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S. HRG. 111–902 TARP FORECLOSURE MITIGATION PROGRAMS HEARING BEFORE THE CONGRESSIONAL OVERSIGHT PANEL ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION OCTOBER 27, 2010 Printed for the use of the Congressional Oversight Panel smartinez on DSKB9S0YB1PROD with HEARING ( VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00001 Fmt 6011 Sfmt 6011 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING TARP FORECLOSURE MITIGATION PROGRAMS VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00002 Fmt 6019 Sfmt 6019 E:\HR\OC\A081.XXX A081 S. HRG. 111–902 TARP FORECLOSURE MITIGATION PROGRAMS HEARING BEFORE THE CONGRESSIONAL OVERSIGHT PANEL ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION OCTOBER 27, 2010 Printed for the use of the Congressional Oversight Panel ( U.S. GOVERNMENT PRINTING OFFICE WASHINGTON smartinez on DSKB9S0YB1PROD with HEARING 65–081 : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00003 Fmt 5011 Sfmt 5011 E:\HR\OC\A081.XXX A081 CONGRESSIONAL OVERSIGHT PANEL PANEL MEMBERS THE HONORABLE TED KAUFMAN, Chair KENNETH TROSKE J. MARK MCWATTERS RICHARD H. NEIMAN smartinez on DSKB9S0YB1PROD with HEARING DAMON SILVERS (II) VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 E:\HR\OC\A081.XXX A081 CONTENTS Page smartinez on DSKB9S0YB1PROD with HEARING Statement of: Opening Statement of Hon. Ted Kaufman, Chairman, Congressional Oversight Panel ............................................................................................. Statement of J. Mark McWatters, Member, Congressional Oversight Panel .............................................................................................................. Statement of Damon Silvers, Deputy Chair, Congressional Oversight Panel .............................................................................................................. Statement of Kenneth R. Troske, Member, Congressional Oversight Panel .............................................................................................................. Statement of Richard H. Neiman, Member, Congressional Oversight Panel .............................................................................................................. Statement of Phyllis Caldwell, Chief, Home Ownership Preservation Office, U.S. Department of the Treasury ........................................................ Statement of Guy Cecala, CEO and Publisher, Inside Mortgage Finance Publications, Inc ............................................................................................ Statement of Julia Gordon, Senior Policy Counsel, Center for Responsible Lending .......................................................................................................... Statement of Katherine Porter, Professor of Law, University of Iowa College of Law ............................................................................................... Statement of Joseph Evers, Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency ...................................... Statement of Faith Schwartz, Senior Advisor, HOPE NOW Alliance ......... (III) VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00005 Fmt 5904 Sfmt 0483 E:\HR\OC\A081.XXX A081 1 6 13 18 22 26 60 70 108 124 139 smartinez on DSKB9S0YB1PROD with HEARING VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00006 Fmt 5904 Sfmt 0483 E:\HR\OC\A081.XXX A081 HEARING ON TARP FORECLOSURE MITIGATION PROGRAMS WEDNESDAY, OCTOBER 27, 2010. U.S. CONGRESS, CONGRESSIONAL OVERSIGHT PANEL, Washington, DC. The Panel met, pursuant to notice, at 10 a.m. in Room SD–138, Dirksen Senate Office Building, Washington, DC, Hon. Ted Kaufman, Chairman of the Panel, presiding. Present: Hon. Ted Kaufman [presiding], Mr. Richard H. Neiman, Mr. Damon Silvers, Mr. J. Mark McWatters, and Dr. Kenneth R. Troske. smartinez on DSKB9S0YB1PROD with HEARING OPENING STATEMENT OF HON. TED KAUFMAN, CHAIRMAN, CONGRESSIONAL OVERSIGHT PANEL The CHAIRMAN. Good morning. This hearing of the Congressional Oversight Panel will now come to order. My name is Ted Kaufman. I’m the Chairman of the Congressional Oversight Panel for the Troubled Asset Relief Program. We are here today to evaluate the progress of Treasury’s foreclosure prevention programs and to examine the impact of recently reported irregularities in the foreclosure process. I have always believed that sound oversight must start with an understanding of a program’s goals. So let us begin by recalling the Administration’s original goal for foreclosure prevention. In February 2009, the President announced an aim to help, and I quote, ‘‘as many as 3 to 4 million homeowners to modify the terms of their mortgage to avoid foreclosure.’’ At that time, our economy was on track to experience more than 8 million foreclosures, so the goal was always modest compared to the incredible scale of the problem. Certainly it was modest compared to the boldness shown in rescuing AIG, Fannie Mae, Freddie Mac, Bank of America, Citigroup, and the auto companies. Yet now, two years later, we can see that even this modest goal will not be met. To date, fewer than half a million homeowners have received permanent mortgage modifications through Treasury’s programs. As many as half of these borrowers will ultimately redefault and lose their homes. Recently, as the goal of preventing 3 to 4 million foreclosures has appeared increasingly distant, Treasury has redefined its aim. The goal now is to offer a temporary mortgage modification to 3 to 4 million homeowners. Let me repeat that. The goal, Treasury now says, is to offer—offer—a temporary mortgage modification to 3 to 4 million homeowners. (1) VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 2 The distinction may sound subtle. I don’t think it is. But the difference is vast. Borrowers who are offered temporary modifications may not accept. Those who accept may not complete the steps required to receive a permanent modification. Those who receive a permanent modification may redefault and lose their homes. At the rate that homeowners are falling through these cracks today, 3 million modification offers may translate in some cases to as few as 100,000 foreclosures prevented. For all these reasons, a goal of offering 3 to 4 million modifications is hardly a goal at all. It divorces the program’s measurement of success from its ultimate aim, as expressed by the President, to keep homeowners in their homes. In many ways it’s like a major league batter pledging to swing at every pitch. What matters is not how often you swing. What matters is how often you get on base. I hope the Treasury takes today’s hearing as an opportunity to define in a detailed public way more concrete goals for success in foreclosure prevention. Most fundamentally, here are my main questions: How many foreclosures must be prevented? What redefault rate can we expect? How many temporary modifications will convert to permanent status? Clear answers are critical not only for our oversight work, but really, much more importantly, for Treasury’s own ability to measure and improve its results. I also hope to hear evidence that the foreclosure picture improved dramatically since the Panel last examined the issue. Yet all evidence seems to be to the contrary. Of particular concern are reports that banks and loan servicers may have rushed their foreclosure process by relying on affidavits, as they say, robo-signed by employees with no knowledge of the underlying facts. These reports are already undermining investor and homeowner confidence in the mortgage market and they threaten to undermine Americans’ fundamental faith in due process. If these reports reflect a disregard on the part of banks for legal requirements of foreclosure, that alone would be unconscionable. Yet it is conceivable that the banks’ problem is even worse, that the banks have failed to follow the legal steps necessary to ensure clear title. If investors lose confidence in the ability of banks to document their ownership of mortgages, the financial industry could suffer staggering losses. The possibility is especially alarming coming so soon after taxpayers spent billions of dollars to bail out these very same institutions. I do not want to prejudge what we will hear from today’s witnesses, but I must say this. I am concerned. I am concerned in part because it is the Panel’s mandate to oversee Treasury’s foreclosure programs and the overall stability of the financial system. But much more critically, I am concerned because across America our mothers and fathers, sons and daughters, are losing their homes. I do not pretend that every foreclosure in this country can or even should be eliminated. But even so, every foreclosure is clearly a tragedy. Every time a family is cast out of their home, their future is cast into doubt, their neighborhood’s home prices plummet, and their town’s stability diminishes. The American dream takes a step backward. Treasury cannot and should not prevent every foreclosure in this country for sure, but it can and must do far, far better. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 3 smartinez on DSKB9S0YB1PROD with HEARING Before we proceed, I would like to hear from my colleagues. Mr. McWatters. [The prepared statement of Chairman Kaufman follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 13 here 65081A.001 smartinez on DSKB9S0YB1PROD with HEARING 4 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 14 here 65081A.002 smartinez on DSKB9S0YB1PROD with HEARING 5 6 smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF J. MARK MCWATTERS, MEMBER, CONGRESSIONAL OVERSIGHT PANEL Mr. MCWATTERS. Thank you, Senator. Since this Panel last addressed Treasury’s foreclosure mitigation programs funded under the TARP, questions have arisen regarding the identity of the true legal owners of countless mortgage loans that serve as collateral for residential mortgage-backed securities, or what are referred to as RMBS, and whether the alleged owners may deliver clear title upon foreclosure or other transfer of the mortgaged properties. Although the securitization trust organized with respect to each RMBS should hold clear legal title to the mortgage loans, such assertion is not free from doubt. It is possible that some of these special purpose entities may be divested of their putative ownership rights in their mortgage loans are required to incur substantial fees and expenses so as to reflect the proper chain of title to the promissory notes, mortgage liens, and security interests in accordance with applicable law. Investors in RMBS are also beginning to assert that mortgage loan originators breached representations and warranties provided in their RMBS securitization documents and that the securitization trusts and their servicers should undertake to put individual residential mortgage loans back to their loan originators. These investors may also initiate claims against the securitization trusts and their sponsors and servicers for breach of contract, failure to comply with applicable law, and fraud. Individual mortgage loan borrowers or a class of such borrowers may also initiate wrongful foreclosure and other actions against the RMBS securitization trusts and their servicers. Such claims may be compounded as the rights and obligations of parties to collateralized debt obligations and synthetic collateralized debt obligations are considered. Since TARP recipients and other financial institutions acted as mortgage loan originators, RMBS sponsors and servicers, credit default protection buyers and protection sellers under synthetic CDOs, and RMBS and CDO investors, they could suffer substantial losses and capital impairment from the exercise of these legal rights and remedies. Further, since Fannie Mae and Freddie Mac had also acted as RMBS sponsors, and given Treasury’s unlimited support for the GSEs, Fannie and Freddie may also serve as targets for aggrieved RMBS investors and mortgage loan borrowers. Conversely, the GSEs, acting on behalf of the RMBS securitization trusts that they sponsor, may undertake to put individual residential mortgage loans back to the TARP recipients and other financial institutions that originated the loans or perhaps— perhaps—cancel the guarantees issued for the benefit of the RMBS holders. The enforcement of these rights and remedies would no doubt create much uncertainty for TARP recipients and other financial institutions, as well as for the residential mortgage lending and RMBS markets. These matters are particularly significant since the operating costs of many TARP recipients are rising due to commercial and consumer loan defaults and foreclosures, while operating revenues VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 7 smartinez on DSKB9S0YB1PROD with HEARING remain relatively tepid due to weak loan demand and an overall sluggish economy. If—if—another liquidity or solvency crunch follows from these events, it is not inconceivable that the rating agencies may downgrade the credit rating of certain mortgage loan originators, RMBS securitization trusts, and investors, and mortgage servicers, which, as noted above, include TARP recipients and other financial institutions. This action could adversely affect the broader economy. I also wish to note that in my view the Administration’s foreclosure mitigation program, including the HAMP and the HARP, have failed to provide meaningful relief to distressed homeowners and, disappointingly, the Administration has inadvertently created a sense of false expectations among millions of homeowners who reasonably anticipated that they would have the opportunity to modify or refinance their troubled mortgage loans under the HAMP and the HARP. From my perspective, the best foreclosure mitigation tool is a steady job at a fair wage, and not a hodgepodge of government subsidized programs that create and perpetuate moral hazard risks and all but establish the government as the implicit guarantee of distressed homeowners. I question why the taxpayers should subsidize mortgage lenders and RMBS participants when it is most often in the best interest of such parties to forgive principal—to forgive principal—and to modify or refinance troubled mortgage loans without government assistance. Why should the taxpayers provide incentives when they are not needed or merited? As such, I strongly recommend that each mortgage loan holder and RMBS investor and servicer work with each of their homeowners in a professional, good faith, transparent, and accountable manner to reach an economically reasonable resolution prior to proceeding with a foreclosure remedy. In my view, foreclosure should serve as the exception to the rule that only follows from the transparent and objective failure of the parties to modify or refinance a troubled mortgage loan pursuant to market-based terms. Thank you, and I look forward to our discussion. [The prepared statement of Mr. McWatters follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 20 here 65081A.003 smartinez on DSKB9S0YB1PROD with HEARING 8 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 21 here 65081A.004 smartinez on DSKB9S0YB1PROD with HEARING 9 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 22 here 65081A.005 smartinez on DSKB9S0YB1PROD with HEARING 10 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 23 here 65081A.006 smartinez on DSKB9S0YB1PROD with HEARING 11 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 24 here 65081A.007 smartinez on DSKB9S0YB1PROD with HEARING 12 13 The CHAIRMAN. Thank you. Mr. Silvers. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF DAMON SILVERS, DEPUTY CHAIR, CONGRESSIONAL OVERSIGHT PANEL Mr. SILVERS. Thank you, Mr. Chairman. Good morning. Before I begin with my statement, I just want to say that I want to associate myself with the comments of the Chair and my colleague Mr. McWatters. I haven’t heard the comments of my other colleagues. Perhaps I’ll wish to associate myself with them once I’ve heard them. Today’s hearing is the fourth that this Panel has held addressing the foreclosure crisis. Congress explicitly required in the Emergency Economic Stabilization Act of 2008 that the powers it granted the Treasury Department in the Act be used in part to reduce the incidence of foreclosures. In response, the Treasury Department in the spring of 2009 created the HAMP program, and since then the Treasury has created a number of other programs aimed at reducing foreclosures. I’m pleased to welcome Ms. Caldwell as the director of those programs on behalf of the Treasury Department. As I’ve said at every hearing on this subject since this Panel was created, foreclosing on a family’s home is not a mere financial transaction. It marks a profound financial loss for the family and often devastating emotional defeat for the adults in that family, psychological trauma and social dislocation for the homeowners’ children, falling property values and destabilized communities for the homeowners’ neighbors. Mass foreclosures are a sure sign of a failing economy and a society that has been unable to provide basic economic security to its citizens. Mass foreclosures should no more be encouraged by our public officials than should contagious diseases or catastrophic floods or organized crime. These reasons alone would justify aggressive government action to prevent foreclosures in the wake of the housing bubble and the epidemic of exploitative lending practices by our financial institutions. But the social impact of foreclosures is not by any means the full story of the harm done to our country by the foreclosure epidemic. Mass foreclosures drive down real estate prices. You can see that in the price numbers that were announced this week. They shrink the wealth of American households, not of the people being foreclosed, but of all homeowners. Mass foreclosures weaken consumer confidence, which underlies whether or not our economy will recover from the economic crisis. And mass foreclosures, as my fellow panelists and our Chair have mentioned already, threaten the solvency of our financial system through their effect on the strength of the real estate market. Now, it has been clear since the beginning of the financial crisis that borrowers, lenders, and the public at large had a profound interest in restructuring loans to enable homeowners who had the ability to make lower payments to stay in their homes. By the way, for those who are concerned that somehow there’s something morally suspect about restructuring loans, I should note that every day on Wall Street people of power and privilege in this society restructure their debt. It is commonplace for everyone but the poor. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 14 Yet, as the financial crisis escalated, the banks in their role as mortgage servicers simply did not restructure the loans. The Treasury Department created HAMP, offering $50 billion in incentives for the banks to restructure the loans. And yet, a year and a half later we have only 467,000 permanent modifications, genuine restructurings, compared to 7 million homeowners in the process of foreclosure. Let me note—and perhaps this is a slightly different emphasis than my fellow panelists who have spoken before—that I think that helping 467,000 families avoid foreclosure is a good thing. In fact, it’s a very good thing. It’s substantially better than not helping them. But it does not appear by any means, by any measure, to be good enough. Now we have learned that the foreclosure process itself and our system of property law is cracking under the strain of the bubble and the bust in residential real estate markets. There appears to be strong evidence, being investigated by 50 states attorneys general and a Federal task force, that servicer banks have improperly executed and filed with the courts a large number of affidavits in the pursuit of foreclosures. Worse yet, since the affidavit revelations, evidence has mounted that there are substantive problems with the liens that support significant numbers of securitized mortgages. Today I hope we can shed light on whether 467,000 permanent modifications plus another 20,000 or so a month is the best we can hope for from HAMP. In particular, I am puzzled and mystified as to why one community group that I am familiar with, NACA, with a budget of less than $20 million, less than a thousandth of the budget of HAMP, can process 20,000 people a week in one city seeking mortgage modifications, whereas we get permanent modifications on an annual number of 20,000 a year across the whole country from HAMP. By the way, I’ve seen the community group NACA do this. I’ve watched 20,000 people come through the Washington Convention Center not six blocks from here in a week. So I don’t understand what is going on here. Secondly, I would like to know whether HAMP has paid out money to servicers to ensure that they did not foreclose on homeowners in situations where the servicer did not actually have a valid lien or had filed a false affidavit with a court. Further, I would like to know what plans the Treasury Department has for finding out whether this sort of thing has occurred and whether public moneys have been paid out effectively under false pretenses or based on false affidavits. Finally, I would like to know what plans the Treasury Department and the OCC on our next panel have for dealing with the possibility that either the major servicer banks will be held liable for their failures to properly service $7 trillion in mortgages or that the collateral for significant amounts of mortgage loans will turn out to be invalid. These possibilities would appear to present systemic risks of the type that TARP was enacted to address, and in particular would appear to have grave consequences for the very institutions that TARP initially capitalized and who were allowed to exit TARP on the theory that they were now healthy. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 15 smartinez on DSKB9S0YB1PROD with HEARING This hearing involves some of the most important issues facing our country today. I look forward to the witnesses’ testimony. Mr. Chairman, I thank you for your indulgence. [The prepared statement of Mr. Silvers follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 32 here 65081A.008 smartinez on DSKB9S0YB1PROD with HEARING 16 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 33 here 65081A.009 smartinez on DSKB9S0YB1PROD with HEARING 17 18 The CHAIRMAN. Thank you. Dr. Troske. