgage industry, the Governor is forging a commonsense solution. We intend to work with him to build on that here in the City
of Los Angeles.
Finally, I also want to acknowledge the work of assembly speaker Fabian Nunez and assembly member and chair of the Assembly,
Committee on Banking and Finance, Ted Lu. The speaker and Mr.
Lu have put together a much-needed package to address foreclosure prevention measures, banning such things as prepayment
penalties, no documentation loans as well. Requiring that lenders
consider the borrower’s ability to repay the loan over the entire period is also crucial to protecting California borrowers.
I am here today in support of this hearing, and intend to work
with you, all of you. I have worked on many issues in the past on
this very, very important issue.
[The prepared statement of Mayor Villaraigosa can be found on
page 176 of the appendix.]
Chairwoman WATERS. Well, Mr. Mayor, I would like to thank
you so much for taking time from your busy schedule to be here
today. Clearly, based on your testimony, you certainly know what
is going on, and some of the proposals that you have just made and
talked about are extremely important. You are absolutely correct.
We need to get more money to the cities for counseling.
We have $200 million that is in conference right now. The President is threatening to veto it. We hope not, because the cities just
don’t have enough money to allocate toward this counseling and
educating of our citizens. The Honorable Anthony Young from San
Diego recommended that we use more CDBG money to do it, but
you are so limited in your CDBG money, and there is such competition for it until it would put a real strain on the City’s use.
We need new resources and new money, and we are going to
fight for it. But we would hope that we get the message out there
to encourage the President of the United States to sign the legislation that would put $200 million out into the cities very soon.
I know that your time is limited. We thank you so much for appearing here today, and we look forward to working with you.
Mayor VILLARAIGOSA. Well, thank you.
Thank you, Chairwoman Waters. And I want you to know that
on behalf of the City of Los Angeles, I recognize that though this
hearing is being held here, if it is necessary for me to be with you
anywhere, including Washington, D.C., on this issue I certainly am

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15
prepared and willing to join you in this effort to ensure that the
Federal Government is responsible and assisting in this effort.
Thank you very much.
Chairwoman WATERS. Thank you so much, Mr. Mayor.
Mayor VILLARAIGOSA. Thank you.
Chairwoman WATERS. Ladies and gentlemen, I mentioned that
we have such a strong group of Members of Congress in this area,
and we are very blessed to have been joined by Congresswoman
Diane Watson who is representing the 33rd Congressional District.
Thank you very much for joining us today, Congresswoman Watson.
We are going to move on with our witness panel, and then we
will return to our members here to ask questions.
I have something that I must do. There are so many rules of
Congress when you run these committees. I must say that Representative Diane Watson will also be considered a member of this
subcommittee for the duration of this hearing.
Without objection, such is the order.
We will move now to Mr. Joseph Bates, the Director of the Santa
Ana Homeownership Center, U.S. Department of Housing and
Urban Development.
STATEMENT OF JOSEPH BATES, DIRECTOR, SANTA ANA
HOMEOWNERSHIP CENTER, U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT

Mr. BATES. Thank you. Chairwoman Waters and the distinguished members of the subcommittee, thank you for this opportunity to testify today on the efforts made by the U.S. Department
of Housing and Urban Development in the areas of foreclosure prevention and intervention. I am Joseph Bates, Director of HUD’s
Santa Ana Homeownership Center.
The significant effects of foreclosure on our national economy and
on the world markets brings us here today. Congress and the Administration have for some time been looking at legislative and regulatory options for minimizing foreclosures. At HUD, I can report
that we are working on both in our efforts to mitigate the adverse
effects of this market correction on borrowers.
One of the strongest tools we have to protect both borrowers and
markets is the Federal Housing Administration, FHA. As you may
know, HUD helps individuals secure credit by providing mortgage
insurance through a private sector distribution network that makes
owning a home more affordable and safe, and, therefore, a reality
for many borrowers who might otherwise go underserved.
HUD Secretary Alfonso Jackson has stated in previous testimony
before Congress that he has firmly believed for some time that
many of those who ultimately entered the subprime market would
have been better off with an FHA-insured loan. Many may still be
eligible to refinance today.
Although we cannot go back in time to ensure that each borrower
had made the best decision when obtaining a mortgage, we can
provide refinancing options to many subprime borrowers, and we
can do more to help people make better decisions going forward
through both innovative products and counseling support.

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This week HUD released informational video footage containing
foreclosure prevention tips and information for homeowners who
are struggling to pay their mortgage. Among other things, the
video includes a list of 10 tips on how to avoid foreclosure. I suggest that anyone who owns a home or who is in the market to buy
a home visit HUD’s Web site at www.hud.gov for more information.
Secretary Jackson has commented that the dramatic rise in single-family foreclosure starts is fueled in great part by the proliferation of subprime loan products, including hybrid ARMs. More than
2 million subprime ARMs are expected to reset to higher interest
rates by the end of 2008, and many of those borrowers, unable to
afford the higher payments, will be forced into foreclosure unless
the industry takes immediate and aggressive action to provide alternatives.
In September, FHA announced one such alternative. FHA Secure
is one of our refinance options designed specifically for conventional
and subprime borrowers who default on their mortgages solely because they can no longer afford the payments on their ARM loan
after the interest resets to a higher rate. Through this very new
program, over 800 FHA lenders are already using FHA Secure to
rescue delinquent borrowers from the potential loss of their homes.
Since September, more than 100,000 conventional borrowers have
applied for FHA Secure refinance loans.
On October 10th, HUD Secretary Alfonso Jackson and Secretary
of the Treasury Henry Paulson announced the HOPE NOW Alliance, an unprecedented alliance of the Nation’s largest mortgage
servicers, housing counselors, and real estate investors, all committed to one common goal—to help as many homeowners as possible avoid foreclosure and retain homeownership.
One of the goals of the HOPE NOW Alliance was to develop and
fund a nationwide advertising campaign to encourage delinquent
borrowers to seek help through the 888–995–HOPE network of
HUD-approved housing counselors. The 888–995–HOPE line is up
and running with 122 experienced counselors nationwide. Another
50 are currently being trained and more are being recruited.
Throughout this year, HUD staff and senior officials nationwide
have sponsored and participated in more than 125 homeownership
retention events including fairs, targeted mailings, and joint task
forces that reached a combined audience of 25,000. The Santa Ana
Homeownership Center, in cooperation with the Southern California Congressional Representatives and HUD field offices have
put together a series of seven town hall foreclosure summits to
spread the word on foreclosure prevention.
Participants besides HUD include Fannie Mae and Freddie Mac,
the Federal Reserve Bank of San Francisco, the IRS, local congressional representatives, and representatives from Wells Fargo and
Countrywide, both of whom are major local mortgage providers in
California and participants in the FHA Secure refinance program.
Attended by over 1,000 participants, these meetings have also
featured on-the-spot housing counseling with HUD-approved counselors from 1 or more of our 15 Southern California nonprofit agencies employing an estimated 125 certified counselors. In addition to
these town hall meetings, the Santa Ana Homeownership Center

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has attended several banking and Realtor conventions and meetings as part of our outreach effort to help publicize FHA Secure.
The recent National Association of Realtors Convention in Las
Vegas was attended by an estimated 5,000 Realtors who lined up
at the FHA booth to obtain information on the work we do. As you
can see, the Department has taken several steps to address foreclosures, but there is much work still to be done.
Thank you for your time this morning, and I look forward to your
questions.
[The prepared statement of Mr. Bates can be found on page 99
of the appendix.]
Chairwoman WATERS. Thank you very much.
Next we will hear from Mr. Mike Krimminger, Chairman’s Special Advisor for Policy, Federal Deposit Insurance Corporation.
STATEMENT OF MICHAEL H. KRIMMINGER, CHAIRMAN’S SPECIAL ADVISOR FOR POLICY, FEDERAL DEPOSIT INSURANCE
CORPORATION

Mr. KRIMMINGER. Good morning.
Chairwoman WATERS. Good morning.
Mr. KRIMMINGER. Chairwoman Waters, and members of the subcommittee, thank you for the opportunity to testify on behalf of the
FDIC. As you know, the rising level of foreclosures across America
is of great concern to FDIC Chairman Sheila Bair. I would like to
focus my oral remarks this morning on her plan for modifying the
more troubling of these exotic mortgages known as 2/28 and 3/27
subprime hybrids, which are forcing many homeowners into default
and foreclosure.
As you know, poor lending standards and weak consumer protections are at the root of the problem. After a huge run-up in these
2- and 3-year adjustable rate loans that began after 2003, they now
make up more than half of the $1.3 trillion in subprime mortgage
loans outstanding.
Now, some 1.5 million or more of these loans will reset by the
end of 2008, and another 375,000 will reset in 2009. Without a
doubt, we are just now getting into the thick of the problem.
California’s exposure to subprime mortgages is especially significant. The large numbers of subprime hybrid ARM loans with approaching resets in California places many thousands, perhaps
hundreds of thousands, of California borrowers at risk between
now and December 2008. These borrowers had hoped to refinance
their homes as prices rose to pay off the loans before reset and
avoid crippling monthly payments.
And let me point out one important fact: The lenders and investors also expected these borrowers to refinance the loans. No one
expected them to pay the reset payments.
Unfortunately, housing prices now are declining, closing off these
options for many. California’s subprime mortgage problems also are
spreading, affecting home builders, suppliers and others, resulting
in layoffs, lower tax revenues, and higher foreclosure rates. We believe that all of this calls out for creative solutions to keep people
in their homes by restructuring their loans on a long-term and sustainable basis.

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Now, some of the borrowers who have the 2/28 and 3/27
subprime loans will be able to refinance at better rates. Today, unfortunately, that is probably a fairly small number. Some others
have been seriously delinquent, even at the starter rate, and even
if their loans are modified there may be limited prospects for keeping their properties.
Another group, however, has generally remained current. Chairman Bair’s proposal focuses on this last group. Her proposal is simple and effective, but often misunderstood. It is this: For owner-occupied homes where the borrower is making timely payments, but
clearly cannot afford the reset payments, we think those loans
should be converted to fixed rate loans at the starter rate. At a
minimum, the starter rate should be continued for a long-term sustainable period of 5 years or more. This could keep hundreds of
thousands of people in their homes and stabilize our mortgage markets.
Chairman Bair is urging loan servicers to do this in a streamlined way. Renegotiating the terms of the loans, loan-by-loan, as
some are doing, is costly and time-consuming. A standardized approach is urgently needed.
We believe there is an emerging consensus among policymakers
and servicers that this is the best way to start dealing with the
subprime meltdown. For example, as you noted, Governor
Schwarzenegger announced last week an agreement with four
major subprime lenders to work with homeowners unable to afford
escalating mortgage payments.
In line with Chairman Bair’s proposal, the servicers agreed to
maintain the initial lower interest rate for subprime borrowers who
occupy the homes, have made their payments on time during the
starter period, and have proved they cannot afford payments at the
higher reset rates. We support this agreement and believe it will
spur other servicers to adopt this approach and speed up the pace.
We also would urge the homeowners who cannot afford their
mortgages to please contact their lenders or servicers as soon as
possible to look for a workout solution before the reset date. I underlined that, because I think that is a critical factor in making
sure that there is a relationship and a conversation between the
homeowners and their servicers.
Now, to the critics who say such a large-scale approach is untested and unworkable, we say these and other loan servicers are already doing it successfully. Not only is it feasible, the servicers say
that it is saving them time and money and keeping people in their
homes. We think that just about anything beats foreclosure, which,
as you noted very accurately, runs down neighborhoods and costs
up to half of the initial loan amount.
Chairwoman Waters, the FDIC is committed to working with you
to find solutions to the growing mortgage crisis, not only here in
California but for all of those subprime borrowers who are living
the American dream, but in need of better deals so they can continue to do so.
Thank you very much.
[The prepared statement of Mr. Krimminger can be found on
page 125 of the appendix.]
Chairwoman WATERS. Thank you very much.

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Next we will hear from Ms. Heather Peters, deputy secretary for
business regulation, Department of Business, Transportation, and
Housing, State of California.
STATEMENT OF HEATHER PETERS, DEPUTY SECRETARY FOR
BUSINESS REGULATION, DEPARTMENT OF BUSINESS,
TRANSPORTATION, AND HOUSING, STATE OF CALIFORNIA

Ms. PETERS. Good morning, Chairwoman Waters, and members
of the subcommittee. My name is Heather Peters, and I am the
deputy secretary for both business regulation and for housing for
the State of California. I am also the chair of Governor
Schwarzenegger’s Interdepartmental Task Force on Non-Traditional Mortgages.
We appreciate the interest of the subcommittee, and the interest
of the chairwoman in bringing the subcommittee here to California
to hear this very important testimony today, because by all measures we can agree that California has been disproportionately impacted by the crisis in the housing and mortgage foreclosure arena.
I commend the subcommittee for putting together such a distinguished panel of witnesses today, and for recognizing the multi-dimensional challenge that we are facing here and realizing that
there is no silver bullet. To make an impact here, we need the cooperation of Federal, State, and local authorities, we need the cooperation of private lenders, brokers, servicers, and investors, and
we also need the cooperation of the public, the consumers, and the
homeowners who are losing their homes and losing the American
dream. Together we can come up with solutions to this most
daunting crisis.
I will skip over the statistics in my testimony, because we can
all agree that the magnitude of the problem has reached epic proportions. Governor Schwarzenegger is a man of action, not a man
of words, and he agrees that we need help. Early this year, in January, he appointed me to unify leadership of our various departments in business transportation and housing that have various responsibilities for regulating aspects of the mortgage industry.
In March of this year, we put together a task force to make sure
that we were putting our best and our brightest together and getting us on the same page and moving forward. The task force consists of the department heads from our Department of Financial Institutions, which regulates banks and credit unions, the Department of Corporations, which regulates non-depository lenders such
as Countrywide, the Department of Real Estate, the Department of
Real Estate Appraisers, the Department of Housing and Community Development, and CAL HFA.
Very quickly we realized that regulation alone was not going to
be able to solve this problem, and that there was a huge consumer
component to this. So we added the leadership from State and consumer services agencies, Secretary Morin, as well as the Director
of the Department of Consumer Affairs. We have all been working
together very closely all year on this issue, and the subcommittee
has asked us to address the factors that contributed to the crisis
as well as what the State is doing about it.
There are numerous factors. The first is the lack of affordability
of housing in California, which has been a problem for us for many

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decades. According to the Building Industry Association, only 12.6
percent of the housing in California is affordable to income earners
in the median income range; that is versus 42 percent nationwide.
It has been a massive problem here.
This year we have passed, and the Governor has signed, AB–929,
which increases the amount of affordable housing in California by
raising the total debt the California Housing Finance Agency can
carry by $2 billion. Additionally, the Housing Community Development Department is working diligently to implement the $2.85 billion housing bond that was passed by the voters in California last
year, which is estimated to generate over 118,000 new affordable
housing opportunities and rental opportunities.
However, we cannot do this alone, and we need your help. The
Governor has written to the leadership of both the House and the
Senate, and he has urged increases in both the FHA and the GSE
loan limits. Currently, the FHA loan limit is $362,790, and the
GSE loan limit is $417,000. The median cost of a home in California is well over $500,000, reaching toward $600,000.
Clearly, these programs are not relevant in California anymore.
Unfortunately, the FHA loan volume in California has dropped
from 109,000-plus loans to a mere 2,599 loans in the entire State
of California. Now, that is a decrease, a loss of $13.6 billion in
funding through FHA. Reform is crucial, and clearly the lack of
safe, affordable financing through these programs in California has
been a contributing factor to homeowners being forced to go
through non-traditional financing.
Chairwoman WATERS. I need you to wrap it up.
Ms. PETERS. Additionally, we have passed regulations that are
some of the strongest in the Nation, assuring that underwriting
standards make sure that people can afford the loans they are getting into. We have a brand-new disclosure form in five languages
that illustrates to the consumer very early in the process what the
worst-case payment could be if all the resets adjust to their worstcase scenario.
We have made appraisal fraud a crime. We have had the agreement referred to by the FDIC with the lenders that is a nationwide
leader and is being picked up by the Federal authorities. And we
work closely with them and applaud their efforts. We applaud the
chairwoman for her leadership and reform in this area.
And yesterday the Governor was in Riverside to announce a $1.2
million public outreach campaign. He will personally be involved in
PSAs to reach out to homeowners to ask them to call the Hope Hotline, to call their lenders, that there is help available. But, unfortunately, more than half of the people who lose their homes to foreclosure never contacted their lender.
Chairwoman WATERS. Thank you very much.
Ms. PETERS. Thank you.
Chairwoman WATERS. Next, we will hear from Mr. Pastor Herrera, Director, Department of Consumer Affairs, Los Angeles County.

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STATEMENT OF PASTOR HERRERA, DIRECTOR, DEPARTMENT
OF CONSUMER AFFAIRS, LOS ANGELES COUNTY

Mr. HERRERA. Good morning. I am Pastor Herrera, Jr., the director of the Los Angeles County Department of Consumer Affairs.
And let me echo my congratulations to you, Congresswoman Waters, for really taking the initiative and leadership in this area. It
is an issue that is on everyone’s radar screen, whether it is here
in California, in Washington, north or south of this country, and
definitely we see that there is no end in sight.
Here in L.A. County, we know that approximately 5,000 notices
of default are filed monthly, and that to me is staggering. That indicates that there is definitely a problem here in Los Angeles County, and it is probably reflective not only in California but throughout the country.
I hope that my comments this morning will assist the subcommittee to develop some additional recommendations, and from
a Department of Consumer Affairs perspective, an agency that
deals with consumers day in and day out, a more consumer-friendly business practices, not only in this area but other areas that impact consumers.
I will summarize my comments today; my written comments
have been submitted. The Department of Consumer Affairs here in
Los Angeles County is very unique. It is, of course, supported and
funded by the Board of Supervisors, and we are very proud of that,
because unfortunately many, many communities do not have a Department of Consumer Affairs, which is their first point of contact
when they may be victims of consumer fraud.
We are very fortunate that we have a unit, a program, that is,
the Real Estate Fraud and Information Program, which I will get
into momentarily. But we also have an Identify Theft Unit, a Consumer Fraud Unit, an Elder Fraud Prevention and Education Unit,
Small Claims Court, and also a Volunteer and Internship Program.
And we serve over 750,000 consumers a year.
Our Real Estate Fraud and Information Program does assist consumers and homeowners, particularly in the area of real estate
fraud and information. It serves and helps them in areas such as
foreclosure prevention, review and recorded documents, buying a
home, reviewing refinance loan documents, and assisting first-time
buyers. The Department also, and this unit in particular, accepts
complaints for investigations and mediations. We receive complaints against foreclosure consultants, predatory lending, fraudulent recorded deeds, and refinance transactions.
Last fiscal year, for example, our real estate unit assisted over
29,000 consumers with real estate fraud issues. Approximately 650
of those 29,000 of those homeowners needed assistance with a foreclosure problem. That was an increase over last year of 33 percent.
Last year, the Department handled on a case-by-case basis 100
homeowners who were facing a foreclosure problem, and our Department was able to stay, delay, or cancel a property from being
sold in a foreclosure sale.
The Department’s success rate was approximately 65 of those
cases. Unfortunately, it was not 100 percent.
Some of the other things that we do as far as prevention, we
work very closely with the media, which is a very good outlet. In

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fact, 50 percent of our referrals to our Department come from the
media. We also work with prosecutory agencies when we deal with
a foreclosure consultant. We deal with legal services, nonprofits,
and do a very, very good job here in Los Angeles County. We do
speaking engagements, participate in community forums, and our
Web site is also very, very definitely in tune with this issue.
We have information on foreclosure, predatory lending, evictions,
and we also have an opportunity for consumers to ask questions.
Interesting enough, the inquiries for real estate-related questions
have increased by 85 percent. And that represents an increase of
85 percent; 35 percent were in the area of foreclosures.
Chairwoman WATERS. Could you wrap up your testimony, Mr.
Herrera?
Mr. HERRERA. Very good. Of course, the challenges are funding,
the challenges are how do we get homeowners to get information
and seek counseling. And, of course, the other issue is financial institutions. They need to identify a point of contact in their organization, so that we can negotiate and resolve foreclosure type of
issues. And, of course, we need to reach out to homeowners.
Very quickly, some of the recommendations, pooling and servicing agreements limit sometimes the servicer’s ability to engage in
loss mitigation strategies. Other recommendations are in my written testimony.
Chairwoman WATERS. Thank you, and we will have all of your
testimony in the record—
Mr. HERRERA. Thank you very much.
Chairwoman WATERS. —for review by all of the members.
[The prepared statement of Mr. Herrera can be found on page
121 of the appendix.]
Chairwoman WATERS. Thank you very much.
Mr. Rogan, director, Department of Housing and Community Development, the City of Oakland, California.
STATEMENT OF SEAN ROGAN, DIRECTOR, DEPARTMENT OF
HOUSING AND COMMUNITY DEVELOPMENT, CITY OF OAKLAND, CALIFORNIA

Mr. ROGAN. Thank you, Madam Chairwoman, and subcommittee
members. On behalf of Oakland Mayor Ron Dellums and the City
of Oakland, I am happy to be here today to give testimony and
speak to some potential solutions as we look forward to solving this
foreclosure crisis.
The City of Oakland has been greatly affected by foreclosures
brought on in large part by the subprime lending practices. Record
numbers of foreclosures are occurring weekly. Over 345 notices of
default have been recorded in the month of October alone. East
Oakland, made up predominantly of people of color and of low income, is currently experiencing a 14.9 percent foreclosure rate.
Lenders and investors have been unwilling to discuss workout
options with borrowers. This is greatly impacting families and
neighborhoods as foreclosure activity continues to grow. And additional consequence includes lenders foreclosing on rental properties
and locking out tenants in good rent standing and with legitimate
rental agreements.

