[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
LOAN MODIFICATIONS: ARE MORTGAGE
SERVICERS ASSISTING BORROWERS
WITH UNAFFORDABLE MORTGAGES?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 24, 2009
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-6
U.S. GOVERNMENT PRINTING OFFICE
48-677 WASHINGTON : 2009
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Housing and Community Opportunity
MAXINE WATERS, California, Chairwoman
NYDIA M. VELAZQUEZ, New York SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
EMANUEL CLEAVER, Missouri THADDEUS G. McCOTTER, Michigan
AL GREEN, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri GARY G. MILLER, California
KEITH ELLISON, Minnesota RANDY NEUGEBAUER, Texas
JOE DONNELLY, Indiana WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
PAUL E. KANJORSKI, Pennsylvania ADAM PUTNAM, Florida
LUIS V. GUTIERREZ, Illinois KENNY MARCHANT, Texas
STEVE DRIEHAUS, Ohio LYNN JENKINS, Kansas
MARY JO KILROY, Ohio CHRISTOPHER LEE, New York
JIM HIMES, Connecticut
DAN MAFFEI, New York
C O N T E N T S
----------
Page
Hearing held on:
February 24, 2009............................................ 1
Appendix:
February 24, 2009............................................ 61
WITNESSES
Tuesday, February 24, 2009
Coffin, Mary, Executive Vice President, Wells Fargo Home Mortgage
Servicing...................................................... 30
Erbey, William C., Chairman and Chief Executive Officer, Ocwen
Financial Corporation.......................................... 28
Evers, Joseph H., Deputy Comptroller for Large Bank Supervision,
Office of the Comptroller of the Currency...................... 7
Gardineer, Grovetta, Managing Director, Corporate and
International Activities, Office of Thrift Supervision......... 6
Gross, Michael, Managing Director, Loan Administration Loss
Mitigation, Bank of America.................................... 32
Hemperly, Steven D., Executive Vice President, Real Estate
Default Servicing, CitiMortgage, Inc........................... 35
Lawler, Patrick J., Chief Economist, Federal Housing Finance
Agency......................................................... 9
Morris, Vance T., Director for Single Family Asset Management,
U.S. Department of Housing and Urban Development............... 4
Sheehan, Marguerite, Senior Vice President, Chase Home Lending,
JPMorgan Chase................................................. 33
APPENDIX
Prepared statements:
Waters, Hon. Maxine.......................................... 62
Ellison, Hon. Keith.......................................... 66
Coffin, Mary................................................. 67
Erbey, William C............................................. 70
Evers, Joseph H.............................................. 80
Gardineer, Grovetta.......................................... 100
Gross, Michael............................................... 111
Hemperly, Steven D........................................... 120
Lawler, Patrick J............................................ 126
Morris, Vance................................................ 146
Sheehan, Marguerite.......................................... 152
LOAN MODIFICATIONS: ARE MORTGAGE
SERVICERS ASSISTING BORROWERS
WITH UNAFFORDABLE MORTGAGES?
----------
Tuesday, February 24, 2009
U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:42 p.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the subcommittee] presiding.
Members present: Representatives Waters, Lynch, Cleaver,
Green, Clay, Ellison, Donnelly, Driehaus, Kilroy, Maffei;
Capito, Marchant, Jenkins, and Lee.
Chairwoman Waters. This hearing of the Subcommittee on
Housing and Community Opportunity will come to order. Good
afternoon, ladies and gentlemen.
I would first like to thank the ranking member and the
other members of the Subcommittee on Housing and Community
Opportunity for joining me today for this hearing on loan
modifications: ``Are mortgage servicers assisting borrowers
with unaffordable mortgages?''
Today's hearing is the first in a series of hearings to
provide Congress with an in-depth understanding of loan
modifications, including their benefits and challenges. In the
next few months, the subcommittee plans to hold further
hearings on this issue, including an examination of the White
House plan to modify loans and an investigation of the for-
profit loan modification industry.
Today we have before us several key regulatory agencies and
mortgage servicers who are going to tell us about their efforts
to assist borrowers with affordable mortgages. In addition to
learning about their loan modification efforts, I hope this
hearing will also serve to educate members about some of the
fundamentals of the mortgage servicing industry, including how
servicers are licensed, what kinds of contracts they have with
investors, and how they receive payments for servicing loans. I
believe that this basic information is critical to
understanding how the number of loan modifications can be
increased. I hope that our witnesses will be able to educate
the subcommittee in this regard.
Loan modifications changing the terms of the loan are
essential to ending the foreclosure crisis. According to
RealtyTrac, in 2008, 2.3 million households were in some stage
of the foreclosure process, an 81 percent increase from 2007
and a 225 percent increase from 2006. The foreclosure crisis
shows no signs of slowing down, with Credit Suisse estimating
that 8.1 million homes will enter foreclosure over the next 4
years.
However, while the pace of loan modifications has
increased, repayment plans which simply tack the missed
payments onto a loan, thereby delaying the inevitable
foreclosure until a later date, still offers more than other
kinds of loan modifications. According to the Office of the
Comptroller of the Currency and the Office of Thrift
Supervision, in the third quarter of 2008, new loan
modifications increased by more than 16 percent to 133,106,
while new repayment plans increased by 11 percent to 154,649.
I am concerned that mortgage servicers simply aren't doing
enough loan modifications. I am interested to hear the mortgage
servicers before us today discuss what barriers or capacity
issues are preventing them from performing more loan
modifications and preventing foreclosures. And if capacity is
an issue, I would like to hear about how we can streamline the
modification process so that we can prevent foreclosures
quickly and efficiently.
Since day one, I have been a supporter of enacting a
systematic modification program. On the first day of the 111th
Congress, I introduced legislation, H.R. 37, the Systematic
Foreclosure Prevention and Mortgage Modification Act of 2009,
to put such a plan in action.
I am also concerned about some of the redefault rates on
modified loans. According to the OCC and the OTS, modified
loans have been redefaulting at rates of 37 percent within 3
months after modification and 55 percent within 6 months after
modification, with the rates of redefault seeming to vary by
the type of loan and the entity servicing it.
In modifying loans, servicers must ensure that the new loan
is more affordable to the borrower than it was before the
modification. It makes little sense and benefits no one to
modify a loan and to have it still be unaffordable for the
borrower. It also makes little sense to do a slight
modification, such as lowering the interest rate by a quarter
of a point, for example. That makes the loan slightly more
affordable, but still out of the reach of the borrower.
The type of loan modification being offered is also
important to ensure that the modified loan is affordable for
the borrower. Credit Suisse has found that principal reduction
modifications have lower default rates than other kinds of
modifications. If this is the case, I would expect for mortgage
servicers to perform more of those kinds of modifications. I am
aware that principal reduction comes with a significant cost
for the investor; however, that cost is substantially less than
letting the loan enter foreclosure.
Before I close, I would like to comment on the
modifications that have yet to occur. There are millions of
families out there who are struggling with their mortgages.
They have tried to contact some of the servicers who will be
testifying today, and they have not been able to get through or
to reach the right person. I have experienced firsthand the
challenges faced by borrowers who want to stay in their homes
and who want to get current on their mortgages, but they either
can't get their servicers to pick up the phone, or they get
wrong, misleading, or unapproved information. I have called the
servicers myself and waited hours for someone to answer, I have
been misdirected and disconnected, and I understand the
frustration borrowers have. It is unacceptable, and I think
homeowners deserve better.
I am very interested in hearing from today's witnesses on
how they plan to improve their capacity and their outreach to
ensure that the borrowers reaching out to them for help are
able to receive the help they need. I am looking forward to
hearing from our two panels of witnesses on the benefits, the
challenges, and the expenses involved in modifying loans.
I would now like to recognize our subcommittee's ranking
member to make an opening statement.
Mrs. Capito. Thank you, Madam Chairwoman. And I would like
to thank the chairwoman for convening this afternoon's hearing.
The difficulties in the housing market are central to the
health of our overall economy. Some States have been affected
more deeply by those difficulties than others. I know that many
of my colleagues representing States that have been hardest hit
by foreclosures have constituents who are struggling to make
ends meet; however, we must be careful to those who are making
their payments on time so that they would not be unfairly
burdened. Whatever form of assistance this committee produces
must be equitable to the almost 92 percent of American families
still making those payments on time.
I am looking forward to hearing from our second panel this
afternoon to learn more about their efforts to do loan
modifications. We will be hearing from five different
institutions, many of whom have different approaches to working
out loans and different problems with working out those loans.
I believe it is important for this process to remain in the
private sector as much as possible.
Another proposal that has been put forth is to modify the
terms of the loan in bankruptcy court, commonly referred to as
cramdown. I have already expressed my concern in this committee
about the effect this proposal will have on the Federal
programs like FHA/VA and RHS. Additionally, I have concerns
about the effect that this will have on the flow of credit on
an already unsteady secondary market.
Recently, I joined Mr. Bachus, the ranking member of the
full committee, as well as our counterparts on the House
Judiciary Committee, in sending a letter to the Treasury
Secretary expressing our desire to work in a bipartisan manner
to narrow changes in the bankruptcy law.