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF KENNETH R. TROSKE, MEMBER, CONGRESSIONAL OVERSIGHT PANEL Dr. TROSKE. Thank you, Senator Kaufman. So the issue before us today, foreclosures and the government’s efforts to mitigate foreclosures, remains, obviously, quite contentious and fraught with strong feelings among the people debating this issue and making policy. However, when considering the effectiveness of programs designed to mitigate foreclosures, in my opinion, it is important to keep in mind that one of the primary goals and one of the goals I believe of the original legislation is to return the economy to a place where it can begin to grow at a pace that helps everyone currently in distress. Certainly all of us would like to return to a world where we have steadily rising home prices, low unemployment rates, and an economy that is growing at 4 to 5 percent per year. However, this is not the world we currently live in. Instead, we are in an economy where housing prices nationwide have fallen by 14 percent from their peak, where prices in the largest metropolitan areas have fallen by almost one-third, and annual existing home sales have plunged by over 40 percent. Without a doubt, the housing market has been in disequilibrium for several years, even before the recent discoveries of problems with foreclosures. The important question is what are the best policies for helping the housing market return to stability? Because until we achieve stability in the housing market, the economy will continue to limp along at 1 to 2 percent growth per year and unemployment will remain unacceptably high. One of the main problems in the housing market is that during the 2004 to 2006 period many people borrowed money to purchase houses or took out home equity loans predicated on the belief that housing prices would continue to rise. As long as home values kept rising, homeowners and other investors could refinance these loans at lower rates based on the accumulation of equity. When housing prices started to decline, many of these people were left with homes that were valued at less than the amount they owed. They were unable to refinance their loans and face loan payments that are beyond their means. The question is, what can we do about this problem now? One of the government’s responses, the Federal Government’s responses, is the program that we’re focusing on today, the Home Affordable Modification Program, or HAMP. This program is presumably designed to help what Treasury refers to as ‘‘at-risk borrowers’’ stay in their homes. The questions we are grappling with at this hearing are whether the program is effective and how the program affects the broader economy. HAMP works by reducing the monthly mortgage payments of borrowers through capitalization of arrears, a term extension of forbearance, and/or a reduction of interest rates or principal for up to five years. Then the program ends and the interest rates can gradually return to the prevailing rate in place at the time the modification was made. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 19 Given the structure of the program, it seems unlikely that borrowers, especially those with negative equity, will be able to keep their homes, unless we see dramatic improvements in the housing market, which seems unlikely at this point. The median borrower in the program has monthly debt payments equal to 80 percent of their income and it is hard to imagine any government program putting a significant dent in this number. This program is focused on borrowers who can’t make their monthly payments, even though they are currently employed and not underwater, this despite evidence from researchers at the Federal Reserve Banks of Atlanta and Boston showing that helping workers who have experienced temporary shocks, such as losing their jobs, is much more likely to result in the owners keeping their home. In the end, it appears that for most participants HAMP will only postpone the inevitable. So what would be the downside if all HAMP does is postpone foreclosures for a few years? Well, as my fellow panelist Mark McWatters has pointed out in an earlier Panel report, despite all the attention they have received, homeowners with mortgages were not the only group hurt by the financial crisis. Millions of homeowners who didn’t have mortgages saw the value of their homes plummet, and this was devastating for those who were going to use the equity in their home to finance their retirement. Millions of others saw the value of their retirement savings decline significantly and families lost substantial amounts in their children’s college savings accounts. For all of these people, relief will only come once the economy starts growing again. That growth will only occur once the housing market is stabilized and that stability will not develop until people move out of homes with mortgages that they cannot afford and into housing they can afford. So to the extent that HAMP simply kicks the foreclosure can down the road, it ends up hurting all of these people who are desperate for the economy to start growing again so that their lives can return to normal. I want to be clear. I recognize that some borrowers may have been misled into taking out loans they could not afford, and to the extent that people were defrauded, the perpetrators need to be prosecuted. I also recognize that there have been serious mistakes and perhaps fraud committed by servicers and lenders in the lending and foreclosure process, and any illegal activity on the part of banks needs to be fully prosecuted. Finally, I recognize the tremendous pain that accompanies any foreclosure. Homelessness is devastating for families and needs to be avoided whenever possible. However, there is $30 billion allocated to HAMP and I believe we need to ask whether it could be used more effectively to help all homeowners in need move towards stable and more economically appropriate housing arrangements. In other words, perhaps we need to start examining whether HAMP is a program that will bring stability to the housing market so that the economy can start growing again. I am hopeful that our discussion today can assist us with this evaluation. [The prepared statement of Dr. Troske follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 41 here 65081A.010 smartinez on DSKB9S0YB1PROD with HEARING 20 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 42 here 65081A.011 smartinez on DSKB9S0YB1PROD with HEARING 21 22 The CHAIRMAN. Thank you. Superintendent Neiman. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF RICHARD H. NEIMAN, MEMBER, CONGRESSIONAL OVERSIGHT PANEL Mr. NEIMAN. Thank you, Mr. Chairman. Ms. Caldwell, you and the Department of the Treasury deserve substantial credit for pushing an industry toward mortgage modifications and preventing avoidable foreclosures in a standardized format when the industry itself failed to appropriately act. In this way, Treasury’s HAMP program has shown great potential. Thanks to your work, we have a new industry standard that has kept more people in their homes than otherwise would have been able, certainly more than HAMP’s monthly reports demonstrate on their own. But to be frank, it’s been a major disappointment that the public and this Panel have no way of meaningfully measuring success pertaining to the alternative non-HAMP mortgage modifications that Treasury points to in defense of HAMP. The available sources of data are simply inadequate for anyone to meaningfully assess performance among servicers or determine that these proprietary modifications are indeed helping, successfully helping, people. In addition, the current reports do not provide the public an effective means to assess performance among servicers or to serve as an effective supervisory tool. HAMP’s metrics on their own—and people in Treasury have publicly stated this—have fallen fall short of our hopes. We now have nearly 700,000 families who have been kicked out of HAMP’s trial modifications, many of whom may be worse off, despite the fact that they were making timely monthly payments for many, many months. Even worse, these 700,000 families far exceed the 500,000 families who remain in the program with permanent modifications. The future also looks somewhat bleak. The number of new homeowners entering the program each month is now near its lowest point, and there have been more than enough redefaults after a long-term modification has successfully occurred to raise serous questions. Now, this may be our last hearing on Treasury’s foreclosure mitigation initiatives, so it is not just critical that we help the public fully understand HAMP’s success and failures, but we must also get to the bottom of the biggest question: Is HAMP really the best the government can do to demonstrate a way forward? Ms. Caldwell, for whom I have the greatest respect, knows better than anyone that unemployment and deep negative equity have been driving foreclosures in a manner that HAMP simply cannot address. And these forces will continue to hit families hard. Treasury announced several new unemployment and negative equity initiatives in response. But again, it is disappointing that six months later the public still has no meaningful way to ascertain how these new initiatives are performing. As a final matter, I intend to explore with all our witnesses the issue of confidence. Given many of the mortgage servicers’ poor track records of errors, including losing homeowners’ submitted documents, how do we continue to look homeowners in the eye and VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 23 smartinez on DSKB9S0YB1PROD with HEARING ask them to continue to work with their servicers, given the latest news pertaining to faulty documents and fraudulent affidavits? The servicers at a minimum now have even a higher burden of proof in demonstrating that they are serious about their stated efforts to work with American families. I am grateful to you for being here today and I want to thank you and highlight not just your public service at Treasury, Ms. Caldwell, but throughout a long career of work for the underserved. I also very much look forward to speaking with our other five knowledgeable witnesses today and look forward to our question and answer session. Thank you. [The prepared statement of Mr. Neiman follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 48 here 65081A.012 smartinez on DSKB9S0YB1PROD with HEARING 24 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 49 here 65081A.013 smartinez on DSKB9S0YB1PROD with HEARING 25 26 The CHAIRMAN. Thank you. I am pleased to welcome, genuinely pleased to welcome, our first witness, Phyllis Caldwell, the Chief of the Department of the Treasury’s Office of Home Ownership Preservation. Ms. Caldwell, thank you for joining us and thank you for your truly great public service. We’ll ask you to keep your oral testimony to five minutes so that we’ll have adequate time for questions. Your complete written statement will be printed in the official record of the hearing. Please proceed with your testimony. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF PHYLLIS CALDWELL, CHIEF, HOME OWNERSHIP PRESERVATION OFFICE, U.S. DEPARTMENT OF THE TREASURY Ms. CALDWELL. Chairman Kaufman and members of the Congressional Oversight Panel: Thank you for the opportunity to testify before you today on progress the Administration is making on helping responsible homeowners stay in their homes and stabilizing the housing market. My opening remarks will focus on three things: one, the Administration’s response to recently reported problems in the foreclosure process; two, efforts that Treasury is taking to ensure servicer compliance with HAMP guidelines; and three, a look at the impact the HAMP program has had to date. There are three key points on the recently reported foreclosure process problems. First, we expect banks to follow the laws. Any bank that hasn’t done so should be held accountable and should take prompt action to correct its mistakes. The Administration supports the efforts of the 50 state attorneys general in their investigations of foreclosure irregularities and reviews by the Department of Justice and other Federal agencies. Second, we have been working closely with the broad range of Federal agencies and with the state attorneys general to get to the bottom of these problems as quickly as possible. Last Wednesday, Secretaries Donovan and Geithner met with representatives from ten different Federal and regulatory agencies for the latest in a series of meetings to coordinate reviews on this issue. These state and Federal agencies and regulators are requiring major banks to look at their servicing across the board, not just on this issue. Third, there have been recent calls for a national moratorium and I’d like to address that. An important part of assuring longer term stability in the market is to enable properties to be resold to families who can afford to purchase them. President Obama has said that we can’t stop every foreclosure and he’s right. But we are making progress. I’d like to now turn to the relationship of these foreclosure problems to the Administration’s Making Home Affordable program, of which HAMP is a part. HAMP is intended to help eligible homeowners before they are in foreclosure. HAMP does not require a judicial process for homeowners to receive a modification, nor does it require affidavits to be filed with the courts. Therefore, HAMP is not directly affected by the robo-signers or false affidavits with state courts. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 27 smartinez on DSKB9S0YB1PROD with HEARING Under HAMP guidelines, participating servicers must evaluate all eligible homeowners for HAMP modification prior to referring them to foreclosure. Should a homeowner not qualify for HAMP or if the homeowner falls out of HAMP or cancels the modification, participating servicers are required to evaluate that homeowner for alternative foreclosure prevention programs, such as one of the servicers’ proprietary modifications or even the Administration’s short sale program. If all of these efforts are unsuccessful, HAMP servicers may not proceed to foreclosure unless they have issued a written certification to their foreclosure attorney or trustee stating that all avoidable loss mitigation alternatives have been exhausted a non-foreclosure option could not be reached. Only after these steps are taken and the certification is delivered may the foreclosure process proceed. To date, HAMP has achieved three critical goals. It has provided immediate relief to struggling homeowners; it has used taxpayer resources efficiently; and it has helped transform the way the entire mortgage servicing industry operates. HAMP established a universal affordability standard, a 31 percent debt to income ratio. More than 460,000 homeowners who are currently in permanent modifications have experienced a 36 percent median reduction in their mortgage payments, or more than $500 per month. In the year following initiation of HAMP, home retention strategies changed dramatically. In the first quarter of 2009, nearly half of mortgage modifications increased borrowers’ payments or left their payments unchanged. By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower. This means homeowners are receiving better solutions. HAMP uses taxpayer resources efficiently. HAMP’s pay-for-success design utilizes a trial period to ensure that taxpayer-funded incentives are used only to support homeowners who are committed to staying in their homes and making monthly payments. While the housing market is showing signs of stabilization, it still remains fragile and too many homeowners are suffering. The nature of this crisis has changed and we will continue to focus our efforts on stabilizing the housing market and preventing avoidable foreclosures. Thank you and I look forward to taking your questions. [The prepared statement of Ms. Caldwell follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 56 here 65081A.014 smartinez on DSKB9S0YB1PROD with HEARING 28 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 57 here 65081A.015 smartinez on DSKB9S0YB1PROD with HEARING 29 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 58 here 65081A.016 smartinez on DSKB9S0YB1PROD with HEARING 30 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 59 here 65081A.017 smartinez on DSKB9S0YB1PROD with HEARING 31 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 60 here 65081A.018 smartinez on DSKB9S0YB1PROD with HEARING 32 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 61 here 65081A.019 smartinez on DSKB9S0YB1PROD with HEARING 33 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 62 here 65081A.020 smartinez on DSKB9S0YB1PROD with HEARING 34 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 63 here 65081A.021 smartinez on DSKB9S0YB1PROD with HEARING 35 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 64 here 65081A.022 smartinez on DSKB9S0YB1PROD with HEARING 36 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 65 here 65081A.023 smartinez on DSKB9S0YB1PROD with HEARING 37 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 66 here 65081A.024 smartinez on DSKB9S0YB1PROD with HEARING 38 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 67 here 65081A.025 smartinez on DSKB9S0YB1PROD with HEARING 39 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 68 here 65081A.026 smartinez on DSKB9S0YB1PROD with HEARING 40 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 69 here 65081A.027 smartinez on DSKB9S0YB1PROD with HEARING 41 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 70 here 65081A.028 smartinez on DSKB9S0YB1PROD with HEARING 42 smartinez on DSKB9S0YB1PROD with HEARING 43 The CHAIRMAN. Thank you, Ms. Caldwell. HAMP—I’m trying to get at some of these hard objectives. I think it’s hard to do oversight and I think it’s definitely hard, as I said in my statement, to run a Department if you don’t have some hard objectives. Realizing that you don’t always make the hard objectives, but, just like when John Kennedy said we’d get to the Moon by the end of the decade, it worked out. So I think it’s hard objectives. So one of my concerns is HAMP was announced 18 months ago. How much now do you think you’re going to spend on the HAMP program? Ms. CALDWELL. For the HAMP program, we currently have $29 billion in TARP funds allocated to the Making Home Affordable program, which includes HAMP’s financial funding first lien modifications, the second lien modifications, and some of the enhancements for principal reduction, as well as a little bit for the FHA short refinance program. So it’s really all of the housing programs. The CHAIRMAN. $29 billion? Ms. CALDWELL. $29 billion. The CHAIRMAN. And how many foreclosures do you think you’ll be preventing? Ms. CALDWELL. Our goal still remains to help up to 3 to 4 million homeowners avoid foreclosure, and we continue to expand and enhance the programs to respond to the changing housing crisis. So our programs targeting unemployment and negative equity are just under way and we continue to focus our efforts on making sure we reach as many homeowners as possible. The CHAIRMAN. What was this 3 to 4 million offers that I’ve read in some of the testimony from Treasury, that the objective of the program was to make 3 to 4 million offers? Ms. CALDWELL. I think, as you said, there is an objective. The GAO in its August 2009 report also confirmed that the goal is offers. And while we at Treasury agree that offers do not always translate into modifications, and while we can measure the offers because that is something we control, we also measure how many of those offers are accepted, and then how many of those offers perform, and for those that don’t perform, where they go. Then we learn from those and continue to expand our programs, with the still overall objective of assisting 3 to 4 million people avoid foreclosure. The CHAIRMAN. Great. And what’s your forecast for redefaults over a 5-year period? Ms. CALDWELL. It’s still very early to tell. We’ve had very few modifications in the program for more than a year. Early indications are that HAMP modifications will perform better than historical modifications, which have been 60, 75 percent redefault. In the permanent modifications in HAMP at 9 months, over 90 percent of homeowners still remain in the program. So the data is young, but early signs indicate the same. The OCC–OTS metrics report also confirmed that HAMP modifications are performing well and attribute it to the trial period program that makes sure homeowners are committed to staying in the home, the collection of documentation, and the 31 percent affordability standard. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 44 The CHAIRMAN. Do you have any projection on what the default rate will be? Ms. CALDWELL. No, we don’t. Again, we are watching it very closely, but early signs are that HAMP modifications will perform well. The CHAIRMAN. I’d recommend you try to come up with some kind of an objective for where you’re shooting for. You’ve got a lot of data on it now. So I’m looking forward to what the redefault rate is. How many temporary modifications do you think become permanent modifications? Ms. CALDWELL. During the first year of the program, less than 40 percent of temporary modifications became permanent. But that was because, in response to the crisis, we gave servicers the ability to offer homeowners a trial modification and then submit documentation. Those servicers that collected documentation up front experienced conversion rates to permanent modification in the 75 to 80 percent range. Beginning in June, Treasury’s program requires upfront documentation so we expect that trial modifications will slow, but the conversions for permanent will be much, much higher. The CHAIRMAN. How do you think the widespread problems with foreclosure documents will impact on the stability of our financial markets? Ms. CALDWELL. That’s something we’re following closely. At this point in time there is no evidence that there is a systemic risk to the financial system. But we are making sure that, one, in our programs focused on foreclosure prevention, that servicers are doing everything that they are supposed to do. Second, we are making sure that we’re coordinating with agencies across the Federal Government and the state and local attorneys general to make sure that those servicers that are breaking the law are held accountable. And three, we’re very closely monitoring any of the litigation risk to see if there is any systemic threat. But at this point there’s no indication that there is. The CHAIRMAN. Thank you. Mr. McWatters. Mr. MCWATTERS. Thank you, Senator. And thank you, Ms. Caldwell, for appearing here today. When you consider these factors—the foreclosure documentation irregularities, that’s one. Two is the failure of some securitization sponsors to assign, properly assign, notes and to record transfers of mortgage and deeds of trust in accordance with applicable law; that’s number two. As well as the exercise of the put rights by securitization trusts to force the mortgage loan originators to in effect buy back the loans. And given that a lot of those mortgage loan originators are TARP recipients, other financial institutions, is Treasury concerned, given these three factors, and particularly the put rights—and that’s an emerging thing particularly now that the RMBS investors are beginning to coordinate their efforts and file lawsuits and the like—is Treasury concerned that any of the large, ‘‘too big to fail’’ financial institutions may experience a solvency or liquidity or a capital crisis over the next few years? VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00050 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 45 Ms. CALDWELL. Thank you for the question. As I said earlier, we’re still very early in this issue and are monitoring it closely. I think, as you suggested in the question, there are really three separate issues. In terms of the robo-signing, the documentation issue, that is one that we are following closely and we are anticipating that servicers will do what they need to do and fix those problems, and where they have not been following the law be held accountable. The second one that you discussed, the litigation. While I’m not a lawyer, and I don’t want to go through all the legal structure, it is something as a practitioner that has been in the industry for a long time and the courts are used to dealing with that, and they will continue to deal with that. It’s certainly, because of the affidavit issue, increased in visibility. But it’s not a new issue in the market. But it is one that we are following very, very closely. Then third, the put-back risk on the large financial institutions. Again, we are looking at the situation very, very closely and will be following the institutions to make sure. But at this point there is no evidence of a systemic risk. Mr. MCWATTERS Is this being discussed within Treasury? I mean, there was a lawsuit I think filed the other day, a put-back right of $47 billion to a Bank of America loan. That was one. That was one lawsuit. I suspect there will be many, many more to come. I believe in one of the other—on panel two, one of the panelists I think projected there were something like $2.8 trillion of subprime loans, and that even if a relatively small percentage of those are put back and the banks have to buy them back at face, this could be a substantial problem. Also, considering that this is not just a one-shot deal. I mean, when a mortgage is originated and put in an RMBS it may be multiplied through synthetic CDOs. So you may have the synthetic CDO problems also going back to the banks. So it sounds like Treasury as of today has not done even a back of the envelope sketch as to what the potential put-back rights could be to the TARP financial institutions. Ms. CALDWELL. Let me just say that at Treasury we are monitoring this situation daily. The news continues to have a wide range of projections and numbers, so I’m not prepared to say that there is a particular scenario. But it is something that Treasury is working closely with all of the Federal agencies involved with these institutions, including the regulators and including the reporting agencies, to make sure that the risks are appropriately disclosed and measured and that we have a better understanding of what the potential risks could be. But it is something that we’re monitoring daily. Mr. MCWATTERS Okay. I would certainly encourage you to do that. One of the problems is the inability of some of these securitization trusts to deal with the local land title records, in other words to properly endorse notes and to assign deeds of trust and mortgages. So I ask you this: When an American homeowner sits down at the kitchen table to write the monthly mortgage check, how does that homeowner know that he or she is paying the correct lender? VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 46 Ms. CALDWELL. That’s a very important question, and I think it’s important to separate the legal framework of the mortgage securitization process versus the steps that individual servicers are taking to make sure they follow the law. As I said earlier, we have a group of Federal agencies and state attorneys general in with these entities making sure that they are following the law, and those entities that are not following the law should and will be held accountable. So again, it’s important to separate the legal structure from what is actually happening. Mr. MCWATTERS. Okay, thank you. My time is up, but I’ll just make one quick comment. There are courts, state courts, which have held the MER System, the Mortgage Electronic Registration System, which I know Fannie and Freddie uses, and others, to simply not work. So the deeds of trust and the mortgages assigned under those, under MERS, doesn’t work. Endorsement of the notes, unless it was done in accordance with applicable state law, doesn’t work also, and that can create a problem. Thank you. The CHAIRMAN. Thank you. Mr. Silvers. Mr. SILVERS. Ms. Caldwell, I would like to continue to pursue Mr. McWatters’ train of thought. I’m concerned about Treasury making representations categorically that you don’t see a systemic risk. Let me walk you through exactly why. Mr. McWatters referred to a demand letter sent by a number of bondholders, including the Federal Reserve Bank of New York, one of the institutions I believe that is encompassed by your list of regulators and the like that Treasury coordinates with. You’re familiar with that letter? Ms. CALDWELL: Yes, I am. Mr. SILVERS. All right. That letter asks for $47 billion of mortgages to be—of mortgage-backed securities to be repurchased at par. Do you know what those mortgages are currently carried— what those bonds, the market value of those bonds today? Ms. CALDWELL. At this point, I’m not prepared to comment on pending litigation. Mr. SILVERS. Okay, fine. Let me tell you what the Fed says they’re worth. The Fed tells us they’re worth 50 cents on the dollar. So if the Fed’s request of Bank of America is honored, Bank of America, assuming they are carrying these bonds—assuming when they buy them back they mark them to market, Bank of America will take a $23 billion loss. The Federal Reserve further informs us that there is nothing particularly unique about that particular set of mortgage-backed securities, meaning they have not been chosen because they’re particularly bad. They believe they are of a common quality with the rest of Bank of America’s underwritten mortgage-backed securities. There are $2 trillion of Bank of America’s underwritten mortgagebacked securities. Five such deals, five such requests, if honored, to Bank of America, will amount to more than the current market capitalization of Bank of America, which is $115 billion. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 47 Now, do you wish to retract your statement that there is no systemic risk in this situation? And the word is ‘‘risk,’’ not ‘‘certainty,’’ but ‘‘risk.’’ I would urge you to do so, because these things can be embarrassing later. Ms. CALDWELL. My statement, as I said earlier, is that it is still early. We’re working very closely with 11 regulatory and Federal agencies. We are watching this every day. And that at this stage there appears to be no evidence of a systemic risk. But again, it is early, and it is something we are monitoring daily. Mr. SILVERS. Let me suggest to you that the ‘‘it is still early’’ is a perfectly acceptable position. The notion that there is no—is it your position that Bank of America honoring five of these things would not present a systemic risk? Five of these requests, the first of which has been made by the Federal Reserve. Is Bank of America not systemically significant? Ms. CALDWELL. At this point I’m not prepared to comment on a particular institution, but I think as we look at the put-back risk, the litigation involved, the severity and the probability, and the time that it would take to go through these, those are all important factors to be considered in looking at the risk. And again just to reaffirm, we didn’t say there was no risk. We said there didn’t appear to be evidence of a major systemic risk. Mr. SILVERS. I hope that if we come—if the Treasury comes back to us and is discussing whether or not we need to deploy further public funds to rescue Bank of America or such other institutions as might be affected by these events, that we get a similar kind of indifference to their fate after it’s too late, because it strikes me that, in light of the mathematics I’ve gone through with you, it is not a plausible position that there is no systemic risk here. I want to take up two other statements you made that I think are just simply not plausible. The first is, you suggest at the beginning of your statement—and I can’t quote it because my memory’s not that good, but you suggested that it is a good thing that more homes be put on the market as a result of foreclosure. Is that the Administration’s position? Ms. CALDWELL. When you look at the current market for sale, close to—— Mr. SILVERS. Do we want more homes put on the market right now, as prices are falling? Ms. CALDWELL. We want homes to be sold to homeowners that can afford them and stay in them. Mr. SILVERS. That’s not my question. My question is do we want to increase the inventory right now in the marketplace and drive down home prices? Is that the public position? Is that the position of the Administration as to what is good for our country right now? Ms. CALDWELL. I think the position is we want houses to be sold to homeowners that can afford them. Mr. SILVERS. But do we want more or less? I’m asking you a binary question: More houses on the market right now, less houses on the market right now? Ms. CALDWELL. I would just say that if you have a home, whether it’s in inventory for sale in the market—— Mr. SILVERS. You’re not answering my question. Yes or no? More or less? VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 48 Ms. CALDWELL. We need to have the homes on the market to go through and be resold to homeowners who can purchase them and afford to stay in them and stabilize neighborhoods. Many of the homes that are in REO are vacant and that hurts the neighborhood. Mr. SILVERS. You still haven’t answered my question. You still haven’t answered my question. Do we want to drive housing prices down? Are we so concerned at ensuring that the banks don’t have to write these loans down that we would rather drive housing prices down? Ms. CALDWELL. Again—— Mr. SILVERS. How can it possibly be the position of the United States Government that it is in the national interest to drive down housing prices? Thank you. The CHAIRMAN. Thank you. Dr. Troske. Dr. TROSKE. I’m going to change gears a little bit, and not because I’m not concerned about the issues that my fellow panelists have raised, but I think they’ve raised them quite strongly and I have other concerns about the program I’d like to explore. Your stated goals, at least the goals that you’ve been willing to articulate, are that you’d like HAMP to help 3 to 4 million borrowers, and ‘‘help’’ you’re defining now is even people just entering temporary modifications. 1.2, 1.3 million people have entered temporary modifications so far, I think. Many of these people entered the HAMP program when about 150,000 borrowers a month were entering the program. Currently I think we’re at the rate of about 20,000 to 30,000 a month are entering the program. The program’s got about 24 months to run. If my math is correct, we’re at 1.2 million. We’re getting about 20 to 30,000 more a month for 24 months. We’re not going to get to 2 million. So can you tell me how you’re going to judge it a success if we’re not even going to make the minimum standard that you’ve already articulated as one of the goals, given the rate that people are entering the program? Ms. CALDWELL. That’s a question we talk about very regularly in my office. The numbers that you stated are correct about the first lien modification. If you look back on what HAMP was started to address, it was unaffordable payments resulting from a reset of mortgage rates. As the crisis has moved to unemployment and principal reduction, our programs have changed. So the numbers that you’re discussing relate to the first lien modification. In addition to that, we have the unemployment forbearance program, which became effective in August. We have a partnership with the FHA program on a refinance program that became effective in September, that allows principal reduction and refinance into an FHA mortgage. We also have additional incentives for principal reduction along with the Hardest Hit Fund initiative. So we have to look across all of those programs and respond to a changing housing market in our efforts to reach 3 to 4 million. Dr. TROSKE. I guess originally your goals were stated for the HAMP program, and these are other programs that are outside the HAMP program; am I mistaken about that? So you’re sort of saying VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 49 as we add more things we can sort of—presumably, we’re trying to help additional people. The goal we set for the HAMP program, sort of we lower that? So I guess, what’s your goal for the HAMP program, the modifications that are running through the traditional HAMP program? Is it no longer 3 to 4 million? Is it lower than that now? Ms. CALDWELL. The other programs, the add-on programs for unemployment and principal reduction, are in fact part of the HAMP program. They’re ways that we have adapted the HAMP program to change with the economy. The one program I mentioned that is not officially part of HAMP is our help for the hardest-hit markets, where we took $7.6 billion out of the HAMP allocation and moved it over to enable state housing finance agencies to provide tailored assistance to unemployed homeowners and work with principal reduction in those markets. Dr. TROSKE. Another question. You talked about redefaults and I think you correctly stated that it’s still early. But let me ask you about, so the permanent modification under these programs is for 5 years. It’s not permanent. It’s a 5–year modification. And when that 5-year period is up, borrowers return to their previous payment levels. Presumably, if something hasn’t changed in the housing market, like a significant increase in prices, at least back to 2006 levels, these are going to be borrowers who are still seriously underwater, with rates that have reset, back to making payments that they can’t currently afford. So why do we think in 5 years they’re going to be able to afford the payments that they can’t afford now? What’s going to change between now and 5 years that’s going to result in something close to a success, that’s not going to produce an enormous increase in redefaults when they reset in 5 years? Ms. CALDWELL. Thank you. Let me first just make a clarification to the permanent modification and the reset. After 5 years, the rates adjust to the current rate, the current Freddie Mac rate. So while there will be some adjustment up from 2 percent, it will be an adjustment up to rates that are still consistent with today’s historic low rates. In terms of the 5 years, the homeowner has gotten some additional principal reduction because of the amortization at a very low rate. So they have paid down more principal than they otherwise would have. In addition, homeowners that stay current on their HAMP modification receive $1,000 a year in principal reduction, or $5,000 over the 5-year period, which is some meaningful principal reduction at certain house values. Then there is time for the employment situation or other hardship in that family’s circumstance to improve, and certainly over 60 percent of homeowners in HAMP permanent modifications have had either a reduction in wage or loss of a job of one of the wage earners. Dr. TROSKE. Thank you. The CHAIRMAN. Thank you. Superintendent Neiman. Mr. NEIMAN. Thank you. Ms. Caldwell, as I stated in my opening, Treasury often in its defense of HAMP, defense of the success of HAMP, refers to the sig- VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 50 nificant number of non-HAMP proprietary modifications. Year to date there have probably been more than twice as many nonHAMP mods as HAMP mods. And while it’s positive that these borrowers are not currently in foreclosure, questions still remain on the sustainability of these proprietary mods and whether homeowners are actually better off. The quarterly OCC and OTS reports on the issue and the HOPE NOW reports are a step forward. But we really do need to know more information about the specific terms of these proprietary mods in order to compare them among servicers as well as to serve as an effective supervisory tool. Will Treasury or HOPE NOW be providing additional data with respect to non-HAMP mods? Ms. CALDWELL. Thank you. This is something that you and I have both discussed and something that we spend a lot of time thinking about within Treasury. In terms of the HAMP contracts with servicers, our contractual relationship with the servicers goes to those modifications where we’re paying taxpayer incentives. We don’t have supervisory authority over those modifications outside of HAMP. But because we are very focused on what happens and very concerned about that, we have asked HAMP servicers, the large ones, to participate in a monthly survey about what happens to homeowners that are either not approved and not accepted for HAMP, and what happens to homeowners who are in a trial modification that gets cancelled. And we do publish those results. In addition, we work very closely with HOPE NOW and with OCC–OTS metrics to try and use that as a validator or a reality check for what we’re getting in the survey data. But we have no contractual authority over those. Mr. NEIMAN. So I’ve been going over in the last few days the various reports issued by Treasury in your monthly reports, HOPE NOW in their monthly reports, and the OTS in their quarterly reports. And though each of these reports continues to expand, it is still not that easy for the public, nor for the Oversight Panel, or for Congress to really assess the effectiveness of these proprietary mods. In fact, in many cases in the OCC report you cannot understand what the actual terms are of some of those monthly modifications. There’s often groupings of all modifications and then HAMP modifications, so that the numbers are not always broken out for proprietary, non-HAMP mods, in order to determine whether these reductions—are they for 1 year, 2 years, and to understand the impact of these mods, do they include lump sum payments for late fees? How sustainable are these really in the interests of the borrower? Ms. CALDWELL. Again, we share that concern and are committed to transparency in the HAMP program. We expanded our survey in the spring to include the disposition. As we continue to follow this issue, we continue to expand our survey requirements of the servicers, because we do recognize that within HAMP we have contractual relationships with servicers that are regulated by a number of different agencies, and this is one place where we can try to put it all together. Mr. NEIMAN. I think we all support those provisions in the Treasury’s monthly report that breaks down performance by servicers. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 51 What you don’t see is that in the OCC report. So it is not—it cannot provide the public a means to distinguish servicers’ performance with respect to proprietary mods. Would you support a greater ability for the OCC to provide a breakdown by servicer with respect to proprietary mods? Ms. CALDWELL. I really can speak just for the Treasury programs and just say that we are very committed to transparency and we continue, as you know, to expand the reports every month and put demands on servicers for more information, such that they would almost say it’s overload on reporting. So we are committed. Mr. NEIMAN. So because of the gaps, because your reports are only with those servicers that have contracted, because the OCC only covers 65 percent of the market, because HOPE NOW is also a survey, would you support the need or recognize the need for a national reporting requirement for mortgage performance data similar to what banks are required to provide in mortgage origination under HMDA? Ms. CALDWELL. We support transparency in the mortgage modification business to make sure that the taxpayer dollars are going to servicers for programs that are meeting guidelines and following all applicable laws. Mr. NEIMAN. Thank you, and I obviously intend to follow up with the members on the next panel. Thanks. The CHAIRMAN. Great. Now we start a second round of questions. Can you tell us how many second liens have been modified or extinguished through the relevant programs? Ms. CALDWELL. If I understand your question, you want to know the second liens modified through all the relevant programs? The CHAIRMAN. Right. Ms. CALDWELL. That data we don’t have for all the financial institutions. We’re beginning to collect data on the Treasury program’s second lien modification program, which is an enhancement to HAMP, that has the major servicers and some others. Again, we don’t have data to report yet as the program really got started at the beginning of October, but we will be reporting that. The CHAIRMAN. So you’ll send that to us as soon as you get that? Ms. CALDWELL. We will be putting it in our public report when we have the data. The CHAIRMAN. What about the reluctance of some financial institutions to extinguish second liens because they’re carried on the books at 90 percent of value? Ms. CALDWELL. That particular thing we hear a lot. The impact of second liens in the modification market is something that we’re very, very concerned about. It was why we put together the second lien program in HAMP, which addresses something that we hear from second lienholders about—it’s current and they may not know when a first mortgage is modified. So that program has a platform that matches the first and second, and then the second lienholder has to write it down. In addition, as part of our program for refinance into FHA we offer incentives to reduce the second lien to enable the first homeowner to refinance. So while we don’t mandate second lien writedowns, we’re indifferent to it in the first lien program and we VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00057 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 52 try to provide incentives as best we can to encourage second lien reductions to have more sustainable mortgages. The CHAIRMAN. But you talked in the beginning, and I think you’re right, in terms of your model, that HAMP is a model, and one of the big things you did is set out a new standard. I mean, isn’t it pretty standard in the industry that you write down the second liens first and then move to the first liens? Ms. CALDWELL. From a lien priority standpoint, that should be the way it operates, yes. The CHAIRMAN. So really shouldn’t we be, as a model, be putting the emphasis on that, so that people aren’t carrying the second liens at 90 percent? It seems to me the only reason they’re carrying the second liens is because they don’t want to write them down because they’re carrying them at 90 percent of value and they’re worth nowhere near 90 percent of value. Ms. CALDWELL. Right, and they continue to be current. I think that’s a very important piece of the program—making sure those firsts and seconds are matched. The CHAIRMAN. In your testimony you say every person in a temporary modification is getting significant benefit. Can you kind of explain that? Because if a temporary modification fails, then the person has to pay the money back, right? So what is the benefit, the significant benefit, of