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Immediate action is needed to curb the number of foreclosures
and assist families who were given loans with terms that they either did not understand or did not qualify for. Actions that the City
of Oakland would like to see implemented include the following:
Extend time notices of default from 90 days to 150 days; extend
time period for notice of trustee sales from 30 days to 60 days to
allow more time for counseling and workouts; provide additional
funding for counseling agencies to help work with borrowers facing
foreclosures; and work with lenders and investors on rate and
terms of mortgages, so that borrowers in good standing with pending interest rate hikes can continue mortgage payments at lower
rates for up to 3 years.
Additionally, future legislation should be written so that qualifying borrowers should be based on documented income and at a
highest adjusted rate during the loan term, provide clear disclosure
of any balloon payments or interest rate adjustments, and
strengthen anti-predatory lending legislation. Interestingly enough,
Oakland at one time had adopted anti-predatory lending legislation, which was then overturned by the State. And we certainly
question where we would be today if some of that legislation had
in fact been implemented.
Additionally, lenders and investors need to partner—and this has
certainly been echoed throughout this testimony this morning—but
the lenders and investors, in particular the Wall Street investors,
need to partner with the local, State, and Federal Government to
set guidelines and regulations so that borrowers and lenders and
servicers know how to accomplish the workouts.
And then, finally, as I was driving here this morning in the wonderful L.A. traffic, and I was speaking with a colleague of mine, he
brought up an issue which really hasn’t been discussed today, and
I think it is important for the Members of Congress here today to
hear.
You know, an impact that affects these borrowers who have been
foreclosed on is depending on the difference between what the bank
collects and what their mortgage is, they end up with an IRS price
tag in some instances $30-, $50-, to $100,000 that then gets stated
as income. I certainly believe that with the folks here today that
is an additional point that should be taken under consideration.
Again, I thank you for your time today, and I am happy to answer any questions you may have.
Chairwoman WATERS. Thank you.
I would like to thank all of our panelists for being here today,
and we are going to start with our question period where our members will each be afforded 5 minutes to ask questions.
I will begin. I would like to focus first on Mr. Mike Krimminger’s
recommendation, because I like what I hear. I don’t know what
took place in a meeting I think that was held yesterday on this
very subject, but I am very, very interested in the idea that instead
of trying to solve this problem one loan at a time that we can come
up with a policy that would allow the servicers to automatically extend the reset period. Is that what you said?
Mr. KRIMMINGER. Yes. What Chairman Bair has recommended is
to extend the starter rate period. Her preference was clearly, if the
borrower can make—has been making payments at the starter

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rate, but cannot make the payments at the reset rate, extend the
starter rate, for the life of the loan preferably, but certainly for a
long-term period.
Chairwoman WATERS. For the life of the loan?
Mr. KRIMMINGER. Certainly for a long-term sustainable period
that will give the borrower an opportunity to do the normal refinancing. Five-plus years might be an appropriate period to do that.
Chairwoman WATERS. That is very significant. That is very significant, because the folks who got in the ARMs and the adjustable
rate mortgages received teaser rates, and those teaser rates were
something they could afford. But then, when they reset and they
quadruple, then they certainly cannot afford, and particularly if
you are on a fixed income.
Or even if you are working a regular job, your cost of living increases just don’t increase that fast, and you are certainly going to
lose that house. But if this is a recommendation that the reset be
extended for a long period of time, or for the life of the loan, I really do think that is an absolute viable way by which to save these
homes from foreclosure.
I would like to say to Mr. Young, I appreciate your recommendation on CDBG. CDBG is those funds that we give to our local governments to help out in so many ways with poor people and working people and programs. And we are working hard to extend it.
I heard your recommendation about the use of CDBG to be of assistance in counseling and education, and we will certainly take
that into consideration.
Mr. YOUNG. Madam Chairwoman?
Chairwoman WATERS. Yes.
Mr. YOUNG. If I may, and the reason why I recommended CDBG
initially, because at this point in time local agencies, local municipalities, that is really their only funding that they have at their
disposal right now. And that is what we are doing at the City of
San Diego, but we certainly do appreciate the opportunity to get
additional monies to do that home financing.
Chairwoman WATERS. Well, we know that we have $200 million
in conference that we are trying to get, but let us find out from our
representative here, from Governor Schwarzenegger’s efforts, she
mentioned that there would be some funding perhaps, about $1.2
million, that would be used to help in this situation. Where does
that money come from? When will it be in process? And who will
have access to it?
Ms. PETERS. Great question. Thank you for asking. There are actually two sources of funding coming out of the State currently.
Several months ago—I believe it was back in September, speaking
of CDBG—our Housing Community Development Department
issued a notice that $1.16 million in CDBG money that is flowing
through the State, not directly from the Federal Government,
would be made available for consumer counseling.
Additionally, we put out an advisory quite along the lines that
the councilman has already suggested, that some of the areas that
receive funding directly from the Federal Government may likewise
be able to reallocate some of the funds they have on hand. And our
Department is happy to work with any local governments on how
we can maximize the access to that.

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The second source of funding that I mentioned in my testimony
was just announced yesterday by Governor Schwarzenegger. This
is a $1.2 million campaign that is a public awareness campaign to
get homeowners to call for help. And people are absolutely terrified.
We have heard horror stories of homeowners who believe that they
can be arrested for failing to pay their mortgage.
Chairwoman WATERS. So basically this is for public service announcements, for advertising.
Ms. PETERS. Right. And that is coming from our existing budgets
within my departments at BT&H, and we are putting together a
proposal today—
Chairwoman WATERS. That is great.
Ms. PETERS. —to expedite availability.
Chairwoman WATERS. While we are talking about that, could you
explain to us the agreements that the Governor made to Countrywide, for example?
Ms. PETERS. Yes.
Chairwoman WATERS. What is it he asked them to do, and what
have they agreed to do?
Ms. PETERS. Thank you for asking. The Governor announced
with—an agreement with four of the major loan servicers—Countrywide, GMAC, HomeEq, and Litton Loan Servicing—which together nationwide represent 25 percent of the subprime loans.
They have agreed to reach out proactively to borrowers well before
the loans reset.
We are talking several months, maybe 6 months before the loans
reset, to let them know that the reset is coming. They have agreed
to streamline the process by which they determine whether the
borrowers can afford that reset payment as the chairwoman mentioned, and, if they are unable to afford it, to fix the initial rate
for a sustainable period of time.
Now, there is more discussion to be—
Chairwoman WATERS. So basically—
Ms. PETERS. —had on the details of this.
Chairwoman WATERS. —basically what you are saying is early
notice the reset is coming, and after you do that notice the homeowner will have an opportunity to get a workout and try and do
a rearrangement of that loan. And did these four major subprime
lenders agree that they would be involved in the kind of proposal
that we just heard that would have to extend the low rate that
they got in with?
Ms. PETERS. Yes.
Chairwoman WATERS. Will they—
Ms. PETERS. That is exactly what they have already agreed to.
Chairwoman WATERS. Is this in writing somewhere?
Ms. PETERS. It is on the Department of Corporations’ Web site,
which is—
Chairwoman WATERS. Okay. Good.
Ms. PETERS. —corp.ca.gov.
Chairwoman WATERS. Thank you.
Ms. PETERS. Additionally—
Chairwoman WATERS. Thank you very much.
Ms. PETERS. —there is an important element to that, which is accountability, because we hear a lot from consumer servicers, con-

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26
sumer counselors, that they talk the talk, but they are not walking
the walk. The Department of Corporations will be releasing within
this coming month the results of a survey of the lenders that quantifies exactly how many of these workouts they are doing, so that
we can follow up. And if consumers are not receiving the help that
the lenders have agreed to do, we want to hear about it, and we
want them to call us.
Chairwoman WATERS. That is exactly what we are going to do,
and we thank you for that.
And, FHA, since in the bill that I introduced—and we got
passed—we were very concerned about being able to use FHA to
refinance. We are very proud about that possibility. Now, what is
this Hope program that you are talking about? And what does it
do?
Mr. BATES. Well, the HOPE NOW Alliance is a grouping of the
large lenders, Freddie and Fannie, four of the national intermediary counseling agencies, and others, to kind of develop a measured and appropriate response to the subprime problems. And
the—
Chairwoman WATERS. I want to know specifically, because we
want Fannie and Freddie really involved in this solution, but I
have not heard anything specific about what they are going to do.
Mr. YOUNG. Well, the first thing is, of course, they have the hotline, and they have the housing counseling agencies in place.
Chairwoman WATERS. So they have a hotline and people can call
and say, ‘‘I am in trouble.’’ And then, what are they going to do?
Mr. YOUNG. And then, they are working on trying to establish a
standard for workouts or loss mitigation measures that would be
taken in response to people’s difficulties.
Chairwoman WATERS. Did you hear Mr. Krimminger’s proposal?
Mr. YOUNG. Yes, I did.
Chairwoman WATERS. Can they adopt that?
Mr. YOUNG. I don’t know whether they can adopt that.
Chairwoman WATERS. They can dispute that.
Mr. YOUNG. But I would be happy to get with the Chair on that.
Chairwoman WATERS. Would you get a copy of that proposal,
since we are all here and working together? We have FHA, we
have FDIC. You are talking to some of the same subprime lenders.
Everybody should get on one track on this. There is no reason why
we should have a Hope program that is talking about convening
and getting them together.
But, rather, you know, we should all do—and it should be substantial. We talk about a sustainable period of time. I like the idea
of just converting that into a permanent long-term, 30-year, 40year loan so that we can make sure we can afford it. So you all
get together. We will be following up with you to see if we can get
everybody on the same track.
Thank you all very much. This panel is dismissed.
Excuse me. Before you go, you are not dismissed.
We have questions from the other members. We have several
other panels that we are going to do, but our members get a chance
to ask you all questions today.
Let us start with Mr. Green.

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Mr. GREEN. Thank you, Madam Chairwoman. As is usually the
case, when the Chair finishes, there is not much left to be said.
But I do want to make a couple of comments and make a couple
of inquiries. Mr. Krimminger, I greatly appreciate your comments,
but I do want to just remind you that, when you indicated no one
expected the buyers to pay the adjusted rates, some of these lenders did. And let me explain why.
Many of them had prepayment penalties that coincided with the
teaser rate, which means that you are either going to pay a lot of
money to avoid the adjusted rate or you are going to end up paying—with a prepayment penalty or you are going to pay the adjusted rate. Now, look, I appreciate what you have said. I just want
to point that out—that not all of them were acting with the same
amount of good faith as many of them were.
Yes, sir.
Mr. KRIMMINGER. I would just say that we have certainly noted
that there are prepayment penalties on some of the adjustable rate
mortgages. In fact, many of the 2/28s and 3/27s do have prepayment penalties.
Chairwoman WATERS. Please talk right into the microphone.
This is very important. This is about prepayment penalties.
Mr. GREEN. And speak quickly, please, because my time is running.
Mr. KRIMMINGER. I will be very brief. We have certainly noted
that many of the 3/27 and 2/28 mortgages have prepayment penalties.
Chairwoman WATERS. Can you hear him in the back? Okay.
Bring it closer, and don’t be shy. Speak up.
Mr. KRIMMINGER. We have noted that many of the 2/28 and 3/
27 mortgages do have prepayment penalties. Most expire just before the reset period, but we have certainly been very critical of
some loans that do have prepayment penalties that extend out
until just before the reset date.
Mr. GREEN. Let me intercede quickly and say this. When you
said ‘‘just before,’’ define ‘‘just before,’’ because usually that is about
a month or two before, which doesn’t give the person enough
time—the buyer who is acting in good faith—to secure the kind of
loan in the environment that we have now that will protect the
buyer.
Mr. KRIMMINGER. And we fully agree with you.
Mr. GREEN. Okay.
Mr. KRIMMINGER. We think that is far too short of a period of
time. Chairman Bair has advocated that if you are going to have
a prepayment penalty at all—and we would prefer not in the
subprime market—then it certainly should expire 180 days before.
Mr. GREEN. Okay. Now, after we go through the 3/27s, the 2/28s,
the prepayment penalties, the no-doc loans, the yield spread premium—yield spread premium, for those who don’t know, that is the
kickback that the originator gets for getting a person to take a loan
that is higher in interest rate than they qualified for. Now, some
people may not know this, but that kickback is legitimate, but we
are working on that. The Chair is going to help us with that.
But once you go through all of these things and steering into
higher interest rates than people deserve, what it boils down to is

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people were qualified for teaser rates, and they were not qualified
for the adjusted rates. And if that is the cause of the problem, and
we have now about $600 billion at risk, we are talking about millions, possibly $2.5 million adjustable mortgages that are going to
reset by the end of 2008.
I don’t see how we can possibly manage the problem on a caseby-case basis. It really defies logic to think that we can do this on
a case-by-case basis. It does. So now, if it defies logic to do it on
a case-by-case basis, we have to find a way to transform Hope Now
into Help Now. Really, that is what we have to do.
And, Mr. Bates, no disrespect to you, I think you have articulated what is happening quite clearly. But what has to happen is
what the chairwoman has suggested. We have to find a way for the
lenders to acquire something called enlightened self-interest. Enlightened self-interest. And sometimes people have to be pushed to
that point. On other occasions, they can acquire it by some sort of
revelation.
But, clearly, enlightened self-interest would dictate that they not
let these properties go into foreclosure, and that a teaser rate is
much better than no rate at all. And that is what we have—you
have to take that message back, if you would, to the folk who can
help us out and make a distinction between Hope Now and Help
Now, or Help is on the Way because we are at a point now where
help has to arrive.
And, Madam Chairwoman, I thank you for allowing me the time,
and I will yield back, given that we have so many members.
Chairwoman WATERS. Thank you very much.
Congresswoman Grace Napolitano?
Ms. NAPOLITANO. Thank you, Madam Chairwoman, and I sit
here with great interest. Since I don’t sit on the subcommittee, a
lot of it just goes over my head in terms of terminology, but let me
tell you the result is the same. What I hear is a lot of talk about
things we need to do, things we are going to be doing, but what
is being done?
Because this is not just something that happened yesterday, it
has been happening for several years, and yet we are still not at
a place, as you say, that we can turn around and say to our constituency, ‘‘Okay. Here is where you can go. Call my office, call the
City Council, call’’—have you engaged the media, anybody? Have
you talked to being able to have them be the purveyors of information to get people to know where the heck they have to go for assistance?
You talk about CDBG. Does that need any legislative approval
to be able to channel those funds? Or can it be done without having
to go through the process of legislative approval? Then, we have
Mr. Bates, and, again, you talk about tips, you talk about a Web
site. Who the heck knows where to go? What if they don’t have a
computer? What about if they—you know, you talk about HOPE
NOW, and I will submit some questions for the record, Madam
Chairwoman, because I—
Chairwoman WATERS. Yes.
Ms. NAPOLITANO. —my time is short, and I have a lot of things
I want to get out.

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The HOPE NOW, how many people are aware? You said that
there were the tips. The Chair has not seen them, I have not seen
them. At least we should be able to have this Financial Services
Subcommittee know where it is, so we can impart that to our constituency, so they know where to go and how to access those services.
But lo and behold, and I know you have a constraint funding
issue, but please use what you have at hand—the media, the net,
the public access channels, the Council of Governments, the COGs,
all of those need to be partners in getting the word out to the constituents, because if we lose, they lose. If the subcommittee loses,
the COGs lose. So unless we work together, all of it in tandem,
then we are all just spinning our wheels separately.
Financial servicers—have they been informed of some of those
programs you are talking about? Because the Chair here says, ‘‘I
didn’t know that.’’ So somehow there is a disconnect within our
own agencies to Members of Congress in the subcommittee. That
is another one.
Credit unions—what role can they play? Because they have at
the local level a very strong sense of community, and they will help
their own. But are we allowed—again, do we have to go through
legislative approval to allow them to be able to help their local
folks?
I don’t know. I am running out of breath here.
Have all of you brought the financial institutions together and
asked, ‘‘When are you starting? Where are you starting? And how
can we channel our folks, so they can get help through you?’’ I
mean, we talk great, and, I am sorry, the wheels of government
move very slowly. But we need to move faster than that, and be
able to put things on the table now, yesterday, not tomorrow, not
next month, not next week, but now. That is something that is just
missing in what I hear.
Everybody has great ideas, and certainly since I don’t sit on the
subcommittee, I am grateful to be able to find out a lot. My area
is devastated. I have three of my members working in real estate.
I hear it from them, and I hear in my office people calling in and,
‘‘Where do I go from here? What can I do to save my home?’’
But have we made an intense effort to be able to tell people,
‘‘Don’t wait until your date is set before you go for help?’’ I have
heard it in Washington, I have heard it in our circles, but I don’t
hear the people—how many of you—just give me a show, how
many of you knew that? Anybody who is out there, how many of
you actually knew that you could call your financial institution and
ask for help prior to your reset date?
There you go. They don’t answer the phone. So how do we get
the people who need to have the information ahead of the game?
The lack of knowledge of where to go, institutions unwilling or
unable to institute these expansion of the mortgage. Many are—
about 5 or 6 years ago I held a predatory lending forum, and I was
very concerned because in some areas there is that—was that practice very prevalent, and it was taking advantage of people who
didn’t know any better. So we brought it out, and we started putting it into the general area to allow people to vent.

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And I asked one of the lenders, ‘‘Why don’t you go to a 30-year
mortgage?’’ He said, ‘‘Oh, no, there is no difference between a 20or 25- to 30-year mortgage.’’ I replied, ‘‘I beg your pardon, because
that amount of money can help send somebody to school, to college.
That amount of money can help somebody be able to move forward
in education, and purchase, or a business,’’ whatever. But they
didn’t want to do it.
So have we changed that mindset of the lending institutions to
expand those mortgages so people cannot lose their home, and then
we don’t have that impact at the local level of buildings that are
going to the dogs.
Chairwoman WATERS. Thank you.
Ms. NAPOLITANO. Thank you very much, and I would like to submit questions for the record, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
Congresswoman Richardson, for questions?
Ms. RICHARDSON. Yes, thank you, Madam Chairwoman.
Ms. Peters, you spoke pretty boldly of saying our Governor is a
man of action. Well, I am not too impressed with the movies and
the machine guns and all of that, so I hope that some of what is
being said today will in fact be translated to action.
We heard Mr. Rogan here from the City of Oakland give some
specific request, and I was wondering if you could take to our Governor, the man of action, asking him to do two of these points, and
they were quite simple. Number one, to extend the time notices of
default from 90 days to 150 days, and the second request was to
extend the time period for notice of trustee sales from 30 to 60 days
to allow for more time for counseling and workouts.
So as our Governor is negotiating these private side agreements—and I could give you a whole dissertation on what I think
about some of the private side agreements that have been done in
the past—but as he formulates these with the lending institutions,
if you could request that these two items be included as well.
Ms. PETERS. I will take that back to him, yes.
Ms. RICHARDSON. Thank you.
My second comment is for Mr. Bates. I was quite alarmed when
I read Ms. Peters’ testimony that said that the access to FHA loans
have decreased to such the amount that she stated. In fact, she
said that they have dropped from 109,000 to just 2,600, which represents in California a 98 percent decline. Do you know that to be
true?
Mr. BATES. With some caveats about the exact numbers, yes, essentially that is true as it pertains to forward mortgages, which is
what we are talking about here. We do a fairly decent business in
California on reverse mortgages, which are the home equity conversion mortgages which seniors can use to get equity out of their
property. But in terms of forward—now we have to adopt the term
‘‘forward mortgages,’’ the standard mortgages people think of to
buy a house or to refinance a house, yes, we have had a vast falloff.
Ms. RICHARDSON. And why is that?
Mr. BATES. Well, when it began in 2003, when I first started noticing it, I could attribute it almost entirely to the loss of refinance
business. But then, it just kept going and going and going. And in

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conversations with our counterparts, part of it would be, well, FHA
hasn’t kept up with the market in terms of having flexibility. Some
of its requirements were dated and not important anymore, and the
mortgage limit issue.
And so what happened I think is, as we became less and less a
part of a lender’s business, there might have been a tipping point
to where they just didn’t go to the trouble of doing any FHA business, even if there were many borrowers who still could get an
FHA mortgage, even in California.
Ms. RICHARDSON. Are there any discussions to change that?
Mr. BATES. Well, I think Chairwoman Waters has been very assiduous in pursuing FHA modernization, which is a big part of
what the Administration I think is advancing, and I think is something that would be essential to bringing FHA back as a viable alternative in California, high-cost States like California.
Ms. RICHARDSON. Well, my request would be that you would take
the message back that this hearing—we completely support the
chairwoman of this subcommittee in requesting FHA to take a second look at their role in the marketplace. When you talk about a
98 percent decline, from the time that I have had an opportunity
to become a homeowner, clearly when FHA was more involved with
the average borrower, we didn’t see some of these creative financing and some of these other issues.
FHA I think took a greater responsibility to ensure that people
were getting the right loans, and, if problems occurred, were I
think better prepared to assist those borrowers as well. So clearly
there has to be a better commitment to get back into this marketplace, because I think that you can assist in bringing the stability
that our borrowers need. So that would be the message I would like
to see brought back, that from this hearing the chairwoman has
our complete support in asking for that change to occur.
Mr. BATES. Thank you.
Ms. RICHARDSON. Thank you. I yield back my time.
Chairwoman WATERS. Thank you very much. Let me just say, if
I may, for a moment, the whole idea of revitalizing FHA was to get
it back in the business, Ms. Richardson. And what I really do believe happened is the financial institutions, the loan initiators, with
the subprime market just forced them out of the market, because
they came along with all of these exotic products.
And basically what they said is, ‘‘You can get in with this teaser
rate.’’ They were not vetting these qualifications to make sure people could afford them. They had no-doc loans, no-documentation
loans. FHA couldn’t compete with a financial institution or a loan
initiator that was saying, ‘‘We will give you a loan without documenting your income.’’ They couldn’t compete with these teaser
rates that would reset within, you know, 6 months or 2 years or
so.
So we are revitalizing FHA. We passed that bill out of committee
off the floor, and I just don’t know what is happening on the Senate
side. Where is my bill?
We understand they are working on it.
I am told that they have hotlined it. It may not be the same
version. Staff, let us get up to date with what is happening on the
Senate side with our bill. That is extremely important.