Today's hearing will shed greater light on the current
status of loan modifications as well as to educate members
about the process and any potential improvements. I would like
to thank again the chairwoman for bringing us together this
afternoon and I look forward to hearing the testimony of our
witnesses. Thank you.
Chairwoman Waters. I now recognize Mr. Green.
Mr. Green. Thank you, Madam Chairwoman. I would like to
associate myself with the comments that you made. I thought
that you were quite thorough in expressing concerns, and I
adopt your language.
I do want to add only this: That there is concern with
reference to the defaults. When compared to loans held by
servicing banks, the default rate is 35.06 percent after 3
months. Loans held by private investors, the default rate is
42.28 percent after 3 months. There seems to be a disparity
that I am sure we can examine and understand why it exists. I
have my suspicions, but it will be more than appropriate to
receive empirical evidence of what is actually going on from
this panel.
So I thank you very much, Madam Chairwoman, and I yield
back the balance of my time.
Chairwoman Waters. Thank you very much.
Ms. Jenkins for 2 minutes.
Ms. Jenkins. Thank you, Madam Chairwoman.
I know that many Americans are honestly struggling to pay
their monthly mortgage payments. Unemployment is on the rise,
yet more than 90 percent of homeowners are still able to scrimp
and save enough each month to pay their mortgage.
Congress and government agencies have thrown billions at
the crisis, yet we have little to show for it. Many people
inside the Beltway appear willing to reward lenders who sold
irresponsible loans and reward people who purchased houses that
were too expensive. How is this fair to those American families
who made cuts in their monthly budget and still pay their
mortgage on time? We may see later this week on the House Floor
a proposal to allow bankruptcy judges to cramdown mortgages.
While the goal of the proposal, to help more folks be able to
stay in their homes, may be admirable, when we see redefault
rates at 55 percent in only 6 months, is this really solving
the problem?
I am eager to hear from today's witnesses to see what we
can work toward to find effective solutions. I yield back the
remainder of my time. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
We have no more opening statements. I am pleased to welcome
our distinguished first panel. Our first witness will be Mr.
Vance Morris, Director for Single Family Asset Management, U.S.
Department of Housing and Urban Development. Our second witness
will be Ms. Grovetta Gardineer, Managing Director, Corporate
and International Activities, Office of Thrift Supervision. Our
third witness will be Mr. Joseph H. Evers, Deputy Comptroller
for Large Bank Supervision, Office of the Comptroller of the
Currency. Our fourth witness will be Mr. Patrick J. Lawler,
Chief Economist, Federal Housing Finance Agency.
Thank you for appearing before the subcommittee today, and,
without objection, your written statements will be made a part
of the record. You will now be recognized for a 5-minute
summary of your testimony.
Mr. Morris.
STATEMENT OF VANCE T. MORRIS, DIRECTOR FOR SINGLE FAMILY ASSET
MANAGEMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Morris. Madam Chairwoman, Ranking Member Capito, and
members of the subcommittee, on behalf of the Department of
Housing and Urban Development, I would like to thank you for
the opportunity to speak about FHA's loss mitigation practices,
and in particular loan modifications practices.
I am the Director of the Office of Single Family Asset
Management. I am responsible for managing the servicing and
loss mitigation activities of FHA-insured mortgages and also
the Real Estate Owned activities. My office responsibilities
include establishing and updating general servicing guidelines
for FHA lenders, helping homeowners remain in their homes while
overcoming difficulties that cause mortgage defaults,
monitoring lenders for compliance with loss mitigation
requirements, and managing and selling single-family properties
acquired by HUD. These activities are instrumental in
maintaining the FHA insurance fund, which currently has over
4\1/2\ million insured loans at a value of $534 billion.
In 1996, HUD completed a study titled, ``Providing
Alternatives to Mortgage Foreclosure: A Report to Congress,''
which formed the basis of our loss mitigation program. During
the same year we introduced our loss mitigation program with
the primary objective of keeping homeowners in their home in
the event of a serious default, finding effective solutions to
cure defaults, and reduces to the losses to the government by
effectively finding alternatives to foreclosure.
HUD's most utilized loss mitigation tool is loan
modification. Loan modifications account for nearly 60 percent
of FHA's loss modification activity annually. Loan
modifications are intended to bring the delinquent borrower
current. This is done by either reamortizing the loan up to 30
years, changing the interest rate both up and down, and adding
the delinquency into the loan modification.
In most cases when a lender modifies the loan, they modify
the term, and the rate is unchanged. In other cases the
interest rate may increase or decrease. Typically, though,
after the loan modification, the borrower's payment increases
slightly, on average $22. The increase is due to the fact that
the arrearages were included into the loan balance, so it
causes a slight increase in the mortgage payment.
Over the past 12 years, through the end of January 2009,
FHA lenders have completed over 324,000 loan modifications. The
numbers vary from year to year. For example, in Fiscal Year
2008, 58,000 loan modifications were done by FHA lenders. We
estimate that there will be a 12 percent increase this year to
65,000 loan modifications.
The loan modification process is fairly simple. The lender
reviews the borrower's qualifications prior to the loan
becoming 4 months past due. The borrower sends financial
information to the lender, who performs an analysis and
determines that the information is independently verified as
correct, and then determines if the loan modification would
benefit the borrower. If so, the loan modification--the lender
at that time sets the rate, and a term, and the terms of the
modification. The lender then sends the documents to be
executed by the borrower, and the modification is recorded, and
the loan is brought current. For completing the loan
modifications, HUD provides an incentive fee to the lender of
$750, plus we pay up to $250 in title work.
HUD measures the effectiveness of its loss mitigation
action by determining if the loan ended in foreclosure 24
months following that action. According to our Office of
Evaluation, this is the best measure, because past 24 months,
if a loan goes in default, there were other actions or activity
that caused the default. By that measure, home applications are
an effective tool, because over 85 percent of our loans that
were modified, 24 months following that loss mitigation action
were still not submitted for foreclosure.
This is not to say that our loans do not redefault. We do
have an annual redefault rate of modified loans of 35 percent.
However, we continue to work with the borrowers to avoid
foreclosure. Just because a person has one loss mitigation
action, that does not preclude us from continuing to work with
the borrower.
In closing, HUD is requesting new authority to enhance
partial claim authority to enable FHA to buy down mortgage
balances. The buydown amount would be reported as a second
mortgage, but it would be a tool that would make the payment
affordable to the borrower. The Administration is developing
changes that would allow FHA to assist homeowners with
reductions in income that are more than just temporary in
nature.
Again, I want to thank you for the opportunity to explain
FHA loan modifications. I am prepared to answer your questions.
[The prepared statement of Mr. Morris can be found on page
146 of the appendix.]
Chairwoman Waters. Thank you very much.
Ms. Gardineer.
STATEMENT OF GROVETTA GARDINEER, MANAGING DIRECTOR, CORPORATE
AND INTERNATIONAL ACTIVITIES, OFFICE OF THRIFT SUPERVISION
Ms. Gardineer. Good afternoon, Chairwoman Waters, Ranking
Member Capito, and members of the subcommittee. I am Grovetta
Gardineer, Managing Director for Corporate and International
Activities at the Office of Thrift Supervision. Thank you for
the opportunity to testify on behalf of OTS about loan
modifications and how best to keep more American families in
their homes.
The importance of this topic is hard to overemphasize.
Turning back the tide of home foreclosures is an essential
element in combating the economic crisis confronting this
Nation and much of the rest of the world. Foreclosed homes
spell tragedy for the uprooted families, they harm
neighborhoods by driving down property values, and they add
downward pressure to already depressed home values in
communities.
Although about 90 percent of all home mortgages in this
country are being repaid on time, the remaining 10 percent that
are delinquent or in foreclosure represent a historically high
number and a contagion in our economic system. My written
testimony goes into detail about the efforts the OTS has made,
both in partnership with other Federal banking regulators and
on its own, to prevent foreclosures.
In the time I have this afternoon, I will emphasize just a
few aspects of those efforts, but the key point I want to make
is that OTS initiatives to reduce foreclosure are not new. They
extend back nearly 2 years, and they are continuing today.
Just 2 weeks ago, OTS Director Reich urged OTS-regulated
institutions to suspend foreclosures on owner-occupied homes
until the home loan modification program in the
Administration's financial stability plan is finalized. Since
then, OTS leaders have continued their work on the interagency
team, led by the Treasury Department, to develop the details of
this modification program.
On February 20, 2008, almost 1 year ago to the day, the OTS
unveiled the foreclosure prevention plan that identified three
elements that are key to a successful loan modification
program: an expedited process; an affordable monthly payment;
and an approach to dealing with underwater mortgages in which
borrowers owe more on their mortgages than their homes are
worth. These elements were included in the legislation
eventually passed by Congress.
OTS has also been a central player first on its own and
later in partnership with the Office of the Comptroller of the
Currency in gathering for the first time extensive validated
loan-level data on about 60 percent of all mortgages in the
United States. The data have already yielded valuable insights
and will enable us to gauge which modification strategies work
best for affordable, sustainable solutions. With this useful
yardstick for measuring progress, policymakers will know with
greater precision where to focus scarce resources to achieve
the most success.