every person who’s in a temporary modification? Ms. CALDWELL. Let me first talk about the permanent modifications. Now, beginning June 1st, homeowners provide upfront documentation and the homeowner is expected to convert to a permanent modification. The only reason to not convert would be failure to make payments. So they are getting a second chance to qualify. If you go back to where we were at the beginning of the program, there was a huge backlog of homeowners who were severely delinquent on their mortgages, struggling to find their servicer, and struggling to get a modification. By coming into the HAMP program, what those homeowners got was an immediate reduction in their payments and an opportunity for additional time to figure out if staying in the home was going to be a sustainable solution for them or to make other living arrangements. So it bought time. The CHAIRMAN. To follow up on Mr. Silvers’ question, GMAC still has $17.2 billion in taxpayer funds and has been involved in the document irregularities. What’s Treasury doing to ensure that financial institutions supported by the taxpayers are not acting improperly? Ms. CALDWELL. Thanks. As I know this Panel knows very clearly, Treasury has an investment in GMAC, but is not on the board or management. But immediately upon learning of the alleged robosigning issues, we were in touch with management at GMAC, and continue to be in touch with them regularly. They have reported back, at least at this point, that other than the time to correct some of those documentation problems, which they are doing promptly, they don’t see a major risk in their system. But we are again watching that very, very closely and take it very seriously. The CHAIRMAN. So you’re not sending anyone out to actually find out whether they hold the mortgages, and some of the stories we’ve heard about the robo-signing, that they actually have the mortgage VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 53 that they think they have or that MERS has the mortgages for GMAC, or any kind of physical followup on the fact that there are mortgages out there, do they actually have the mortgages and they actually have title to the land that they are trying to foreclose on? Ms. CALDWELL. At this point, we are supporting all of the agencies that are doing investigations of those servicers, including the GSEs, and are monitoring closely and will take followup action when there are facts that we get from those reviews. The CHAIRMAN. So there really is no—Treasury is not doing anything independently to determine that mortgages modified under HAMP have all necessary loan documentation and a clear chain of title? You’re just taking the word of the people, of the folks, the banks and financial institutions you’re dealing with, that they do have loan documentation and a clear chain of title? I think it’s important for all these other people to look into it, but it seems to me that these are programs where Treasury has a direct involvement in this as an organization. They’re actually involved in the thing, and this seems to me to be a pretty critical part of the process. Ms. CALDWELL. That is an important issue and something that, at least at this point in time, we’re looking at the foreclosure prevention process separate from the actual foreclosure sale process. To modify a mortgage, there is not a need to have clear title. You need information from the note, but you don’t need a physical note to modify a mortgage. So the focus of the HAMP program is to make sure that homeowners stay in their home and don’t go to foreclosure sale. But to the extent that is not successful and that goes through, we certainly expect all HAMP participating servicers to follow the law. The CHAIRMAN. Thank you. Mr. McWatters. Mr. MCWATTERS. Thank you, Senator. Ms. Caldwell, let’s say I want to buy a house, and the house is foreclosed. How do I know that when I buy that house I will receive good legal title to that house? I mean, there are all sorts of questions about whether or not the securitization trust or the servicer can deliver good legal title. How do I know? Ms. CALDWELL. Homeowners buying a house get title insurance. I think one of the things that we’re very concerned about in the overall recovery of the housing market is making sure that homeowners have trust in the system and continue to buy homes and don’t have a lack of trust in that, because, certainly reading the news, homeowners would have reason to be concerned. Mr. MCWATTERS. Right. You anticipated my next question. Are title insurance companies issuing clean mortgagor and mortgagee title insurance policies today where the property liens are recorded under the MERS system? Ms. CALDWELL. I think we have to separate the MERS system, which certainly has a lot of discussion in court, from how servicers are following the processes under MERS. To the extent a home has gone through foreclosure, whether it’s foreclosed with the physical note or foreclosed with a judge, the judge has granted title and the title has been insured, the homeowner should be able to purchase the home and have title insurance. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 54 Again, as I said earlier in my testimony, I’m aware of the litigation around MERS. It’s still in the lower courts. So I can’t really wade down for what will be the outcome, but certainly we’re watching the uncertainty in the market that could be attributed to MERS. Mr. MCWATTERS. I read somewhere in the paper that one of the ‘‘too big to fail’’ institutions went to title insurance companies who were balking on issuing title insurance policies and said: Hey, we’ll indemnify you. Well, if a ‘‘too big to fail’’ indemnifies and it blows up, guess who pays for it? We have TARP II, unless Dodd-Frank liquidates them, which is not a good answer to anyone. So I think this thing is, as you said, is in play, but it’s a little bit frightening. Speaking of frightening, I’ll move on to Fannie and Freddie, who are also co-owners of MERS and apparently did billions of dollars of securitizations based upon MERS. So surely someone at Fannie and Freddie thought about MERS. I mean, what diligence did they do? Did Fannie and Freddie receive legal opinions, and if they did could we see those legal opinions, as to the efficacy of the MERS program? Ms. CALDWELL. I can’t testify to what Fannie and Freddie did in terms of MERS, but can just say that MERS has been a part of the mortgage securitization system for a long time. There have been a lot of legal cases on it. Mr. MCWATTERS. Let me ask this question. Is it the opinion of the Department of Treasury that the MERS system works to deliver good legal title to property, that it properly allows notes to be endorsed, it allows for the proper assignment of mortgages and deeds of trust? Ms. CALDWELL. This is something that we’re still continuing to dig deeper on. But at this early stage, it does not appear to be a fundamental legal structural risk or issue with MERS, but rather how MERS is used based on the different state and local laws governing the real estate transactions across the country. So there’s still more work to be done there. Mr. MCWATTERS. Okay. Let’s say that I’m a CEO of a ‘‘too big to fail’’ and I’ve made a lot of second mortgage loans. And I know that people are encouraging me to write those off, and if I do my capital’s going to be impaired and I’m going to book a substantial loss and I’m going to be hurt, maybe put out of business. So my response to people who ask me to write them off is to say: You know, they may be out of the money today, but in another year or 2 years I expect the housing market will recover; and maybe I’m out of the market today, but maybe I get 40 cents on the dollar in 2 years. So if I write them off today, then my shareholders are going to sue me because they go to the same economists and the economists tell them also, in 2 years you’re going to get 40 cents on the dollar. What do I do? I’m just not sure what to do. Ms. CALDWELL. You summarized the reason why principal forgiveness is one of the most complicated parts of the mortgage modification business, because once you take it you lose that opportunity to get it back. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 55 In the principal reduction alternative that we have under HAMP, we require servicers to run two net present value calculations, one with principal reduction, one without. And in those cases where it is net present value positive to reduce principal, we think there is a justification there for reducing it. Mr. MCWATTERS. What if I say to you, yeah, okay, I’ll write these things down. That may start solving a lot of problems. But I want an equity kicker here. So if this house turns around, appreciates in value over the next 2, 3, 4, 5 years, I get a piece of that. In fact, we’re going to share that equity appreciation three ways. We’re going to give some of it to me because I wrote it off. We’re going to give some of it to Treasury because Treasury expended taxpayer funds. And we’re going to give a substantial portion of it to the borrower because I want to keep the borrower interested in staying in the house and making the payments, keeping the house up and the neighborhood up. Is there a problem with that approach? Ms. CALDWELL. There is not. In fact, the principal reduction alternative under HAMP does not prohibit shared appreciation. I think at this point in time I’m not sure the servicing industry has capacity to administer shared appreciation, but it’s not something that is prohibited, and we put the guidance out with the expectation that that could be something that changes in the marketplace. Mr. MCWATTERS. Okay. What I can say to them, it’s a one-page document. It’s not a big deal. Okay, thanks. The CHAIRMAN. Thank you. Mr. Silvers. Mr. SILVERS. Ms. Caldwell, I want to explore very briefly this question of the relevance of irregularities in the title system to HAMP. It’s my understanding—I accept your testimony earlier that, of course, you’re not in foreclosure when you get HAMP assistance. But HAMP does make payments to servicers, correct, up front? Isn’t there an assumption that that servicer is representing someone with a good lien? Why would we make the payment if that wasn’t true? Ms. CALDWELL. There certainly is the assumption that the servicer is following the laws, because that’s required in the contract. If we learn something after the fact that contradicts that, we do have the ability to go in and claw back the incentive. Mr. SILVERS. So my question in my opening statement was, how do we know, in light of all of the discussions—and I think Mr. McWatters has ably summarized what the issues are, and the chairman has as well. How do we know that we’re not—and in light of all the state law issues that you mentioned a moment ago—how do we know that people who don’t have good liens aren’t getting public money essentially under the false pretense that they have a good lien? Ms. CALDWELL. Again, we don’t. Our focus at this point has been on making—— Mr. SILVERS. Okay. So that’s the—hold it. That’s the issue. The issue that I would hope the Treasury would be diligent about looking into is trying to answer. You say no, we don’t. I think that’s VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00061 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 56 fair enough. These are very complicated questions. The data is huge, the legal issues vary from state to state. In view of the fact that what’s potentially at play is servicers and banks getting public money under false pretenses, we ought to try to figure out whether that’s true or not. I take from your answer that you’re looking into it. Ms. CALDWELL. Right, I would agree. Mr. SILVERS. I would hope that that clarifies the fact that there is a relevance between the irregularities and the HAMP. We’ve identified it here. I look forward to hearing what you find. Let me shift then from there to something that I’m very supportive of Treasury’s direction. I want to hear more about how you intend to do it. I gather from your opening statement and from your response to my fellow panelists’ questions that you want to expand the reach of Treasury’s mortgage foreclosure mitigation programs, that you feel the current numbers of permanent mods and the like should be expanded, that you want to reach the unemployed and be of greater assistance there, and so forth. Did I hear you correctly? Ms. CALDWELL. Yes. Mr. SILVERS. What do you see as the major obstacles to doing that? What do you see? Are we having difficulty reaching and involving people in these programs? Ms. CALDWELL. I think there are a few points we can say about unemployment. One is it differs across markets, and HAMP is a national, one-size-fits-all program. So one of the changes that we made to respond to the local nature of unemployment was the Hardest Hit Fund, so that different states could create programs to better target the unemployed in their own market. So one is just making sure we can tailor programs to local market conditions. Second is outreach. Struggling homeowners are scared. They’re getting bills, not sure who to respond to, who to call. So we do run outreach events. We’ve had 40 across the country in the last year to reach homeowners. Mr. SILVERS. How many people have attended your outreach events? Ms. CALDWELL. I don’t have the number offhand, but I’d estimate in the 30,000 range. Mr. SILVERS. Are you familiar with the Neighborhood Assistance Corporation of America, called ‘‘NACA,’’ that I referred to earlier? Ms. CALDWELL. I am. Mr. SILVERS. They have represented in a letter to us, to our Panel, which I will introduce into the record, that in 23 outreach events of theirs they have had approximately 700,000 people attend. Do you have any reason to doubt that that’s true? Ms. CALDWELL. I don’t have any reason to doubt, but I’m not familiar with all of them. Mr. SILVERS. No, I understand. So can we learn something from that? Is there a way that we can—that Treasury, with its vast resources, can get to that level of participation? I’m not talking about the back end about outcomes, but just getting people in the door. Ms. CALDWELL. I think we work with a number of housing counselors and state and local mediators, including NACA, to figure out VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 57 the best way to have outreach to homeowners. Certainly NACA mods, where eligible, can get HAMP incentives. Mr. SILVERS. I’m actually not so much focused on the mods, but I’m focused on the intake. You said 30,000 people for all of your events around the country. NACA got more than that to a single event in D.C. a few weeks ago. I visited that event. I saw 5,000 people at the Convention Center on a Friday night at 10:00 o’clock at night. Surely we can learn something from them, if nothing else, how to get people in the door. Anyway, my time has expired. Thank you. The CHAIRMAN. Thank you. Dr. Troske. Dr. TROSKE. Thank you, Senator. So help me here about something I still don’t understand about the program, and I’m still relatively—I was not involved in the last report. But my understanding is if the NPV model shows that the net difference between the modified mortgage and the original mortgage is positive, this suggests that it’s in the best interests of the borrowers and the lenders to modify the mortgage. If that’s the case, why do we have to pay them to do it? Why do we have to pay people to do something that seemingly is in their best interest? What’s preventing them from doing it on their own? Ms. CALDWELL. That’s a very important question. Two things to think about there. One, on the HAMP program, part of the incentives for servicers is actually compensation for moving to an affordability standard and certain protocols that required a full change in their business model. So it is compensation for things that they have had to do in a different way. Second, within the HAMP program there are some cases where the investor incentives are an important piece of the modification being NPV positive. Dr. TROSKE. So let me—the first question—your first response was that there seem to be things apparently outside the NPV model. The NPV model is not taking into account the costs of changing the business model, so you have to pay them because the NPV model doesn’t include all the costs. Is that a way of interpreting what you just said? Ms. CALDWELL. No. When you look back at the beginning of the program, again, HAMP is a voluntary program, getting the servicers, the investors, and the homeowners to the table and to change the business model to do that required some incentives. Even with those incentives, there was some doubt that servicers would sign up, and indeed it took a full year to get close to 100 non-GSE servicers signed up for HAMP, even with those incentives. Dr. TROSKE. So let me build on that a little. So much of your claim about the success of HAMP has been that it set a standard, that you’ve changed the way people are doing business in this market. We can discuss it, but find, I’ll give that to you, great. You’ve set a new standard. You’ve shown servicers there’s a better way of doing business. Why do you need to keep doing anything? What are you accomplishing now that you’ve set a standard, everybody recognizes the VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 58 standard? Great, fantastic. They’re now free to live by the standard, recognize the benefits from the standard, go to town. So why do we still need Treasury involved in this once you’ve set the standard? Ms. CALDWELL. The HAMP program does a couple of important things. One, because servicers that participate in HAMP are required to evaluate homeowners first for HAMP, it keeps a consistency across the industry in terms of at least where homeowners are evaluated first. Second, as this Panel has pointed out certainly to Treasury a number of times, there’s inconsistency in reporting across a number of different servicing entities, and during a time of crisis HAMP provides a standard platform on which other modifications can be based. Dr. TROSKE. But again, once the standard platform is established, once you’ve established that platform, I’m still struggling to understand what is there left to do? You’ve established it. Now everybody knows what they should be doing. Everybody should be doing it Treasury says. Ms. CALDWELL. I think that for the first lien program, certainly we can talk about the change in the industry standard. It’s important, again as you’ve pointed out, that there is the unemployment program that is still new in Treasury. There is the entire platform for how short sales and deeds in lieu of foreclosure are handled, that are still operating under HAMP. So having that standard platform can change a number of things beyond first lien modifications. Dr. TROSKE. Let me—I want to build on a little bit of my fellow panelist Mr. Neiman’s question. In her written testimony—and we haven’t heard it yet, but—Julia Gordon claims that HAMP trial modifications make borrowers who do not move into permanent modifications worse off, because they are reported as being delinquent to credit bureaus and have late fees and interest continues to accumulate, resulting in larger arrears due at the end of the trial modification program. So she—you’ve said that it makes them better off. She says it makes them worse off. Is she right, and what’s the difference between what she’s claiming and what you’re claiming? Ms. CALDWELL. Again, when we talk about the trial modifications, I think it’s important to refer to early on in the program where people could come in without documentation and just call up and get immediate payment relief. When I’m talking about being better off, I’m talking about program-wide, on the whole, having that many homeowners at that time in crisis receive immediate assistance and get time was an overall benefit. Certainly when you provide time to a large number of people, there are going to be cases where individuals say: You know, if I knew it was going to be bad news, I’d rather have the bad news now. We do hear of those cases and we take them seriously and it’s very troubling. But when you look at the million homeowners that got immediate relief last year at the time of the crisis, on balance I think it’s the right thing. Dr. TROSKE. Thank you. The CHAIRMAN. Thank you. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 59 Superintendent Neiman. Mr. NEIMAN. I’d like to kind of follow up on your discussion with Damon regarding your unemployment programs, because I think even in your opening testimony you acknowledge that unemployment is really going to be, particularly going forward, a driving force in driving foreclosures. I saw it up close when I, on behalf of the Panel, joined your outreach forum in Atlanta. And in talking to both counselors and individual borrowers, it was clear that there were many individuals there who were in financial difficulty with their mortgage because of unemployment or underemployment. You referenced the Treasury’s unemployment program, which provides 3 months of forbearance. When will we be seeing—how do you contemplate providing data to assess the results of that program? Ms. CALDWELL. Again, that program became effective in August and we will be incorporating data into the public report once it’s available and validated. Mr. NEIMAN. So recognizing that many of the individuals I spoke to there were out of work for 6 to 12 months, behind on their mortgage payments for similar terms, who’s the population that this 3month forbearance is intended to help? Ms. CALDWELL. A couple things to think about. It’s a very important issue, unemployment, in terms of the modification. I think first and foremost, as was said earlier on the Panel, you need a job to pay the mortgage. So unemployment forbearance is really intended to provide temporary assistance for unemployed to enable them to find a job. Mr. NEIMAN. So people who are just unemployed and expect to find a job within these 3 to 6 months? Ms. CALDWELL. The national unemployment program in HAMP provides a minimum of 3 months. Servicers can go longer, as long as they want, but it’s a minimum of 3 months. Many go up to 6 months. So it’s expected that some will not find a job and may end up in a short sale or something that results in not being in the home. Some may become quickly reemployed and become current on their payment and had some benefit. Some may become reemployed at a lower income level and be eligible for HAMP. Again, that’s a one-size national program. In those markets, 18 states and the District of Columbia, with higher than average unemployment rate, we have tailored programs where each of the housing finance agencies can do something that works in their market, and those include anything from the HFA targeting certain professions that have been hardest hit and sharing the mortgage payment, to some combining them with job counseling and retraining. Mr. NEIMAN. We look forward to the data on the success of that program. In my remaining minutes, I want to shift over to the web portal, because this is something that we have talked about for a long time at the Panel and have been urging Treasury to get that web portal up and running so that there is an effective means for bor- VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 60 rowers and housing counselors to reach servicers in order to facilitate the approval process. Can you give me some indications as to where it stands, how many borrowers, how many loans are being processed through the portal? Mr. NEIMAN. Home loan port. Ms. CALDWELL. Home loan port. Again, I can’t testify to Home loan port’s specific performance, but just say that we at Treasury are very supportive of the Home loan port that’s run by the HOPE NOW Alliance and think it’s a very important step to not only automate the document collection process, but also to involve counselors who can help assemble those document packages. So we are very supportive of that effort. In addition, as we’ve streamlined the documentation within Treasury, we’ve tried to make sure all of our forms are available to be downloaded on the web on our MakingHomeAffordable.gov website. Mr. NEIMAN. Will Treasury be using that system or using—or its agents, compliance agents, using the system to test for compliance, to reach out to borrowers, to try to identify areas of concern? My understanding is it’s not currently available for access by regulators. Ms. CALDWELL. I’ll follow up on that. Mr. NEIMAN. You follow up. Our compliance is really focused on the documentation issues more broadly across all of the channels, whether it’s Loan port or mail. My time has expired. The CHAIRMAN. Thank you. Thank you, Ms. Caldwell, for your testimony. Again, thank you for your service. Will the second panel please come forward. [Pause.] The CHAIRMAN. Thank you. This panel is made up of: Faith Schwartz, Senior Advisor for the mortgage industry’s HOPE NOW Alliance; Joseph Evers, Deputy Comptroller of the Large Bank Supervision, Office of the Comptroller of the Currency; Katherine Porter, Professor of Law, University of Iowa College of Law; Julia Gordon, Senior Policy Counsel, Center for Responsible Lending; and Mr. Guy Cecala, CEO and Publisher of Inside Mortgage Finance. Let’s start with you, Mr. Cecala. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF GUY CECALA, CEO AND PUBLISHER, INSIDE MORTGAGE FINANCE PUBLICATIONS, INC. Mr. CECALA. Thank you, Mr. Chairman and members of the Panel, for inviting me to speak today. My name is Guy Cecala. I’m the CEO of Inside Mortgage Finance, a specialized information firm that publishes a variety of products related to the residential mortgage market and its key players. We are not affiliated with any lenders per se or consumers. We’re kind of just objective observers of the facts. Any opinions expressed today are my personal opinions and don’t represent the views of Inside Mortgage Finance or any of its publications. VerDate Mar 15 2010 04:52 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00066 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 61 In my written testimony, I think I’ve responded to just about every one of the questions you guys have asked. But I’ll summarize some major points from that testimony. What I’d really like to do is provide a reality check on what’s going on in the mortgage market, because I think sometimes that gets lost. First of all, the mortgage industry is really divided into two separate businesses. One is the production side and one is the servicing side. Briefly, I’ll talk about the production side. There’s good news and bad news when we look at the production side of the mortgage business these days. The good news is that long-term mortgage rates are extremely low and there’s a plentiful supply of mortgages to borrowers who have good credit and down payments. The bad news is about 90 percent of all the mortgage funding is coming from the government and not a lot of people qualify for that government funding. What little private sector activity there is is pretty much relegated to home equity and high-balance jumbo mortgage lending, or basically places the government doesn’t have any activity. To make matters worse, we seem stuck in a world where most mortgage funding will continue to come from the government. There is currently no secondary market or investor demand for mortgages or mortgage-backed securities that don’t carry a guarantee from the U.S. government. As a result, private lenders really can’t compete with the government for mortgage customers. But we also seem to be afraid to reduce the government’s massive support of the mortgage market, for fear of disrupting a very fragile housing market. So it pretty much leaves us in a state of limbo. Unfortunately, matters are probably worse in the mortgage servicing business. I think to talk about the success or failure of recent mortgage modification efforts or the scope of current foreclosure problems, it’s really necessary to look at the massive problems we are attempting to deal with. Between 2005 and 2007, which is really the housing boom peak period and the mortgage boom peak period of the last few years, about one-third of the $8.5 trillion mortgages that were made, or roughly 13 million loans, could broadly be characterized as nonprime. These loans were made to subprime borrowers, those with little or no documentation, those with low or no down payment, or those that had some other high risk of default characteristic. It is these groups of mortgages that made up the bulk of mortgage defaults and foreclosures that we’ve seen over the last 3 years. Add to this mix the fact that nearly one-third of the homes sold during the 3-year boom period were sold to investors or people buying second homes. Now factor in the impact of high unemployment and the sharp nationwide drop in home values, and you get a pretty good idea of the scope of the problems we are facing. It is literally a perfect storm of mortgage problems that are very difficult to resolve with loan modifications or any other foreclosure avoidance measure. Right now we have a situation where the average borrower facing foreclosure is somewhere around a year and a half behind on their mortgage payments. By traditional mortgage industry standards, 6 months is the point of no return. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 62 smartinez on DSKB9S0YB1PROD with HEARING I won’t go into the HAMP numbers. You guys seem to know it very well and have gone over in terms of it. Needless to say, the number of HAMP modifications or even overall loan modifications have been dwarfed by the number of increases in defaulted mortgages and foreclosures over the past year. The record high problems in the mortgage market have and continue to take their toll on the housing market. Last month 48 percent of the home purchase transactions in this country involved distressed properties, namely foreclosures or short sales involving properties headed for foreclosures. That was up from 45 percent a year earlier. Meanwhile, the ongoing flood of problem mortgages and efforts to consider modifications on a loan by loan basis have severely taxed the mortgage servicing industry, used to dealing with onequarter of the current level of defaults and foreclosures. Is it a surprise mortgage servicers and their agents have been overwhelmed or that some shortcuts have been taken with foreclosures to deal with the backlog of severely defaulted borrowers? No, it isn’t surprising, and unfortunately it’s a development that can only slow down a housing recovery that is moving at a snail’s pace if it is moving at all. Thank you. [The prepared statement of Mr. Cecala follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 126 here 65081A.029 smartinez on DSKB9S0YB1PROD with HEARING 63 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00070 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 127 here 65081A.030 smartinez on DSKB9S0YB1PROD with HEARING 64 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00071 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 128 here 65081A.031 smartinez on DSKB9S0YB1PROD with HEARING 65 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 129 here 65081A.032 smartinez on DSKB9S0YB1PROD with HEARING 66 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 130 here 65081A.033 smartinez on DSKB9S0YB1PROD with HEARING 67 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 131 here 65081A.034 smartinez on DSKB9S0YB1PROD with HEARING 68 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 132 here 65081A.035 smartinez on DSKB9S0YB1PROD with HEARING 69 70 The CHAIRMAN. Ms. Gordon. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF JULIA GORDON, SENIOR POLICY COUNSEL, CENTER FOR RESPONSIBLE LENDING Ms. GORDON. Good morning, Chairman Kaufman and members of the Panel. Thank you so much for inviting me to address you today. I serve as Senior Policy Counsel at the Center for Responsible Lending, a nonprofit research and policy organization dedicated to protecting home ownership and curbing abusive financial practices. As we’re here today, mortgage servicers are in the process of foreclosing on over 2 million families. About 3 million or so more are just weeks away from receiving a notice of default. Over the next several years, the toxic combination of high unemployment and underwater loans could mean a stunning total of more than 31 million foreclosures. African-American and Latino families are much more likely than whites to lose their homes, and we estimate that communities of color will lose over $360 billion worth of wealth. So far, our major government response to this crisis has been HAMP. HAMP, as we’ve discussed today, has fallen far short of its initial goals and even left families who did not convert to a permanent modification worse off than they were before. Relatively few new trials are starting each month now, replaced by a trend of servicers moving their modification activities outside of HAMP, where there’s little transparency or accountability. The principal reductions we need are not happening in HAMP and they’re not really happening out of HAMP either, except in some small portfolios, usually ones that were marked down upon acquisition. The real problem is that servicers need to foreclose quickly and in volume in order to make money. That’s why people get foreclosed on even when they’re in the middle of being reviewed for other solutions. That’s also led to this utterly unacceptable but routine practice of falsifying court documents when it’s too expensive or in some cases impossible to conduct the process legally. It’s increasingly clear that one incomplete payment or one accounting mistake can land you on an apparently unstoppable conveyor belt to eviction. The crisis didn’t need to be this bad. If government had acted quickly and forcefully at the beginning we could have significantly limited the damage. But instead our government believed servicers’ early assurances that they would handle the crisis on their own. When that turned out to be wrong, we provided legislative tools such as the investor’s safe harbor, we added financial incentives through HAMP and related programs, we cajoled and begged and threatened. None of those strategies have worked. It’s quite clear that servicers will not do what needs to be done unless someone makes them do it. The fact is the HAMP program has never had the tools it really needed to succeed. A key part of the original Administration foreclosure prevention plan was to involve the bankruptcy courts, who serve as our nation’s comprehensive resolution authority when debt goes bad. The failed subprime lenders got bankruptcy protection. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00076 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 71 smartinez on DSKB9S0YB1PROD with HEARING So did Lehman Brothers. Bankruptcy courts can modify mortgages on vacation homes, farms, commercial properties, even yachts. But because they’re barred from saving the family home, homeowners had no alternative but to rely on the voluntary assistance of the servicers, and servicers had no real incentive to change doing business as usual. Those bankruptcy laws should be changed. In the meantime, let’s broaden and enforce a commonsense practice requiring servicers to review all loans for alternatives to foreclosure, either loan modifications when that makes financial sense or short sales and deed in lieu. Congress and state legislatures, the Administration, the banking regulators, and law enforcement officials all have lots of tools available to do this. In fact, the so-called mandatory loss mitigation standard already is supposed to be in place in the governmentbacked housing programs. To make it work in practice, though, homeowners need a chance to stop their foreclosures if their case hasn’t been properly reviewed. In many cases homeowners will need access to legal help. Congress should appropriate the $35 million authorized in the Dodd-Frank Act for that purpose. While that’s a very small amount compared to what will be spent on the battalions of corporate lawyers for the other side, it will make a real meaningful difference for the many homeowners who can’t afford an attorney. We also recommend that the banking regulators use all their supervisory and enforcement powers to let servicers know they can no longer fly under the regulatory radar. This is a perfect opportunity for the Consumer Financial Protection Bureau to show what a difference it can make when an agency focuses squarely on eliminating practices such as a predatory servicing now taking place. There’s no silver bullet strategy to fix every mortgage and not every foreclosure is avoidable. But even one unnecessary foreclosure is devastating to that family and their neighbors, and multiple unnecessary foreclosures are devastating to all of us. Once and for all, let’s make sure the system works, both for families and for those who invest in our economy. Thank you for your time and I look forward to your questions. [The prepared statement of Ms. Gordon follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00077 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 139 here 65081A.036 smartinez on DSKB9S0YB1PROD with HEARING 72 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 140 here 65081A.037 smartinez on DSKB9S0YB1PROD with HEARING 73 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00080 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 141 here 65081A.038 smartinez on DSKB9S0YB1PROD with HEARING 74 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00081 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 142 here 65081A.039 smartinez on DSKB9S0YB1PROD with HEARING 75 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 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smartinez on DSKB9S0YB1PROD with HEARING 96 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00103 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 164 here 65081A.061 smartinez on DSKB9S0YB1PROD with HEARING 97 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00104 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 165 here 65081A.062 smartinez on DSKB9S0YB1PROD with HEARING 98 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00105 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 166 here 65081A.063 smartinez on DSKB9S0YB1PROD with HEARING 99 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00106 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 167 here 65081A.064 smartinez on DSKB9S0YB1PROD with HEARING 100 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00107 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 168 here 65081A.065 smartinez on DSKB9S0YB1PROD with HEARING 101 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00108 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 169 here 65081A.066 smartinez on DSKB9S0YB1PROD with HEARING 102 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00109 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 170 here 65081A.067 smartinez on DSKB9S0YB1PROD with HEARING 103 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00110 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 171 here 65081A.068 smartinez on DSKB9S0YB1PROD with HEARING 104 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00111 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 172 here 65081A.069 smartinez on DSKB9S0YB1PROD with HEARING 105 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00112 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 173 here 65081A.070 smartinez on DSKB9S0YB1PROD with HEARING 106 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00113 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 174 here 65081A.071 smartinez on DSKB9S0YB1PROD with HEARING 107 108 The CHAIRMAN. Thank you. Professor Porter. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF KATHERINE PORTER, PROFESSOR OF LAW, UNIVERSITY OF IOWA COLLEGE OF LAW Ms. PORTER. My name is Katherine Porter. I’m a law professor who does research on consumer credit, consumer protection, regulation, and mortgage servicing. In the last month, allegations about serious and widespread legal errors in the foreclosure process triggered moratoriums by a few of the nation’s largest servicers. These moratoriums and the misbehavior that led to them are only the most recent and the most visible symptoms of a chronically sick industry. In 2007, almost exactly 3 years ago, I released an empirical study showing that 40 percent of the mortgage companies’ paperwork in bankruptcy cases did not include a copy of the note, despite a clear legal requirement that it be included. Sadly, the problems we are hearing about today are largely duplicative of those that I and others have described for several years now. To summarize, the key problems with the foreclosure process are: First, that the mortgage servicing industry is a high-volume, cost-cutting industry. It relies on staff with insufficient training. It provides weak oversight of that staff. It operates with inadequate quality control checks and it is not transparent about its profit structure and affiliations with related entities. These problems are at the heart of the robo-signing scandal. That practice is entirely consistent with the industry’s business model and standard of ethics. Robo-signing erodes confidence in the rule of law in this country. Second, the paperwork on the troubled securitized loans often does not seem to comply with legal requirements. The primary concerns are: first, that some paperwork is missing, evidenced by the increasing use of lost note affidavits to try to remedy past mistakes; and two, that some transfers of loans simply did not occur or were not properly conducted. The proliferation of assignments in blank, the widespread use of MERS that eroded the public property records, and confusion about the location of the physical paper for these loans all expose the industry to attack from investors and from homeowners. At the core is whether the securitization trust has the standing to foreclose and whether the investors have been defrauded. Contrary to what Ms. Caldwell suggested, I do think that good title is a requirement to do an effective loan modification. I think parties can’t legally agree to override and alter the rights of a party that’s not at the table. The third problem is a sort of melange of miscellaneous problems we’ve seen in the servicing industry, including most primarily the bloating of homeowners’ accounts with bogus or suspect default fees and the continuing difficulty that the servicers are having in sweeping under the rug the fact that the originations of these loans were themselves not documented correctly and did not meet the underwriting standards for the securitization. If these practices are allowed to continue unchecked, I think we’re going to see several kinds of harm. I think an increasing VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00114 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 109 smartinez on DSKB9S0YB1PROD with HEARING number of homeowners will challenge their foreclosures in court. I think there will be class actions by homeowners if problems are identified that exist across an entire pool of securitized loans. And I think in non-judicial foreclosure states we’re going to see intense public frustration about the lack of access to a court to adjudicate these problems. Second, I think investors will sue mortgage companies to force them, to try to force them to buy back the loans. One cannot easily put the genie back in the bottle with regard to litigation, notwithstanding the servicers’ protestations that everything is basically all right. The banks’ argument that the foreclosures are not faulty because the homeowner is in default should be given zero weight. Regardless of whether a homeowner cannot pay, the mortgage company must comply with the relevant laws to exercise their rights. Due process does not bend in the wind. It is a fundamental principle that protects all Americans, consumers and businesses, as they invoke the law to their aid. Finally, I think regulators will have to devote substantial resources to investigating problems with faulty foreclosures. I think it’s crucial that the government investigation be transparent. American taxpayers need to be shown in concrete terms that the Dodd-Frank Act will change how regulators intend to carry out their promises about consumer protection. [The prepared statement of Ms. Porter follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00115 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00116 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 180 here 65081A.072 smartinez on DSKB9S0YB1PROD with HEARING 110 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00117 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 181 here 65081A.073 smartinez on DSKB9S0YB1PROD with HEARING 111 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00118 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 182 here 65081A.074 smartinez on DSKB9S0YB1PROD with HEARING 112 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00119 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 183 here 65081A.075 smartinez on DSKB9S0YB1PROD with HEARING 113 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00120 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 184 here 65081A.076 smartinez on DSKB9S0YB1PROD with HEARING 114 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00121 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 185 here 65081A.077 smartinez on DSKB9S0YB1PROD with HEARING 115 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00122 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 186 here 65081A.078 smartinez on DSKB9S0YB1PROD with HEARING 116 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00123 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 187 here 65081A.079 smartinez on DSKB9S0YB1PROD with HEARING 117 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00124 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 188 here 65081A.080 smartinez on DSKB9S0YB1PROD with HEARING 118 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00125 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 189 here 65081A.081 smartinez on DSKB9S0YB1PROD with HEARING 119 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00126 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 190 here 65081A.082 smartinez on DSKB9S0YB1PROD with HEARING 120 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00127 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 191 here 65081A.083 smartinez on DSKB9S0YB1PROD with HEARING 121 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00128 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 192 here 65081A.084 smartinez on DSKB9S0YB1PROD with HEARING 122 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00129 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 193 here 65081A.085 smartinez on DSKB9S0YB1PROD with HEARING 123 124 The CHAIRMAN. Thank you. Mr. Evers. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF JOSEPH EVERS, DEPUTY COMPTROLLER FOR LARGE BANK SUPERVISION, OFFICE OF THE COMPTROLLER OF THE CURRENCY Mr. EVERS. Chairman Kaufman and members of the Congressional Oversight Panel: My name is Joe Evers. I’m a Deputy Comptroller and National Bank Examiner in the Large Bank Supervision Division of the Office of the Comptroller of the Currency. In this role, I oversee the collection, analysis, and reporting of data we collect from national banks relating to the performance of first lien residential mortgages. I appreciate the opportunity to share insights that this data provides us on mortgage modification activities. Consistent with the Panel’s letter of invitation, my written testimony includes data and charts from the most recent mortgage metrics report that demonstrate the trends we are seeing pertaining to loan modifications and delinquencies on loan modifications for mortgages serviced by the largest national banks and Federally regulated thrifts. Beginning in 2008, the OCC began collecting mortgage loan-level data from the largest banks it supervises and publishing this information in quarterly metrics reports. The most recent report, published last month, reflects data at the end of June 2010 and represents almost 34 million first lien mortgage loans or 65 percent of all first lien mortgages outstanding in the country, totaling nearly $6 trillion in outstanding balances. Early in the mortgage crisis, servicers were generally relying on traditional methods to assist borrowers who were facing financial hardship, typically various informal payment plans that allowed a borrower to defer his or her mortgage payment for a period of time. These types of plans, which were previously successful in normal economic times, gave delinquent borrowers experiencing temporary financial problems a chance to catch up on making their loan payments. However, as the mortgage crisis deepened and the number of delinquent borrowers increased to unprecedented levels, it became clear that more formal and permanent modifications would be needed. The OCC’s mortgage metrics data provided factual evidence that loan modifications completed in 2008 were experiencing high redefault rates. As a result of those high redefault rates, the OCC directed the largest national banks to implement programs designed to achieve more sustainable modifications. Today servicers are using a combination of actions to achieve more affordable and sustainable modifications. When taking these actions, mortgage servicers are taking into account both the needs of borrowers and the rights and interests of investors. Our mortgage metrics report provides data on how modification actions affect the borrower’s monthly payment and how the modifications perform over time. This allows us to evaluate the effects that certain modifications may have on long-term sustainability. Over the past several quarters, we have seen the servicers offering more sustainable modifications. Modifications that lower monthly principal and interest payments now represent over 90 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00130 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 125 smartinez on DSKB9S0YB1PROD with HEARING percent of all modifications provided. Modifications made during the second quarter of 2010 reduced monthly payments by an average of $427. This resulted in a 62 percent reduction in the average monthly payment from a year ago. Further, 56 percent of the modifications made during the second quarter reduced the borrower’s monthly payment by 20 percent or more, representing an average saving to the borrower of $698 a month. Our data also illustrates the rate at which previously modified loans become delinquent or redefault. This is a useful metric to gauge the payment sustainability of loan modifications, identify unsafe and unsound loan mitigation practices such as loss deferral, and determine loan loss reserves. Our data show that, while all modifications experience redefaults, more recent modifications have performed better than early modifications. As well, modifications that result in lower monthly payments consistently perform better over time than those that increase payments or leave payments unchanged, and that better performance directly correlates to the amount of payment reduction. In conclusion, following our directive to large national bank servicers to make more sustainable modifications, our data show that servicers have adjusted their programs to provide meaningful reductions in borrowers’ monthly mortgage payments. These actions are resulting in more sustainable modifications and fewer redefaults. Thank you for the opportunity to appear today. I will be happy to answer questions. [The prepared statement of Mr. Evers follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00131 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00132 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 200 here 65081A.086 smartinez on DSKB9S0YB1PROD with HEARING 126 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00133 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 201 here 65081A.087 smartinez on DSKB9S0YB1PROD with HEARING 127 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00134 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 202 here 65081A.088 smartinez on DSKB9S0YB1PROD with HEARING 128 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00135 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 203 here 65081A.089 smartinez on DSKB9S0YB1PROD with HEARING 129 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00136 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 204 here 65081A.090 smartinez on DSKB9S0YB1PROD with HEARING 130 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00137 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 205 here 65081A.091 smartinez on DSKB9S0YB1PROD with HEARING 131 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00138 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 206 here 65081A.092 smartinez on DSKB9S0YB1PROD with HEARING 132 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00139 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 207 here 65081A.093 smartinez on DSKB9S0YB1PROD with HEARING 133 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00140 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 208 here 65081A.094 smartinez on DSKB9S0YB1PROD with HEARING 134 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00141 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 209 here 65081A.095 smartinez on DSKB9S0YB1PROD with HEARING 135 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00142 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 210 here 65081A.096 smartinez on DSKB9S0YB1PROD with HEARING 136 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00143 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 211 here 65081A.097 smartinez on DSKB9S0YB1PROD with HEARING 137 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00144 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 212 here 65081A.098 smartinez on DSKB9S0YB1PROD with HEARING 138 139 The CHAIRMAN. Thank you. Ms. Schwartz. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF FAITH SCHWARTZ, SENIOR ADVISOR, HOPE NOW ALLIANCE Ms. SCHWARTZ. Chairman Kaufman and member of the Panel, members of the Panel: Thank you for having me here today. My name is Faith Schwartz and I’m currently a Senior Advisor to the HOPE NOW Alliance and HOPE LoanPort. HOPE NOW was formed in 2007 to expand and coordinate the industry response in the private sector and nonprofit counseling sector to reach borrowers at risk, counsel borrowers at risk, and work toward alternatives to foreclosure. We’ve supported the Homeowner’s HOPE Hotline, 888–995–HOPE, which has to date manned over 4 million calls, which operates 24 hours a day, 7 days a week, and is supported by over 600 housing counselors, HUD-approved counseling agencies. The HOPE NOW outreach events for homeowners have held over 90 events across the country in at-risk markets, with up to 75,000 families who’ve come through. While it doesn’t mirror the hundreds of thousands through other outreach events that they’ve attracted, it’s very targeted outreach and doesn’t just offer help to anyone who wants to talk to their servicer. So they’re 60 days or later past due or non-contact borrowers. In fact, 30 to 40 percent of the borrowers who still come to these events have never contacted their servicer. We also support HOPE LoanPort, a neutral and independent web-based system that addresses the issue of loan documentation and allows for uniform intake of an application for all types of loan modifications, which allows the stakeholders to see the same information in a secure manner. This portal delivers a completed loan application package to the servicer which is actionable, with the ability to message back and forth until a final decision has been made. Currently, 14 nationwide servicers have adopted and signed onto the portal, one mortgage insurer, a few state housing agencies, and 320 housing counseling agencies across the country in 48 states. We welcome more endorsement and use of this portal. HOPE NOW also, as you know, has collected data across the industry for 3 years every month to report on loss mitigation results. In August, we know that year to date we have 874,000 non-HAMP mods that were made. We know year to date that HAMP modifications are 429,000, and we know that year to date foreclosure sales are 775,000 sales. The points and takeaways from some of the data points are as follows. Loan modifications combined far exceed that of loan sales to foreclosure. It’s important to note the interventions are working and should continue. The vast majority of the non-HAMP modifications, much like Mr. Evers has spoken to, in August 91 percent of them had a lower principal and interest payment, and we know that that’s far better than it was a year or 2 ago. I was asked to speak to the merits of HAMP and some of the detraction from it. Let me say I quite agree, it’s very integral and im- VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00145 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 140 portant that the government step forward to put a protocol in place for modifications, and that this protocol would have been very difficult to get into place otherwise. I am here to tell you, I’ve been 3 years on this project and it’s been a good step forward. The first most important contribution of HAMP is that all servicers that signed up for HAMP must review all homeowners for eligibility. The HAMP process offers homeowners a first line of defense to avoid foreclosure. Second is the importance of the HAMP waterfall. Investors, servicers, lenders, nonprofits, and homeowners have a uniform map of activity that is necessary to ensure delinquent homeowners who seek help are being considered for a solution prior to foreclosure. HAMP offers uniformity of approach which is fair and systematic, and it’s an approach for all homeowners at risk. That’s important for fair lending and other attributes. There are many challenges around HAMP and I’ll cite just a few of them that have been addressed by Treasury. But these challenges have impacted some of the uptake from the program. Clearly, there are a lot of changes as it was being rolled out. This is a complex effort and those changes had to require retraining, hiring of staff, changing of legacy systems that are outdated, and so execution made it difficult quickly. It’s a complex program. Definitions are unclear investor to investor. GSEs don’t agree with Treasury or FHA on what imminent default would be. There are differences on principal writedown attributions. Back-end consumer debt—while we are addressing the first lien and made it an easier process to go through, there’s a broader debt issue in the country, not just first liens, second liens, and consumer debt, and that’s been cited today. Honestly, just lack of uniformity for all the mod processes. If you wanted a cookie-cutter approach, it would be a lot easier if everyone would accept the same processes, documents, etcetera. Again, the servicers have legacy systems. They have to train and get things in process. Also, affordability and eligibility. Everyone thought that 31 percent was an awfully good and aggressive start, because after years of looking at the front-end debt ratio, some of which were very high, 31 percent seemed aggressive. Yet, many of these borrowers come in under 31 percent; they don’t qualify, and in theory they’d go to foreclosure. So lots of people don’t qualify because they’re under 31 percent, but yet they’re having trouble staying in their home. High vacancy rate. 30 percent of the market, vacant homes, investor properties. Those don’t qualify and it’s hard to get people to contact if they’re not in their homes. So when you look at the uptake of HAMP, you need to accommodate for some of the foreclosures going through that people aren’t on the other side of the conversation. I do think all of us can do a better job to communicate to the public, to policymakers, to stakeholders, about what the process is and what the options are for all borrowers, whether it’s HAMP or non-HAMP. I believe a lot of the non-HAMP activity is very positive and huge progress has been made versus a couple of years ago. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00146 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 141 smartinez on DSKB9S0YB1PROD with HEARING You’ve asked me to speak a little bit about the current documentation issues in the market. First of all, remember—— The CHAIRMAN. Can you finish, please? Ms. SCHWARTZ. Pardon me? The CHAIRMAN. Can you bring it to a close shortly? Ms. SCHWARTZ. Pardon me? The CHAIRMAN. Bring it to a close shortly? Ms. SCHWARTZ. Yes. The CHAIRMAN. Thank you. Ms. SCHWARTZ. So the market issues are such that HOPE NOW works on the pre-foreclosure process, and I think all the stakeholders do agree no borrower should go to foreclosure without due process and a thorough review of all alternatives to foreclosure. That said, I’m confident the companies are working through their documentation issues to execute that. Thank you. [The prepared statement of Ms. Schwartz follows:] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00147 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00148 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 221 here 65081A.099 smartinez on DSKB9S0YB1PROD with HEARING 142 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00149 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 222 here 65081A.100 smartinez on DSKB9S0YB1PROD with HEARING 143 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00150 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 223 here 65081A.101 smartinez on DSKB9S0YB1PROD with HEARING 144 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00151 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 224 here 65081A.102 smartinez on DSKB9S0YB1PROD with HEARING 145 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00152 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 225 here 65081A.103 smartinez on DSKB9S0YB1PROD with HEARING 146 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00153 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 226 here 65081A.104 smartinez on DSKB9S0YB1PROD with HEARING 147 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00154 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 227 here 65081A.105 smartinez on DSKB9S0YB1PROD with HEARING 148 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00155 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 228 here 65081A.106 smartinez on DSKB9S0YB1PROD with HEARING 149 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00156 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 229 here 65081A.107 smartinez on DSKB9S0YB1PROD with HEARING 150 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00157 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 230 here 65081A.108 smartinez on DSKB9S0YB1PROD with HEARING 151 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00158 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 231 here 65081A.109 smartinez on DSKB9S0YB1PROD with HEARING 152 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00159 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 232 here 65081A.110 smartinez on DSKB9S0YB1PROD with HEARING 153 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00160 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 233 here 65081A.111 smartinez on DSKB9S0YB1PROD with HEARING 154 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00161 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 234 here 65081A.112 smartinez on DSKB9S0YB1PROD with HEARING 155 smartinez on DSKB9S0YB1PROD with HEARING 156 The CHAIRMAN. Thank you very much. I thank the panel. I’d like to ask a question to all the panel members. That is, based on the fact the President said 3 to 4 million homes saved from foreclosure was a realistic objective for HAMP, what do you think the realistic objectives are for HAMP? I start with Ms. Schwartz. Ms. SCHWARTZ. Well, I think if you look at HAMP and then nonHAMP solutions you’re already at about 1.3 million modifications to date this year. That’s combined. So if you look at an annual rate, you can hit that if you give the Treasury some credit for the protocols someplace. The CHAIRMAN. At the end of the program—we’re just getting started with the program—what do you think? Is it a realistic objective at the end of the program, after we’re finished? Ms. SCHWARTZ. For the mod program? The CHAIRMAN. Yes, for the mod program, the modification program, number of homes protected from foreclosure. Ms. SCHWARTZ. Well, I think we do have systems and protocols in place and NPV tests that now are used across the market to look at foreclosure versus a modification that were not in place probably 4 years ago in any systematic way. So hopefully the systems in place will stay and the regulators will I’m sure work with the banks and the investor community to keep things moving. The CHAIRMAN. Mr. Evers. Mr. EVERS. That’s really a policy question I don’t have a real clear view on. All I can tell you is that over the last five quarters there have been 902,000 mods completed, both HAMP and proprietary. That compares to about 670,000 completed foreclosures. So yes, I agree with Faith that you have to look at what’s happening with HAMP and the proprietary mods to get a better sense of how many borrowers are being helped. The CHAIRMAN. Professor Porter. Ms. PORTER. I apologize in advance, but I’m going to turn your question a little bit and say that what concerns me is that what I’m hearing is that we’ve gotten up to speed with HAMP slowly, we’re making progress. It took 3 years, it took 2 years, it took— what does that timeframe and that gigantic learning curve mean for whether the servicers are going to be able to address the kinds of procedural defects that we’re hearing about now in anything remotely approaching a timely and effective fashion. The CHAIRMAN. Ms. Gordon. Ms. GORDON. Realistic objectives for HAMP. First of all, what we need to do is fix HAMP, not end it. HAMP’s the only thing we’ve got out there right now and if we take that away we go backward in time to a very dark place. The concept of the NPV test has been a very useful one to get out and it serves as a great benchmark for Federal legislation or for states to work on incorporating it into the requirements for foreclosure. There is lots of use for this. I’ve provided in my written testimony what one might charitably call an exhaustive list of ways in which we could fix HAMP and make it work better. But until we’ve got something better in place, let’s fix it and not get rid of it. We need much better programs in place. We need mandatory programs, and to the extent possible we need third party involvement to make sure everything is going as it should. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00162 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 157 The CHAIRMAN. Mr. Cecala. Mr. CECALA. The simple answer is I think the HAMP goals are unrealistic, given the program restrictions and the types of troubled borrowers we’re dealing with. If there’s any good news, I think it’s extremely unlikely that TARP or your Panel will see anywhere near $30 billion spent on this program. My understanding is in the first year and a half about $400 million has been spent in terms of incentives paid out. I think that gives you a realistic expectation on, if we continue on the current path, what we’re going to spend. The CHAIRMAN. Thank you. The next question is, can you comment on the impact you think these foreclosure problems will have on the mortgage market? Mr. CECALA. Obviously, that’s a real tough question to answer. There are a couple different areas we’re looking at, you have to look at the foreclosure problem. One of them is just the issue of what is the liability in terms of servicers improperly foreclosing on a property. The mortgage industry’s response is that these are paperwork problems, we can clean it up, worst case we just refile the paperwork and we get to the same point, maybe in 2 or 3 months. Obviously, the states attorneys general and other regulators are looking at whether laws were actually violated. That brings up the question of legal action for criminal behavior or whatever else. That’s kind of hard to quantify, too. The other issue, of course, is the lawsuits that are surfacing now regarding mortgage securities and mortgage securities investments. Those are kind of interesting to monitor because those lawsuits have been pending out there just on different reasons in the past. The latest reason is to go after them because of foreclosure paperwork. I’ve been covering this industry and the mortgage security industry for 25 years. I’m not aware of any successful litigation involving procedures, foreclosure procedures that have been violated, that would require a lender to buy back a loan. The CHAIRMAN. Thank you. I’m going to hold the rest of them until my next set of questions. Mr. McWatters. Mr. MCWATTERS. Thank you, Senator. Mr. Cecala, in your opening statement you said there were $8.5 trillion of new residential mortgages made between 2005 and 2007, and that about a third of those were subprime, with documentation problems, around 2.8 or so. There are a lot of lawsuits out there that are beginning and they’re not based solely upon foreclosure issues. They’re based upon straight-up misrepresentations and warranties, underwriting that was misrepresented when the securitization trust bought those, and the securitization trusts and their investors are undertaking to put those back. What is your estimate, do you have an estimate, of what of that $2.8 trillion will be put back to the loan originators? Mr. CECALA. I think it’s important to identify what the size of the universe we’re really talking about now. Mr. MCWATTERS. Okay. Mr. CECALA. There’s approximately $6 trillion worth of mortgage securities outstanding. $1.5 trillion is what we call non-agency mortgage securities. The rest are basically guaranteed or insured VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00163 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 158 by Ginnie Mae, Fannie Mae, or Freddie Mac. So that really means we’re talking about a universe of $1.5 trillion. You’re right, there’s been litigation from day one. A disproportionate amount of that volume has involved subprime, Alt-A mortgages, mortgages with a lot of default characteristics, and clearly they’ve performed a lot worse than anyone expected. The normal recourse that the mortgage industry uses is to require buybacks on those loans, and they go right at the mortgage originator. If a mortgage originator originates a loan that goes bad in 6 months, they’re required to buy back the loans. What we saw is that process actually began in 2006. By 2008, basically all the major subprime mortgage originators in this country were put out of business. What we’ve got left are major banks that acquired subprime loans, either through servicing or through some other capacity. Bank of America was one of the few major mortgage lenders out there that steered away from the subprime market. Nevertheless, it’s the target of all the litigation out there? Why is that? First of all, they’re the largest bank and they’ve got a lot of money, so that helps. But also the reason is they, for better or for worse, acquired Countrywide Financial, which was the largest subprime lender, and basically inherited the largest subprime mortgage portfolio that they are trying to deal with now. Mr. MCWATTERS. Right. And as those loans moved into securitization pools, BofA or Countrywide may have re-upped the representations and warranties that were made by the subprime lenders, because someone’s going to have to do that or you wouldn’t take it. Also, I’m not sure why you excluded Freddie and Fannie. I mean, they were huge securitizers. If they took loans, mortgage loans, under misrepresentation, why shouldn’t Freddie and Fannie—in fact, I think they are beginning to exercise their rights to put back their loans to the mortgage originators. Mr. CECALA. They are. Currently Fannie and Freddie are requiring mortgage repurchases by the major banks and mortgage servicers to the tune of about $2 billion a quarter. They clearly have the most clout because they’re still in business and if you don’t play ball with Fannie and Freddie they’ll cut you out of new business. So that is where most of the action is going on in terms of repurchases, and Fannie and Freddie have been very aggressive at pursuing it. But they’re getting pushback from the mortgage industry, too. The most pushback you see is in the non-agency area, because the parties are not around anymore who originally committed the crime, such as it is, and you have no leverage over the lenders other than legal action. Mr. MCWATTERS. Will, in your view, this present a systemic problem, meaning a lot of TARP recipients that are going to have to buy back loans? Mr. CECALA. That’s been a problem that’s been going on for 2 or 3 years. Is the amount of buybacks going to increase significantly? My personal opinion is not. It’ll be managed and spread out over time. However, if these non-agency security litigation claims, par- VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00164 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 159 ticularly the more recent ones involving foreclosures, gain traction, that’s certainly going to increase the liability and that’s something really we haven’t factored into the system. Mr. MCWATTERS. Well, one new development is that the investors in RMBS are beginning to recognize one another and work in concert, and they are suing the securitization sponsors and the securitization trusts and the servicers to force them to put back loans, which they’ve been unwilling to do so far, perhaps because of conflict of interest issues and otherwise. How do you see that changing it? Mr. CECALA. Well, as I pointed out, it’s been very unsuccessful to date. There are a lot of people who are requiring mortgage repurchases, but they’re not non-agency security investors. Mortgage insurance companies, Fannie Mae and Freddie Mac, they’ve been very successful. The investors in non-agency securities haven’t been, for a variety of reasons, as I indicated. One, the original offending party is no longer around. They’re going after people who acquired other ones, and it’s hard to make a legal claim that Bank of America is really liable for the quality of loans someone made 3 years earlier. Mr. MCWATTERS. Yes, but if Bank of America put those loans into a securitization trust and re-upped the representations and warranties, they’re on the hook the same. Also, I’ve read that there’s an increased use of statistical sampling, as opposed to having to prove each individual loan was misrepresented, to do a statistical analysis of the pool and if it’s significant then put the whole pool back. Okay, my time is up. The CHAIRMAN. Thank you. Mr. Silvers. Mr. SILVERS. Thank you. Mr. Cecala or anyone, any other member of the panel: In view of the exchange, Mr. Cecala, you just had with Mr. McWatters, I remain just deeply puzzled by what the Federal Reserve Bank of New York is up to. Do you have a theory, or do any other members of the panel have a theory as to why, in view of—if I take your remarks of a few moments ago, why the Federal Reserve Bank of New York is asserting the sorts of claims that we were just discussing? Mr. CECALA. I’ll take a quick shot at that. The Federal Reserve Board of New York inherited a bunch of non-agency mortgage security investments as a result of the merger of JPMorgan Chase, Bear Stearns is the most obvious one. Part of the agreement required the Federal Reserve Board of New York, or effectively the government, to take over the worst assets, because no bank wanted to acquire those bad ones. So basically the Federal Reserve Board of New York’s in the position of having acquired a sizable amount of these bad assets and, in representing the government’s interests, would like to get any possible money they can get out of anybody who does—so they basically helped lead that effort to reclaim losses that those investors— that doesn’t mean they’ve got a great claim, but that’s the motivation behind it. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00165 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 160 Mr. SILVERS. Well, they appear to have a good enough claim to put their name behind it, which is a nontrivial thing in terms of the Fed. Other members of the panel have a theory about what’s going on here? [No response.] Mr. SILVERS. Okay. Secondly, I just want to—Mr. Evers, I know that your testimony is limited to matters of data. If you were in the room when I was discussing with Ms. Caldwell Bank of America’s finances, did I make any mistakes in that analysis? Mr. EVERS. I heard parts of it. What we’re doing is we’re working with our banks to assess that put-back risk and basically make sure it’s properly dimensioned, and that the banks have the reserves for that. We’re making sure that they do a very full, complete analysis of that. Mr. SILVERS. How many $47 billion buybacks of 50 cents on the dollar securities could Bank of America do before it blows through its capital? Mr. EVERS. Well—— Mr. SILVERS. Isn’t that a mathematical question, not a policy question? Mr. EVERS. Yes, you could do the numbers. Mr. SILVERS. You could run the numbers. It’s not ten, right? Mr. EVERS. Right. Mr. SILVERS. It’s less than ten. Mr. EVERS. Right. Mr. SILVERS. It’s probably less than five before you guys would be pulling the fire alarms. Mr. EVERS. Like I said, the banks have to assess, fully assess and dimension the risk here. We’re making sure that they do that. I don’t know whether the estimates thrown out there in terms of exposure—— Mr. SILVERS. I understand that. I just wanted to make sure I wasn’t making any mathematical mistakes. Now, we have heard in this hearing I think from different members of our panel and from different witnesses two kinds of stories about what is in the public interest here broadly with respect to what to do about the very large number, somewhere between, I’ve heard, 7 million and 13 million homes and families, homeowners, that are facing foreclosure, what outcome we want. I think there are two stories that have been put out there. One is kind of the thing that Andrew Mellon said early in the Great Depression, which is liquidate everything, let’s get these homes out of the hands of the homeowners and into the hands of the banks and sold onto the markets as fast as we possibly can. The second theory is—and one can look back at how Andrew Mellon’s advice worked out for him and Mr. Hoover. But then we can look at the other sort of basic inclination, which is to try to keep as many people as possible in their homes and keep those homes off the market. Those are the two sort of basic ideas in play here. In view of what we know about housing prices, housing prices’ effect on consumer demand, basic supply and demand dynamics, which of these VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00166 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 161 ideas is right? Which is in the national interest? I ask any member of the panel to respond. Mr. CECALA. I’ll start out responding. There’s no question that to resolve the housing crisis, such as it is, you have to eliminate or reduce the number of distressed properties out there. The question is just the timeframe of doing it. It would be painful, there is no question, to try to burn through all the foreclosures as quickly as possible, get over the foreclosure mess in 2 or 3 years, but recover. Worst case is you take action that drags it out for 5, 10 years. Mr. SILVERS. You didn’t listen to my question. My question is, is it a better idea to throw people out of their homes and put the homes on the market or is it a better idea to try to keep them in the homes paying something? Which is better for the economy? Which is better for housing prices? Which is better for the viability of the financial system? Which course is better for the country, not if we’re going to take one course should we do it slow or fast, but which course is better? Ms. GORDON. I’m happy to provide a straight answer to that. It is better to save the homes. We’re talking—let’s not conflate two things. What we want to do is keep homes from being sold in foreclosure. Once the homes are sold in foreclosure and the family is gone, you want a family living back in them. I in many cases would like to see the original family get to buy that home right back at the same price that they kicked them out for, that they wouldn’t reduce their principal to to prevent the costs of foreclosure in the first place. But before you get to the foreclosure sale, we should be doing every single thing we can do to keep people in their homes. Once that sale is over, putting Humpty Dumpty back together again is very, very difficult. But before the foreclosure starts, we’ve got lots of options to prevent it. Mr. SILVERS. My time has expired. Thank you. The CHAIRMAN. Dr. Troske. Dr. TROSKE. Thank you. I have a question for I guess several of you, and maybe I’ll start with you, Mr. Cecala. Several of you in your written statements indicated that you felt that the rules under HAMP were sort of inappropriate, that they were overly onerous and didn’t address the problem directly, and also indicated that HAMP rules may be pushing servicers to modify mortgages outside of HAMP. Could you sort of respond, do you think the rules of HAMP are appropriate, and if not what do you think we should do to be modifying them? Mr. CECALA. Well, one of the significant things we’ve seen with the HAMP program—particularly it was an unintentional test of it—was when the program was launched you saw a lot of people who were put in trial modifications without having their paperwork checked or whatever else. One of the most significant, I think, results of that is a lot of the borrowers were able to make the payments at the reduced amount, but later were kicked out of the program because they couldn’t meet the paperwork requirements. Keep in mind, going back to what I said before, we’ve got a huge number of borrowers who’ve got loans out there with no paperwork, no documentation of income, and now we’re asking them to produce VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00167 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 162 tax returns and other things to qualify for a HAMP modification. I think that makes it very, very hard. There are some other things. Talk about the present value test; I think that’s a good idea, but it basically favors people who are under water on their mortgage. There are a number of borrowers that I know who’ve come to me and said they had equity in their home and that immediately almost disqualifies them for HAMP, because you can certainly get a lot more out of them with a foreclosure than you can with a loan modification. There are some basic flaws in the program that I think discourage a lot of people and end up in rejections. Dr. TROSKE. Ms. Gordon, would you like to—care to address the question? Ms. GORDON. Complexity is never our friend, and with the kind of business model that the servicers have, having relied on them alone to take on the task of reunderwriting all of these mortgages, we didn’t do the necessary things to make sure they staffed up and increased capacity in a way to make that happen right. Now, I do want to point out that actually, particularly for people who used nonprofit housing counselors or attorneys, many of those borrowers in fact submitted all of their documentation at the beginning of their trial modification, but the servicer just didn’t necessarily want to bother to look at it or wasn’t quite sure what to do with it. So in my written testimony I give a lot of reasons why I think there have been problems with HAMP. But ultimately the problem is we’re offering carrots and apples and oranges, but we’ve got no stick. And there are so many different cross-cutting incentives in the system right now, so many entities are wearing two or three different hats. It’s just very difficult to untangle without involving neutral third parties in some way. Dr. TROSKE. Ms. Schwartz, I’d like to hear your response. Ms. SCHWARTZ. Sure. Well, it’s my view that, while onerous, these are taxpayer dollars and if they don’t qualify, and if there’s a like solution outside of HAMP, which is happening, we shouldn’t necessarily say that’s a bad thing. People that don’t qualify for HAMP could go to foreclosure. If the person wants to stay in their home, has the capacity to stay in their home, the servicer can accommodate that and the investor. Modifications outside of HAMP are a good thing and they are not with the use of taxpayer dollars. So I think it’s a complicated issue and I would say the lost documentation, we also recognized that and that’s why we developed a safe and secure way for counselors to be involved in the process. I really like the third party help for that borrower, to have a trusted solution and an adviser to work with as they submit things, and you know they won’t get lost through an electronic system. Dr. TROSKE. Mr. Evers, I have a question for you. You talk about mortgages that involve a larger reduction in payment. Do you know, for those modifications, what the average increase in payments is going to be when the permanent modification ends in a 5-year period? Are they going to look—so the payment goes down by $500 or $600. How much is it going to go up? VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00168 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 163 You’ve looked at these numbers. Can you speculate a little, what you think is going to happen at that point? Mr. EVERS. Well, the mods are a permanent change in contractual terms. So those reductions in payment are permanent. So you’re expecting the borrower to have lower payments. So when you look at HAMP, you’re seeing a greater reduction in payment—— Dr. TROSKE. But the reduction is only for—at some point it resets. It may not reset all the way, but those payments are going to go up. A previous witness did testify that at the end of that period the interest rate is going to reset to whatever the Fannie Mae interest rate at the time is. Presumably, they’re making higher payments at that time. Is that not true? Mr. EVERS. What we’re tracking right now is basically the contractual change in payment and we’re basically saying at the time of the mod that it’s being done, we’re comparing what the payment was before and after the mod, and we’re doing that for HAMP mods and we’re doing it for proprietary mods. What we haven’t done is looked out further, 5, 7 years, or 10 years. Dr. TROSKE. Is it possible? That seems like something worth doing to me. I guess I would encourage you to do that. Mr. EVERS. It’s something we could look at. Dr. TROSKE. Thanks. The CHAIRMAN. Thank you. Superintendent Neiman. Mr. NEIMAN. Thank you. I’d like to direct my first questions to our national bank regulator, Mr. Evers, and to our industry representative, Ms. Schwartz. You probably heard my dialogue with Ms. Caldwell around the sustainability of proprietary mods. I also want to point out that Ms. Caldwell has remained for this portion of the panel, and I want to commend her for that, because we’ve often asked Treasury representatives to stay for the second panel and it has not been a practice in the past. So I think it is very helpful for her, and we appreciate that, listening to this round of dialogues. You may also have heard Ms. Gordon, who shared my concerns that borrowers in proprietary mods may be worse off than they were before. So my question really goes to the data, and do you share our frustrations in being able to assess the actual sustainability of the proprietary mods? Though you point in certain sections that proprietary mods, we understand the reduction in payments may be half of what they are for HAMP mods, we still don’t even know the terms of those modifications. In a HAMP mod, we know that those reduced payments will be for the existence of the trial mod, 5 years. We don’t know the reduction in the HAMP mod and for what term. How comfortable are you and how can we improve these reports so that we really can get our arms around the sustainability of these proprietary mods? Mr. Evers. Mr. EVERS. That’s a great question. It’s something we’ve looked at, so we’ve been trying to track that for the HAMP as well as the proprietary. In the second quarter report, where we’re at right now is we know the change in payment for a HAMP mod versus a pro- VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00169 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 164 prietary. We also reported the redefault rate for a HAMP mod versus a non-HAMP mod, and the HAMP mod redefault rate is half of what it is for a proprietary mod. Mr. NEIMAN. Ms. Schwartz. Ms. SCHWARTZ. Yes. I think it’s an excellent question and one that we need to address. We’ve been attempting to track, in addition to how many loans have a lower principal and interest payment, which is a good step forward. We’ve asked for, are they at 5 years duration and at 10 percent or more a reduced payment, so that you feel that affordability, and you can measure that as well. We’re looking at redefaults. We’ve been working for a couple of months to collect that, and it’s probably this month or next we’ll be able to start reporting that. All the government agencies have looked to us to try to collect that, and I’ve worked with the servicers to do so. Mr. NEIMAN. Mr. Evers, could you share our interest in getting that performance data by servicer, so that we can actually compare performance among servicers as well as, I assume, provide a more effective supervisory tool for regulators? Mr. EVERS. We can cut the data just about any way possible. We can do it by—— Mr. NEIMAN. Is there a reason that you are not sharing that information by servicer in the public reports? Mr. EVERS. It’s confidential supervisory information. Mr. NEIMAN. Why do you feel that that is supervisory information, where the information of simply factual data included in the Treasury’s monthly reports do not present similar issues? Mr. EVERS. Well, we’re collecting our data directly from our institutions. We’re collecting loan-level data and we’re using that data as part of the supervisory process. So under our legal authority, we deem it to be confidential supervisory information, and our policy approach has been to disclose aggregate data, but not individual bank-specific data. Mr. NEIMAN. And you are using that information with respect to supervisory responsibilities? Mr. EVERS. Right. So for example, in my testimony, when we saw high redefault rates, we calculated that for each of the reporting institutions and we criticized each of them using their data and said: Here’s your redefault rate, fix these redefault rates, put in mod programs. Mr. NEIMAN. Thank you. Picking up on this, we in New York have for the first time registering mortgage loan servicers. We now have oversight responsibilities. We’ve adopted duties of care, business conduct rules that are enforceable, including the requirement, the authority, to receive quarterly data regarding not only the mandatory modification efforts, but also performance data. Our ability is limited because of the visitorial powers, that we would be restricted in receiving data from national banks. I also assume the industry would not necessarily like to see different reporting structures among 50 states, even though we do believe that this is a model that can be adopted either nationally or at the CFPB level. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00170 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 165 Would the industry support a national reporting requirement for mortgage performance data? Ms. SCHWARTZ. I have not spoken to—for that specific question, I couldn’t comment on it. But I do believe there is some call in the Dodd-Frank bill to have a loss mitigation database created. So I thought that might be happening. Mr. NEIMAN. Thank you. The CHAIRMAN. Thank you. Ms. Gordon, to continue on my other question, what do you think the present foreclosure problems—the present foreclosure problems have on HAMP? I mean, the problems with the robo-letters and the rest? Ms. GORDON. The problems with the robo-signing and whatever title problems they are, these aren’t a technical problem. Also, just to set the record straight, these are not allegations. This is stuff we now know. But what it is, it’s symptomatic of problems throughout the servicing industry. What’s interesting, Mr. Silvers before used the term ‘‘pull the fire alarms.’’ The fire alarms only seem to get pulled around here when the bank solvency is threatened, when it’s that kind of systemic threat. When it’s the systemic threat to the American people, when we could have a quarter of homeowners with mortgages lose their homes, that seems to me to be worth a few fire alarms. The problems we’re seeing now just demonstrate how broken the system. These problems I don’t think—they’re not a cause. They’re a symptom of a broken system. The CHAIRMAN. Professor Porter. Ms. PORTER. I echo that, the symptom of a broken system. I think any foreclosure relief program that permits servicers to craft the system around their choices, their preferences for how to deal with homeowners, is going to fail largely. So I think the leading problem—one of the leading problems with HAMP from the very beginning that we’ve seen Treasury try to peel back is putting the servicers front and center in charge and saying, you steer the ship and we’ll just sit, we’ll be the coxswain in the boat and every once in a while we’ll shout something at you. I think that’s a real problem. The other thing I’m concerned about is in the talk from Mr. Silvers about how do we get people to these events, how do we do outreach. I’m very concerned that homeowners are terribly discouraged by HAMP. There’s this whole pool of people who’ve tried and failed, or who had the lost paperwork, friends and neighbors who’ve had that experience. There’s sort of a community contagion effect here. Even as things improve, there’s a big lag in getting the word back out. So I’m a little concerned that the result of that is we have people who are not coming into a HAMP program that might be improved and instead their new plan is that they’re going to sue in court and they’re going to prove the chain of title, and they don’t have the legal capacity to do that and, with all due respect to our court system, they don’t have the legal capacity, without a lot of struggle, to litigate those things. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00171 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 166 So I’m concerned that people are clinging to a life raft. There’s sort of no good life raft, so they’re looking from one to the other and they’re falling and they’re drowning in between. The CHAIRMAN. Thank you. Mr. McWatters. Mr. MCWATTERS. Thank you. You know, I come at this problem as a corporate lawyer, M and A lawyer, tax lawyer. When I look at it, I’m sort of mystified, because if someone came in my office and—to take off our foreclosure mitigation hat and just think about a workout deal, someone comes in and says, yeah, I paid $250,000 for something, it’s worth $150,000 today, there’s a second lien on it of 50 and a first lien of 200. What do I do? The first thing I’d ask them: Is it non-recourse debt? And if it’s non-recourse debt, I have an answer. If they say—then I would ask them, if it’s recourse debt and they say yes, it’s recourse, but I’m broke. Okay, now we have the facts. In a commercial setting, what you would do is you would write the loan down to 150. You wouldn’t fool around. You would just write it down to 150, because, guess what, that’s what the property is worth if you foreclose and nobody’s going to pay a dime over 150. So you go to economic reality, 150. Now, first lien, first and second lienholders are not chumps. They’re going to say: Well, what if the market turns? Okay, I’ll give you an equity kicker. You give them an equity kicker. And the second lien mortgage, what you should do is write them down to zero. You can’t write them down to zero. They’re going to extort something out of you, right? They have a seat at the table. You give them 10 cents on the dollar, you give them 20 cents on the dollar, you make them happy, you give them an equity kicker, you write it down. The second thing you do is you refinance the loan to a market rate of interest, not 7 percent, not one of these ridiculous adjustable rate things which people can’t pay. You take it down to a 3.75, 4 percent, risk-adjusted, 30-year fixed rate. Okay, what am I missing? Why doesn’t that work in this environment? Yes, Ms. Schwartz. Ms. SCHWARTZ. Well, you have investor contracts that won’t let you write down mortgages. You have Fannie Mae, Freddie Mac, and FHA who won’t allow for a writedown like that. Mr. MCWATTERS. Well, those rules need to be changed. Someone needs to talk to them. Ms. SCHWARTZ. The NPV test requires something north of what it’s worth, and those workouts then take that into consideration. One thing this program has done through HAMP and others is target affordability. It’s not negative equity per se. So 2 percent, 40 years, gets you that $500 payment, versus just writing off the full amount. Mr. MCWATTERS. So you’re saying there are rules that would inhibit a commonsense market-oriented response? Ms. SCHWARTZ. Of course. Mr. MCWATTERS. Oh, that’s encouraging. Anyone else? VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00172 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 167 Ms. PORTER. I would say that what you described—I’m a bankruptcy lawyer, so what you described—— Mr. MCWATTERS. I’m trying to keep everyone out of bankruptcy here. I’m trying to cut a deal. Ms. PORTER. Right. But the idea is, what you described is exactly right and exactly consistent with where parties get to when they don’t want to go into bankruptcy court because they know that’s exactly the deal the judge is going to get them. Mr. MCWATTERS. Of course. Ms. PORTER. So the point here is that if you like what you described and you think it makes sense, and I do, and the servicers aren’t doing it, because they’re the intermediary—in your negotiation, you weren’t negotiating with someone that hung up on you, that you had to call—I don’t know what your calling is like at your law firm, but—— Mr. MCWATTERS. I’ve been hung up on a few times, yes. Ms. PORTER. But the basic idea is that it wasn’t this intermediary that had a profit center and had misaligned incentives and was inept, frankly. Mr. MCWATTERS. I would tell them that’s a personal problem. They cut that deal back in 2004. I’m sorry they cut a bad deal. But guess what, if that deal had turned out to be a really good deal, do you think they would be calling Secretary Geithner and saying, hey, we made a whole bunch of dough, we want to give you some more? No, they would keep every dime of it. So they should live with the downside, too. Ms. PORTER. I agree, and I think this is one of the reasons that we have pushed and pushed for cramdown, is our sense is that servicers will not reach the rational conclusion that you’re talking about, and that negative equity—while affordability is important, so is negative equity. And because they won’t get there on their own, we need this system to force them. And bankruptcy courts in my view are not the perfect system for this. I have concerns about putting more families into bankruptcy, but the point that Ms. Gordon raised about we need a stick—these people have gorged themselves on a buffet of carrots and they’re still not doing what we want them to do, and so we need something stronger, I think. Mr. MCWATTERS. I’m way over my time. Thank you. The CHAIRMAN. Mr. Silvers. Mr. SILVERS. I just want to get a couple relevant pieces of data on the table. Mr. Evers or other panel members: The prior testimony today was that there have been 600,000 actual foreclosures this year. Do we know what portion of those were on homes whose mortgages were held by Fannie, Freddie, or another agency, as opposed to what percentage were in the private label market? Mr. EVERS. I don’t have that data available. I may be able to follow up with you. Mr. SILVERS. If you could please follow up with us. Does anyone have a guess roughly, I mean in orders of magnitude? Mr. CECALA. Sure. It’s got to be close to half, and particularly if you thrown in FHA and VA, or the whole government. Mr. SILVERS. The whole government. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00173 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 168 Mr. CECALA. The whole government share of the market is 60 percent. Even assuming the mortgages perform better than, let’s say, non-agency mortgages, it’s got to be close to half. So the answer is Fannie Mae, Freddie Mac, FHA, VA have a large role in terms of controlling those foreclosures. Mr. SILVERS. Ms. Gordon, you think that’s correct, that it’s close to half? I would have thought, given what we’ve heard about the relative balance of quality, that it would not be. Ms. GORDON. You know, I don’t know, but I’m pretty sure someone in my office does, and I can get back to you. But I think there’s no doubt that some of the foreclosures happening are agency loans. Mr. SILVERS. Oh, yes. Just the percentages. Mr. Evers, I think you probably have the definitive information on this. If you could provide the Panel with it, that would be very helpful. Secondly, Mr. Evers, in your testimony, in your written testimony, I believe you said that approximately 2 percent of mods both under HAMP and private mods—and Ms. Schwartz can comment— 2 percent involved principal reductions; is that correct? Mr. EVERS. Correct. Mr. SILVERS. Ms. Schwartz, does that make sense to you? Does that sound right, in thinking about, say, the press release that’s in your testimony—— Ms. SCHWARTZ. Yes. Mr. SILVERS [continuing]. And the breadth of what your members are doing? Ms. Schwartz. Well, I think I don’t have distinct knowledge of the 2 percent, but early indications show that we know investor roles—and of course, the HAMP waterfall is rates, term, and then principal forbearance or deferral as the three tools, until the market has a standard NPV test that includes the principal writedown first, which is coming, I believe, through Treasury. We can then see a little more activity under that, where applicable. Mr. SILVERS. If there’s any more data on that, I’d appreciate it. I have a final question for the panel. I think one could characterize the testimony and the remarks of my fellow Panel members, particularly Mr. McWatters’ remarks, which I fully agree with, just a few moments ago, that we are faced with a choice here. We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks. We can’t do both. Which should we do? Ms. SCHWARTZ. I think we can do both. Mr. SILVERS. I’m not surprised. Any other panel members? Ms. GORDON. I’m not sure. I think that we can—I think either way, down the road we can’t—these homes are worth what they’re worth. No matter what anybody’s carrying them on their books at, we can’t—we’re not going to change that, and in fact the best hope we have of changing that is fixing the foreclosure crisis and stopping this death spiral that the housing sector is in. So if we do that right, maybe we can help make the banks’ books hew closer to reality. If we do neither, everybody can lose their home and then the banks are going to lose all the money anyway. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00174 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 169 Mr. SILVERS. My time is up. But, not surprisingly, you appear to favor keeping people in homes and perhaps having to deal with the bank balance sheets as a result. Ms. GORDON. Yes. Ms. PORTER. Can I just say one more thing? If the banks got their deleveraging—we had too much leverage. Everybody was overleveraged, families and the banks. They got their chance to dump some of their bad stuff on the Fed of New York, and they got their chance to get an infusion of cash. Mr. SILVERS. But the Fed wants it back. Ms. PORTER. Yes, I know. But the point is, the American family is still very highly leveraged. We’re still at a point of debt for most families that is unprecedented in the history of America. Even with their making a little more saving, their not using as much credit card, they’re still really vulnerable going forward. That long-term affects the ability of the financial sector to be stable and be profitable. So there’s some benefit to getting the homeowners’ positions. There’s pain in the short term for the banks, but if your whole base or pool to lend to is highly risky and highly unstable, you’ll just keep running the risk of more blowups, of more very poor lending. Mr. SILVERS. Thank you. The CHAIRMAN. Thank you. Dr. Troske. Dr. TROSKE. So I’d like to sort of preface my question a little, and I’m actually going to answer the question that my fellow panelist Mr. Silvers asked before, since I’m always happy to answer his questions, to the previous witness, because I’m actually an economist and I understand a little bit about supply and demand, and I also understand a little bit about dynamics and the growth of the economy over time. Mr. Silvers is exactly correct. If we push a lot of homes on the market, prices will go down, unequivocally. Now, why would that be a rational policy for a government to do? Because, of course, there are tradeoffs. As people have noted, we are at a point where—we’re at a point. We’re at a point where house prices are worth less than they were. Banks need to write that off, and of course people need to write that off as well. But again, the point I made before is, well, is that there are lots of actors in this economy, many of whom were hurt and any of whom will only recover when the economy begins to grow again. And there is a tradeoff. There is a tradeoff between the short-term growth, taking losses in the short term, for the potential of a quicker long-term growth in the long run. Part of what we’re looking for is what’s the best way to get to the long-term solution, a solution in which we have people in affordable housing situations. So, Ms. Gordon, you seem to be the one that was willing to address this question before, so I guess I’ll ask you again, or I’ll ask you to expand on what you thought. Should we not take any of the rest of the actors in the economy’s well-being into consideration when thinking about this tradeoff ? Because we are where we are, and the question is—part of the question should be how we got here and we need to address the issues that got us here. But the VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00175 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 smartinez on DSKB9S0YB1PROD with HEARING 170 other question is how do we move forward in a way that gets us back to a growing economy as quickly as possible. Ms. GORDON. I don’t want us to be posing false choices here. There are foreclosures that are unavoidable. What we need to do is figure out a reliable way to separate out the ones that are avoidable from the ones that are not avoidable. We do not have that reliable way right now. That is the system in which the public has lost confidence and now the buyers have lost confidence, and we are in a pickle as a result. Foreclosures that are unavoidable, I completely agree, let’s do them. Let’s get that home resold, hopefully to someone in the community and get some of these communities rebuilt. For the ones that are unavoidable, where, as Mr. McWatters has pointed out, it just makes no sense to go through these very costly foreclosures when both the investor and the homeowner end up worse off. I mean, I’m not an economist, but I’m pretty sure that’s not an optimal scenario there. Dr. TROSKE. As an economist, I’ll agree with you 100 percent. What Mr. McWatters said is entirely correct. If it’s in the interests of the borrower and the lender to modify the mortgage, that should be done, and we shouldn’t have rules that prevent that from occurring. Ms. SCHWARTZ. And that is what we—we want that to happen in all of those situations. Dr. TROSKE. Thank you. The CHAIRMAN. Superintendent Neiman. Mr. NEIMAN. Thank you. One of the main frustrations with HAMP has been regarding issues around lost documents and delays in decisioning. That’s why I’ve been so strongly interested in a web portal, the Hope LoanPort that Ms. Schwartz is an executive on. What is the level of usage? When are we going to begin seeing data regarding access and volumes of mortgages and counselors and borrowers who are using the system? Ms. SCHWARTZ. It’s a great question. We just left our pilot phase in June of this year and signed on some of the nation’s largest servicers over the summer, which is what you need to get the volume. And of course, you need housing counselors to help direct that volume, and we’ve worked with NeighborWorks America and HUD to help endorse the system for counselors across the country. We have thousands of loans now on it that have entered the system. Mr. NEIMAN. Thousands meaning? Ms. SCHWARTZ. Up to 6,000. Mr. NEIMAN. 6,000. Ms. SCHWARTZ. What’s most important is that we tested it thoroughly, and you should know that it was banks and counselors that developed it together and that accommodated each other’s requests on how it could work for statusing of loans. We have good agreement among the banks and the counselors on how to operate and tell each other what’s going on in a more timely manner and kind of guidelines of that sort. So we’re working very closely with the community groups, counseling groups, as well as the banks and servicers. VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00176 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 171 smartinez on DSKB9S0YB1PROD with HEARING Mr. NEIMAN. Plans for direct access by borrowers? Ms. SCHWARTZ. We’d like to see that happen. We do have—one of the state housing agencies already has direct access through the tool to borrowers and we’d like to see that more broadly offered, and we’ll offer it to counselors directly, to have direct borrower access. We think third parties should be helpful to the borrower in that document retrieval and scanning to make sure it all works well. But we believe it’s a fine way to go. Mr. NEIMAN. So my last question is also directed to you. You heard Mr. Evers talk about the limitations on sharing data regarding proprietary mods based on supervisory considerations, something I certainly know something about. However, the same restraints would not apply to the industry itself to voluntarily share that information to the public on performance data by servicer. Ms. SCHWARTZ. You know, we went through a long process to get all the servicers to agree to share data. One of the constraints I have is I don’t see anyone’s individual data. I just have the aggregate information. I would leave it up to the regulators and the supervisors to work with you on bank by bank and servicer by servicer. We’re here to kind of tell you the results otherwise. Mr. NEIMAN. Well, ideally, Treasury and HOPE NOW and the regulators, if they can find a way to share the servicers—I see Ms. Gordon. How important do you think getting that data out is? Ms. GORDON. You know, our goal is to make evidence-based policy, and when you can’t see the evidence that makes it harder. We’ve been particularly frustrated by the fact that we have yet to see the public release of the loan-level HAMP data, which has been promised for months and months and months. The people at my organization who do the research using this data really, really need it. Mr. NEIMAN. Thank you. My time has expired. The CHAIRMAN. Well, thank you very much. Thank the panel very much. The record will be open for a week for any further questions the Panel members want to raise. I also want to thank Ms. Caldwell for staying behind. I thought this was an excellent panel and I think we all learned a lot from it. So thank you, and with that the hearing is adjourned. [Whereupon, at 12:53 p.m., the hearing was adjourned.] VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00177 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00178 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 172 here 65081A.129 smartinez on DSKB9S0YB1PROD with HEARING 172 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00179 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 280 here 65081A.113 smartinez on DSKB9S0YB1PROD with HEARING 173 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00180 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 281 here 65081A.114 smartinez on DSKB9S0YB1PROD with HEARING 174 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00181 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 282 here 65081A.115 smartinez on DSKB9S0YB1PROD with HEARING 175 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00182 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 283 here 65081A.116 smartinez on DSKB9S0YB1PROD with HEARING 176 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00183 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 284 here 65081A.117 smartinez on DSKB9S0YB1PROD with HEARING 177 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00184 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 285 here 65081A.118 smartinez on DSKB9S0YB1PROD with HEARING 178 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00185 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 286 here 65081A.119 smartinez on DSKB9S0YB1PROD with HEARING 179 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00186 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 287 here 65081A.120 smartinez on DSKB9S0YB1PROD with HEARING 180 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00187 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 288 here 65081A.121 smartinez on DSKB9S0YB1PROD with HEARING 181 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00188 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 289 here 65081A.122 smartinez on DSKB9S0YB1PROD with HEARING 182 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00189 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 290 here 65081A.123 smartinez on DSKB9S0YB1PROD with HEARING 183 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00190 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 291 here 65081A.124 smartinez on DSKB9S0YB1PROD with HEARING 184 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00191 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 292 here 65081A.125 smartinez on DSKB9S0YB1PROD with HEARING 185 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00192 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 293 here 65081A.126 smartinez on DSKB9S0YB1PROD with HEARING 186 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00193 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 294 here 65081A.127 smartinez on DSKB9S0YB1PROD with HEARING 187 VerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00194 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081 Insert offset folio 295/400 here 65081A.128 smartinez on DSKB9S0YB1PROD with HEARING 188