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Yes, sir.
Mr. KRIMMINGER. Chairwoman Waters, I would just like to make
one note that I would be derelict in not noting.
Chairwoman WATERS. Yes.
Mr. KRIMMINGER. For the benefit of the subcommittee, as well as
members of the public, in responding to Congressman Green’s
questions about the prepayment penalties, I think one important
thing to look at in terms of Chairman Bair’s proposal for real modifications on a streamlined basis is that the prepayment penalty
provision would not apply to the loan modifications.
It does apply when you are talking about refinancing, but it
would not apply to the loan modifications because you are not
doing a prepayment of the loan. So I think that is an important
thing to keep into consideration.
Chairwoman WATERS. Oh, very important.
Mr. KRIMMINGER. I think that is very important for the public to
know as well, which is, again, I would re-urge, in response to your
comments as well, Congresswoman, for the people to reach out to
their servicers. I think that it is critical for them to do that in advance, so that something can be done before the reset, because obviously if they can’t make the payments after reset, there are going
to be dire consequences to their credit history and to other obligations they may have.
Chairwoman WATERS. All right. We are going to move on. Our
constituents would reach out, if they thought it was going to do any
good. Most people just don’t believe the bank is going to be kind,
that they are going to do anything for them, and I have not seen
the same people who are initiating the loans doing the outreach to
tell them to call. I am watching the ads every day, and I am going
to ask some of our financial institutions about them.
They are saying, ‘‘Come on, we want to give you a loan.’’ They
are saying some of the same things they said that got us in trouble
before, and I don’t get it. So if they would spend some money advertising that they want people to call, so that before these loans
reset, then people will feel a lot more comfortable in calling that
telephone line that never answers. Okay?
Thank you very much.
All right. We will move on now to—Ms. Watson, thank you very
much for being here today, and I know this is an issue you are very
concerned about. You have 5 minutes for questioning.
Ms. WATSON. Thank you so very much, and I want to thank the
chairwoman for calling this hearing. I cannot think of anything we
could do during this period of time, but all come together—at the
local level, State level, and Federal level—to look into the fraud
that has been perpetrated on this Nation through subprime and
other gimmicks. And I want to say this—mine is more a statement
than a question because I do have to go on—but I pledge to work
together with all of those who represent the public to do something
from the top.
What we haven’t focused on is that these are gimmicks that come
out of the financial institutions, and they change all the time.
Someone sits in the back room and figures out how they can make
a bigger profit and give back to their shareholders. So what we are
doing is running after the caboose. We are trying to solve indi-

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vidual problems. We will never be able to do that. We have a whole
list—and I am sure the chairwoman has it—of community agencies, that this hearing is to mitigate the loss in L.A. County, California.
I want to go one step above that and into the Federal Government. I believe that the State ought to hold a conference and set
up a commission that will look at all of the lending institutions.
And we need to have some ground rules to prevent these kind of
products from being perpetrated on those who are seeking the
American dream. So I would propose that, because if there are a
million people in this room, a million people have a different problem with how they are going to save their homes.
And so what we have to do is go higher, and in the Federal Government we need to look at—we have all of these different agencies
that intend to help homeowners avoid foreclosures. But we can be
doing this year after year after year. Let us set some standards for
the State of California, City of Los Angeles, the county included,
and some Federal standards, that control the kinds of products
that are offered to those who are seeking to buy property and to
have their homes for a lifetime if they wish.
So what I want to do is say to all of you presenters and to this
panel, and the one that comes up after ours, I would like you to
come together and look at ways the State of California can set up
regulations for the kinds of financing of homes that come out of
their various institutions.
Then, I am going to ask the chairwoman to call us together
where we can talk about some Federal guidelines that will cover
all kinds of financial institutions that do home loans and that introduce products that really are perpetrated to make a profit and
not necessarily there to keep people in their homes.
And I want to say this in closing, that the American dream has
to be supported by those who represent you. And if it is a real
dream, it will become a reality. And the banks don’t want your
homes. What are they going to do? They want to sell them off, but
they certainly are calling in your loans. You can’t pay those increased payments. So we really need to deal with this at the top,
we need to speak loudly and clearly to the institutions that finance
these loans and tell them, ‘‘We will not tolerate the fraud that has
been perpetrated on those seeking to own homes and sustain their
homes.’’
So with that, Madam Chairwoman, thank you so much for letting
me sit with you these few minutes, and I am ready to join with all
of us to protect not only our constituents but all people who seek
the American dream. Thank you so very much.
Chairwoman WATERS. You are welcome.
Ms. WATSON. And what I would like to do is submit to you a proposal that we have to assist in the foreclosure. I will put it in writing and give it to you.
Chairwoman WATERS. Thank you. As you know, Congresswoman,
we have H.R. 3915—
Ms. WATSON. Right.
Chairwoman WATERS. —that was introduced by our chairman
and passed out of our committee. Did it pass on the floor? It passed
on the floor. This is the Mortgage Reform and Anti-Predatory

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Lending Act of 2007. You did support that. We had good support
from our side of the aisle on this, and we took a lot of action in
this bill on the Federal duty of care. And we have another title that
set minimum standards for all mortgages. We have a signee
securitizer liability, and on and on and on.
The biggest fight with this bill was something called preemption,
and this is always a big fight in Federal Government. Oftentimes,
we will run into problems like the one that we have now on foreclosures. Some States have tougher laws than the Feds will ever
have, because when you are dealing with the Feds, you are dealing
with all of the States and all of the interest groups, all of the entities that are represented in Congress, and they come with different
ideas.
So we try to support the States when they have stronger laws,
but I want you to know this is when the big boys roll out big time.
They roll out big time with the money, with the lobbyists. Sometimes they hire two, three, four lobbyists to every individual who
serves on the Financial Services Committee, and they back these
efforts because what they would like to have are Federal laws that
are basically minimum standards.
They would like it to apply to everybody, and we are trying to
preserve the right of States to be even tougher than the Federal
Government would ever get. So it is an ongoing struggle and an ongoing fight that we have to engage in.
Ms. WATSON. Yes. And in response, that is why I would address
Ms. Peters that you go back and carry the message that California
always is in the lead. We go above those standards, and I think it
becomes an obligation for the State to protect its homeowners. And
so, again, I want to thank you, and we know we are kind of concentrating on Los Angeles, but we are dealing with a problem that is
so overwhelming it means the loss of the American dream. So I
commend you for those efforts, and we will work together to have
better regulations and better laws.
Chairwoman WATERS. Thank you so very much.
Ms. PETERS. We have new regulations this year. We actually
have new regulations this year in California that are some of the
toughest in the Nation.
Ms. WATSON. Yes.
Chairwoman WATERS. Thank you very much. And we were waiting for Ms. Sanchez. I think she had to leave, and so now is the
proper time to dismiss this panel.
Thank you all very much for your participation.
Thank you for responding today, and we anxiously await to see
the results of Chairman Bair’s recommendations. We think that is
an answer.
Okay. With that, let me introduce our next panel as they come
forward. Let me just say that the Chair notes that some members
may have additional questions for this panel which they may wish
to submit in writing. So 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.
Thank you very much.
Panel number two consists of: Mr. Sandor Samuels, executive
managing director of Countrywide Financial Corporation; Ms.

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Michaela Albon, senior vice president and general counsel, Home
Loans Division, Washington Mutual; Mr. Brad Blackwell, executive
vice president, Wells Fargo Home Mortgage; Mr. Tom Deutsch,
deputy executive director, American Securitization Forum; Ms.
Anna Thomas, a homeowner in San Pedro, California; Ms. Karen
Lee, a homeowner in Los Angeles, California; and Mr. Paul Leonard, California office director, Center for Responsible Lending.
Without objection, your written statements will be made part of
the record. I will recognize each of you for 5 minutes. We are going
to try and keep each of you to your 5-minute presentation. We
would ask you to summarize and submit for the record, so that we
can move on with all four of our panels today. And we are going
to ask our members to keep their questions to 5 minutes, so that
we can complete this in a timely fashion.
I would like to welcome all of you who are serving on panel two,
and we will start with Mr. Sandor Samuels, the executive managing director of Countrywide Financial Corporation.
STATEMENT OF SANDOR SAMUELS, EXECUTIVE MANAGING
DIRECTOR, COUNTRYWIDE FINANCIAL CORPORATION

Mr. SAMUELS. Thank you, Chairwoman Waters. In addition to
my position at Countrywide, I also serve as the chairman of the
board—
Chairwoman WATERS. Let me see if I can get a little bit of—
Mr. SAMUELS. Okay.
Chairwoman WATERS. —attention for you here. Some people are
moving out, some people are moving in, and it is creating quite a
bit of conversation. So if you will just hold your conversation to a
minimum and quiet down, so that we can hear our panelists, I
would appreciate it.
For those of you who are standing back in the doorway on the
side walls, we do have plenty of seats. Please feel free to occupy
any of them.
Thank you. We will start again with you, Mr. Samuels.
Mr. SAMUELS. Okay. Thank you, Chairwoman Waters.
Chairwoman WATERS. You are welcome.
Mr. SAMUELS. In addition to my position at Countrywide, I also
serve as chairman of the board of Bet Tzedek Legal Services, and
I am also on the board of the Los Angeles Urban League and the
Housing Preservation Foundation.
As you may know, I testified earlier this month before the full
committee about the recent expansion of our foreclosure prevention
efforts, a $16 billion home preservation program to assist as many
as 82,000 Countrywide hybrid ARM customers facing unaffordable
ARM resets, and about our ground-breaking partnership with the
Neighborhood Assistance Corporation of America, or NACA, as well
as with other consumer groups.
Today I want to update you on our progress with those initiatives
and provide additional information on our activities here in California. California borrowers represent about 17 percent of our almost 9 million customers. More than 64 percent of our California
borrowers are located here in Southern California. As the largest
group in our servicing portfolio, California borrowers will benefit

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significantly from our home retention programs and will remain a
major priority of our outreach efforts.
Last week we endorsed the home retention principles announced
by Governor Schwarzenegger. These principles are also consistent
with those articulated by Treasury Secretary Paulson, FDIC Chairwoman Bair, OTS Director Reich, and other Federal banking regulators, calling for a systematic and scalable approach to home retention that is up to the challenges ahead.
We believe that we are ready for these challenges and already
can point to results that show loan modification activity is sharply
increasing. Although the majority of our efforts will result from direct contact with our customers, nonprofit organizations are also
critical to our efforts. On a national level, we recently entered into
a groundbreaking partnership with NACA, as I mentioned. NACA
has more than 30 offices around the country, including two very effective branches in California, one here in Los Angeles and one up
north in Oakland.
In just 5 weeks since the partnership was announced, more than
177 home save solutions have been completed or are in process.
The NACA partnership is a model that allows us to leverage the
unique capabilities of some of the best nonprofit counseling agencies on the ground in many of the communities we serve. Countrywide also is working with the L.A. Neighborhood Housing Services.
We participate in the Foreclosure Solutions Task Force and support
home preservation fairs like the one being held here as we speak.
We are collaborating with Lori Gay and the LANHS to expand
our relationship and strengthen our ability to help more borrowers
preserve homeownership and avoid foreclosure throughout the L.A.
area. I look forward to providing you and the subcommittee with
additional details on this collaboration in the near future.
Countrywide also has sponsored homeownership preservation
seminars in 30 communities around the country, including events
in Anaheim, Fresno, Oakland, Ventura, and earlier this month in
support of the ACORN event here in Los Angeles at the St. Vincent
School. We plan to significantly expand these efforts in 2008.
Most importantly, Countrywide’s initiatives are producing results
that help borrowers avoid foreclosure and preserve their homes.
Congressman Green, we are providing help now.
Through today, in 2007, Countrywide has helped over 55,000 borrowers stay in their homes through loan modifications, repayment
plans, and other home retention solutions, and we have about
100,000 borrowers in some stage of a workout transaction. To give
you some sense of how our more recent initiatives and partnerships
are paying off, in October we completed 11,000 home retention
transactions, workouts where the family stays in the home.
That is more than twice our previous monthly high. And more
than 9,000 of these, 82 percent, were loan modifications, meaning
that they involved a change to a loan’s interest rate, principal balance, or maturity date, or a combination, designed to provide longterm affordable payments. By comparison, about 28 percent of our
workouts in 2006 involved loan modifications.
These trends reflect not only the changing nature of the market,
and the causes of loan defaults, but also the efforts of servicers, investors, and regulators, with substantial help from this sub-

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committee, to secure the needed clarifications of accounting standards and other barriers to ensure that loan modifications can be
done whenever they present a better alternative to the mortgage
holder than a foreclosure.
In short, unlike what you may have read in the press, loan modifications have become a primary tool for keeping borrowers in their
homes. I have offered a lot of statistics in my comments, but I also
want to offer you two assurances. First, we understand that this
is a human problem, not simply a numbers problem. Second, Countrywide readily acknowledges that these are dynamic times, and we
fully understand that additional initiatives may be needed as
events unfold.
Thank you, Madam Chairwoman, for your leadership and for
your continuing efforts to help borrowers sustain the dream of
homeownership.
[The prepared statement of Mr. Samuels can be found on page
142 of the appendix.]
Chairwoman WATERS. Thank you very much.
Ms. Albon, senior vice president and general counsel for Home
Loans Division, Washington Mutual.
STATEMENT OF MICHAELA ALBON, SENIOR VICE PRESIDENT
AND GENERAL COUNSEL, HOME LOANS DIVISION, WASHINGTON MUTUAL

Ms. ALBON. Thank you, Madam Chairwoman, and members of
the subcommittee. My name is Michaela Albon, and I am senior
vice president and general counsel of the Home Loans Division of
Washington Mutual. I am pleased to be here today on behalf of
WaMu to discuss our efforts in helping our borrowers find alternatives to foreclosure and the ways they can overcome financial obstacles to keep their homes.
Clearly, the housing market is currently experiencing a sharp
downturn. These events are painful for homeowners, lenders, investors, and our communities alike. This is especially true in markets
such as California, which are coming off an extended period of
rapid home price appreciation. Moreover, delinquencies and foreclosures are increasing as fewer borrowers are able to refinance or
quick sale their way out of financial trouble.
While California remains a key concern, as you have already
noted, this is a national issue. Simply put, we view foreclosure as
a last resort, and we work very hard to keep our customers in their
homes and keep them as customers. We fully recognize that no
party wins—in fact, all parties lose—if a lender is forced to foreclose.
Our firm belief is that early intervention, as has been noted earlier today, combined with expanded options is instrumental to helping our customers avoid foreclosure. To that end, we are applying
particular emphasis on reaching out to our adjustable rate mortgage customers at least 6 months prior to the first reset date
through direct mail, dialing campaigns, and state messaging.
Overall, we have sent almost 5 million pieces of outreach mail
year-to-date and we will continue to work with our borrowers requesting assistance up until their reset dates and beyond. In April,
we announced a $2 billion assistance program, which is focused on

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helping our subprime customers who are current in their payments
but who are feeling the effects of this challenging environment. We
are reaching out to our customers and encouraging them to contact
us if they are concerned about making their new mortgage payment as a result of a payment adjustment on an adjustable rate
loan or for other reasons.
Our offers of assistance include refinancing or modifying their
mortgage into a fixed rate loan at a discounted interest rate. To
date, we have refinanced or modified approximately $720 million in
loans, and we expect this number to increase sharply in the coming
months. For those borrowers who have already become delinquent
and are in need of additional assistance, we are offering expanded
forbearance and loan restructuring plans, including permanent reductions in rate, extended terms, and even partial forgiveness of
debt.
To the latter end, WaMu has publicly supported the initiative to
reduce or eliminate the income tax on forgiven debt. WaMu maximizes the opportunities to meet with our customers by reaching out
to them via mail, phone, and personally inviting them to attend
homeownership preservation events, even to the extent of offering
$100 gift cards if our customers will attend and talk to us about
their loans.
These homeownership preservation events are held throughout
the United States, in the homeowners’ own communities, so borrowers may meet face-to-face with WaMu employees to work out a
solution to keep them in their homes. WaMu recently participated
in events held in Anaheim and Ventura, both of which were considered quite successful.
With regard to the percentage of home loans currently in foreclosure, we do not publicly disclose this information, but we give
borrowers every consideration as we work to assist them while
making prudent lending decisions and adhering to investor and
regulatory requirements.
Despite the efforts of lenders and servicers to help borrowers
avoid foreclosure, the industry does face challenges. It has already
been noted today that the terms and the conditions of applicable
pooling and servicing agreements, as well as tax law and accounting rules, determine the requirements regarding the loans we service on—to some extent the requirements regarding loans we service
on behalf of securitizations and third party investors.
Declining home values, subordination of junior liens, and
securitized seconds are also impacting our ability to help some customers. Perhaps our biggest challenge, however, is simply reaching
the borrowers who are most in need. If we can’t reach them directly
or indirectly, such as through community organizations, we cannot
help them.
In addition to WaMu’s own efforts as a lender and servicer, we
partner with local, regional, and national nonprofits to combine
raising rates of borrower delinquency and default. We have found
that these organizations can be very, very effective in reaching customers who may not feel comfortable contacting us directly.
We are a member of the HOPE NOW Alliance that has been
mentioned some this morning, and we recently participated in the
HOPE NOW outreach efforts. And our employees, including myself,

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are active participants in all of the working groups, including the
groups responsible for expanding and funding counseling initiatives
as well as advancing our ability to do more workouts and loan
modifications.
The final area I would like to briefly cover today is our industryleading measures we have taken to help borrowers through the ongoing origination process. In late September, WaMu co-sponsored a
national conference on consumer education that was held at our
training center in Seattle. In October, we introduced a requirement
in our wholesale channel that we hope will soon become industry
standard practice.
Chairwoman WATERS. Could you wrap it up for us, please?
Ms. ALBON. I am sorry?
Chairwoman WATERS. Could you wrap up your presentation?
Ms. ALBON. Yes. Basically, we have increased the disclosures
that must be provided by brokers on loans that they broker to us,
including more clear disclosure of their compensation.
[The prepared statement of Ms. Albon can be found on page 94
of the appendix.]
Chairwoman WATERS. Thank you very much.
We have to move on Mr. Blackwell, executive vice president,
Wells Fargo Home Mortgage.
STATEMENT OF BRAD BLACKWELL, EXECUTIVE VICE
PRESIDENT, WELLS FARGO HOME MORTGAGE

Mr. BLACKWELL. Chairwoman Waters, and members of the subcommittee, thank you for the invitation to testify. I am Brad
Blackwell, executive vice president of Wells Fargo Home Mortgage’s National Sales Force.
Chairwoman Waters, we commend your leadership on housing
issues. Wells Fargo is proud to have spoken at numerous national
forums of this nature, as we believe collaboration with you and
other Members of Congress is critical. We, too, are concerned about
foreclosures, particularly in parts of California where the market
correction continues to depress housing prices.
It is important to note that, culturally, Wells Fargo is committed
to lifetime customer relationships. Our vision is to satisfy all of our
customers’ financial needs, not just their mortgage needs, and to
help them achieve financial success. This includes ensuring all customers have access to and can sustain homeownership.
Working with organizations like Los Angeles Neighborhood
Housing Services, Operation Hope, the West Angeles Community
Development Corporation, and the East Los Angeles Community
Corporation, we have introduced a number of innovations to help
homeowners, including conducting seminars to help borrowers review loan documents and training local lawyers to give aid to people facing foreclosure.
In your congressional district alone, Madam Chairwoman, Wells
Fargo has contributed over $19 million toward low- and moderateincome housing investments. When faced with the tension that can
naturally exist between doing what is right for the customer and
generating a profit, responsible lenders do what is right for the customer.

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Unlike many in our industry, Wells Fargo chose not to offer negatively amortizing option ARM products. In 2006 alone, these loans
generated close to 40 percent of the industry’s revenue. We know
that having fair and responsible lending principles makes a difference. The subprime loans originated by Wells Fargo Home Mortgage have foreclosures half that of those not originated by our company.
Our principles include focusing on the customer’s ability to
repay, providing information to make fully informed decisions,
making only those loans that provide a demonstrable benefit to the
customer, and doing all we can to keep people in their homes by
providing experts, tools, and services that help customers manage
their credit.
While we believe we have made good decisions that align with
our responsible lending and servicing practices, like most others we
did not predict the extreme confluence of market events currently
affecting customers. So we have stepped up our efforts to find more
ways to help at-risk customers.
Wells Fargo has weathered the current subprime crisis well, relative to our competitors, because we respect that what is good for
consumers and what is good for investors are inextricably linked.
Selling mortgages into the secondary market makes homeownership possible for millions, including minority and low-income consumers, and we are careful to avoid practices that could limit responsible access to funding.
To ensure the future health of the housing industry, it is very
necessary to preserve liquidity and capital from the secondary market. We must find a good balance between upholding investor obligations and meeting consumer needs.
Since the vast majority of subprime loans we service are held by
investors, an ongoing industry dialogue organized by the American
Securitization Forum has helped us develop solutions that take
into account our secondary market obligations. Over the past few
weeks, we have been working closely with Treasury Secretary
Paulson, the Federal banking regulators, and the ASF on more systematic solutions, as you have been discussing earlier, for segments
of subprime consumers who share similar credit characteristics.
Now, HOPE NOW, which Wells Fargo was instrumental in creating, is another great example of how industry and government
have come together in nationwide solutions. This alliance harnesses the strengths of mortgage servicers’ counselors to capital
markets in the U.S. Government to help consumers get budget
guidance.
A critical component—and this was not discussed in the last
panel—is encouraging customer contact, since it is the biggest obstacle we face in helping customers. HOPE NOW is already beginning to prove that when we come together and mobilize to help consumers we can have great impact.
To gain further insights on the best ways to help more customers, we analyzed our 2007 subprime ARM servicing portfolio,
considering the life of the loan and current market trends. About
3 percent of the 7.9 million real estate-backed loans Wells Fargo
services are subprime ARMs that have or are expected to reset by
the end of 2008.