The next OCC-OTS Mortgage Metrics Report scheduled for
release next month will reflect an expanded data collection
effort to zero in on the elements that make loan modifications
work. The scope of this effort is broad, covering more than 34
million loans. The two agencies have made sizable commitments
to this project, and we intend to stick with it, especially
since so many families are being forced to pack up their
American dreams of homeownership. The OTS remains committed to
continuing its efforts until the foreclosure crisis is over.
Thank you again, Madam Chairwoman, for your commitment to
this important issue, and I look forward to answering your
questions.
[The prepared statement of Ms. Gardineer can be found on
page 100 of the appendix.]
Chairwoman Waters. Thank you very much.
Our next witness, please.
STATEMENT OF JOSEPH H. EVERS, DEPUTY COMPTROLLER FOR LARGE BANK
SUPERVISION, OFFICE OF THE COMPTROLLER OF THE CURRENCY
Mr. Evers. Chairwoman Waters, and members of the
subcommittee, on behalf of the Office of the Comptroller of the
Currency, thank you for holding this hearing and inviting the
OCC to testify on this important topic.
My name is Joe Evers. I am a national bank examiner, and I
currently serve as Deputy Comptroller for Large Bank
Supervision. In that capacity, I am responsible for large bank
analytics. Over the past year, I have led the OCC's project to
develop more comprehensive and timely data on mortgage lending
and servicing activities of national banks. This project, known
as Mortgage Metrics, is now a joint undertaking of the OCC and
the Office of Thrift Supervision.
Since as early as 2005, the OCC has encouraged national
banks to work with troubled homeowners to prevent avoidable
foreclosures and meet the needs of creditworthy borrowers.
Since then, the OCC has joined other regulators to urge banks
to continue to implement effective programs to prevent
avoidable foreclosures and to minimize potential losses.
Several years ago, we realized the importance of obtaining
more detailed information about the performance of mortgages
held in the national banking system. This was done to both aid
our supervisory activities and to incent servicers to implement
effective programs to prevent avoidable foreclosures and to
minimize potential losses. We have continued these efforts,
particularly with respect to increasing affordable and
sustainable modifications, and that improved information we are
obtaining is helping in that effort.
Clearly more must be done to address this challenge. The
OCC supports the Administration's Homeowner Affordability and
Stability Plan. This new plan takes significant steps towards
addressing these issues, and we are taking additional steps as
well. The Mortgage Metrics project represents an unprecedented
effort to collect detailed information on the performance of
loans serviced by institutions supervised by the OCC and OTS.
Our quarterly Mortgage Metrics Report was first published
in 2008. The Mortgage Metrics Report now covers approximately
90 percent of the first-lien mortgages serviced by national
banks and thrifts, and represents over 60 percent of all
mortgages in the United States.
Our report for the third quarter of 2008 gathered a vast
amount of data on the effectiveness of loan modifications. It
showed an unexpectedly high percentage of borrowers receiving
loan modifications in the first and second quarters of 2008
were past due on the new loan modification payment terms. An
examination of these results led to our decision that more
detailed information was required to enhance our analysis.
Since then we have been working to collect additional
details on how different types of modifications have changed
monthly principal and interest payments resulting from
modifications. We plan to present expanded information on
actual changes in monthly principal and interest payments
resulting from loan modifications in the next quarterly
Mortgage Metrics Report due out in March. Further details on
modifications are planned for subsequent reports.
My written testimony addresses these efforts in more detail
and the specific issues raised in your letter of February 17th
by describing: one, our efforts to improve the understanding of
loan modification performance through our Mortgage Metrics data
collection effort; two, findings from our most recent Mortgage
Metrics Report, including what we have learned about loan
modifications; three, current challenges facing effective loan
modifications; and four, our ongoing efforts to encourage
responsible lending and appropriate loss mitigation activities,
particularly achieving affordable and sustainable loan
modifications.
Again, thank you for holding this important hearing. I look
forward to answering your questions.
[The prepared statement of Mr. Evers can be found on page
80 of the appendix.]
Chairwoman Waters. Thank you very much.
Now, we will have Mr. Patrick Lawler.
STATEMENT OF PATRICK J. LAWLER, CHIEF ECONOMIST, FEDERAL
HOUSING FINANCE AGENCY
Mr. Lawler. Chairwoman Waters, Ranking Member Capito, and
members of the subcommittee, thank you for the opportunity to
testify on behalf of the Federal Housing Finance Agency. My
name is Patrick Lawler, and I am Chief Economist of the FHFA.
Today the country faces an enormous challenge to stabilize
the housing market. This morning we announced that our House
Price Index declined 3.4 percent in the fourth quarter last
year. That is twice the average rate of decline in the previous
four quarters.
Many borrowers are in trouble on their mortgages, or soon
will be. To address this need, FHFA and the housing GSEs are
actively working on foreclosure prevention. This is a major
component of FHFA's efforts to ensure the housing GSEs fulfill
their mission of providing liquidity, stability, and
affordability to the housing market.
The housing plan outlined last Wednesday by President Obama
includes a prominent role for Fannie Mae and Freddie Mac. My
testimony today will summarize recent initiatives already
underway to promote effective loan modifications and the new
policies announced last week.
FHFA began in September a foreclosure prevention report,
which is a transparent review of key performance data on
foreclosure prevention efforts. These monthly and quarterly
reports present data for more than 3,000 approved servicers on
30.7 million first-lien residential mortgages serviced on
behalf of Fannie Mae and Freddie Mac of which 84 percent are
prime.
The recently released November report shows that for the
first 2 full months of conservatorship, October and November,
the number of loan modifications increased 50 percent from the
previous 2 months. These modifications were achieved using a
customized, labor-intensive process. Currently, though,
servicers are challenged by the sheer volume of borrowers
requesting assistance in their ability to effectively and
efficiently modify those loans. Accordingly, we have focused on
new programs with the goal of reaching more borrowers more
quickly and making it easier and faster to execute a loan
modification.
In November, FHFA announced the Streamlined Modification
Program that was rolled out in December; 90,000 solicitations
and modification offers were mailed to a targeted population of
borrowers who had missed three payments. While responses to
these letters are just starting to come in, early indications
strongly suggest that several of the program guidelines should
be liberalized to reach a broader population and to create a
lower, more affordable payment. This feedback was shared with
the Treasury Housing Team working on the Administration's
homeowner affordability plan.
In addition to the streamline program announced in
November, the enterprises have taken many additional steps to
help avoid preventable foreclosures. They have suspended
foreclosures and evictions and developed programs to protect
renters living in foreclosed properties. They are pulling loan
files back for a second look before foreclosures, and they are
working with credit and housing counselors.
Recently FHFA has been pleased to work on the development
of the Administration's plan. It is a major step forward in
reducing preventable foreclosures and stabilizing the housing
market. It aggressively builds on the FDIC's and our
Streamlined Modification Programs. The key elements of the plan
involve Fannie Mae and Freddie Mac. The enterprises will
provide access to low-cost financing for loans they own or
guarantee. This will help homeowners reduce their monthly
payments and avoid foreclosure. It is designed for current
borrowers who seek to refinance at a lower rate or into a safer
mortgage, but who have experienced difficulties due to
declining home values.
Second, a $75 billion program will establish a national
standard for loan modifications. Treasury will share a portion
of the costs, which will provide financial incentives to
borrowers, lenders and servicers. The enterprises will monitor
servicer compliance with the plan's rules, and for those loans
owned or guaranteed by Fannie Mae or Freddie Mac, the
enterprise will bear the full cost of the modifications.
Third, the Treasury will support low mortgage rates by
strengthening confidence in Fannie Mae and Freddie Mac. The
Treasury Department will double the size of its preferred stock
purchase agreements to $200 billion each. This increase should
remove any possible concerns that investors in debt- and
mortgage-backed securities have about the strong commitment of
the U.S. Government to support Fannie Mae and Freddie Mac.
In addition, the Treasury Department will continue to
purchase Fannie and Freddie MBS, and is increasing the size of
the GSEs' allowable mortgage portfolios by $50 billion each, to
$900 billion, along with corresponding increases in allowable
enterprise debt outstanding. Over the next several days, FHFA
will continue working with the Administration and the
enterprises to finalize the details and implement this program.
I will be happy to answer questions.
[The prepared statement of Mr. Lawler can be found on page
126 of the appendix.]
Chairwoman Waters. Thank you very much.
I will yield to myself 5 minutes for questions. My first
question is to Mr. Vance Morris, Director for Single Family
Asset Management, U.S. Department of Housing and Urban
Development. You have, maybe not in your unit, but you have HUD
counselors or certified counselors who are responsible for
counseling and advising homeowners, first-time homebuyers,
etc., and now they have included in their work working with
homeowners who are in trouble and trying to help them get loan
modifications. Do you think that the HUD-certified counselors
have the training or expertise to really help with loan
modifications?
Mr. Morris. Well, Madam Chairwoman, to answer your
question, it is a two-part answer. I think the housing
counseling agencies have the training to effectively help the
borrowers in trouble, because really they are advising,
counseling, and providing alternatives. But the person who has
the authority to effect the loss mitigation action is the
servicer themselves. So you have a group of counselors who are
funded, active, and well-educated, but you still have to get
the actual work completed. It still has to go to the servicer,
the analysis has to be completed, and then the action has to be
taken.
Chairwoman Waters. I understand that. And from what I have
been able to see and understand about what is happening between
the HUD counselor and the homeowner is the homeowners find the
HUD counselors through nonprofits and churches and other kinds
of things, but they have as many problems--the counselors have
as many problems getting to the servicer and getting the
servicer, if they get them, to do a loan modification. So I am
trying to determine what is the most effective use of the HUD
counselors, because my experience is they are not able to
really facilitate the loan modifications. The servicers are not
responding to them, I have discovered. So how can we best use
these HUD counselors?
Mr. Morris. I would hate to characterize it as not
responding. What has happened from the feedback that I have
gotten from the servicers is that we have established hotlines.
There is a foreclosure crisis. So what happened is there is
this gigantic influx of inquiries and activity that had been
literally pushed on the servicers themselves. So as a result,
based on this demand, it just seems like there is insufficient
staffing to cope with all the inquiries and demands and loan
modifications.
So if you are asking what should we do with the housing
counseling agencies, that is a hard question. Technically it is
a separate section. It seems as though they are playing a
proper role because the housing counseling agency does housing
counseling for origination.
Chairwoman Waters. In those activities some of them are
good, particularly with first-time homebuyers, but I have yet
to see the effectiveness of their role in dealing with
foreclosures and helping to facilitate loan modifications by
getting in touch with the servicer, helping to interpret to the
servicer the particular case before them. You have homeowners
with all kinds of problems related to that mortgage, and
oftentimes they do need some help in interpreting to the
servicers, once you get them, what the problem is with this
homeowner.
But the reason I ask this is because I am thinking about
what to do about the HUD counselors in relationship to
foreclosures, because we shouldn't fool each other that somehow
they are being effective when it is not their fault, it is more
the servicers' fault, because, as you are saying, they are
overloaded or what have you.
Let's move on to Ms. Gardineer. When did your agency begin
to understand what was happening with the mounting
foreclosures, and what took so long to get involved?
Ms. Gardineer. Well, Chairwoman Waters, I would say that
our efforts began to really focus on the mounting loan
foreclosures--in April of 2007, we issued a statement that
encouraged financial institutions to work with homeowners who
were having difficulty making their payments. We encouraged
them to reach out to those homeowners to try to modify and
engage in prepayment plans at this point.
Chairwoman Waters. Is that the extent of your authority to
encourage?
Ms. Gardineer. Well, with regard to that, Chairwoman
Waters, we wanted to make sure that our regulated servicers
understood that it was more prudent for them to reach out and
make an effective modified loan as opposed to having a failure
on both sides of the transaction that would result in a
foreclosure.
Chairwoman Waters. And If they did not do this?
Ms. Gardineer. We would look through it through our
supervisory process.
Chairwoman Waters. Look at what?
Ms. Gardineer. Look at their efforts to reach out to those
homeowners.
Chairwoman Waters. And if they did not do it?
Ms. Gardineer. Are you asking would they be--
Chairwoman Waters. What is your authority?
Ms. Gardineer. With regard to enforcement of this?
Chairwoman Waters. Yes.
Ms. Gardineer. I don't believe we have enforcement
authority.
Chairwoman Waters. I see. So when you talk about
encouragement and doing whatever you can do to get them to work
closely with the homeowner, that is the best you can do with
the authority that you have; is that right?
Ms. Gardineer. I would say that with respect to the
creation of our Mortgage Metrics Report, which we have made a
part of our supervisory process, we are looking to gain more
information with regard to how effective the modifications are
being done. And because it is a part of our supervisory
process, and we will examine for this going forward, then I
think our safety and soundness authority will cover our ability
to take more effective action.
When we look at the methodology and the data that we are
gaining from this report, and by making it a part of
supervision, we are helping to shape our supervisory
expectations in understanding how servicers can do more and
what they are doing in regard to what their current authority
is, how we can look at how we can expand on that current
authority, as well as helping them understand the parameters
that we as supervisors and regulators expect.
Chairwoman Waters. How long is it going to take you to
include that in your supervisory responsibilities? You know, a
lot of foreclosures are happening every day, and I guess the
numbers that we saw here today, 2.5, or something like that,
million. So how long is this is going to take you?
Ms. Gardineer. As far as this being our third quarter, we
released three quarters' worth of data, and with every release
of the report and our analysis of the report, it allows us to
see the information that we need to continue to understand the
supervisory process and help shape this. We are in the midst of
helping the Administration work out the details of the loan
modification streamlined efforts to impact these foreclosures
to see if we can stave them off earlier. We want servicers--
Chairwoman Waters. What should we do in the future to get
in front of a problem like this? We are late.
Ms. Gardineer. Well, I think in the past, Madam Chairwoman,
we have looked at lagging indicators, we have looked at data
that has been based on model estimates as opposed to what we
are getting with our fellow regulator, the OCC, at this point.
We are looking at original loan-level data, the actual loans of
homeowners that are being serviced by these servicers, and
enabled to do that, and our ability to now look at that data in
real time, today, to see what is happening in a specific ZIP
code, geographic location, FICO scores, income verification or
employment, and how all of these impact an ability for a loan
to perform for that borrower. This is the kind of information
this helps us to get in front of the problem as opposed to
looking at model estimates, which we have--
Chairwoman Waters. I have a great appreciation for that,
but what you just told me gives me even greater worry. So I am
going to move on to Ms. Capito. Thank you very much.
Mrs. Capito. Thank you.
Mr. Morris, can you explain to me, in your testimony you
mentioned that in the refinancing, that $750 goes to the lender
for a successful refinancing.
Mr. Morris. $750 is just incentive payment for the cost of
them doing the work. It has to be tied to cost by statute. So
we have to be able to justify that they are experiencing the
cost. It is the cost of them collecting the information,
analyzing.
Mrs. Capito. Is this similar, in your mind, to the
incentive that the President has built into his program that he
has put before Congress, or is this different, in addition to
that?
Mr. Morris. We have been operating our program since 1996.
And I am just talking to you specifically about FHA's
authority. Based on FHA's authority, according to our Office of
General Counsel, when we pay an incentive fee, it has to be
linked to some work that was actually performed. This is the
fee structure for the work that was performed to complete the
loan modification, plus the reimbursement for the title work.
Mrs. Capito. If there is a 35 percent redefault rate
recently, then every time, if you are redefaulting and you are
going to come in to try to remanage the loan or refinance the
loan, is there still a $750 payment every time that loan gets
looked at?
Mr. Morris. Yes, because the same analysis and due
diligence is being done every time. A 35 percent default rate
is not new.
Mrs. Capito. That is over 10 years?
Mr. Morris. Over the past 5 to 10 years that I have
information, it is average, about that amount.
Mrs. Capito. I would like to ask Mr. Lawler, you know, I
think we encouraged folks who are in trouble, telling them, go
to your lender, try to start working on a loan modification. My
understanding of the President's plan is that the loan
modifications have to be done by those loans that are held by
Fannie and Freddie. How does a regular person figure this out?
And what kind of outreach are you doing to make sure people are
aware that they actually have this connection to those
institutions?
Mr. Lawler. There are two different parts to the
President's plan. One deals with loan modifications, and for
those it is not restricted to loans held or guaranteed by
Fannie Mae and Freddie Mac. There is another part that involves
refinances by borrowers who are current on their loans.
Mrs. Capito. Let me just stop you right there. If you are
current, you are refinancing; if you are in arrears, you are
modifying?
Mr. Lawler. Yes. Although you could qualify for a
modification in some cases if you are current if there is a
hardship, for example.
Mrs. Capito. What is the difference between a modification
and a refinance?
Mr. Lawler. Refinance is just changing the interest rate,
if the borrower qualifies for a new loan with a new maturity of
30 years or 15 years.
Mrs. Capito. But you are modifying a loan?
Mr. Lawler. You are paying off the first loan, and you are
getting a brand new loan.
Mrs. Capito. Okay.
Mr. Lawler. The other is modifying the terms of an existing
loan.
Mrs. Capito. Which would change the interest rate or the
length of time?
Mr. Lawler. Or the principal amount or the way the rates
are computed.
Mrs. Capito. In the President's plan can you refinance or
change the principal amount; is that within the purview of this
plan? I don't believe it is.
Mr. Lawler. It is within the loan modification plan, yes.
There is a provision for that, and the Treasury will
participate in some of the cost in that.
Mrs. Capito. I see.
Let me ask you another question about the kind of
complaints I have heard.
Mr. Lawler. If I could finish?
Mrs. Capito. Yes.
Mr. Lawler. If it is a refinance, then that part of the
plan is only for loans that are held or guaranteed by Fannie
Mae or Freddie Mac, and one way for the borrower to find out if
that is the case, obviously, is to call Fannie Mae or Freddie
Mac. But I think on March 4th, there will be more details about
exactly how to find out.
Mrs. Capito. I think that is confusing to a lot of people,
because they naturally assume that wherever they got the loan
or whoever they are sending the check to is going to be the
person or the only person they will have to be aware of as they
are moving through the process.
I heard--and maybe you can help me with this. I heard
complaints from people who are buying the first-time loan or
trying to refinance, and they maybe have credit scores that are
not up in the 700s, but they are still good credit scores, and
that Fannie and Freddie are assessing fees, and began assessing
fees more here recently, that are putting, again, the price of
refinancing that mortgage out of reach for a lot of people. Can
you help me with this?