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At this time, it appears we can find workable solutions for the
vast majority, 80 to 88 percent. These customers will pay in full,
they will refinance, manage the higher loan payment, or benefit
from a workout solution. We either seek refinancing solutions or
modify all loans for customers who can afford the modification and
are willing to manage their mortgage payments. If a repayment or
modification will not be successful for the customer, we turn to
foreclosure avoidance options to protect the customer’s credit standing.
As the Nation’s leading FHA lender, we appreciate Congresswoman Waters spearheading FHA reform in the House, as we believe this will provide yet another conduit for helping customers.
Six months in advance of a reset, we contact borrowers.
Chairwoman WATERS. Could you wrap it up for us, please?
Mr. BLACKWELL. Thank you. I will. And by working—so we make
sure we contact those borrowers to see what we can do to help
them with the reset.
By working together, our industry, government, capital markets,
consumer groups, and not-for-profit counseling agents can help people stay in their homes, and it takes the effort of all of them. Together, we must get all customers facing difficulty to call their
servicers or credit counselor, and we must explore refinancing,
modification, and workout options. We are there for the help of our
customers.
Chairwoman WATERS. Thank you very much.
Mr. BLACKWELL. And we thank you very much for your time.
[The prepared statement of Mr. Blackwell can be found on page
103 of the appendix.]
Chairwoman WATERS. Thank you very much.
Mr. Deutsch?
STATEMENT OF TOM DEUTSCH, DEPUTY EXECUTIVE
DIRECTOR, AMERICAN SECURITIZATION FORUM

Mr. DEUTSCH. Thank you, Madam Chairwoman. I am honored to
be here on behalf of the American Securitization Forum, as well as
the Securities Industry and Financial Markets Association.
As indicated before, the ASF represents members, over 375 members, including all of the major servicers in the securitization marketplace, all of the major originators, as well as the institutional
investors, to purchase these mortgage-backed securities as well.
Our mission and goals can be succinctly summarized as: first, providing good market standards and practices in this area; second,
advocating on behalf of our members; and, third, providing a good
education as to how securitization works and the different incentives market participants have.
Before I address the specifics of the securitization process, and
some of the many initiatives that we are working on right now, I
would like to make one fundamental observation about the current
mortgage market. That is, no one—no one—benefits from foreclosures, not the mortgage servicers, nor pension funds, nor mutual
funds or hedge funds who ultimately invest in these mortgagebacked securities benefit from foreclosures at all. It is often the
costliest outcome for both the borrower as well as the investor in

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those mortgage-backed securities. And let me just put a placeholder
in there and come back to that towards the end of my testimony.
Fundamentally, the process of securitization, though, allows
originators of consumer and commercial credit to pool hundreds of
like obligations and securities, which often generates stable and
predictable cashflows for the investors in those mortgage-backed
securities as borrowers pay their principal and interest payments.
Recent developments in the current subprime residential mortgage place has generated a number of significant concerns, and
have impacted both the borrowers in those mortgage-backed securities as well as all of the securitization market participants. Given
these market conditions, servicers of the mortgage loans, whether
they are held in portfolio by the different banks, or whether in
securitization trust, have redoubled their efforts, as you have just
heard by all of the testimony from some of the servicers here, to
help borrowers avoid foreclosure and minimize the losses to the
securitization investors.
This is a very key point. The securitization investors are the ones
who keep capital flowing into this marketplace. Refinancing is the
number one option for many borrowers in these homes, not everyone, and let me speak to a couple of the general tenets that we
have been discussing through numerous discussions both with various industry participants as well as the various Federal regulators
and the Administration.
For many of those who are coming up on their reset date, and
they have generally been current in their introductory mortgage
payments, and have built up some equity in their home, refinancing opportunities continue to exist and to be accessible to borrowers even in the current marketplace. But for some borrowers
with significantly impaired credit, or little equity in their home,
these refinancing opportunities may not be available, and this is an
area where the servicers as well as the industry have taken particular note and focus, especially over the last few months.
For borrowers who have been able to stay relatively current in
their introductory rate—again, showing their ability and willingness to pay in that current introductory rate—servicers are and
will continue to employ the full tool kit of loss mitigation options,
including, but not limited to, loan modifications to try to help that
borrower to stay in their home, again coming back to the point. For
those leaving their home, whether it is through foreclosure or even
short sales, it is often not the best outcome for anybody in the
securitization process.
So let me just talk a little bit about the securitization pooling
and servicing agreements that have been discussed a little bit
today and get to some of the recent industry developments. As
many of you are aware, all of the securitizations are covered by
pooling and servicing agreements that are effectively the contract,
if you can think about it, between the servicer and the investor of
the mortgage-backed securities, various provisions that allow
servicers to do a wide range and open up the full tool kit of what
servicers can do.
Given current market conditions, the American Securitization
Forum has taken particular note of that. And as far back as June
of this year, we instituted a statement of principles, recommenda-

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tions, and guidelines for the modification of securitized subprime
residential mortgage. That is attached to my testimony as Exhibit
A.
This document concludes that loan modifications—and this was
back in June—that are in default, for subprime loans that are in
default or for which default is reasonably foreseeable, an important
serving tool as part of the full servicing tool kit to often help borrowers avoid foreclosure and remain in their homes.
I would also like to note that the development of the ASF statement was a first and important step towards industry collaboration
and coordinated solutions. Since the ASF and SIFMA have also
been pleased to be involved with the HOPE NOW Alliance that was
formed on October 9, 2007, under the leadership of Treasury Secretary Paulson and HUD Secretary Jackson, this HOPE NOW coalition again brings all of the counselors, servicers, investors, and
other mortgage market participants to maximize the outreach to
borrowers and to help develop industry solutions.
On that same day, we also released a statement allowing for the
reimbursement of borrower counseling expenses to be viewed as
servicing advances, effectively Help Now. That is, that servicers
can deduct out of securitization trust cashflows many of the expenses that they reimburse for counseling expenses, something we
spent a great deal of time working with both servicers and investors to develop this.
Finally, I believe that brings me to the work that we are currently working on now with Federal policymakers, including the
FIDC, FASB, the Federal Reserve, the Treasury Department, and
other Federal bank regulators to identify the loss mitigation obstacles and promote best servicer practices throughout the industry.
Fundamentally, the ASF believes, and is continuing to pursue,
streamlined methods of segmenting borrowers with various types of
characteristics including loan-to-value ratios, credit scores, and,
most importantly, payment history at the introductory rate. We believe that streamlining this approach by doing this very quickly, as
servicers have been doing and working on over the last few
months, will achieve very measurable outcomes and ultimately
help even that many more borrowers stay in their homes.
We are pursuing these efforts in great earnest, and hope to report out the progress of these efforts in the very near future.
Madam Chairwoman, and distinguished members of the subcommittee, I thank you for the opportunity to participate in today’s
hearing. The ASF and SIFMA stand by to assist you.
[The prepared statement of Mr. Deutsch can be found on page
108 of the appendix.]
Chairwoman WATERS. Thank you very much, Mr. Deutsch.
Now we will hear from some homeowners. First, Ms. Anna
Thomas, a homeowner from San Pedro, California. Thank you for
being here.
STATEMENT OF ANNA THOMAS, HOMEOWNER, SAN PEDRO, CA

Ms. THOMAS. Thank you. Thank you. It is exactly a year ago that
I got into a bad loan with Freemont Investment and Loan, almost
to the day, and they did nothing to help negotiate or modify my
loan. Over 6 months, I paid them $5,190.35 for my mortgage. I had

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help to do that. I had family members in my home, and I was able
to do it for 6 months.
And it turned out, towards the sixth month, I realized my family
members were not there any longer, they had to go back to New
York, and I could not make those payments. Freemont Investment
and Loan would do nothing to help me. I heard mentioned today
that the consumers don’t know where to go, and I didn’t know
where to go either.
I got a book, this Consumer Action Handbook. I found the Department of Consumer Affairs, their Real Estate Fraud Unit, a
lady, Dawnnesha Smith called me right away to see how they could
help. They got on the phone with Freemont—now, I had been negotiating with them for over 6 months now. They would not take any
partial payments. They wanted me to sell my home.
Investigator Gutierrez spoke with them at length on one particular day. She called me at work and said, ‘‘I have been talking
with them all day. I am sorry, they are not bending. You are going
to—on the 16th of November, they will file foreclosure notice, and
you are going to have to move out of your home. And as a matter
of fact, within 72 hours you would have to vacate your home.’’
I was devastated at that news, and I felt the compassion in her
voice. There was somebody that I was able to call. I don’t know
what she said to them, but she called me back 15 minutes later
and said, ‘‘Ms. Thomas, I am on a conference call with Freemont
Investment and Loan, and this gentleman would like to speak with
you.’’ So within a 15- to 20-minute period, I went from devastation
to elation. He told me he would modify my loan at 6 percent.
Would I be able to pay them a fee of $5,190.35? I said yes, I would.
I didn’t have it then, 6 months ago. I don’t really have it now
either, but my friends and relatives got that money together. I sent
it in to them, my payment now is approximately $3,700. I asked
if they could put that $5,000 maybe onto the loan, so that I would
not have to pay that money on the 16th of November, and then go
back on the 1st of December now with $3,700, but that is another
hurdle that I will have to make.
I am here—hopefully other consumers will get in touch with our
agencies, especially the Consumer Affairs Department and the people who helped me—perhaps they, too, can save their homes. I am
a survivor of this foreclosure crisis. I am happy to say that at this
point. Going forward, I have learned a lot of things, and I would
like to thank you for having this panel and hopefully preventing
this from happening to other people.
Thank you.
Chairwoman WATERS. Well, you are so very welcome, and we
thank you for being here.
Ms. Karen Lee, also a homeowner, from Los Angeles. Thank you
for being here today.
STATEMENT OF KAREN LEE, HOMEOWNER, LOS ANGELES, CA

Ms. LEE. Thank you. It is my pleasure to be here and share my
story. I feel like I am one of the lucky ones, because I was not losing my home at the time I think I had—my health went down, so
I had to quit work. My husband wasn’t in the greatest health either, and he was on the verge of retiring.

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So we discussed what we would do, since we knew we didn’t have
a lot of money coming in, and we had refinanced before a couple
of times for our children’s education. So we, therefore, did not even
consider what would happen to us once we retired or if something
drastic like my health going down the tubes would affect our lives.
I had been getting a lot of literature through the mail about reverse financing. I didn’t understand it. There was a seminar that
we attended, and we still didn’t give it a lot of thought. But then,
as the time got nearer for my husband to retire, then I started
thinking, well, gee whiz, I am ill, my house note was $1,300 a
month, and maybe to some people that is not a lot of money, but
for us raised in South Central Los Angeles, it was a lot of money.
So I couldn’t imagine how, if something should happen to him,
how I could get this money together if I should miss a payment or
whatever. So we discussed it, and I am very pleased to say that we
were happy with the decision that we made to go ahead on and do
something about it before anything happened. So we went on and
we applied. I have a new that is with the HUD Corporation, and
he was instrumental in giving us advice and putting us with the
right people to give us the right understanding, and now we can
breathe easy and it is a good feeling.
I appreciate you allowing me to come and share my success
story.
[The prepared statement of Ms. Lee can be found on page 141
of the appendix.]
Chairwoman WATERS. Well, thank you very much.
Mr. Paul Leonard,California office director, Center for Responsible Lending.
STATEMENT OF PAUL LEONARD, CALIFORNIA OFFICE
DIRECTOR, CENTER FOR RESPONSIBLE LENDING

Mr. LEONARD. Madam Chairwoman, thank you and the other
members of the subcommittee for coming out today. I can’t help but
say the timing of this hearing couldn’t have been better given the
landscape that we are facing now, the Governor’s intervention, the
discussions that are happening in Washington around expanding
the scale of modifications. It is critical.
I am Paul Leonard, the director of the California office of the
Center for Responsible Lending. We are a nonprofit, nonpartisan
policy organization working to eliminate financial abuses in the
marketplace. We work with a lot of other civil rights, labor, consumer groups. We work closely with the NAACP, and the National
Council La Raza, at the national level as well as here in the State.
We are also affiliated with Self-Help, which is a credit union, so
we are a lender to people who have imperfect credit in North Carolina directly. And through a national lending program, we have
bought some $5 billion and helped finance more than 41⁄2 million
homeowners and small businesses.
I would be remiss if I didn’t reiterate the fact that California
really is the epicenter of the national foreclosure crisis. Last year
we put out a report that projected there would be 2.2 million foreclosures as a result of subprime lending that occurred in 1998 and
2006. We estimated that close to 500,000 of those would be right

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here in California, and some 45,000 here in L.A. County specifically.
As others have mentioned, this is a problem that is disproportionately focused on minority communities and minority borrowers.
Both African Americans and Latinos are much more likely than
similarly-situated, similarly credit quality white borrowers to get
high cost subprime loans and to experience foreclosures.
You know, not too long ago the problem for homeownership lending used to be redlining, that minority folks couldn’t get a lender
to say yes to a loan. Unfortunately, the pendulum has swung way
too far to the other end where the saying in the industry is is that
if you could fog a mirror, you could get a loan, and the whole issue
is now not about whether you can get a loan but how much you
are going to pay for it and what the terms of those loans are.
And, unfortunately, far too many people got into loans that they
fundamentally are not going to be able to repay, and that the lenders didn’t evaluate their ability to repay beyond the initial starter
rate period and didn’t verify their income as to determine their
ability to repay.
The costs of this are staggering, not just for the borrowers, for
whom it is a tragedy for them to lose their homes, but also for the
neighbors, as several of the members mentioned. We have done
some analysis. Here in L.A. County, we estimate that 3 million
homeowners will experience price declines in their homes totalling
some $31 billion as a result—specifically as a result of foreclosures
that are happening to their neighbors.
And as others have mentioned also, the problem is going to get
worse. We are going to see a spike in subprime ARM borrowers
who are facing resets for the first time over the next 12 to 18
months. Unfortunately, for the last 6 to 9 months, we have heard
a lot of what I call ‘‘happy talk’’ from the lenders, promises of efforts to reach out, staff up their loss mitigation efforts, contact borrowers and offer a full range of loss mitigation tools, including loan
modifications. Unfortunately, that rhetoric has often been hollow.
Moody’s did a survey of the largest servicers in the country a
couple of months ago, and they found that only 1 percent of borrowers at reset were getting modifications. And when we have
scratched below the surface and looked at the types of modifications that are being provided, often they are of a very short-term
nature, not the long-term affordability that Chairman Bair is seeking in her approach to loan modifications.
Now, why isn’t this happening despite the obvious economic appeal and the point that Mr. Deutsch made that nobody really benefits from foreclosures? Well, we think there are a few reasons. One
is that the financial incentives for the servicers may very well be
mismatched with the incentives of the investors. There was a recent quote in an Inside Mortgage Finance from a Deutsche Bank
official who said, ‘‘Just this week, servicers are generally
disincented to do loan modifications because they don’t get paid for
them, but they do get paid for foreclosures.’’
This official went on to indicate that it costs servicers between
$750 and $1,000 to complete a loan modification. So we have to dig
beneath the surface and really get into the guts of these operations
to understand where the financial incentives are internally, even if

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the outcomes of foreclosures are clearly worse off for investors and
for borrowers.
There are other issues. Clearly, the servicers haven’t had the capacity to deal with the wave of folks who are facing problems.
There are potential lawsuits from investors that are tying the
hands of how many modifications, at least that the lenders suggest
that they can do. And, finally, there are some complicated incentives with many loans that have second mortgages, which make it
difficult to offer these loan modifications.
Well, what is needed to make this work? I think there really are
three things. First of all, we wholeheartedly endorse the proposal
put forward by Chairman Bair to essentially identify quickly and
in a streamlined fashion those borrowers who are not going to be
able, who are current and occupying their homes, current at the
time of reset and aren’t going to be able to afford it. And let us
just, as she said, get on with it, convert these loans to the starter
rate for the life of the loan.
I would also point out that we should expand the universe of
those folks who are affected, because there are many people who
have already passed their reset date and who have fallen behind
on their loans but were current before, and they have fallen behind
on their loans because they couldn’t afford this reset that they have
already experienced. Those folks, too, should be included in the
universe that we are looking for for this streamlined, simple modification process.
The second thing that I think is really, really important is there
has to be transparency about who is going to qualify for these
streamlined modifications. I have talked to a lot of housing counselors and borrowers who you have already heard today have trouble finding the right person, have trouble knowing what their clients are eligible for in terms of a loan workout, and so we have to
make it simpler and easier to understand for borrowers and for the
lenders alike.
And perhaps most importantly, we need regular reporting of
data, because right now—Madam Chairwoman, you know, you
were intimately involved in the effort to get—expand the Home
Mortgage Disclosure Act, which has shed a light on and provided
a real democratization of data around home lending practices.
We need similar data collection right now for the servicing activities, so that we can know and measure the lenders up to the standards that they have set for themselves, that if they are providing
the long-term affordable loan modifications that they are talking
to, they will make this data—readily make this data available for
you and me and everybody else to see, so that we can know that
people’s homes aren’t being lost.
Two final points that I think are important to sort of level the
playing field to help current borrowers. One is Ms. Sanchez’s proposal for bankruptcy reform. It is a critical, critical component, because right now, as she said, the first home mortgage is the only
asset that a bankruptcy judge can’t rework the terms of their loan.
Second home, vacation home, a nice yacht, or an RV, even credit
card debt, all can be restructured in a bankruptcy process. First
home mortgages isn’t one of those items. And if we don’t do that—

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if we do that, we are actually giving the borrowers a whole lot more
leverage in their ability to negotiate with their lenders today.
The one final point I want to say is requiring mandatory loss
mitigation activities on behalf of the lenders, establishing some requirements as are required by FHA today that would require lenders to reach out and document their loss mitigation efforts before
they came move to foreclosure we think would be a strong Federal
policy that should be adopted. Thank you very much, and I am
happy to answer your questions.
Chairwoman WATERS. Thank you very, very much.
Thank you very much.
Again, I would like to thank all of the panelists for their testimony. It was indeed tremendously informative, and we have a few
questions to raise of our panelists.
Let me just say to the lending institutions who are here today
that I know oftentimes you don’t feel comfortable coming to these
kinds of hearings, and particularly when it is chaired by Maxine
Waters. You think you are going to get beaten up.
And we don’t want to do that. We want to make you feel as comfortable as we possibly can, but we have to ask you some tough
questions. The first question I would like to ask is something you
alluded to, Ms. Albon. Can each of you tell me how many foreclosures are in your portfolios? Let me start with Countrywide.
What is the total amount of foreclosures that you are working with
at Countrywide? How many foreclosures have you had?
Mr. SAMUELS. Could you start with someone else? Let me just review—
Chairwoman WATERS. All right. We will start with WaMu.
Ms. ALBON. Yes. We do not publicly disclose that data, so I—
Chairwoman WATERS. I am sorry. Would you please give her the
microphone?
Ms. ALBON. We do not publicly disclose that data, so I do not
have it with me today.
Chairwoman WATERS. All right. I know that you said that. I just
wanted to get it into the record, because we have to talk about
what we do about that.
What about Wells Fargo?
Mr. BLACKWELL. Wells Fargo’s foreclosures currently represent
.66 percent of our portfolio.
Chairwoman WATERS. What is that—
Mr. BLACKWELL. That was as of the end of the third quarter.
Chairwoman WATERS. What is that in raw numbers?
Mr. BLACKWELL. I am sorry. I don’t know that number.
Chairwoman WATERS. Okay.
Mr. BLACKWELL. We have—
Chairwoman WATERS. Okay.
Mr. BLACKWELL. —roughly 7.9 million loans in our portfolio.
Chairwoman WATERS. All right.
Mr. SAMUELS. Ours is .89 percent of our portfolio of almost 9 million.
Chairwoman WATERS. Almost 9 million?
Mr. SAMUELS. Yes.
Chairwoman WATERS. All right. For Wells Fargo, do you have—
do you own other companies that initiate loans for you? Any

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49
other—do you own any other banking or mortgage companies that
do loan initiation for you?
Mr. BLACKWELL. Thank you, Chairwoman Waters. I think I understand the question.
Chairwoman WATERS. Yes.
Mr. BLACKWELL. Do we own any separate companies, not under
the—
Chairwoman WATERS. Yes.
Mr. BLACKWELL. —Wells Fargo umbrella—
Chairwoman WATERS. Yes.
Mr. BLACKWELL. —that originate mortgages?
Chairwoman WATERS. Yes.
Mr. BLACKWELL. The answer to that is no. We do originate loans
under the Wells Fargo Home Mortgage name, and under the Wells
Fargo Financial name. Both are wholly-owned subsidiaries. Wells
Fargo Home Mortgage is actually a unit of Wells Fargo, and Wells
Fargo Financial is a wholly-owned subsidiary.
Chairwoman WATERS. Are all of your loans initiated by loan officers that work in these entities?
Mr. BLACKWELL. If you mean are all of our loans originated as
in the loan officer takes the loan application—
Chairwoman WATERS. Yes.
Mr. BLACKWELL. —the answer to that is no. We have—and our
primary origination source is retail, in which loan officers take the
loan applications. But we also have a wholesale unit which originates loans through mortgage brokers who can deliver loans to us.
And we have a correspondent unit that buys loans from mortgage
bankers, and those three units all do mortgages for Wells Fargo.
Chairwoman WATERS. What percentage of your loans, your
subprime loans, are originated by mortgage brokers?
Mr. BLACKWELL. I am sorry. I don’t have that information. I can
tell you that more than half of our loans were originated through
our retail channels, but I do not have the percentage of loans that
were done through our wholesale channels.
Chairwoman WATERS. What about you, WaMu?
Ms. ALBON. We also do business through licensed brokers, and
a large percentage of our subprime loans that we currently service
were originated through mortgage brokers, and then some were
purchased from sellers.
Chairwoman WATERS. What percentage again?
Ms. ALBON. I don’t have that number on me, but I can go back
and get that information.
Chairwoman WATERS. Can either of you tell me—can you trace
whether or not your foreclosures are more tied to or related to the
loans that were initiated by your banking operation or by the operations of the mortgage brokers and the mortgage bankers, others
that were initiating for you?
Ms. ALBON. We would internally have that data.
Chairwoman WATERS. Well, I know you would have it internally,
but can you tell me?
Ms. ALBON. I do not have it with me right now.
Chairwoman WATERS. But is this something that you can publicly disclose?
Ms. ALBON. I will go back and check on that.

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Chairwoman WATERS. Yes, sir.
Mr. BLACKWELL. I apologize. I don’t have the exact numbers, but
I do know that the performance of our portfolio originated directly
by our loan officers is better than that originated by mortgage brokers that delivered in to us.
Chairwoman WATERS. At any point in time leading up to this crisis, did you know and understand that?
Mr. BLACKWELL. I do not have the answer to that personally.
Chairwoman WATERS. Okay. Let me just move on to Mr.
Deutsch. Mr. Deutsch, did you say what I heard Mr. Leonard say?
Was it true that you said that the servicers don’t get paid for doing
the workouts on foreclosures?
Mr. DEUTSCH. I am sorry. As much as I would like to have the
resources of Deutsche Bank, I think that is who he was referring
to, not Tom Deutsch.
Mr. LEONARD. That is correct.
Chairwoman WATERS. Oh, okay.
Mr. LEONARD. It was a Deutsche Bank official that—
Chairwoman WATERS. Oh, okay.
Mr. LEONARD. —I was quoting.
Chairwoman WATERS. All right. I am sorry.
Mr. LEONARD. Not Mr. Deutsch.
Chairwoman WATERS. I just saw Deutsch there, and—
Mr. LEONARD. You have seen one Deutsch, you have seen them
all I think.
Chairwoman WATERS. That is right. That is right. So but since
you are an expert in this area, is this a problem?
Mr. DEUTSCH. Could you repeat the question?
Chairwoman WATERS. The question is, because you understand
and know you are the forum, and you have under your umbrella
all of these servicers, have you heard or have you learned that they
do not get paid for doing workouts? That it is too costly, it is too
time-consuming, that it is not—you don’t have any incentives for
doing these kinds of modifications or workouts. Have you heard
that said before?
Mr. DEUTSCH. I have heard that said before, and personally having, for better or for worse, drafted many of these pooling and servicing agreements, quite familiar with many of the provisions that
are applicable, I guess I would respond I guess with two notes. Is
that, first, the servicer does have an incentive to continue servicing
and not foreclose or create some sort of short sale arrangement, because they are continuing to receive a servicing fee for servicing
that loan ongoing.
So if they were to—to say that they are not paid to actually do
a loan modification misses the point that they will continue to receive a servicing fee for servicing that loan going forward.
Secondly, is that they—
Chairwoman WATERS. No, no, we understand that.
Mr. DEUTSCH. Sure.
Chairwoman WATERS. We understand that if they continue to
service the loan they are going to get paid. So that is the incentive
for wanting to service rather than—well, you said it. If you do the
workout, and it stays on the books, then you do get paid for it. So
what point were you making, Mr. Leonard?