Mr. Lawler. Well, part of Fannie Mae and Freddie Mac's
problems most recently has been that this risk was underpriced,
and so they are trying to make new loans that are priced
fairly, but fairly to them and fairly to the borrowers. And
they have made more use of distinctions of relative credit
quality of borrowers. The difference between a very high credit
rating and a good, but slightly lesser credit rating is a
matter of basis points, but that is a distinction that they are
making.
Mrs. Capito. Would that same standard be applied in the
President's plan?
Mr. Lawler. For the refinances, Fannie Mae and Freddie Mac
will determine what terms those loans will be available on, and
there will be more details March 4th. For the loan
modifications, it is really a question of lowering payments,
not raising anybody's payments.
Mrs. Capito. So the answer is, not really.
Mr. Lawler. Not for loan modifications. Thank you.
Mrs. Capito. Thank you.
Chairwoman Waters. With that line of questioning, if you
would like, I will yield you an additional minute, because you
have an additional loan modification type in the HOPE for
Homeowners program that is a refinancing program. Maybe knowing
the difference between that, the GSEs refinancing and the loan
modification may help us all.
Mrs. Capito. Now you have totally confused me.
Well, I guess I am getting to in my original statement
looking at the fairness equation of people who are refinancing
or loan modification or however. I am mixing them all up
together, but I realize they are not the same; that if that
borrower comes in and is held to one standard, and that person
maybe has been doing all the right things, paying, working with
their debt, paying all their credit cards on time, all these
sorts of things, and then you have another person who is coming
in under a different set of circumstances are not going to be
assessed these fees, so it is going to be easier for that
person to stay in their home than maybe this other person to
purchase a home in the beginning or to refinance.
Mr. Lawler. Well, people who are current can qualify for
the loan modifications if there is hardship, if there is a
special need.
Mrs. Capito. Beyond a poor credit score.
Mr. Lawler. Beyond a poor credit score, right. Losing a
job, for example.
Mrs. Capito. Or an illness or something to that effect.
Thank you.
Chairwoman Waters. Thank you.
Mr. Green.
Mr. Green. Thank you, Madam Chairwoman, and I thank the
witnesses for appearing today.
My frustration with this process emanates from an inability
to understand why people won't do what is in their best
interests. All of the evidence seems to indicate that it is in
the best interests of investors to restructure the loans and
allow the borrowers to continue to make payments, but all of
the actions are inconsistent with what is in the best interests
of the investors. Would someone care to just give me a very
terse comment on this in terms of why investors are not
amenable to doing what is in their best interests?
Ms. Gardineer. Congressman, I think the difficulty lies in
the pooling and servicing agreement contracts that govern the
securitizations that many mortgages have ended up in. Those
contracts in terms generally allow for losses that would be
incurred under those securities to be borne by the junior
persons who have purchased into those securities, with the
investors protected against such losses such that it appears as
though they would be moving against their interest. But I think
the contracts are written in such a way to guarantee that their
interests are paramount and protected against those losses.
Mr. Green. Is this when we have something called tranche
warfare to develop?
Ms. Gardineer. Yes, Congressman.
Mr. Green. If we provide a safe harbor for the servicer, do
we now overcome the consternation that servicer has by virtue
of liability and exposure; is that going to be a part of the
key to safe harbor?
Ms. Gardineer. I think so, Congressman. Our servicers have
communicated to us that there are both legal and accounting
impediments to their ability to service those loans or modify
those loans that are in those securitizations. Our reports have
demonstrated that it is far easier and more effective to modify
the loans that are in portfolio. There is great latitude and
great ability to change all of those terms. However, there are
legal concerns about the way the contracts govern what a
servicer's abilities to reach into those securities pools and
modify those loans are. So providing that safe harbor to give
them some protection against the legal liabilities and making--
or having them being accused of doing something against the
best interests of the trust I think would further the ability
of the servicers to actually modify those types of loans.
Mr. Green. Yes, sir?
Mr. Evers. A little different perspective, particularly
thinking of it from an investor's perspective. If an investor
thinks the future path of home prices is going down, and if
they are looking at modification activity, and those
modifications are kind of just nipping and cutting at the
edges, and there is a lot of redefaults on those, they are
thinking they could have a bigger loss down the road. If the
loan is modified and still ends up in foreclosure, and home
prices still go down, they are thinking, I could have a bigger
loss 18 or 24 months down the road than if I just foreclosed
today at the current prices.
Mr. Green. I see.
Mr. Lawler. I can add one more. Investors typically analyze
the problem from their own perspective, how many loan
modifications is it in my interest to do, but we are in a
situation now where the cost of foreclosures affect everybody
else. There are substantial external costs that are not perhaps
being fully taken into account, and the sort of broader social
benefits of modifications may be greater than the benefits to
the investor making the decision.
Mr. Green. Because my time is about up, someone tell me
quickly how or what percentage of the loans that are
questionable and may go into default are ARMs that are about to
reset? Does anyone know? Do we have a high percentage of ARMs
that are about to reset, or have we gotten through the ARMs?
Mr. Lawler. We have mostly gotten through that, the 3/27s
and 2/28s.
Mr. Green. Right.
Mr. Lawler. Most of those hit the first reset date through
last year. That was at one time the main cause of problems. Now
we are past the hump on that, but we have a whole bunch of new
problems.
Mr. Green. Madam Chairwoman, I cannot see the clock. Do I
have any time left?
Chairwoman Waters. The discussion about whether we have
gotten over the hump of the resets? I have been led to believe
that we have yet to hit the height of the resets. That should
be coming in 2009 and 2010. So would you please go ahead and
pursue that question?
Mr. Green. Thank you, Madam Chairwoman.
Simply restating what the chairwoman has called to our
attention, and I think what we were trying to get to is this:
The ARMS and 3/27s, 3 years prior to this would take us to 2006
or thereabouts. You would still have a good number of those
resetting at this time; would you not?
Mr. Lawler. We still have some, but the biggest volume was
in 2/28s. There was a bigger volume of 2/28s than 3/27s. So it
is not that we don't have a good number coming up, it is that
we are past the peak of them. That is what I meant.
Mr. Green. I understand.
My final question is this: If we provide the safe harbor,
if we encourage loan modifications as opposed to refinance, if
we provide an incentive by way of an emolument, meaning a
payment of dollars for remodification, is this going to have a
sizable impact on the problem, or will we find ourselves with
so many loans to be modified that we won't have enough
servicers to accommodate the persons who are seeking
modification?
Mr. Lawler. Certainly capacity constraints are a matter of
concern. But we need to have a lot more modifications than we
have been having. There is certainly room to do a lot more. We
need to press that capacity.
Mr. Green. Does that mean we will have to hire more people
is the bottom line?
Mr. Lawler. I think servicers will find that in many cases
they will have a need for more people, and the incentive should
make it possible for them to hire more people.
Mr. Green. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you.
Mr. Marchant.
Mr. Marchant. Thank you for your testimony. If I were
sitting back in my district watching this hearing, the summary
that I would have taken away from the testimony is that HUD is
studying and encouraging, the OTS is studying and encouraging,
the Office of the Comptroller is studying and collecting data,
and the Federal Housing Finance Agency is studying, evaluating,
and implementing monthly and quarterly foreclosure reports.
Now, nobody should be encouraged by that. In fact, there
doesn't seem to be a workable plan in place. In HUD's case,
they have a dual role of protecting; in fact, HUD cited a
report in their study, and they cited a report that was made in
1996. And we are working off of a plan from 1996. In the case
of the Office of Thrift Supervision, in many cases at the same
time you are studying and urging your members and those that
you supervise to modify, at the same time your examiners are
out in those banks examining the very portfolios and the very
loans that you are urging them to modify. And, in fact, if they
do modify them, then they are put on a watch list, and they are
required to reserve against those loans. So the very thing that
you are urging them to do your examiners could very well
penalize them for following through and doing.
In the case of the FHFA, the Federal Housing Finance
Agency, it is important. I will not argue that we have
statistics and knowledge of the redefaults, etc., etc., but, in
fact, all of the information that is brought forward in these
reports actually reinforces, in my view, a lender's resolve
probably not to modify and not to reset the mortgage, because
what shareholder in any institution would urge its institution
or board member would urge its institution to modify or extend
or renew a loan that has one in three chances of relapsing?
And, as was stated, it might be more beneficial to let them
take the loss now, get the thing back on the market.
So, Madam Chairwoman, the frustration on my part, and I
know that everybody is concerned about it, is that we continue
to pile study, letters, urgings, statistics, reports on top of
reports, and in fact, your HUD counselors don't have anybody to
turn to because we have as many disincentives built into the
system to not modify and not extend and to foreclose than we
have to do that. And it has been proven in the fact; it has
been proven in the failure. I don't fault the attempts to come
up with these programs, but it is very clear after, what, we
have been working on it a year, that most of the things that we
have tried have been counterproductive.
So, thank you.
Mr. Morris. Madam Chairwoman, am I allowed to--I just want
to be accurate by my testimony. Can I make a comment?
Chairwoman Waters. Please, yes, go right ahead.
Mr. Morris. I am Vance Morris from the Department of
Housing and Urban Development. The 1996 study that was
referenced in the testimony was the basis for our loss
mitigation program. By statute, if a lender does not engage in
loss mitigation and they file a claim with us and we find out,
we charge them 3 times the claim amount. That means if we paid
$30,000 and they failed to execute loss mitigation strategies,
if we paid them $30,000, they would have to pay us $90,000.
We monitor lenders electronically. We review thousands of
loan files per year. So we do have an active loss mitigation
program. We would like to have more expansive authorities, but
we are not in the study mode. We have been active in modifying
loans, doing partial claims which brings people's arrearages
current. We do special forbearances. And we have been very
active with trying to actively manage our portfolio.
So if I misspoke and made it seem that we are studying, we
don't have a study program. We have an active loss mitigation
program. Lenders are penalized if they don't follow the
program. But we do like to see additional authority.
Chairwoman Waters. We didn't misunderstand you. Mr.
Marchant didn't misunderstand you. But we are quite frustrated
because of what this country is experiencing. And when you talk
about loss mitigation, we have discovered what some of these
loss mitigation programs are in the banks. How do you regulate
loss mitigation programs that are basically handled offshore?
Mr. Morris. Well, the loss mitigation activities for FHA
are currently not outsourced. It has to be done by an FHA-
approved servicer. It is not an outsourced activity.
Chairwoman Waters. I am sorry. So you are only speaking for
the FHA?
Mr. Morris. Yes, ma'am.
Chairwoman Waters. Thank you very much. I am going to move
on to Mr. Lynch.
Thank you.
Mr. Lynch. Thank you, Madam Chairwoman, and Ranking Member
Capito.
I want to thank the witnesses on this panel and others for
coming to help this committee with its work.
I want to go back to a point that Madam Chairwoman raised a
little earlier, a good point. The Federal Reserve does a very
good job in my district in terms of the data that they provide
me. They can actually, the Boston office of the Federal
Reserve, can actually tell me the number of mortgage resets
that are going to happen in my district. Actually, by town,
they can tell me these mortgage resets. And while right now,
the mortgage resets are for the most part very low because the
rates are low, the volume of those mortgages, as the Chair
pointed out, in 2009 and 2010 are very high, and we really
don't know what the picture will be at that point, although we
heard Mr. Bernanke today say that rates would have to stay
historically low for some time.
More troubling for me, though, is what I am seeing now is,
rather than reset-related defaults, I am seeing layoff-related
defaults. People are getting thrown out of their jobs, and so a
sound and stable mortgage is now in trouble.
Here is my question. We have a provision that is being
considered this week for a so-called cramdown provision, where
a homeowner in bankruptcy would have the opportunity to have
their mortgage modified in bankruptcy if the judge determined
that was the right thing to do.
If this cramdown provision succeeds, what impact do you see
it having on the voluntary modification framework that you are
dealing with, where--what I am saying is, are we going to see
lenders and servicers incentivized to deal? Remember, it is all
voluntary. Or are we going to see homeowners who are saying, I
am so far underwater, I might as well just roll the dice, not
go for a voluntary modification, and see what I can get out of
the bankruptcy court?
I know this is conjecture. It is opinion, but in your case,
it is educated opinion. What do you think will happen if we do
adopt that provision?
Mr. Morris. Well, I looked at the legislation as well, and
the net effect is still being ascertained by the Department.
But your question refers to voluntary modifications. The
authority that I talked about that we are requesting is
additional authority to do larger voluntary modifications; it
is actually called partial claim authority. We think with that
authority, it gets us further ahead so someone would avoid
bankruptcy, because it would actually be an alternative.
Currently, the way our loss mitigation programs work, it
helps you if you have a temporary but not permanent disruption
in income. That means 12, 14, 16 months. But what is happening
now, as you pointed out, Congressman Lynch, is that families
are having permanent reduction of income. So we have to have a
tool to bring the payment down to an affordable level. We are
hopeful that we will get the authority to have this voluntary
modification, then it will not push people to bankruptcy,
because that will just cause the cascading effect of all the
borrower's credit.
Mr. Lynch. That is helpful. Could I get a couple more
opinions on that, just different perspectives?
Ms. Gardineer. Congressman, I think that what we are seeing
with regard to the bill, I have looked at the Helping Families
Save Their Homes Act, the proposal that will be on the Floor
this week, and at OTS, we believe that another tool that would
help us reach as many homeowners as possible if it is
effectively done that can reach those homeowners would be a
good thing.
Whether or not this would incentivize servicers to engage
in more modifications, I think that another point that
Congressman Green raised is also important to note: Servicers
are constrained by the contracts, the pooling of servicing
agreements, that are in place with regard to securitizations.
What we have seen from the data that we collect is that if
there is a modification, a mortgage that is in portfolio, the
modification is often far more sustainable because the powers
to modify that loan are greater. Again, the ability to provide
some legal insulation through additional legal action for the
servicers would assist in that as well. So, again, the more
tools that we see that can get to the most homeowners to
effectively stave off the foreclosures is the better approach.
Mr. Lynch. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
Ms. Jenkins.
Ms. Jenkins. Thank you, Madam Chairwoman, and thank you all
for your testimony today.
I would like to share with you an excerpt from an article I
read recently in Business Week, and I would just ask maybe a
few of you to comment on the problem it describes. Federal
banking regulators reported in December 2008 that 53 percent of
consumers receiving loan modifications were again delinquent on
their mortgages after 6 months.
A law professor, Allen M. White, says the redefault rates
are high because modifications often lead to higher rather than
lower payments. An analysis that White did of a sample of
21,219 largely subprime mortgages modified in November 2008
found that only 35 percent of the cases resulted in lower
payments. In 18 percent, payments stayed the same, and in the
remaining 47 percent, they rose. The reason for this strange
result was lenders and loan servicers were tacking on missed
payments, taxes, and big fees to borrowers' monthly bills.
Now, it seems to me that payments that rise after the loan
is modified is counterproductive. Could some of you just
comment on this particular problem?
Mr. Lawler. I would be glad to. The program that we have
been working on with the Administration is designed
specifically to avoid that kind of problem. It is specifically
targeted at the debt-to-income ratios of the borrowers and
working them down to 31 percent. In many cases, they will have
been much higher. And so the whole focus is to make an
affordable mortgage, not simply to tack on all the arrearages,
to figure out how much that will amortize over to over the
existing life of the loan.
Mr. Evers. I just would add, there may be some cases where
the loan payment may increase, and that may be a situation
where it is a temporary credit repair strategy going on where
the borrower has a temporary situation and, fees and stuff are
getting rolled into the loan getting reset. But we want to know
the answer to that question. We want to know if this is a
pattern of practice, just how many of these types of mods are
out there. That is why we are collecting changes in monthly
payments before and after the mod to know what is going on, and
then looking at the redefault rates for the various classes for
loans where there has been an increase in payment, where there
has been no payment change, and where there has been a decrease
to get a better understanding of that.
Mr. Morris. Congresswoman Jenkins, as I mentioned in my
testimony, that is a correct statement. On average, after the
loan modification, the average increase is about $22. And that
is the result of the past due amount being put into the new
loan balance.
The reason why I keep emphasizing this is the way that the
loss mitigation program is set up currently is to help people
who have temporary reductions in income. So what the servicers
do is, when they do the financial analysis, they analyze the
payments so that they can determine that it is an affordable
payment. What is happening now, though, there is a permanent
reduction in income, so we need a way to effectively reduce the
payment in a tangible way, and that is why we are requesting
the additional authority, so we will have additional tools to
assess people in this situation.
Chairwoman Waters. I am going to turn to Mr. Cleaver at
this point. Before I do, has there been a formal request for
additional authority so that you could basically reduce the
amount of the mortgage payment?
Mr. Morris. I was looking at the legislation yesterday. It
was written in the Help Families Save Their Homes Act. It was
in that authority. But I don't know exactly at what stage it
is, and I will follow up.
Chairwoman Waters. We will take a look.
Mr. Cleaver.
Mr. Cleaver. Thank you, Madam Chairwoman.
With some concern, perhaps even fear, that the redefault
rate will be used by opponents to fight most of what some of us
are interested in doing with either cramdown or loan
modification, is there anything that we can do to reduce the
redefault rate, considering of course, I mean, obviously, if
you go by the percentages with the subprime primers generally
having a redefault rate higher, is there a way that we can
undergird them or do something to reduce that? Anybody?
Ms. Gardineer. Congressman, I think that, as my colleague
Mr. Evers said, one of the things that our mortgage metrics
report after the release of the third quarter data showed the
increase in the redefaults at the 30- and 60-day past due mark;
we did go out for a broader data collection to look at how
loans were modified that resulted in an increase in principal
as well as payment, where there was no change to the payments,
to reduce payments by 10 percent or less, or reduce payments by
more than 10 percent. And our goal in getting that information
and then sharing it with the Administration's working group,
which our agencies are continually working to help find the
right criteria that we believe we can get from looking at how
these modifications were done so we can see which ones were
more effective and what that structure was.