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Mr. LEONARD. I was simply sort of reiterating this comment from
my friends at Deutsche Bank as opposed to Mr. Deutsch that—
Chairwoman WATERS. Yes.
Mr. LEONARD. —that, in fact—that from this person’s perspective
that the incentives were not necessarily aligned and moving in the
direction of making sure that the servicers were going to be striving for to deliver modifications rather than foreclosures. And combined with the risk of investor lawsuits and other complications,
the default may very well still be easier to do—to accept a foreclosure, have the loan off the books, than it is to go through the
effort of doing a workout.
Chairwoman WATERS. Mr. Deutsch, are you guys worried about
liability? Is there something that needs to be done to relieve you
of that concern of liability based on the contracts that you have
with the investors?
Mr. DEUTSCH. Absolutely, liability has been raised as an issue,
and I would respond with two notes, is that servicers have indicated a concern if they do too few loan modifications that investors
and mortgage-backed securities could sue them for that, but they
have also noted—servicers—in the same breath that if they do not
enough loan modifications that investors could also sue them for
not doing enough loan modifications, because they haven’t modified
to an extent that would maximize the net present value of the
trust.
Chairwoman WATERS. They could be. Do you know of any
servicers who have been sued?
Mr. DEUTSCH. I am not personally aware of lawsuits that have
been filed. Most of those would be private litigation that I—
Chairwoman WATERS. But in a forum where you are looking to
make sure that you strengthen the industry and protect your investors and do the work that they—you would know whether or not
there was a rash of—
Mr. DEUTSCH. Certainly, there has been, as far as I am aware,
no rash of suits as of yet. But I would note that it is—there is always litigation risk. Absolutely. But that is—
Chairwoman WATERS. In life.
Mr. DEUTSCH. —life in the capital markets.
Chairwoman WATERS. Yes.
Mr. DEUTSCH. Servicers, when they sign up for these agreements, they do have to take those risks, the risks associated with—
Chairwoman WATERS. Have you made available—maybe my staff
would know—a copy of these kinds of service agreements that are
worked out between the investors and the servicers? Have you seen
these kinds of agreements?
Mr. LEONARD. My colleagues have reviewed these pooling—a
sampling of these pooling and servicing agreements, as well as
many other Wall Street firms that have reviewed them and—
Mr. DEUTSCH. Ms. Waters, I might note you can go to the sec.gov
Web site, and within that Web site is a filing of all pooling and
servicing agreements on publicly-issued securities, so you can look
at any particular issue through that Web site.
Chairwoman WATERS. Thank you. And I would instruct my staff
to do that. We are going to gather those and take a look at them
and see what you are talking about.

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One last thing. You mentioned that in these workouts that we
are still trying to find, you know, all of these workouts that have
been done.
Mr. DEUTSCH. Sure.
Chairwoman WATERS. But one of the things you look at is whether or not there is impaired credit.
Mr. DEUTSCH. Correct.
Chairwoman WATERS. Now, don’t forget these are workouts that
are being done by people who have already been extended credit.
Mr. DEUTSCH. Correct.
Chairwoman WATERS. They got into a teaser loan.
Mr. DEUTSCH. Correct.
Chairwoman WATERS. So did the credit become bad after they
gave them the loan, or when did they have such bad credit that
they can’t do a workout to remedy the risk that they are now involved in?
Mr. DEUTSCH. Sure. I might distinct out between credit and payment on their mortgage payment. I think it—
Chairwoman WATERS. Well, they have been in this for 6 months.
Mr. DEUTSCH. Okay.
Chairwoman WATERS. They got a teaser rate.
Mr. DEUTSCH. Okay.
Chairwoman WATERS. They are in for 6 months. It is going to
reset. Are you saying the credit went bad in 6 months?
Mr. DEUTSCH. No. What we would—what we are proposing, and
through I think all of the different proposals that you have heard,
both from Chairman Bair as well as others, is that if they are current in their introductory rate, and their credit hasn’t taken a significant or drastic slide, that they would be eligible for either refinancing when they come up upon their reset, or that upon that
reset they would receive a loan modification.
Chairwoman WATERS. So you do support Chairman Bair’s recommendation to freeze the ARMs at the starter rate?
Mr. DEUTSCH. I think there is a lot of nuances associated with
that statement.
Chairwoman WATERS. Well, just the general idea. Do you support
that?
Mr. DEUTSCH. As a general idea, the American Securitization
Forum has come out in our statement in June noting that loan
modifications are extremely important and should be done on a
loan-by-loan basis. But let me quality that. By streamlining the
process of evaluating the borrower characteristics—and there is
many different metrics that can be done to make that a very efficient and fast process, and I think over the—in the very near future you will see the industry working hand in hand with the Federal regulators—
Chairwoman WATERS. Well, let me just say that we are way past
101 Loan Modifications. It is too slow, it is too time-consuming, the
consumers are not getting the information, we don’t see the kind
of outreach that we are hearing about today. Chairman Bair has
a proposal to say, ‘‘Let us do it in a significant way. Let us just
come up with an agreement that we are going to freeze these
ARMs at a starter rate.’’ You are telling me you are not prepared
to say you support that today?

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Mr. DEUTSCH. I think one could—
Chairwoman WATERS. Yes or no.
Mr. DEUTSCH. One—
Chairwoman WATERS. I want to be nice.
Mr. DEUTSCH. I agree. I think the statements that Chairman
Bair has made have indicated on a specific basis that loan-by-loan
analysis, even under her proposal, still needs to be done on a loanby-loan basis, but that systematic criteria can be used. I think they
are the exact same approach, but different nuances in the words
have made them seem as if they are different approaches.
Chairwoman WATERS. Well, I would hope that at some point in
time our subcommittee, and perhaps our entire committee, is going
to make it very clear where we stand on the idea, and we are not
going to nuance it. We are going to want some real action.
I know I have taken a lot of time here, but you are extremely
important to solving this problem. And I have been wanting for us
to get to you guys to see what you were doing, what you were initiating. I am concerned about the liability issue, and I am concerned
about any other obstacles to doing these workouts that would
freeze these ARMs.
And so we have a lot of work to do, as I can see, but you could
be very helpful in helping us to understand how best to do it, and
supporting a real proposal by which to get it done.
Now, having said that, I am going to wrap up, so that my colleagues can get their questions in. How many of you in your outreach, not your national town hall meetings, but you know—Countrywide, for example, you hold most of your paper, is that right?
Mr. SAMUELS. Yes.
Chairwoman WATERS. So you are doing your own servicing, is
that right?
Mr. SAMUELS. Yes, ma’am.
Chairwoman WATERS. So your people are sending out the notices
every month?
Mr. SAMUELS. We are not only sending out notices, but we are
also calling.
Chairwoman WATERS. When the notice goes out, for whatever
reason, on that loan, what is your organized systematic way of
making sure that everybody is getting an invitation, either notifying them that—
Mr. SAMUELS. Right.
Chairwoman WATERS. —the loan is going to reset—
Mr. SAMUELS. Right.
Chairwoman WATERS. —or that they are in trouble already and
come in and they can get a modification consideration?
Mr. SAMUELS. As I mentioned, we have several notices that go
out—180 days, 90 days, 45 days—before the reset. And we do several things on the notice. We say, ‘‘If the interest rates at the date
of the reset are what they are today, this is what your payment
would be.’’ So somebody could see, compare what their existing
payment is, to the payment reset. And we say, ‘‘If you have an
issue with what is going—you know, with this reset, please call us,
please call the Housing Preservation Foundation, NeighborWorks,’’
you know, one of those organizations.

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And we also call—we also call these borrowers, because sometimes when an envelope comes, as you know, we get a lot of junk
mail. When an envelope comes, sometimes people may not pay attention to it. So in order to try to make sure that people are aware
of the coming reset, we also make phone calls.
Chairwoman WATERS. You made an arrangement with a nonprofit organization to help you to do what?
Mr. SAMUELS. Yes. That is—well, we have a number of arrangements, but the one that I think you are referring to is—
Chairwoman WATERS. NACA?
Mr. SAMUELS. Yes, the Neighborhood Assistance Corporation of
America.
Chairwoman WATERS. What is that arrangement?
Mr. SAMUELS. The arrangement that we have there is where people come to NACA. What NACA does is they do counseling.
Chairwoman WATERS. How do they get to NACA?
Mr. SAMUELS. They get to NACA a variety of ways. they—well,
we are actually doing some advertising, are going to be doing some
advertising.
Chairwoman WATERS. How much money have you put into paid
ads?
Mr. SAMUELS. To paid—
Chairwoman WATERS. On television. You know, the same kind of
ads where you say, ‘‘Come to Countrywide and get this loan.’’
Mr. SAMUELS. Right.
Chairwoman WATERS. How many of those have you done that
say, ‘‘Come to Countrywide and get this loan modification?’’
Mr. SAMUELS. We haven’t done any of that yet.
Chairwoman WATERS. Well, that is what I thought. And not only
have you not done any, but you are still spending money on ads
to say, ‘‘Come and get this loan,’’ and you are still doing direct
mailings. And those mailings look like some of the same mailings
that went out prior to this crisis that has created this problem. I
don’t get it.
Mr. SAMUELS. Well, Congresswoman, we are still—we still want
to make loans to people who can qualify for loans, and we think
that that is still important.
Chairwoman WATERS. No. We want you to do that.
Mr. SAMUELS. Yes.
Chairwoman WATERS. Except we don’t want you to do it the
same way that you have done it. It was described here earlier that
we were at a time and point, in minority communities in particular, where we were redlined. And we worked awfully hard—awfully hard—to open up these doors.
Now we are being accused of not being appreciative, that we
opened up the doors and you allowed us to get all of these loans,
and it is not your fault that we are defaulting. However, everybody
has to take some blame in this, and certainly the initiators have
to take some blame in this, because what you did was you extended
exotic products to people who thought they were able to realize the
American dream and get a loan. They didn’t understand these exotic loans and these teaser rates and these interest only and these
no-doc loans.

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And what I think I see is you are still advertising and soliciting
on these exotic products.
Mr. SAMUELS. No, we are not doing that. That is not—we are not
doing that anymore, no.
Chairwoman WATERS. What are you doing in your solicitations
that is different?
Mr. SAMUELS. Well, we are not doing—we are not doing 2/28s
and 3/27s anymore. So these products—our subprime, you know,
we are—our subprime products have been very, very significantly
reduced from what they were. But I want to—
Chairwoman WATERS. Do you have a way that you can document
how many modifications you have done?
Mr. SAMUELS. Yes. In fact, I have—I think we have been—
Chairwoman WATERS. Is it public information?
Mr. SAMUELS. Yes, absolutely. And we have been very—I think
of all the lenders, we have been very, very forthcoming in terms of
how many we have done. And it is in our written testimony, and
I have also mentioned it in—
Chairwoman WATERS. So you have made 18 million phone calls.
Mr. SAMUELS. Yes.
Chairwoman WATERS. And you have done what with 30,000? Did
you do workouts? Did you do successful workouts?
Mr. SAMUELS. We did 50—
Chairwoman WATERS. Did you talk with 30,000 people? What did
you do?
Mr. SAMUELS. We have done—since the beginning of the year, we
have done 55,000 workouts, meaning people stay in their homes. It
is not—we do not include—
Chairwoman WATERS. Does your workout include a modification?
Mr. SAMUELS. Yes. Of the—
Chairwoman WATERS. All of these have been—
Mr. SAMUELS. No, not all of them have been modifications. There
are other—
Chairwoman WATERS. So you talked with some people—
Mr. SAMUELS. But there are other kinds of workouts that are—
Chairwoman WATERS. Yes, there are. There are a lot of them.
There are some that result in modifications and some that don’t.
Mr. SAMUELS. Yes. And in October—
Chairwoman WATERS. How many modifications have come out of
this 18 million phone calls?
Mr. SAMUELS. Well, I will tell you, in October we have done
11,000 workouts, and 9,000 of those 11,000 were modifications.
Chairwoman WATERS. Okay. All right. I said I wasn’t going to
get too tough with you guys, but, you know—
Mr. SAMUELS. And we are prepared to be very open with the—
you know, our figures as to—
Chairwoman WATERS. Okay.
Mr. SAMUELS. —what we are doing in terms of our—
Chairwoman WATERS. Okay.
Mr. SAMUELS. —workout transactions.
Chairwoman WATERS. I do appreciate that. This is such a serious
problem.
Mr. SAMUELS. Yes.

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Chairwoman WATERS. And so many homeowners are at risk. We
recognize and appreciate that the industry is in business to make
money. We don’t deny that, and that is okay. But we cannot be in
a situation where we find that people have gotten involved over
these exotic products and these loans, and they are going to lose
the homes. Everybody tells us it is not in the investor’s best interest. Everybody tells us it is not in the lending institution’s best interest.
Mr. SAMUELS. That is correct.
Chairwoman WATERS. Then, why don’t we just fix it.
Mr. SAMUELS. We are trying.
Chairwoman WATERS. Why don’t we—
Mr. SAMUELS. Yes.
Chairwoman WATERS. —do something that is significant. For example, I bet you, Countrywide, you spend millions of dollars on ads
on television. Put some of the money into soliciting people to come
back to you and get these workouts. Think about it. You don’t have
to answer me, but just think about it.
With that, let me just move on. I can’t ask another question.
Congressman Green, they belong to you.
Mr. GREEN. Thank you, Madam Chairwoman.
Does everyone agree that there were some lenders who took advantage of borrowers? If you agree that there were some, would
you raise your hand, please, so that we can have you on record?
Okay. Some lenders who took advantage of borrowers.
All right. Now, if you did not raise your hand then, raise your
hand now. That way we will—so everybody agrees.
I ask this because when you ask a person to go back to the person that took advantage of you, sometimes it is difficult to negotiate that when you are saying, ‘‘Come back to me, and I am going
to help you now.’’ Well, maybe you are, and maybe you aren’t, is
what happens in the minds of many people.
And I am not saying that you—do not personalize it. I am trying
to give some notion of why people are not rushing back to the place
where they perceive that they got into trouble. Why would you run
back to trouble? People just don’t do that.
Let us examine a couple of things. Is it better to allow the borrower who can afford the teaser rate, but who cannot afford the adjusted rate, to maintain the loan with a teaser rate? If you think
it is better to allow the borrower who can afford the teaser rate,
meaning he or she can continue to pay that rate, but they cannot
afford to pay the adjusted rate, to let that borrower keep that teaser rate and stay in that home. Is it better to do that? Is that the
better thing to do? If you think it is, raise your hand, please.
Okay. Everybody seems to agree. Now, if you think that is the
better thing to do—and I don’t want to just pick on one person, but
Mr. Deutsch, why did you have such difficulty with the chairwoman’s question? Because that is in essence what she is asking.
Why can’t you simply allow borrowers who can afford the teaser
rate, but cannot afford the adjusted rate, to keep the adjusted rate?
Mr. DEUTSCH. We absolutely agree with your statement. The
issue is determining whether or not they can afford the reset rate
or not, and that is not an easy thing to do.

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Mr. GREEN. Can I give you one example of how you can find out
whether they can afford it?
Mr. DEUTSCH. Sure.
Mr. GREEN. They go into foreclosure. That is a pretty good indication.
Mr. DEUTSCH. Absolutely.
Mr. GREEN. People don’t want to lose their homes. So at the
point that they start to go into foreclosure, because what we want
to do now is get to people before they get there, but clearly when
they get there that is pretty good evidence that they can’t afford
it. So why not, at that point, at least suggest that, ‘‘Let me let you
keep this teaser rate and keep this home.’’
Mr. DEUTSCH. I guess the answer is if you don’t do any kind of
determination whether they can afford it or not, you go back to a
characterization of a categorical loan modification, that everyone
would get a loan modification—
Mr. GREEN. I understand.
Mr. DEUTSCH. —across the board.
Mr. GREEN. I understand. But, look, let us assume now that you
have done your due diligence. After due diligence, are you saying
then that you would do this? This has—
Mr. DEUTSCH. Absolutely.
Mr. GREEN. After due diligence.
Mr. DEUTSCH. Absolutely.
Mr. GREEN. Okay. Now, let us examine the statement that no
one benefits from foreclosures. The real question is, who really
loses in foreclosures? Because we keep saying no one benefits, and
that seems to give some air of comfort to certain institutions. But
the question is, who benefits?
You are familiar with PMI, correct, sir?
Mr. DEUTSCH. Correct.
Mr. GREEN. And you are familiar with MIP.
Mr. DEUTSCH. MIP mortgage? Oh, correct.
Mr. GREEN. Okay. Do you agree that MIP and PMI are designed
to help the lender become whole in the event of a foreclosure?
Mr. DEUTSCH. I am not sure I could make a firm—
Mr. GREEN. Wait a minute. Hold on. Let us examine that now.
Why does one acquire PMI? What is the purpose of it?
Mr. DEUTSCH. One is to provide additional insurance to—
Mr. GREEN. And what does that insurance do?
Mr. DEUTSCH. It guarantees that to a certain extent some of the
equity associated with that hump.
Mr. GREEN. And who does it guarantee benefit?
Mr. DEUTSCH. The guarantee ultimately would benefit the mortgage investor.
Mr. GREEN. Would that be the lender, the investors?
Mr. DEUTSCH. The institutional investors.
Mr. GREEN. Okay. So if they have the benefit of PMI, do you
agree that they are not going to be the big losers in this process?
Because that is what PMI does. It helps them to avoid losing
money. That is what MIP does. So when we continue to say, ‘‘No
one really benefits,’’ we really are overlooking the fact that there
are some who are not going to be the big losers. The big losers are
the borrowers.

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The lenders get the benefit of MIP and PMI. The borrowers do
not. Isn’t that true?
Mr. DEUTSCH. Well, they do benefit, but they don’t benefit to the
full extent of the principal amount.
Mr. GREEN. Well, let us examine that statement. Doesn’t that depend on where you are in the loan process, in your repayment process?
Mr. DEUTSCH. I think—
Mr. GREEN. For example, if you didn’t—if you put down 10 percent, and you have a certain amount of equity in the property,
when the lender forecloses, you get to sell the property, you get the
benefit of PMI/MIP. So you do get pretty close to being whole in
terms of your principal when you add those two together, if you
have some equity in the property.
Mr. DEUTSCH. I think the definition of ‘‘some equity’’ might be a
concern there, because PMI oftentimes only covers, say, 10 percent
of the equity.
Mr. GREEN. Okay.
Mr. DEUTSCH. Loss severities oftentimes on a foreclosed home
will reach 60 percent, 40 percent.
Mr. GREEN. Okay. All right. Then, let us take it this way. This
will be my final question in this area, one more thing. Do you agree
that the borrower walks away with zero while the lender or the investor walks away with something?
Mr. DEUTSCH. They can walk—the lender does walk away with
the principal, but it is usually somewhere in the range of, like I
said, something along the 60 percent of the principal that may
have extended to that borrower.
Mr. GREEN. And to some extent, as was indicated by the gentleman—what is your name, sir? I am sorry. I can’t see it.
Mr. LEONARD. Mr. Leonard.
Chairwoman WATERS. Mr. Leonard.
Mr. GREEN. Okay. Mr. Leonard, there are some conflicts in this
process that will cause one element of the process to conclude that
it is not to my advantage to foreclose right now, whereas another
might conclude it is to my advantage to foreclose right now. Is this
true?
Mr. DEUTSCH. Again, there are—you would have to provide additional details and color. Again, it is very difficult to make a determination—
Mr. GREEN. Okay.
Mr. DEUTSCH. —on all of the different borrowers.
Mr. GREEN. Let us go to one more real fast. The credit rating
agencies—do you agree that there may be some conflict of interest
as it relates to credit rating agencies in that they are paid by—who
are they paid by? You tell me.
Mr. DEUTSCH. Credit rating agencies are often paid by the
issuers of the mortgage-backed securities.
Mr. GREEN. Okay. And who are they rating?
Mr. DEUTSCH. They are often rating the issuance of those mortgage-backed securities.
Mr. GREEN. Is that the same person who is paying them?
Mr. DEUTSCH. It is.

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Mr. GREEN. And is it to their advantage, just to the average person, to give a rating that will be pleasing, if you will, to the person
who is making the payment or the entity making the payment?
Mr. DEUTSCH. We don’t believe so.
Mr. GREEN. You don’t believe so. You don’t believe that the person who is paying you dearly would like to have a favorable report
from you?
Mr. DEUTSCH. Absolutely not. And the rationale for that is that
investors in these mortgage-backed securities—and, remember, the
American Securitization Forum represents the institutional investors in these mortgage-backed securities. If you rate something
once, or you rate something twice, or you rate something three
times, in each of those times those ratings were incorrect. Institutional investors may lose some confidence in those ratings. So if
you do that over an extended period of time, your word effectively
is not your bond.
Mr. GREEN. In fact, that is what has happened.
Mr. DEUTSCH. There has been. Some of—
Mr. GREEN. But that is what has happened in this market, because they rated those bundles higher than they should have and
many of them are now paying a price for that, because their credibility is on the line. That is how we got into this.
Chairwoman WATERS. Would you please discuss, if you will, this
moment, the tranches?
Mr. GREEN. The tranches, yes.
Chairwoman WATERS. They were securitized, and they were
placed in these tranches. Some of them were worse than others,
and the investors took them. Why?
Mr. DEUTSCH. I am sorry. Took what?
Chairwoman WATERS. They took the bundle—mortgage-backed
securities that were placed in tranches. And as I understand it, the
tranches were good, bad, and not so good mortgages. And the investors took the not so good ones along with the good ones. Is that
right?
Mr. DEUTSCH. Absolutely. It is a fundamental premise of mortgage-backed securitizations is that you want to create different
variations of risk. Over 90 to 95 percent of all mortgage-backed securities are AAA rated. Those are oftentimes the tranches that pension funds or that mutual funds will purchase. But lower-rated
tranches effectively are tranches that will receive part of the waterfall effectively, is that once the higher ones are paid off, then the
lower tranches will be paid.
The reason mortgage-backed securitization works very well is it
is able to divide up the risk. Pension funds—
Chairwoman WATERS. In the lower-rated tranches, were the high
credit risks persons who had impaired credit?
Mr. DEUTSCH. No. Those tranches are based on the entire pool,
not on any particular borrower in that pool.
Mr. GREEN. But if you have a tranche A as opposed to a tranche
F, and let us assume that A is a better rated tranche—
Mr. DEUTSCH. Correct.
Mr. GREEN. —if you have a tranche A as opposed to a tranche
F, which is more likely to accept foreclosure as a remedy?
Mr. DEUTSCH. Neither. Neither benefit from foreclosure.

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Mr. GREEN. No, no, not benefit. I said accept the foreclosure.
Mr. DEUTSCH. Which is more likely?
Mr. GREEN. Yes.
Mr. DEUTSCH. I think you would have to ask that institutional
investor.
Mr. GREEN. But would not the person in tranche A—well, let me
ask this way. Would the person in tranche A have a greater
amount of benefit in a foreclosure than a tranche F?
Mr. DEUTSCH. I think there are different incentives for different
investors along—
Mr. GREEN. But let us just talk about money as the incentive.
Mr. DEUTSCH. Sure.
Mr. GREEN. The money from a tranche A foreclosure is larger
than the money from a tranche F.
Mr. DEUTSCH. No, because all of the funds are pooled into the
same entire pool. So the tranche A, you could argue, that over the
extended period of the actual security, which extends anywhere
from 15 to 30 years, say, depending on the amount, the length of
the loans that are backing that security, so over those 30 years, the
net present value of having that mortgagee paying the entire
amount, over time both class A and class F would benefit from that
borrower continuing to pay and stay in that home.
Mr. GREEN. Madam Chairwoman, if I could have just 30 seconds.
But let us talk about an immediate foreclosure we are talking
about within this period of time where you have the teaser rate,
and then you move into the adjusted rate that you cannot pay.
Mr. DEUTSCH. Right.
Mr. GREEN. All right. In that period of time, the tranche A holder, does the tranche A holder benefit to a greater extent than the
tranche F?
Mr. DEUTSCH. In that period of time?
Mr. GREEN. Yes. Because that is really what we are talking
about. That is the period of time we are talking about.
Mr. DEUTSCH. I think a more appropriate way would say that
they suffer less loss—
Mr. GREEN. Okay. They suffer less loss. All right. I will adopt
your terminology.
They suffer less loss. Okay. If they suffer less loss than the
tranche F, do you agree that the person who is holding the tranche
F, that this person may have some conflict when you are trying to
decide whether you should do this, and you are talking to your investors. The modifications, as the Chair has indicated, that is when
you run into these conflicts, because they have different levels of
interest. Do you agree?
Mr. DEUTSCH. They have different levels of interest, but I would
you to the American Securitization Forum statement in June of
2007, where we specifically addressed this issue. It is that
servicers, when they service mortgage loans, they are serving for
the net present value of the entire trust. They are not, and should
not, be looking to the implications on any individual class within
that trust.
Mr. GREEN. No, but the servicers, in doing due diligence, they
will consult with the investors. Servicers don’t just do this without
consulting investors. True?