In sharing that with the working group with the
Administration and with Treasury, we hope to find that
streamlined effort where we can show the most effective
modifications as demonstrated from the information we get. And
hopefully we will be able to look at the lower rates of
redefaults and see a correlation between some of these
criteria, and utilize that to give some structure to our
servicers as far as trying to make the most affordable and
sustainable modifications as opposed to the ones that could
easily slip back into a redefault situation.
In addition to that, I think it is important to note that
we do see a correlation with unemployment as well as underwater
mortgages. All of those things, I think, that we get the
increased data and we share that with our fellow agencies, it
allows us to have the ability to try to form that more
sustainable mortgage and avoid those redefaults.
Mr. Cleaver. Mr. Evers.
Mr. Evers. I would just follow up on what Grovetta said. We
have interagency retail credit company guidance, and in that
guidance, it basically requires servicers to try to do one mod,
not multiple mods for a borrower. And that is in there to make
sure that they do the mod right and they are not doing multiple
mods. And the only time they would do a multiple mod, if the
borrower has some life-changing event, like loss of a job or
unemployment or some medical problem or major loss of income.
But the real issue is, do the mod right, install for
affordable, sustainable payment, and structure it properly.
Mr. Cleaver. Is there way to do this with triage? That is,
can it also be done in a just way?
Mr. Evers. In terms of doing more?
Mr. Cleaver. No, no. Is there a way--I mean, there are some
loan modifications that we--I think Ms. Gardineer has just done
a little, some loan modifications that we should know are not
going to work. And so there is--it is pointless to try to force
it to work, and we actually feed the people, we feed our
opponents when we do that because they use that to, you know,
say you are throwing away money, and the whole 9 yards. And I
like to feed everybody, but I don't want to feed my opponents.
Mr. Morris. Congressman Cleaver, I think I can respond to
that question. As I mentioned in my testimony, it is really not
the redefault rate. It is really that you end up foreclosing.
The cost between throwing someone on the street and doing
another modification through FHA is $750. So we will spend
another $750 to try to keep somebody in the home, because what
happens is, 2 years after the fact, more than 85 out of 100
people are still in their homes, and we are saving a lot of
money as opposed to saying, oh, the redefault didn't work this
time; let's not try it again.
What happens is it takes time for people to recover from
change in household income. It could be a disability. And it
is--because, like I said, the current tools now, you have to go
back to essentially your full payment. So we do have the
redefaults, but still we work with them again to make certain
that it sticks. And for another $750, if we can save another 60
families from losing their homes, that is what we are doing. So
your opponent is going to look at the redefault rate, but my
question is, has a person still been living in the house 2
years after the fact? Because 2 years really is the measure
that says they fully recovered from any type of activity. If
something happens 5 years down the road, it is probably another
life event.
So the question, this is just my opinion, is, what happens
to the family? Are they ultimately foreclosed? And is it worth
$750 to try to keep somebody in their house by doing another
loan modification? FHA says it is worth another $750.
Mr. Cleaver. Thank you, Madam Chairwoman.
Chairwoman Waters. Mr. Lee.
Mr. Lee. I will try to be brief, but it is such an
important issue, and I just want to touch on a few points
because this has been such a major issue in my district. I have
a district between Buffalo and Rochester, New York, and a very
hardworking community who this group, we never really had a
boom to bust in the housing market. And in some way, that has
been a blessing because people have been able to, up until now,
been able to stay within their homes. But we are now starting
to see the job losses, and people who, through no fault of
their own, now are starting to have issues, be it a medical
illness or they had two incomes and a wife or husband has been
laid off. And these are people who have been paying their
credit cards. Every day in and day out, they have been meeting
their mortgage payments, but it has been harder and harder.
And the calls that I am receiving by the dozens is the fact
that they are making their payments, and they now go back to
their service provider--and I won't name names of the
institutions--but some are finding, in some cases, are finding
relief through a service provider A, but service provider B
under no circumstances really has been willing to either
remodify the loan amount, lower interest rates, or try to work
with them. And it is very hard to go back to them and say, we
don't have a policy.
I would be curious to know, can we--and I know most banks
do have a process in place, but it doesn't seem to be
consistent. I would like to hear your views. Do we, without
trying to hamstring, I am not a big believer in Big Brother,
but do we have the ability to come with some standard uniform
process so that we can tell those who are struggling that these
are options that are available to you, those people who are
struggling but are making their payments right now, to try to
assist them? And then I have a follow-up.
Mr. Lawler. This is something we are definitely trying to
address in the program we have been working with the
Administration on, and we will have further details on March
4th.
What we are trying to do is set up a standardized program
that can be adopted throughout the country, and that will
include people who are extremely stressed and therefore in
imminent danger of default even though they are currently
making their payments. And we are very hopeful that this will
work, as we are certainly directly trying to attack this
problem.
Mr. Lee. And in follow up to that, because that is the
number one call, then the follow-up call is the fact that,
again, these hardworking individuals are frustrated because I
think they are worried a percentage of individuals who
misrepresented their income who, be it in different parts of
the country where there was escalating prices, where they took
advantage of that system. And is there any way, because I don't
think there is anybody who wants to, if someone was trying to
do this for personal gain versus those who have been truly
hardworking citizens, how do we protect and make sure that we
are not bailing out those who are trying to make a profit from
this housing issue?
Ms. Gardineer. Just to follow up. We are also working with
the Administration to develop this loan modification program.
And key to that is going to be verification of things such as
income and employment. We believe it is important not only to
reach as many homeowners as we can to put them into sustainable
affordable modifications, but to be able to verify the veracity
of the information that the borrower provides to that servicer.
But the uniformity that we are striving for, I think, gets
to the heart of your first question, which is the disparity
that may be incumbent upon different servicers and the
approaches that they use to modify different loans, and going
to servicer A, who is willing to use a certain set of criteria,
but that may not be utilized by servicer B.
Our hope is that we will be able to create the streamlined
modification effort that is able to verify, to weed out fraud,
to make sure that those who are owner-occupied properties are
able to get that sustainable affordable modification that will
allow them to stay in the home and avoid an avoidable
foreclosure.
Mr. Lee. Thank you.
Chairwoman Waters. Thank you very much.
Before I call on Mr. Clay, keeping in line with that
testimony, Ms. Gardineer, I have seen loans that--mortgages
that people got involved in, in 2006 and 2007, where they were
predatory loans, and the interest rates were 9 percent, 9.5
percent, and I had one at 10.5 percent. When you are
constructing a model that can be used to do modifications, is
there some consideration given to the high price of mortgages
when the interest rates were basically at 5 or 6 percent? I
mean, could we say or is it advisable to recommend that all of
those interest rates be reduced to 4.5 percent or something
that would be consistent with somewhere what the mortgages
would be today?
Ms. Gardineer. Chairwoman Waters, I believe that part of
the criteria that we are looking at may not be an across-the-
board interest rate, but certainly looking at the home price
depreciation as well as the interest rate at the time of
origination and the payments that the borrower would be able to
afford, looking at the debt-to-income ratio as well as the
loan-to-value. So taking all of those things into consideration
as well as the highest rates that may have been advanced at the
origination, I think it is possible for us to come up with a
streamlined approach that would indeed include a reduced
interest rate in order to make that modification an affordable
payment for that borrower.
Chairwoman Waters. I do understand that, now, with the
modification efforts that I have been involved in helping some
of my constituents, all of those things are taken into
consideration for the most part. But I was really asking about
the reduction of interest rates based on what appears to be a
predatory interest rate that was given at a time when the
market interest rates were 5 or 6 percent, that you see, I
mean, it just jumps out at you that this person is charged 10.5
or 9 percent. Wouldn't that kind of be an automatic reduction
without all the other considerations?
Ms. Gardineer. Congresswoman, I believe that you made an
excellent point that I will take back to the working group this
afternoon and include in our dialogue as we move towards our
March 4th deadline to provide that criteria and the parameters
for the servicers. But that is an excellent point that we
should be considering as we move forward.
Chairwoman Waters. I appreciate that, because I have run
across a few of those.
Mr. Clay.
Mr. Clay. Thank you, Madam Chairwoman, and I thank the
panel for being here today.
Let me start with Mr. Lawler.
Mr. Lawler, in your testimony, you state that it is
important to note that when calculating and analyzing redefault
rates, common definitions are required, and there is much
debate within the industry as to what those definitions are,
how redefault rates should be measured, and over what
timeframes.
I am curious as to how you would define redefault terms and
definition. When reporting your data, what do you consider a
modification, and is a repayment plan a modification?
Mr. Lawler. A repayment plan that doesn't change the terms
of the mortgage but simply when it can be paid is not a
modification. If it were a major change like a change in the
term from a 30-year mortgage to a 40-year mortgage, that would
be a modification. If it is simply taking the existing amount
owed and saying, you can make up payments that you are behind
at the end of the 30 years, that would just be a repayment plan
or redistributing those amounts owed so that your payment goes
up. Those are just repayment plans.
As far as the definitions of redefault, the key things are,
how many days delinquent, and over what timeframe? So, for
example, Mr. Morris is suggesting that if you are still in your
house 2 years later, that probably shouldn't count as a
redefault. Sometimes you don't have as long a period. You don't
want to wait 2 years to see how you are doing, so you compute
how the loans are doing that you modified in a more recent time
period and you want to know, well, how many 30-day
delinquencies do I have, how many 60-day, how many 90-day and
so forth.