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Mr. DEUTSCH. They have their pooling and servicing agreements.
Mr. GREEN. Well, you just talked about lawsuits a minute ago.
Mr. DEUTSCH. Sure.
Mr. GREEN. Now, do you think servicers are doing this without
consulting investors?
Mr. DEUTSCH. Absolutely. Servicers do talk to the investors who
are purchasing those.
Mr. GREEN. Okay. That is when they get the intelligence that we
just talked about.
Mr. DEUTSCH. Sure. But they have a contractual obligation to
service in the best interest of all of the security holders, not any
individual tranche.
Mr. GREEN. The chairwoman has given me the proper terminology: tranche warfare.
Have you heard of that term?
Mr. DEUTSCH. I have heard that term used—
Mr. GREEN. The various tranches in mortgage-backed securities
resist loan modifications that might disparately affect their particular slice of that security. That is what we have been talking
about.
Mr. DEUTSCH. Sure.
Mr. GREEN. So we have to be careful when we say, ‘‘No one benefits.’’ While that may be true, there are some who benefit a little
more than others, or some who don’t suffer as much as others. Do
you agree?
Mr. DEUTSCH. Well, I think, again—yes, absolutely I agree.
Mr. GREEN. And that is what is creating a lot of—all I am trying
to get you to do is help people to understand why it is difficult for
the foreclosure to take place, for—excuse me, for the modification
to take place. Do you agree that is a part of the difficulty?
Mr. DEUTSCH. I think that has been raised, the consideration,
and that there are some servicers who have expressed that concern. But again, going back to the point I made to Ms. Waters earlier, is that at the end of the day servicers do take litigation risks.
They are—
Mr. GREEN. All right. Let me just close with this. If you are familiar with the tranche discussion that we just had, raise your
hand, if you understand tranches and you are on this panel and
you understand tranches? Okay. Now, those of you who understand
tranches, let me ask you, do you agree that these various level of
tranches do provide difficulty, cause difficulty in trying to modify
these loans? If you do, raise your hand.
Yes, sir.
Mr. BLACKWELL. It is a complicated issue. Is there—
Mr. GREEN. I understand.
Mr. BLACKWELL. I barely understand tranches, I will tell you
that, but it is a complicated issue. What I will say is that it is very
important for us all in this room to ensure that we preserve not
only homeownership of those who own homes, but those who will
in the future.
Mr. GREEN. Sir, we passed that when we had opening statements, so we are with you there.
Mr. BLACKWELL. Okay.

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Mr. GREEN. But no—no disagreement. What we are trying to do
now is get some intelligence out that we have acquired about what
is really happening with these investors and how these investors
are sometimes at odds with each other over what should be done,
and that is what creates a problem with restructuring some of
these loans. Do you agree with that?
Mr. BLACKWELL. What I will say is it is very important that we
get the investors on the same page with the lenders in the—
Mr. GREEN. I agree. But to get them on the same page by implication means that they are not on the same page. Do you agree
with that?
Mr. BLACKWELL. Yes.
Mr. GREEN. Okay. That is what we are talking about. They are
not on the same page.
Mr. Samuels, do you agree that many of them are not on the
same page?
Mr. SAMUELS. Well, no, I agree with what Mr. Deutsch said
about the fact that as a servicer we have an obligation to try to
maximize the total return on that security. And so whether you are
tranche A or tranche F, we are trying to maximize the present—
the net present value of the cashflows on that total security. How
it gets distributed is a function of the—
Mr. GREEN. Do you agree that a servicer does not have the authority to dispose of the loan as he—as the servicer sees fit without
consulting the investor?
Mr. SAMUELS. It depends on the pooling and servicing agreement.
Mr. GREEN. Okay. But do you agree that most of those agreements would require the investor have some input?
Mr. SAMUELS. Some of them do, and some of them give delegated
authority.
Mr. GREEN. Let us talk about most. Most lawyers don’t write
agreements so that the investor does not have some input. Do you
agree?
Mr. SAMUELS. Oh, well, I don’t know. I can’t—I don’t know the
answer to whether most do.
Mr. GREEN. Okay.
Mr. SAMUELS. Mr. Deutsch could probably answer that better
than I can.
Mr. DEUTSCH. Thank you, Sandy. I am going to remember that.
Mr. GREEN. All right. Thank you, Madam Chairwoman.
And, listen, I thank all of you for your kindness in trying to help
us to get this information out. Thank you very much.
Chairwoman WATERS. Thank you very much, Mr. Green.
All right. Ms. Richardson? Before you start your question, let me
just say that Councilman Bernard Parks, who is very interested in
this issue, just came in. Thank you very much.
Mr. Parks, we appreciate your being here.
Ms. Richardson?
Ms. RICHARDSON. Yes. Thank you, Madam Chairwoman.
A couple of questions. Regarding Countrywide and some of the
questions that were asked, it was stated that you make approximately 18 million phone calls. Of those 18 million calls, 55,000

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were workouts, and of that 29,000 were loan modifications. What
happened to everyone else?
Mr. SAMUELS. Well, don’t forget that these are calls made to people who are 30 days down, 60 days down, so it is not—you know,
we make collection calls, and so we remind people that they have,
you know, payments that are due, and so not all of the calls: (a)
relate to people who are, you know, in distress; and (b) not all of
them are answered. And so we oftentimes have to make multiple
calls before we contact the borrower.
Ms. RICHARDSON. Well, according to your testimony, you made 18
million calls, and I think you reached 2.2 million, which is approximately a little more than 10 percent. I wouldn’t call that good. I
wouldn’t rate that as being good, 10 percent.
Mr. SAMUELS. Well, I mean, we can only do as well as the person
on the other end of the line.
Ms. RICHARDSON. Well, no, that is if you are only relying upon
phone calls.
Mr. SAMUELS. Well, no, we are not.
Ms. RICHARDSON. Or DVDs.
Mr. SAMUELS. We are not only relying on that. We are also relying on the mail, etc.
Ms. RICHARDSON. Okay. You are kind enough to actually share
your information, so I want to make sure that we are not, you
know, overly on your end. So I would like to hear a little more from
Ms. Albon and Mr. Blackwell. My concern is—and the chairwoman
also alluded to this as well—what are you doing beyond the phone
calls and beyond the mail?
I have talked to constituents who, when they are in this particular situation, they are not only receiving mail from you, they
are receiving mail from a hundred other people who are suggesting
that they consider working with them to resolve their funding problem. So beyond the mail, and beyond the phone calls, what specifically are you doing to help your borrowers?
Ms. ALBON. Well—
Ms. RICHARDSON. Besides processing a default.
Ms. ALBON. We understand. We are very active with HOPE
NOW, Neighborhood Housing Works, other—even ACORN in some
areas, trying to work with them to help reach a lot of these customers. We have funded some of—as I believe Countrywide and
Wells have—funded some of the national advertising of the Hope
foreclosure prevention effort. And we are finding that to be very
successful.
Ms. RICHARDSON. Okay. With all due respect, you know, you
have talked about HOPE NOW and Neighborhood Services, and on
and on and on. There are over 10 million people alone in Los Angeles, over 10 million, and so to expect that those three or four organizations that you are referring to—ACORN, and so on—are reaching the millions and millions of people who are out there is just not
adequate. It is not sufficient.
So what we are looking for is a greater commitment, an additional commitment, exploring other things, whether it is going to
a person’s home. These are things that might be a little expensive,
but as we have all talked about the expenses are bearing upon ev-

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eryone—you as a provider and also the borrower as well. So are
you doing visits?
Ms. ALBON. Yes.
Ms. RICHARDSON. Have you invested—for example, as the Congresswoman said, it is quite clear that there are specific pockets of
areas that are having a higher incidence than others. So are you
doing ads? Just like you are advertising for people to utilize your
loans, are you doing ads in those particular areas to reach out to
those particular borrowers and say, ‘‘Hey, if you happen to be reading such and such paper, or on such and such television, or cable,’’
or, etc., what other aggressive things are you prepared to do to
reach out to the borrowers?
Ms. ALBON. We are actually using—contracting with servicers to
go out to the borrowers’ homes, knocking at the door, leaving flyers
if they are not available. We are really using all of those different
types of efforts.
Ms. RICHARDSON. So would you say out of your borrowers who
are in this particular position, 100 percent will receive contact by
a visit?
Ms. ALBON. Probably not 100 percent, and we are still having
trouble reaching more than 50 percent in terms of actually getting
them to engage with us.
Ms. RICHARDSON. So if you are only reaching 50 percent, and yet
you can reach them to get payments, or at least prior to this situation, what other steps do you plan on taking to increase that
amount?
Ms. ALBON. That is constantly under consideration, and I can go
back and get more detail on that. But we are constantly looking at
new ways to do a better job of reaching our customers.
Ms. RICHARDSON. Okay. Well, what I heard from this subcommittee, the chairwoman requested that you consider looking at
some of your advertising dollars that you are spending in terms of
reaching out for people, that you consider using those advertising
dollars in more creative ways specific to these communities, not advertising dollars to the world, to the United States, but to these
specific communities.
We are also asking that you consider visits, etc., so you explore
those. There were also a few other recommendations that were
given that we would like the three of you to consider, and I would
like to hear the possibility of you accepting them. One would be extending the time notices of defaults from 90 days to 150 days. The
second would be extend time periods for notice of trustee sales from
30 days to 60 days.
And then, something Ms. Thomas mentioned that I have heard
quite a few constituents talk about, and that is is that there is an
unwillingness to accept partial payments. So let us say you get on
the phone with someone, and you begin to talk to them about doing
a workout or whatever.
Unless they are prepared to pay the $20,000, and until a final
workout or loan modification is done, there is an unwillingness to
accept partial payments. So that would be also a consideration for
you to review with your appropriate companies—
Ms. ALBON. Okay.

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Ms. RICHARDSON. —of allowing partial payments while you are
going through this modification period, so that instead of someone
being $20,000 behind at the end, maybe they are only $10,000 behind. So then we don’t have this instance where they are having
to spread $20,000 over the next 3 months, which they cannot afford.
The other point would be, if I understood the gentleman from
Countrywide, you are not using outside agencies, creditors, to collect, is that correct?
Mr. SAMUELS. I am sorry. What was that?
Ms. RICHARDSON. Are you using—are any of you, your three companies, utilizing outside agencies to collect these funds?
Mr. SAMUELS. No, we have our own—we have our own collection
groups.
Ms. RICHARDSON. Mr. Blackwell?
Mr. BLACKWELL. Yes, the same. We do all our collecting ourselves.
Ms. ALBON. I will get that information. I am not 100 percent sure
that in every pocket of the country, it is on staff, but I will check
on that.
Ms. RICHARDSON. Okay. So if it is on staff, some of the things
we are hearing from constituents is that in addition to the amount
that they are owed, the back payments of their previous months,
additional fees are also being accumulated that they are being told
that they have to pay in order to participate in these loan modifications. Does that apply if it is internal within your own organization?
Mr. BLACKWELL. The only fees that we charge are fees that we
incur through the process, and so I am not—I guess we would have
to get into specifics, and I am not sure I am familiar with all of
them.
Ms. RICHARDSON. Do you know how much those fees come to on
average?
Mr. SAMUELS. No, I don’t.
Ms. RICHARDSON. Okay. Because—
Mr. SAMUELS. But they are not loan modification fees. I mean,
we don’t charge for a loan modification, if that is what you are referring to. I mean, it could be that if someone is going through foreclosure, there are fees that you have to pay to newspapers, you
know, for advertising or to attorneys in some States, you know,
things like that. But there is not a fee for a loan—you know, to engage in a loan modification, there is not a fee.
Ms. RICHARDSON. Okay. So even if a person has defaulted to the
extent of 5 or 6 months, or whatever, you are not requiring additional fees, is that correct?
Mr. SAMUELS. As I said, we are not requiring—if we are doing
a workout with them, yes, that is correct.
Ms. RICHARDSON. Okay. All right. My last and final question has
to do with we really are looking for a commitment. Some of the solutions when I heard Mr. Leonard speak, it sounded very similar
to what I hear in my district, and that is a lot of the solutions that
you are proposing are just simply other alternatives to pay, whether it is spreading out of 5 months or 6 months, but very few are
situations of—where I read in some of your testimonies of offering

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forgiveness of debt, extending the amount that is owed over a
longer period of time—for example, more than 6 months.
So our constituents, oftentimes we are going to need other creative means to be expressed, and I don’t feel to the satisfaction that
you are exploring all of those to the extent that you could. So I
would be looking for further action beyond what has happened to
this date.
Chairwoman WATERS. Okay.
Ms. RICHARDSON. And you will get back to the chairwoman about
the other request? Thank you very much.
Chairwoman WATERS. Thank you very much.
This panel is now dismissed. Let me say to the homeowners who
were here today, thank you for spending the time. I understand
that you really needed to leave a little bit earlier. I wasn’t aware
until recently, the last few moments, that you were staying past
the time that you need to leave in order to go to work.
I am interested in my staff following up with you, Ms. Thomas,
even though it appears that you got some help. I am interested in
the $5,000 fee that you paid, and I don’t know where that came
from, who it is that—doing a modification or a workout for you. So
I am going to ask my staff to follow up with you, because I would
like to see what is being done.
I thank all of you for being present here today. Mr. Deutsch, we
are going to spend a lot of time on servicers. We think you can do
a lot more. So I would hope that your Forum would provide the
leadership to help us understand how to do a lot more, and I wish
you would embrace Chairman Bair’s proposal without reservation,
because it seems to me we could get a lot done that way. But we
thank you for being here.
I think we are going to extend an invitation to you to come to
Congress, perhaps not only in a hearing setting but maybe in a
caucus setting, where we can delve more into what you do. We are
going to review service agreements. We are going to understand a
lot more about them, so that we can get a better feeling of what
you can and what you cannot do, and this whole liability question.
But I want you to leave here knowing that I think my colleagues
will agree with me we are interested in resets with the initial
amount of the mortgage continuing through the life of that loan.
We are really interested in that. Okay?
Thank you all very much.
Without objection, your written statements will be made a part
of the record.
We will now move on to panel number three. Some of our members may have additional questions for this panel, which they may
wish to submit in writing. So 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.
Panel three, if you will come forward, I will begin the introductions. Again, your written statements will be made a part of the
record, and you will be recognized for a 5-minute summary of your
testimony.
Mr. William Heedly, homeowner, Carson, California; Ms. Hee
Suk Cho, homeowner, Camarillo, California; Mr. Ed Smith, Jr., vice
president, California Association of Mortgage Brokers; Mr.

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LeFrancis Arnold, vice chair, Affordable Housing Committee, California Association of Realtors; Ms. Yolanda Clark, president-elect,
Multicultural Real Estate Alliance for Urban Change; Ms. Tara
Twomey, of counsel, National Consumer Law Center. Is that
‘‘Twomey?’’
Ms. TWOMEY. ‘‘Twomey.’’
Chairwoman WATERS. All right. Thank you. Ms. Margaret
Frisbee, specific district director, NeighborWorks America; and Ms.
Evalyn Burnie, leader, Los Angeles ACORN. So we have a big
panel here on this fourth panel.
We want to thank all of you for coming, and we are going to start
with Mr. Heedly. Is that the correct pronunciation? He is not here
yet. Okay. He is here. There he is. How are you doing?
Mr. HEEDLY. I am doing fine.
Chairwoman WATERS. We are going to start with you.
Mr. HEEDLY. Okay.
Chairwoman WATERS. Thank you very much. Would you pull the
microphone right up and share your testimony with us?
STATEMENT OF WILLIAM HEEDLY, HOMEOWNER, CARSON,
CALIFORNIA

Mr. HEEDLY. First of all, I would like to thank you, Chairwoman
Waters, and this subcommittee for inviting me, you know, to tell
my story.
Chairwoman WATERS. Yes.
Mr. HEEDLY. In March of this year, I was put into a loan. I was
tricked into a loan by a guy that I know who I thought was a Realtor, because he had done two loans for me before. I thought I was
in a fixed loan, but come to find out, I was in an ARM loan. And
after we signed the papers and the deal went through, it wasn’t
like the original deal, because he called me and told me, ‘‘Hey, this
is not a friendship call. This is a business call. It is time to refinance.’’ I said, ‘‘Well, okay, if we can—if you can get my payments
down, if you can pay my car off, then we can go, we can go with
it.’’ Okay. So about 2 weeks down—2 or 3 weeks, he had gave me
a call and said that he had paid my car off, but he probably
couldn’t get the loan down—I mean, get the mortgage down, that
it would probably go up $100 or $200.
So me and my wife, we talked about it, and we agreed to go
along with it, because, you know, like we had dealt with him before, and we trusted him. I know him. You know, I know him, and
I didn’t think he would do something like this.
Okay. So when the notary came out, he called me and told me
that he wouldn’t be able to be there for the notary and to just go
on and sign the papers. Everything is, you know, like how we had
discussed. Okay. So it was my fault that I signed the papers without him being there. I admit to that.
But after we got the coupons, you know, the mortgage and
things, come to find out I have a second—a first and a second.
Then, I have three choices to pay—the max, minimum, or the—I
mean, the max, median, or the minimum. All I am able to pay is
the minimum, which makes my interest goes up. So I went to him
and I talked with him, and I asked him what could he do, you
know, so he said, ‘‘Well, let me look at the paperwork.’’

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I said, ‘‘Well, look, man, you know, I am trying to find out what
the deal is he put me in, and I was in an ARM.’’ And the—I mean,
the prepayment penalty is $13,000. ‘‘Why don’t you pay the
$13,000, and then I can get somebody else to refinance.’’ He didn’t
want to do that. So, you know, I was listening—the way I got some
help, I was listening to Front Page.
And they were talking about a meeting that they were having at
Homeless Church, and I went to the seminar and I don’t—I filed
a complaint against this guy with the State Department of Real Estate Complaints, and I found out he doesn’t even have a license.
Operation Hope had called me, and I talked with Anne Marie, and
she really was trying to help me, and she referred me to Dorothy
Herrera, and here I am now.
So, I am not in foreclosure, you know, but I want to try to do
something about it before I get to foreclosure. And my mortgage is
double, is upside down, and I feel so hopeless. You know, I need
some help.
Chairwoman WATERS. Thank you very much, and I am glad you
came today. And we will see to it that you get some assistance.
Mr. HEEDLY. Okay.
Chairwoman WATERS. And I will move on to our next presenter,
Mrs. Hee Suk Cho, and she has a translator with her. Thank you.
STATEMENT OF HEE SUK CHO, HOMEOWNER, CAMARILLO,
CALIFORNIA, ACCOMPANIED BY JOSHUA BYUNG AN, KOREAN CHURCHES FOR COMMUNITY DEVELOPMENT, SERVING AS A TRANSLATOR

Mr. AN. Hi. This is Mrs. Cho, and I am going to be her translator. I am from KCCD, and I represent Korean Churches for Community Development, and we work for the Korean community to
resolve these housing issues.
As of now, the problem has not been resolved, and she is actually
considering many options, including bankruptcy. She came to testify as to how she got into this. Back in August of 2005, she purchased a townhouse for $518,000 with a 10 percent downpayment.
Because of her language barrier, she went to a Korean-speaking licensed broker.
The agreement was that she would make a total payment of
$1,500 a month. That loan included no penalty and $100 increments once a year for the next 5 years. Then, the broker told her
that she could refinance within 2 years. So she was making a
$1,500 a month mortgage payment.
She was making payments to WMC Mortgage Company, and
then in January 2006, a bill came from Countrywide. The bill included four options. First, to make a payment, and one of the options had $1,451 that is going to be added to the principal. So she
contacted the original—the Korean broker, and then the broker
told her to just make the option three payment, which now is the
minimum payment and don’t worry about it.
So the payment used to be $1,500. Now the minimum payment
is $2,736, and that is—she didn’t know it at that time, but now she
knows that it is a negative amortization, and $1,400 is being added
to principal every month. So she continued to make that minimum
payment of $2,700 for about a year. Meanwhile, because her pay-

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ment jumped so high she was having very difficult time making a
payment, so she looked for different sources to refinance but was
not able to find anyone to refinance her loan.
One thing that she found out through, you know, other sources
is that she has been refinanced, and that included 3 years of prepayment penalty. So she was very confused at the time, so she
went back to the Countrywide office and confirmed that the loan
had been refinanced without her knowledge.
She confirmed that the signature had been forged without her
knowledge, and she couldn’t really do anything, because of penalties and because of high payments. She looked for help from the
lawyer, but—and the lawyer told her that it is likely a fraudulent
case and she could win the case, but she was very reluctant to hire
a lawyer because of high cost, and the time that it takes for them
to process and make the case.
In the midst of all these troubles, there was another loan agency
that approached her and claimed that if she signed the paperwork
to give up her rights for the house to them, they would let her live
in the house with her children and make a rent payment to them.
She signed it.
At the time, she thought she was making the right choice, because she wanted to save the house and live in that place with her
children. But, still, she was very confused and not sure what was
going on, so she found an ad in the local newspaper about KCCD.
That is how she came to KCCD and asked for help.
Through KCCD, she learned that the loan agency that approached her was fraudulent, so she actually canceled that contract
with them. And we are still now trying to solve the problem. She
is at a point where she is going to make decisions for bankruptcy
or foreclosure for anything.
I would like to say after this hearing, we are going to actually
go meet with the Countrywide personnel to help her situation, to
talk about it. And she is really desperate right now. She wants to
get an answer today. If not, she is going to just go crazy.
Thank you.
Chairwoman WATERS. Thank you very much. And let me just say
to you, Ms. Hee Suk Cho, that we certainly sympathize with you,
and we are very sorry that you have been placed into this kind of
a situation. And I wish that the Countrywide representative was
still here. Are you here? Okay, fine. You have this case? You hear
what she is saying? We need you to move on this very aggressively
right away.
My staff will follow up with you to make sure that we do everything that we can to help this consumer who has obviously been
defrauded. All right? Thank you very much.
Mr. AN. Thank you.
Chairwoman WATERS. Staff, will you follow up with this? Thank
you.
Ms. CHO. Thank you.
Chairwoman WATERS. We have that information.
All right. We are going to move over to Mr. Ed Smith. And I
should wait until the time for questions, but I have been hearing
so much about these options that people are being given. Do you
want to pay a little? Do you want to pay a lot? Or do you want

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to pay the minimum amount? I never heard of that before. So if
you in your testimony could help us understand that, I would appreciate it very much.
STATEMENT OF ED SMITH, JR., VICE PRESIDENT, CALIFORNIA
ASSOCIATION OF MORTGAGE BROKERS

Mr. SMITH. Absolutely. Thank you so much for giving us the opportunity to speak before this panel and yourself. You have been
a very good supporter of our organization, and we hope we bring
value to that relationship.
Like I said, my name is Ed Smith, and I am the vice president
of government affairs for the California Association of Mortgage
Brokers. We represent the top 15 percent of licensed originators in
California. We have criminal background checks, we have DOJ
checks, we have pre-education, post-, and continuing education requirements. We are licensed originators in the State of California.
We represent approximately 4,800 members.
Today is one of the days that we really are happy to be able to
bring value to our relationship in the process of explaining and
working with homeowners such as Mrs. Cho here. From what she
just articulated, it sounds like she also needs to talk to the California Department of Real Estate, because it sounds like some
criminal—
Ms. PETERS. I just gave her my card.
Mr. SMITH. Okay. Oh, I didn’t know. I didn’t know Heather was
back there. Because it sounds like some criminal activity has occurred. I wanted to bring just a few statistics to the table before
I talk about our preserving homeownership initiative, but I also—
and I will also explain to you what that option ARM, negative amortization loan is, if you give me the time.
At the end of the fiscal year of June of 2007, the California Department of Real Estate initiated 9,103 investigations which resulted in 1,382 licensed denials. Those are individuals who are trying to get in our business but were denied at the point of application. Of those investigations, 507 resulted in license suspensions
and revocations for individuals in our business who have done
things such as enumerated here with Ms. Cho.
So I just want to applaud the California Department of Real Estate, BT&H, Ms. Peters, for being very aggressive in following up
on these complaints.
To give you a little bit of background about negative amortizing
loans, which is—you will hear some of the time called K-option
ARMs. This is the typical type loan that has been utilized in the
last couple of years as a financing technique, as a direct result of
the high cost of homeownership.
What that negative amortization really means is that there are
four payment options, which gives an option of the minimal payment which is due on the loan, which in many cases, in all cases,
is not the minimum amount due just for the interest on that loan
that month. So each month when an individual makes payment option number one, which is called the negative amortizing payment,
there is an arrearage. There is a shortfall of interest that is not
being paid on the balance of the loan. This is being added to the

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balance of the loan on a monthly basis. So, effectively, you are losing every month. You are adding on to your principal every month.
Typically, payment option number two is an interest only payment, which is if you make that payment your balance will remain
the same, you will not grow, but you will not also do any principal
reduction. That is the interest only feature of payment option number two.
Number three is typically a 30-year amortized payment, and the
number four in certain cases is a 15-year amortized payment. What
we are seeing here in the last couple of years is this product has
been a very predominant product used in the marketplace, because
it got people into homes that they really couldn’t afford. Many of
those products were utilized with stated income and also using 100
percent financing with no downpayment, no downpayment whatsoever.
So when the market came down, values are declining, your balances on your loans are rising, and when those interest rates hit
a certain percentage that is prescribed in your loan documents,
usually 115 percent of the original loan balance, that loan recasts
to a fully amortized payment at whatever the rate is at that time.
This is what we call payment shock. This is what is killing consumers in this country, and especially in California, because we are
such a high cost area here.
This kind of dovetails into the high cost issue. Many of us realize
that in California you cannot buy a property for under $417,000.
This is one of the reasons why these products have been so prevalent with interest only, negative amortization, and some of the
other exotic products that are out in the marketplace.
We would encourage you to look at raising California and have
it—raising California’s loan amounts and loan limits to be in a
high cost area, Southern California as a high cost designated area,
to put liquidity back into the marketplace so we can have sustainable, long-term loans. This is a critical, critical cog of the wheel to
this problem.
If we kind of move into what we are doing, Congressman Green
mentioned a little earlier, what are we doing about going back and
reaching back? Many people don’t go back to the same people that
they had problems with. I am proud to say that our association is
built of small businesses. We are mortgage brokers who live, work,
worship, and work with the communities that we live in.
We create long-term relationships to sustain our businesses, and
we are actually, through our preserving homeownership program,
are going right back into those communities that we serve, that we
did business with, and actually explaining and working and trying
to come up with workable solutions to keep people in their homes
as a result of a reset or as a result of a loan product that is no
longer palatable for that individual for whatever reason it is.
We are the first organization that are loan originators that actually have created that program. We work with the Department of
Consumer Affairs. We actually go out and do town hall meetings,
and we work in those communities where people are losing their
homes right now. We go back and we deal with these individuals,
and we don’t run away from them after we do business with them.

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This program has been a success throughout the State of California. We have 19 chapters, approximately 4,800 members, we
have meetings throughout the State on an ongoing basis, and we
partner with other nonprofit organizations and ourselves and other
legislators to reach back into those constituents’ neighborhoods and
work with those legislators to try to bring some type of relief back
to the communities to keep people in their homes.
We have heard a whole lot of talk today about the results of the
inactivity or not being able to have—consumers not being able to
have regress once they call their loan servicers. I don’t want to beat
that up. We already know that there is a problem when people
reach out to their loan servicers.
I am very proud today to see that the major loan servicers in this
State are actually reaching back and proactively saying what they
say they are going to do, and let us wait and see if they are going
to do it. We are actually doing it. We are experiencing the same
problems as those consumers do when they reach the telephone.
[The prepared statement of Mr. Smith can be found on page 157
of the appendix.]
Chairwoman WATERS. Thank you very much.
Mr. LeFrancis Arnold, it is good to see you.
STATEMENT OF LeFRANCIS ARNOLD, VICE CHAIR, AFFORDABLE HOUSING COMMITTEE, CALIFORNIA ASSOCIATION OF
REALTORS

Mr. ARNOLD. It is very nice to be here, and I want to thank you,
Congresswoman Waters, and members of the Housing and Community Opportunity Subcommittee for inviting me today to speak on
behalf of the California Association of Realtors on the issue of foreclosure prevention and intervention.
My name is LeFrancis Arnold, and I am the owner and broker
of LeFrancis Arnold Consulting, a Lynwood, California, firm specializing in all aspects of real estate, including FHA loans. I have
been a member of the California Association of Realtors and the
National Association of Realtors for over 30 years. I have been
privileged to serve on a number of policy committees at both organizations.
The California Association of Realtors is the largest State trade
association in the country, with over 200,000 members. CAR’s
members are the front line of California’s real estate market and
have witnessed firsthand the devastating effects that mounting
foreclosures could have on families and a community. Over the last
2 years, the California housing market has experienced a significant correction, from a peak level of sales for both 2004 and 2005
of 625,000 existing home sales have declined to an expected
350,000 this year.
At the same time, the rate of foreclosures in the State has gone
from historic lows to return of the high experienced in the mid1990’s. Personally, I have seen more than a 40 percent decline in
my business while peers in other parts of the State has experienced
even greater declines. Many people have asked me, what is the
cause of this downturn?
With more than 30 years in the business, I can tell you no one
single factor is to blame, and, therefore, no one single solution will

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help ease the current market downturn. Instead, a broad-based approach must be taken where all players in the real estate industry
do their part, including Realtors.
Now, more than ever, Realtors are working to keep families in
their homes and maintaining strong communities. As a first point
of contact for home buyers, often it is the Realtors that homeowners turn to for help when in trouble. However, every situation
is unique, and, unfortunately, foreclosure is sometimes unavoidable.
As the market began its current downturn in 2006, CAR began
taking aggressive steps to provide the best tools to our members,
including large pools of recently licensed Realtors in California who
have never been through a market like this. Many of these agents
have never performed a short sale, communicated with lenders on
behalf of troubled homeowners to work out a loan on a REO, or
sold a foreclosure property.
As such, now CAR offers both short sale and foreclosure classes
to members and non-members. CAR sponsors and applauds Governor Schwarzenegger’s lenders and servicers who have recently
worked out an agreement for the fast loan modification, subprime
mortgages as such. Proactive efforts such as these are an example
of what is needed to stem the tide of foreclosure and ease the current turn down.
Let me share this with you, in my experience of 30 years, we
have been through this. We have been through similar situations
like this when the interest rates went up in the 1980’s. Lenders
must change their policies so that borrowers are not required to be
delinquent on their mortgage payment before a troubled loan can
be worked out.
Many of my fellow Realtors have described frustration when contacting lenders on behalf of homeowners who realized that they
would not be able to make their mortgage payment when their
loans reset. The homeowner must be in delinquency before loan
workout can be discussed. Additionally, lenders must address the
current staff shortage in loss mitigation departments which are
presently overwhelmed.
For the government’s part, the Senate needs to pass, and the
President must sign legislation to reform government housing programs intended to keep America’s housing market stable. That includes FHA and GSE reform. Increased FHA and GSE loan limits
in high cost areas, better homeowner opportunities for the American veterans, mortgage debt cancellation relief, and subprime
mortgage reform that balances strong consumer protection with the
need to maintain a flow of capital to the housing market.
In closing—
Chairwoman WATERS. Okay.
Mr. ARNOLD. —I would like to tell the subcommittee a story
about a family of four who lost their home. This family was working with their agent and their lender’s loss mitigation department
to get a short sale approved by the investment firm who purchased
the loan.
When the short sale was finally approved, it turned out that the
investment firm’s foreclosure department had also approved the
foreclosure sale. This is a simple example. They ended up losing

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their home. Lack of communication between the Mitigation Department and the Foreclosure Department. These are ongoing problems. That family lost their home.
These are issues that we have to deal with, and we need to deal
with them now. I want to thank you, Congresswoman Waters, for
having this hearing here in Los Angeles, because California at this
point is the foreclosure capital of the country.
Thank you.
Chairwoman WATERS. Thank you very much.
Now we will hear from Ms. Yolanda Clark, president-elect, Multicultural Real Estate Alliance for Urban Change.
STATEMENT OF YOLANDA CLARK, PRESIDENT-ELECT, MULTICULTURAL REAL ESTATE ALLIANCE FOR URBAN CHANGE

Ms. CLARK. Thank you, Chairwoman Waters, and members of
the Subcommittee on Housing and Community Opportunity for allowing me to testify at this hearing on foreclosure prevention and
intervention.
My name is Yolanda Clark, and I am president and broker of
Golden Path Real Estate and Home Loans. I am also presidentelect of the Multicultural Real Estate Alliance for Urban Change,
and have been president or vice president of several other organizations.
There are four points that I wish to convey to this subcommittee
today. The rippling effects of foreclosure are far more devastating
than just to the homeowners or the lender; it affects the entire
community. A large sector of the economy is hurting. Foreclosures
are affecting both the consumer and the real estate community.
What problems are perpetuating the situation? And what should be
done to resolve the problem?
The foreclosure crisis is not just a borrower and lender problem.
Closed escrows in California were down 38.9 percent in September,
and 40.2 percent in October. Brokers and lenders are being forced
to reduce their staff, overhead, and some are going out of business.
It has produced a trickle-down effect impacting all real estate affiliate businesses. Escrow, title, appraisals, termite companies, home
warranty, home inspection, construction workers and developers
are but a few of these businesses, not to mention the loss of revenue and fees generated to governmental agencies by closed transactions.
Foreclosures have affected the local market by loss of equity. August to September was both the largest month-to-month percentage
decline on record and the first year-to-year decline in more than 10
years. The impact of foreclosure affects all tiers of the property—
of the market, I am sorry—including the high end. Well-qualified
borrowers were affected by the lack of funds available for jumbo
loans.
Problems or obstacles have been encountered in trying to assist
homeowners in foreclosure prevention, which was discussed earlier
today. Difficulties in getting a lender on the phone and the loss
mitigation department, lenders are further devaluating properties
by cutting appraised values established by certified appraisers.
I understand that the lenders must protect themselves in this
market, but they are producing two negative results: One, clients

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and neighborhoods are being robbed of hard-earned equity; and,
two, lenders are cutting appraised values more in lower income and
minority neighborhoods.
This affects seniors trying to get reverse mortgages, property
owners trying to refinance, and the home buyer stability—desirability to purchase in devaluated neighborhoods. In other words,
who wants to buy a home in a neighborhood that is going to be
worth less than what you paid for it? Lenders have outsourced loss
mitigation services as well as other related real estate services to
foreign countries, further perpetuating job losses and the situation.
What tools or resources do we need in order to overcome these
obstacles? Education is one of the most important things that need
to be accomplished. Education of the public should be provided by
counselors that are licensed real estate professionals who understand the ramifications of what they are teaching or what they are
saying to the client, and who are able to give a more complete picture of the total real estate process from understanding the types
of loans available to foreclosure proceedings to evaluating the property.
Although there are some really good licensed homebuyer counselors who have never purchased, listed, or sold, the licensed practicing real estate professional has more of a first-hand, in-depth experience and fully understands the mechanics of home-buying. Misinformation can hurt the consumer rather than help them.
Financial and programmatic resources are needed to provide education and counseling to prevent foreclosure. Incentives are needed
to assist lenders in working out pre-foreclosure solutions, thereby
taking a positive, proactive approach to preventing foreclosures. All
persons originating mortgages should be licensed, not just the companies. All legislation should be binding on all originators, regardless of the governing department.
Originators for non-licensing entities can simply go to another institution and start the same thing over again. There is no accountability.
Correct terminology should be used. There is a difference between a notice of default and a foreclosure proceeding, because
there are sometimes workout programs available and they don’t always result in a foreclosure.
Public service announcements should be made. Legislation
should be done as well. Legislation intervention is necessary.
In conclusion, I just wanted to say that buyers and sellers cycle
have always been a part of this business, but right now it is more
crucial than it has been in all of my 20 years of real estate, and
that is because there are so many simultaneous things—factors affecting the market, not just non-prime loans but unemployment,
outsourcing. There are a lot of factors that are affecting this.
Chairwoman WATERS. Thank you very much.
Ms. CLARK. Thank you very much. I appreciate it.
Chairwoman WATERS. You are certainly welcome.
Ms. Twomey?

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STATEMENT OF TARA TWOMEY, OF COUNSEL, NATIONAL
CONSUMER LAW CENTER

Ms. TWOMEY. Good afternoon, Chairwoman Waters, and members of the subcommittee. Thank you for inviting me to testify. My
name is Tara Twomey, and I am an attorney, currently of counsel,
with the National Consumer Law Center, and a lecturer at Stanford Law School.
Before moving to California about 3 years ago, I was clinical instructor at the Legal Services Center of Harvard Law School where
my practice focused primarily on foreclosure prevention and predatory lending litigation. I testify here today on behalf of the National
Consumer Law Center as well as the low-income clients that we assist and represent.
As you already know, we have a foreclosure crisis in this country
that is real, it is big, and it is growing. Its magnitude currently
dwarfs the response from the financial services industry. Loan
modifications, which are one of several loss mitigation tools, have
been identified as one of the preferred strategies for addressing the
rising tide of foreclosures, but in practice they do not appear to be
happening in any significant numbers.
The recent measures, which will freeze interest rates for certain
California homeowners, are a significant step in the right direction.
However, the length of time for the proposed freeze is unspecified.
Clearly, the agreement did not contemplate permanent modifications to those loans, and instead we believe is merely a ‘‘kick the
can’’ approach to solving the foreclosure crisis. To be sure, it will
provide some immediate relief to some people, but it is not a longterm solution.
It is well known that creating a long-term solution will require
overcoming some structural barriers inherent in today’s mortgage
market. Some of these barriers we have already talked about
today—constraints in the pooling and servicing agreements, mismatched interest of borrowers, servicers, and holders, and the
tranche warfare which pits investors against other investors and
servicers.
But from the homeowner’s perspective, the first hurdle to loss
mitigation is getting a live person on the phone—getting a live person on the phone that can provide reliable information and who
can make a decision about the homeowner’s loan. You have heard
from the servicers today that contact with the consumer is key.
Well, that is important, but if borrowers are caught up in a maze
of voicemail and bounced around from one department to another,
and receive contradictory information, as was just spoken about a
few minutes ago, from servicer representatives, that is not helpful
to borrowers. And borrowers deserve something better. They deserve—loan servicers need to find a way to provide timely, consistent, and competent information to borrowers about their own
loans.
Today, I would also like to urge the subcommittee and other
Members of Congress to look beyond the rate reset problem. While
rate resets pose a substantial hurdle for many borrowers, there is
another group of distressed borrowers who has received much less
attention. These homeowners have not been subject to payment

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shocks or adverse life events, but, rather, have been saddled with
unaffordable loans from the moment the loan was originated.
These families are defaulting on their mortgages not because of
the teaser rate, because in these cases the—it is because the teaser
rate in these loans are 9 or 10 percent, or sometimes even higher,
the teaser rate. These families are defaulting on their mortgage
loans because their monthly payments for principal, interest, taxes,
and insurance exceeds 60 percent of their gross—or even 70 percent of their gross income.
A successful loan modification strategy for these borrowers will
take more than temporary or even permanent freezes of their adjustable rates. These homeowners will need interest rate reductions. They will need principal reductions or some combination of
the two in order to realize the goal of affordable and sustainable
homeownership.
NCLC supports an approach that would combine the automatic
loan modifications for certain classes of loans as well as—in addition to case-by-case measures to reach those for whom automatic
measures are either insufficient or for those who are not eligible for
the automatic modifications.
In addition to requiring servicers to implement reasonable loss
mitigation measures, it is important to nip in the bud abusive practices in the loan modification process. For some time now, homeowners and consumer advocates have struggled with servicers who
have no interest in helping families stay in their homes. Rather,
in the interest of maximizing profits, servicers have engaged in a
laundry list of bad behavior that has exacerbated foreclosure rates.
The nature of the loss mitigation process makes the disparities
in bargaining power between the homeowner and the servicer even
greater than the disparities in the origination context. This provides fertile ground for abuse. Currently, one of the most pernicious practices is to include a broad waiver of claims provision in
the loan modification agreement. Upon execution of the agreement,
the borrower waives all claims that they have, or may ever have,
related to the loan.
In a forbearance agreement that I recently reviewed, the waiver
language also required borrowers to specifically waive their rights
under California Civil Code Section 1542. That section was enacted
to protect parties from waiving unknown and unforeseen claims in
general release provisions. That kind of broad release language is
simply inappropriate in the context of a loan modification. The
practice should not be allowed to flourish.
In conclusion, loan modification is a strategy that can be used to
limit the devastating consequences of skyrocketing foreclosure
rates. There are challenges to implementing this strategy at a scale
commensurate with the foreclosure problem. These challenges are
significant, but not insurmountable.
We hope that the subcommittee and Congress will act to make
sustainable loan modifications a viable option for millions of homeowners who will face foreclosure in the coming years.
Thank you very much.
[The prepared statement of Ms. Twomey can be found on page
165 of the appendix.]
Chairwoman WATERS. Thank you.

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Ms. Margaret Frisbee, Pacific district director, NeighborWorks
America.
STATEMENT OF MARGARET FRISBEE, PACIFIC DISTRICT
DIRECTOR, NEIGHBORWORKS AMERICA

Ms. FRISBEE. Thank you, Chairwoman Waters, and Congresswoman Richardson. My name is Margaret Frisbee, and I serve as
district director, Pacific District, for NeighborWorks America. I appreciate the opportunity to appear before you today to talk about
the efforts we and our partners are making to help stem the tide
of foreclosures, especially in California, and most particularly L.A.
By way of background, NeighborWorks America was established
by Congress in 1978 as the Neighborhood Reinvestment Corporation. The Corporation receives Federal appropriated funding out of
the Transportation, HUD, and related agencies’ appropriations subcommittee. The Corporation’s board of directors is made up of the
heads of the Federal financial regulatory agencies and the Secretary of HUD.
The primary mission of NeighborWorks America is to expand affordable housing opportunities and to strengthen distressed communities across America, working through a national network of
local, community-based organizations known collectively as the
NeighborWorks Network. Our network includes about 249 nonprofits serving close to 4,500 communities in all 50 States. They operate in our Nation’s largest cities and in some of its smallest rural
communities.
Here in California, there are 18 NeighborWorks organizations,
including the LANHS, which as we speak is working in the next
room, along with other partners, providing counseling to people
who have been coming in all day looking for help with their mortgage problems. I know we are talking about trying to get to a large
answer, but right now all we have is one-to-one counseling. That
is the only thing we can do, and it is very time-consuming.
Local NeighborWorks organizations provide a wide variety of
services that reflect the needs of their neighborhoods and communities. They have provided homeownership counseling to more than
500,000 families, assisted nearly 150,000 families of modest means
to become homeowners, and just in this past year generated about
$4 billion in direct investment in distressed communities.
But today I would just like to highlight a few things that we are
trying to do in response to the precipitous rise in foreclosures.
NeighborWorks America has a 30-year history of facilitating lending to non-conventional borrowers. From our experience, we know
that the best defense against mortgage delinquency and foreclosure
is education and counseling before the borrower begins shopping
for a home and selecting a mortgage product.
We also know that homeowners’ odds of success are increased
even further when they have access to post-purchase counseling
and homeowner education. We have been closely tracking the loan
performance of the many low-income families assisted by these organizations over the years, and we can report that they are 10
times less likely to go into foreclosure than subprime borrowers,
and even 4 times less likely to go into foreclosure than FHA borrowers. So counseling is the key.

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Our commitment to quality homeownership extends far beyond
our network. We have our NeighborWorks Center for Home Ownership Education and Counseling, and the NeighborWorks Training
Institute, and we have become the Nation’s largest trainer of housing counseling professionals.
We saw the problem of foreclosures coming over 4 years ago, not
just in California but in other parts of the country. With the strong
support of our Board, we created the NeighborWorks Center for
Foreclosure Solutions. It is an unprecedented partnership between
nonprofit financial mortgage and insurance sectors, and you have
heard that name today—the Hope Hotline. Well, that is the hotline
that we are now working with with the Homeownership Preservation Foundation.
We are trying to get the word out about this Hope Hotline, and
it is—we are working with the Ad Council, and we would like it
if everybody knew about it, but unfortunately they don’t. The service is available 24/7 to provide callers with high quality, telephonebased assistance in English and in Spanish, but individuals needing more intensive service are then referred out to a
NeighborWorks organization or another HUD-approved housing
counseling agency.
Our basic message through the Hope Hotline is that nothing is
worse than doing nothing. In addition to the Hope Hotline, many
of our local NeighborWorks organizations are also counseling delinquent homeowners every day. These organizations have stretched
their budgets, redeployed staff, and worked hundreds of extra
hours, all to address the real very threat that pending foreclosure
is causing in communities across the country.
We are actively training hundreds of counselors on foreclosure
intervention at our national training institutes, but now we are trying to bring them out regionally. We have one scheduled here in
L.A. in January, and we expect to have many more in the coming
year. We know we have to get more counselors on the ground.
I am going to skip all of the statistics. We just simply know that
it is really bad out here, and so what we have are 14 local
NeighborWorks organizations in California offering aggressive
homeownership preservation services. Eleven of them are using the
Hope Hotline. They have generated—17,800 calls have come in
from California in the past year, making it by far the largest number of calls of anywhere in the country.
[The prepared statement of Ms. Frisbee can be found on page 113
of the appendix.]
Chairwoman WATERS. Thank you very much.
Ms. FRISBEE. You are welcome.
Chairwoman WATERS. Next we will have Ms. Evalyn Burnie,
leader, Los Angeles ACORN. Thank you for being here.
STATEMENT OF EVALYN BURNIE, LEADER, LOS ANGELES
ACORN,
ACCOMPANIED
BY
MR.
RICHARD
CASTRO,
NEIGHBORWORKS AMERICA

Ms. BURNIE. Good afternoon, and thank you for this opportunity
to testify about the importance of effective loss mitigation strategies in keeping families in their homes.

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I, Evalyn Burnie, am a member of ACORN. I am a member of
the California State Chapter, and ACORN stands for Association of
Community Organizations for Reform Now, the national largest
grass-roots community organization of low- and moderate-income
families consisting of 350,000 members organized in 850 neighborhoods, in cities—more than 100 different cities across the United
States.
Thirty-seven thousand of these members live in California. I am
an example of someone who almost got caught up in the current
wave of foreclosures, in a large part because I was a victim of a
predatory mortgage broker. But I am here today to discuss what
ACORN is doing about the current foreclosure crisis.
Community-based housing counselor agencies, such as our sister
organization ACORN Housing Corporation, have begun to be more
aggressively—to more aggressively provide specialized post-purchase assistance to distressed borrowers, including delinquency
counseling and foreclosure prevention. The effect of the delinquency
counseling depends on the willingness of the servicer to engage in
reasonable loss mitigation, often including loan modification that
typically involves changing a loan from an adjustable rate to a
fixed rate, or changing other terms to enhance affordability.
This is essential. This is the first step in keeping families in
their homes. We believe that some lenders may be willing to announce some major initiatives to assist delinquent borrowers such
as contacting borrowers several months before their rate adjusts,
or, more importantly, offering a fixed rate alternative using a good
affordability standard to modify unaffordable loans.
We have also held foreclosure prevention workshops, fairs across
the country, which individual lenders and servicers have agreed to
attend and worked with at-risk customers and loan—on loan modifications. Here in L.A., hundreds of people have attended these
workshops and received assistance to avoid.
In conclusion, ACORN is committed to ensuring that low- to
moderate-income residents are protected from the dangers of predatory lending. Based on our experience, we would like to make the
following policy recommendations. One is city, county, and States
should identify neighbors at great risk from growing numbers of
foreclosures and the vacant properties that also often result and
should implement emergency action to help prevent the decline of
these neighborhoods.
Congress should pass legislation to protect families against predatory mortgage lending and foreclosure rescue scams. Congress
should also pass legislation that would reform the Bankruptcy
Code to allow judges to modify mortgage loans on primary residence for borrowers applying for bankruptcy.
Last, Congress should approve funding for HUD-certified housing
counseling organizations such as ACORN Housing Corporation that
provide foreclosure prevention services to borrowers. And that is
really important. Lenders, servicers, and investors should aggressively modify unaffordable loans to prevent foreclosures.
Thank you for giving me this opportunity to testify, and I will
be happy to answer any questions that you have.
Chairwoman WATERS. Thank you very much.

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Thank you very much. We will take the next few minutes, Ms.
Richardson and I, and ask a few questions of you. We thank you
for having been here.
Some of the recommendations that you made are recommendations that we are pursuing in Congress already—the increase of the
loan limits for sure, and some other things that you have said to
us.
Let me just raise a few questions. First, Mr. Heedly, we need to
assign someone from our office to get together with you, so we can
unravel what has taken place and where you are and see what we
can do to give you some assistance. And we will do that. I hope
that we have taken that information.
Let me return—well, also, we have already said that we are
going to assist you with Countrywide and do everything that we
can to get you out of what looks like a very complicated and difficult situation, Ms. Hee Suk Cho.
Mr. Smith, you have heard some of the statements that have
been made about who initiated some loans, and the mortgage brokers have to take some responsibility in the initiation of some of
these exotic products. But you have also said that your organization only deals with licensed brokers, that you do not have unlicensed brokers in your organization. Is that correct?
Mr. SMITH. That is correct. We have approximately 20 members
who were grandfathered in that were registered and licensed under
the Department of Corporations, and our executive board of directors, which I am part of, are reviewing that now to determine if
in fact those members will still be allowed to be a member. They
are not voting members.
Chairwoman WATERS. So could you tell me, if you know, how
many unlicensed brokers do we have in California?
Mr. SMITH. That is the $64,000 question. There are three regulatory—
Chairwoman WATERS. Describe them to us. Who are they?
Mr. SMITH. There are three regulatory regimes within California,
us being licensed by the Department of Real Estate, the Department of Corporations has lenders that are—the companies are licensed, but the individuals that work there are not licensed. For
example, Countrywide is licensed by the Department of Corporations. In many instances, individuals that work for these companies
may have part-time jobs. I am not saying that they are not competent, but they don’t go through the rigorous tests and have the
fiduciary responsibility that we do as licensed brokers in California.
There is an interdepartmental task force now that has been created as a result of Senate Bill 385 that is working through the
process to identify the number of employees that work for these
companies that are only licensed as companies but not individual
licensees.
Chairwoman WATERS. What was the third? Did you—
Mr. SMITH. And the third one is the Department of Financial Institutions in California, which handles the State-chartered banks
and credit unions, which I believe there are approximately 127 in
California.
Chairwoman WATERS. So you are saying they have unlicensed—
Mr. SMITH. They are not required to have a license either.

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Chairwoman WATERS. Repeat who is not required to have a license again.
Mr. SMITH. The Department of Financial Institutions, which are
your State-chartered banks and credit union employees. Those are
the individuals that sit in front of a customer, do loans, but they
are not required to have a license such as us under the regime of
the California Department of Real Estate, in addition to the Department of Corporations, such as your Countrywide. Those are
your consumer finance lenders.
Chairwoman WATERS. Do you support legislation that would require all brokers to be licensed?
Mr. SMITH. We wholeheartedly support that legislation, which is
in H.R. 3915. We believe, from the California Association of Mortgage Brokers, that every individual who sits in front of a customer
in this State, and the United States, should have a registration and
a license and be competent in handling the biggest financial transaction of most people’s lives.
Chairwoman WATERS. And we agree with that.
We heard from you some of the actions that you are taking to
help us deal with this crisis. Do you support Chairman Bair’s recommendation that we continue for the life of the loan the initial
rate that the consumer, the borrower, was given?
Mr. SMITH. In concept, I agree. This is personally. This is not
from the California Association of Mortgage Brokers. We don’t have
an official position. But personally, as a 24-year veteran of doing
residential home loans in San Diego County, I believe that creating
sustainable, long-term products that help create generational
wealth for families is the way to go.
Chairwoman WATERS. So basically, what you are saying is that
the recommendation by Chairman Bair could help solve this problem.
Mr. SMITH. It could be the first step to creating long-term stability for a family who has the ability and demonstrated willingness to make a payment to be able to count on what they have to
pay every month to budget for their family.
Chairwoman WATERS. There is one other aspect of that I would
like to focus on, and that is this. It was said, I think today by one
of our presenters here, that some people should have the ability to
get in this program for this long-term sustained loan, but others
should not. Why don’t we just do it for everybody?
Mr. SMITH. I think that everyone should have the opportunity to
have a home. I think that is the American dream. The reality of
it is that some individuals are not financially prepared for the responsibility of owning a home. But I disagree with the fundamental
construct that you don’t have an opportunity to try.
I think if we legislate product, we are going to lock out people
and stymie growth and reduce homeownership rates in California
and the United States. I believe that everyone should have the opportunity to own a home. And given that—with that—
Chairwoman WATERS. If you got into this loan with a teaser rate,
and you go for a workout, and say the teaser rate was one that
would reset in—I guess they reset any time—6 months, a year. Do
you believe that a person could have damaged their credit so bad,
even though they have paid the teaser rate, but now they cannot

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afford the rate that will reset, that they should be denied a continuation of the teaser rate because somehow their credit has gone
bad?
If they can afford the teaser rate, they can pay the teaser rate,
we are talking about the workout that would allow them to continue to do that, should they be allowed to have that opportunity?
If they can’t do the teaser rate, then perhaps they should be foreclosed on. But what is it in this 6-month period, or this 1-year period, about their credit that would cause one to say, ‘‘Sorry, you
can’t maintain the teaser rate’’?
Mr. SMITH. I have a fundamental disagreement with that construct. Currently, under the FHA and VA rapid refinance or
streamlined refinance process, there is no credit requirement if you
can demonstrate that you had successful payments the previous 12
months. So that is an argument right there that a person may have
credit problems, but they have demonstrated an ability to make a
payment and they are awarded a loan.
Chairwoman WATERS. You heard what was said by the Forum
here today relative to that, and taking a look at the credit background that may not qualify one to continue with the teaser rate.
That is something that we want to try and get at based on what
I have heard here today.
Mr. SMITH. I think we could get a deeper dive on that. Quite
frankly, any loan is better than no loan. A teaser rate is better
than no rate, as the Congressman said earlier.
Chairwoman WATERS. Yes. All right.
Mr. SMITH. I firmly agree with that.
Chairwoman WATERS. Okay.
Mr. SMITH. And we have that in process already under the VA
and FHA regime currently.
Chairwoman WATERS. All right. Thank you very much.
Ms. Clark, you told us something that I didn’t know. You said
they are outsourcing loss mitigation activities. To where, offshore?
And what do they do? What do they do when India calls your
home? I mean—
Ms. CLARK. You can’t get them on the phone.
Chairwoman WATERS. How do they do this?
Ms. CLARK. They have been doing this for a while. Even title is
outsourced to foreign countries. That is why you can’t reach a lot
of the lenders, because they are not available. They are not here.
Chairwoman WATERS. Okay. I hear what you are saying. So we
have this outsourcing. But I am a homeowner, and I am about to
be delinquent, or I have become delinquent, and you have loss mitigation that will help me to understand that I have a problem, and
some way that I can work this out, so that I can get caught up,
or what have you. How does this outsource entity from someplace
else help me to do that?
Ms. CLARK. That is the problem. When you try to reach these
people, you can’t. And that is what is perpetuating the situation.
Chairwoman WATERS. Ms. Twomey?
Ms. CLARK. But they all—
Chairwoman WATERS. Go ahead. I am sorry.

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Ms. CLARK. But from my understanding, they set up shell companies that are here in the United States, but the actual people who
are answering the phones are not here.
Chairwoman WATERS. Okay.
Ms. CLARK. They are in foreign countries.
Chairwoman WATERS. Do you know anything about this, Ms.
Twomey?
Ms. TWOMEY. Yes. I think what has been represented is accurate.
As a matter of fact, oftentimes when loans go into default, the servicing rights are transferred to a default servicer, so there is actually another entity that comes into play when loans go in default.
So, the number of different entities that borrowers have to deal
with in the process can be fairly overwhelming.
And as was already mentioned, actually getting a live body on
the phone is one thing. I think the other thing that happens is
there are two different departments usually. There is collections,
and there is loss mitigation, and usually people start at collections.
And the goal of the collections department is to collect money,
not to do a loan workout, and so getting—working your way up the
chain to get to the loss mit department, and then to find someone
in the loss mit department who can actually make a decision about
your loan is a real hurdle, I think, for a lot of borrowers.
Chairwoman WATERS. So let me just ask about a concept that
may be applicable to what we are talking about here. I can recall
for years they have created in cities one-stop shops. And these onestop shops were basically for businesses, what is good for business.
We should have a one-stop shop to keep them from having to run
all over city government for licensing and this, that, and the other.
We should be talking about a one-stop shop for this situation of
doing workouts.
Ms. TWOMEY. I think that is an excellent idea, and especially if
there is a third party at the one-stop shop that can help the borrower figure out—one of the things I mentioned was the bargaining
disparity that we have when you have a distressed homeowner trying to save their home and a servicer that makes all of the decisions. And a third party being involved in that would be helpful in
helping the borrower to navigate that process. That, of course, requires more funding to be able to do that.
Chairwoman WATERS. Do you have a contract with any of these
financial institutions?
Ms. TWOMEY. No, we don’t do specific—
Chairwoman WATERS. Mr. Leonard, do you have a contract?
Mr. LEONARD. No, we do not.
Chairwoman WATERS. You do, Ms. Frisbee.
Ms. FRISBEE. We don’t have a contract—
Chairwoman WATERS. No.
Ms. FRISBEE. —with financial institutions. We—
Chairwoman WATERS. Your money is directly from the Federal
Government to do this kind of work. So the contracts that have
been worked out with some nonprofits, as was mentioned today,
does not include any of you in the room today. Did they ask you?
Does anybody come to you and say, ‘‘We would like to do a contract
with you’’? No?
Ms. TWOMEY. Not that I am aware of.

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Chairwoman WATERS. ACORN, do you have a contract?
Ms. BURNIE. I don’t believe so, no.
Chairwoman WATERS. ACORN may be working on some of them?
Mr. CASTRO. Richard Castro, NeighborWorks America.
Chairwoman WATERS. Please state your name and who you represent.
Mr. CASTRO. NeighborWorks America.
Chairwoman WATERS. So NeighborWorks has a contract?
Mr. CASTRO. With one of our organizations. They are all autonomous.
NeighborWorks
organization
in
Sacramento
is
NeighborWorks Home Ownership Center Sacramento, and they are
working on a contract with HomeEq.
Chairwoman WATERS. Okay. Thank you very much.
I am going to turn the questioning over to Ms. Richardson.
Ms. RICHARDSON. Thank you, Madam Chairwoman.
Mr. Smith.
Mr. SMITH. I hope you feel better.
Ms. RICHARDSON. Thank you. Your mortgage brokers that are
part of your association, have they received information about some
of the products that are available, modifications, workout scenarios,
things like that, so if they have people that they have worked with
to get these loans come to them, do they have this information
readily available of what some of the options—maybe they could
recommend that they followup with these various providers?
Mr. SMITH. Yes, we do. Our advisors—and what—and our Preserving Home Ownership Initiative Program, the individuals are licensed brokers, and they have gone through training. Ms. Mary
Harmon is our consumer—is our community services chair, who is
the director of that program.
Myself and her and several other members of our association
have been trained by Freddie Mac through the Credit Smart Program, and we are abreast of all of the different loss mitigation
techniques and programs that are available. So when we sit down
with a customer, we can effectively advise them in the right direction to go based on current practices and programs that are available.
Ms. RICHARDSON. Not a specific department, but are all of your
brokers aware of those options?
Mr. SMITH. I am sorry. Say that again.
Ms. RICHARDSON. All of your individual members, are they
aware?
Mr. SMITH. I couldn’t say that all of them would, but I can tell
you that information is readily disseminated on a regular basis
from our State organization, and that they have access to that information via the web and by telephone from our State organization.
Ms. RICHARDSON. And with the licensing that takes place, how
much of it is spent actually talking about foreclosures?
Mr. SMITH. Well, we say licensing—that is two different regimes.
I think I misunderstand your question.
Ms. RICHARDSON. When your members take a test to have a license, of that test component, how much of it would you say covers
actual foreclosures?

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Mr. SMITH. I haven’t renewed my license in the last couple of
years, but the continuing education requirements by the Department of Consumer Affairs is changing. There is a 40-hour, I believe, consumer protection piece that has different modules, and
consumer protection is one of the items that this would come
under.
Ms. RICHARDSON. Madam Chairwoman, that might be something
we want to consider. I did something similar with this with the Department of Motor Vehicles. It was looking at the various licensing
departments and requiring that a larger portion be spent in terms
of actual counseling and understanding the foreclosure side, what
the termination options are, etc., that that be a part of the licensing program itself, because they have to increase the amount that
they provide.
Mr. Arnold, your real estate agents who are members of the California Real Estate Association, would you—how many of them do
you think know about specific options that some of these providers
have?
Mr. ARNOLD. Well, not a lot of them. In fact, so many of them
are new licensees, and so CAR has—we are teaching foreclosure
prevention as well as counseling. We have added two classes to
that this year because of the fact that so many people are foreclosing. So we have to educate our members.
And, really, one of the problems that we see is the fact that these
members have never experienced a market like this. Most of the
Realtors have come in over the last 5 or 6 years. We have doubled
the amount of licensees that we have had, and so not—not like myself that has experience in loss mitigation, foreclosures, and short
sales.
They don’t know it. But CAR, because we are a trade organization, we want to educate our membership, so we do have—currently have classes and we have had it at—I believe at NAR, we
had it at our CAR meeting, so we are consistently talking about
this, so we can educate our membership.
Ms. RICHARDSON. Okay. Mr. Smith?
Mr. SMITH. I would like to dovetail off his answer. I have some
information that may be able to give a little bit more global perspective of it. As of fiscal year June of 2007, there are currently
537,038 licensees in the State of California; 147,171 are brokers,
389,867 are sales persons that are licensed persons like myself. Approximately 31,000 of those brokers are engaged in mortgage activities in the State of California.
Ms. RICHARDSON. Okay. And then, Ms. Clark, Ms. Twomey, Ms.
Frisbee, and Ms. Burnie, we are fortunate enough—I want to say
thank you, that some of the earlier panelists actually stayed to
hear the continuing testimony, so we appreciate that. Do you have
any suggestions that you could provide to these providers themselves, the financial institutions? And I see the Governor’s office is
also still here as well. Any suggestions you could give to them of
how we could better outreach to the direct consumer themselves?
When I hear things like making 18 million calls and we have
reached 2.2, that is 10 percent, that is not great. So of the people
that you are interacting with, what would you recommend that
they consider in terms of their outreach to increase that number?

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Ms. TWOMEY. I am happy to respond, Congresswoman. I think
one of the problems is that there is this outreach that is going on,
but, as I said before, when the consumer calls back, they can’t get
anywhere. And so I am not sure where the disconnect is, but it
seems to me what we are hearing is, ‘‘I called my servicer, and I
ended up in voice mail. And I called them,’’ you know, however
many times, or ‘‘I couldn’t get someone to give me information.’’
And so I think the outreach is good if the back end of the piece is
there, which is when the person actually responds to the outreach
there is someone there that can answer the questions that the borrower has.
Ms. RICHARDSON. And how do people know how to reach you,
your organization?
Ms. TWOMEY. Our organization works primarily with legal services organizations, government agencies, and private attorneys who
are representing low-income homeowners. And we have published
a series of books on consumer issues.
Ms. RICHARDSON. Anyone else want to respond?
Ms. FRISBEE. Yes. We just feel that the lenders have to be more
flexible. They have to really tailor their work to the individual situation. We are finding that people are calling a little bit earlier, but
usually, you know, they are already 60 days behind and they are
just told, ‘‘There is nothing we can do.’’ So this has to change.
Ms. BURNIE. I am happy with the testimony that was brought
out today, but I just think that we need more funding and more
ways to bring the information to the community.
Ms. TWOMEY. I want to add one more thing, which is I think this
week the OTS recently announced that it was going to offer financial incentives for servicers to do workout arrangements, and that
would potentially deal with some of the problems that we heard
earlier about the costs that servicers incur in trying to do workouts, and then sometimes passing those costs along to the borrowers. And so maybe a proposal like that would help incentivize
servicers to actually contact those borrowers and then do loan
workouts with them.
Ms. RICHARDSON. Madam Chairwoman, I just want to say—I
think this is our last panel, so I wanted to take this opportunity
to thank you again for having this hearing here. I think there is
no better place than California to get a sense of what is happening
in the wave across the United States. We applaud your efforts and
look forward to working with you to resolve this issue.
Thank you.
Chairwoman WATERS. Well, thank you very much.
I would like to thank all of our members who participated today,
and, Ms. Richardson, I would like to thank you for staying through
our last panel here. I would like to thank all of our panelists. I
would like to thank our citizens who came to learn more about this
and find out what we can all do collectively.
I would just like to say to our panelists and to our homeowners
that I am attempting to approach this in a thoughtful manner. I
am attempting to try and determine what we can do working with
the financial institutions and the loan initiators. I must say that
I am not happy with what I am hearing as of today has been the
response.

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88
I am not happy with the pace of the response. I am not happy
with our Federal regulators. And I do not think that you are going
to see a lot of money coming from the government to encourage
servicers to do the right thing.
One of the things I do not wish to do is to get in a running battle
with the financial institutions, with the servicers, nor do I wish to
be in the additional position of not only doing my legislative work,
but doing organizing. The financial institutions, these loan
initiators better step up to the plate or we are going to put a lot
of heat from the street on them.
As I have come to understand about the banking community in
particular is one thing they don’t want is a crowd outside the door
demanding anything. But if we have to do that, we are going to
have to do that. This crisis is overwhelming and scary, and it really
should not be happening. We all have responsibility in this, and I
accept my responsibility as a Member of Congress.
As a Member of Congress, we should demand more of our regulators. They should see this stuff coming down the pipe. There is
no way that we are spending the amount of money that we are
spending on all of these agencies that are supposed to be doing
oversight and auditing, and all of this, and they didn’t know that
these exotic products had hit the street.
So the Federal Government, Members of Congress, loan initiators
at every level, no matter where you are, should have seen this.
This stuff enriched a lot of people on the front end. A lot of people
made money, and the investors are sitting back there just waiting
to rake it all in. And so everybody has to take responsibility on
this, and we may have to step outside the box to make it happen.
I thank you for participating. I thank you for all that we have
learned today from you, and we have some additional legislative
possibilities here based on the information that we have received.
Let me just say that I will note that some members may have additional questions for this panel, which they may wish to submit in
writing. And 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.
Let me also say that the following organizations and individuals
have submitted written statements which shall be included in the
record: the NAACP and our distinguished colleague, Mr. Lantos,
who was unable to join us today. These statements, without objection, will be made a part of the record.
I am reminded that we have assistance that is available in the
next room. Some people who have come today have already sat
with some of our nonprofit organizations that are taking the information. Ms. Frisbee, you had mentioned that. They are still available as we close down this panel today, and we would encourage
anybody who is in the audience who would like to have some assistance to please avail yourself of the opportunity that is being offered.
Also, we would like you to help us get the word out. They can
call our office. They can call the office of any of our members who
are participating. We will have information about the nonprofits
that have some arrangements. Those who don’t have arrangements

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89
that just do this work, we will make that information available to
everyone.
I want to thank you, and this hearing is concluded. Thank you
very much.
[Whereupon, at 3:25 p.m., the hearing was adjourned.]

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APPENDIX

November 30, 2007

(91)

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