Mr. Clay. Thank you for that response.
Let me ask Mr. Evers.
Mr. Evers. I just want to follow up on that. We agree that
there needs to be clear, standard definitions. You need to have
a clear definition of what is a mod and what is not. A
repayment plan, an informal repayment plan is not a mod. A mod
is when the contractual terms of the payment have been changed
in writing. And we only count that when it is done; nothing
before that, nothing informal. And then we track subsequent
performance, post-modification. And we look at the number of
payments the borrower has made subsequent to that. That is, in
our opinion, the best way to get an apples-to-apples comparison
in terms of monitoring performance of post-modification loans.
Mr. Clay. Thank you for that response. How do we establish
a guideline to ensure that we take into account the trend of
the day that has several people in the household contributing
to the mortgage payment? Many of these households stayed
current in their payments until this current crisis. When
considering a workout with the applicant, what do you include
as gross income? Do you include the wife or other family
members living in the home as additional sources of income if
they are not on the mortgage? And anyone can take a stab at it
on the panel.
Ms. Gardineer. Congressman, currently, the person who is
actually on the note is the--or the couple or whoever is
actually on the original note, that is the income that is the
measure by which you are looking at how to modify that loan.
There can be, and we recognize and it is a continued topic of
discussion in the working groups right now working on the
Treasury and Administration plan, recognizing that there are
many households with contributors to the monthly mortgage
income that are not actually on the note and how to recognize
or work within that structure to create an affordable
modification. But the current legal requirements would limit
our ability to look at only those who are actually on the note
for repayment modifications.
Mr. Clay. But you know that is not traditional.
Ms. Gardineer. I do recognize there are many households, as
you described, and the working group is aware of that as well.
Mr. Clay. I think, Mr. Morris, you may be able to help me
with this. Are we trying to force the choice of a modification
over that of a refinance? The new charges added by Fannie Mae
and Freddie Mac in December add up to about $15,000 to
refinance costs for the borrower. Why is that? They have added
up to 5 points. They have new terms like adverse market fee,
adverse credit fee, and nonowner fee. Can you give me an answer
to that? Do you know why?
Mr. Morris. Candidly, Congressman Clay, I think Mr. Lawler
would have to speak about the fees.
Mr. Clay. Mr. Lawler, could you tackle that?
Mr. Lawler. Certainly the fees on many mortgages have gone
up. The risks have also gone up. It is a lot riskier to make a
loan when the expectation is that the value of the collateral
is going to decline over the period of the loan, than in a time
when you expect the value of the collateral to get greater. And
in recognition of that risk, it is necessary to make some
charges.
At the same time, whenever it is possible, a refinance is
probably on average going to be more successful than a
modification if the borrower can qualify for the refinance.
Mr. Clay. But don't we want to kind of look at what is
reasonable here? I mean, what is actually doable for the
average consumer?
Mr. Lawler. We certainly do. And the most important thing
in that area that we can do is try to get the general level of
mortgage interest rates down.
Mr. Clay. Without Fannie and Freddie adding onerous fees
and arbitrary fees?
Mr. Lawler. I hope they are not arbitrary.
Mr. Clay. I bet they are.
I yield back.
Chairwoman Waters. Thank you very much.
As we wrap this up, and since you are making
recommendations that supposedly will be unveiled on March 4th
in the President's plan, I would like you to give some thought
to the fact that I have run into constituents who say they are
the victims of fraud. Even though all of us would like to think
we are all responsible and we know what we are doing, I am told
that certain individuals had income that was noted on the
documents that was much larger than their real income, and that
that is not what they told the loan initiator; and they placed
it on there in order to get the loan funded, the mortgage
funded. I am told that people did not sign certain documents.
What do we do where there is an indication of fraud? How do
we follow that up? And how do we help the homeowner, and how do
we penalize somebody? I mean, that is something I would like to
give some consideration to. And FICO scores. If you have an
adjustable rate mortgage and the margin is, I don't know, 3 or
4 percentage points higher, and you obviously cannot pay that
large a mortgage payment, and so you are delinquent, but you
are trying to get a loan modification. If you were being
considered, say, by, I don't know, Fannie or Freddie or anybody
else who would consider your FICO score as part of those things
you consider before you do the loan modification, what do we do
about that? Should you be penalized for that now having damaged
your credit while you are trying and you have been working very
hard to do a loan modification so that you could keep your home
and you could make payments that you could afford? So I would
like you to give some thought to that.
I would like to note that some members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and to place their responses in the record.
This panel is now dismissed. Thank you very much.
I would like to welcome our distinguished second panel. Our
first witness will be Mr. William C Erbey, chairman and CEO of
Ocwen Financial Corporation.
Welcome.
STATEMENT OF WILLIAM C. ERBEY, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, OCWEN FINANCIAL CORPORATION
Mr. Erbey. Thank you, Chairwoman Waters, Ranking Member
Capito, and distinguished members of the subcommittee. My name
is William Erbey, and I am chairman and chief executive officer
of Ocwen Financial Corporation, an independent mortgage loan
servicer.
First, let me thank you for the opportunity to participate
in this hearing today. I share your sense of urgency to find a
lasting solution to our daunting foreclosure crisis, a crisis
that lies at the very heart of our economic problems and
threatens millions of families with the loss of their American
dream, their home.
I applaud the leadership of the chairwoman and subcommittee
members in relentlessly advocating, ever since the inception of
this crisis, the need for bold action to assist homeowners with
unaffordable mortgages and to prevent avoidable foreclosures.
I also applaud President Obama, Secretary Geithner, and the
President's economic team for answering the call for bold
action in a matter of a few weeks into the new Administration
by launching the Homeowner Affordability and Stability Plan.
This plan includes a substantial loan modification component
that is the subject of today's hearing.
Prior government-sponsored loan modification initiatives
were all good first steps in the right direction, but the
President's new plan is exactly the kind of insightful and
decisive action that is needed to make a material impact on the
foreclosure crisis.
As one of the few remaining independent mortgage servicers,
Ocwen is very proud of our achievements in foreclosure
prevention through loan modifications. We are not loan
originators. We do not make mortgage loans. Rather, Ocwen is
engaged as a loan servicer under contracts with mortgage
investors, i.e., the securitized REMIC trusts.
Currently, our servicing portfolio contains approximately
325,000 mortgage loans of which approximately 85 percent are
subprime. Beginning in early 2007, we proactively prepared for
an increase in mortgage delinquencies by increasing our home
retention consulting staff by 50 percent. When the mortgage
meltdown hit with full force later that year, we increased
staff by another 35 percent and were the first in the industry
to adopt an aggressive and comprehensive loan modification
program. Our program reengineers lower mortgage payments that
are both: (A) affordable for the homeowner; and (B) will return
greater cash flow to investors than the net proceeds that would
otherwise be realized in a foreclosure.
Loan modifications crafted in this way are consistent with
our contractual obligations and result in a win-win-win
solution for all involved. The homeowner keeps their home; the
investor avoids a substantial loss; and the loan servicer
retains the loan in the servicing portfolio. Since the
inception of the crisis, we have saved over 90,000 homes from
foreclosure. And for investors, according to an industry study
by Credit Suisse, Ocwen's loan modification program generates
the highest cash flows by any servicer on 90-plus day
delinquent loans, an amount that is twice the industry average.
If loan modifications are to have an enduring impact, the
reduced mortgage payments must be sustainable by the
homeowners. The salient measure of success, therefore, is the
redefault rate, i.e., the percentage of loans that go into
default after modification. We are pleased to report that loan
modifications engineered by Ocwen have a redefault rate of 19.4
percent compared to an industry average of 42.9 percent,
according to the most recent report issued by the OCC and the
OTS.
The superior sustainability of Ocwen's loan modifications
is the result of our customized approach that addresses
homeowners' delinquencies on a loan-by-loan basis. By combining
our proprietary loan analytics technology with behavioral
science research, we first comprehensively re-underwrite each
delinquent loan we service, i.e., the way it should have been
done with the broker or the lender at origination. Second, we
determine whether modification is both affordable by the
homeowner on a sustainable basis and maximizes the net present
value for the loan owner as compared to a foreclosure. And,
third, we provide one-on-one financial counseling to the
homeowner aided by interactive scripting engines to maximize
the likelihood of their keeping current on the modified loan.
Another key to sustainability is principal reductions where
necessary to achieve affordability: 18.7 percent of our loan
modifications include writing down of the loan balance. This
allows us to help more distressed homeowners with solutions. As
reported by Credit Suisse, Ocwen leads the industry with 70
percent of the industry's principal reduction modifications.
Early intervention is critical to foreclosure prevention.
Prevailing industry standards, as confirmed by the American
Securitization Forum, make it clear that it is permissible to
modify loans not only when the borrower is actually in default
but also when default is imminent or reasonably foreseeable in
the good faith judgment of the servicer. Adopting this
standard, our early intervention unit has successfully avoided
upwards of 9,000 foreclosures through proactive modifications.
If a loan modification program is to have a material impact
to redress the national foreclosure crisis, it must be
scalable. Ocwen has invested over $100 million in R&D in
building an automated large-scale platform that incorporates
artificial intelligence, decisioning models, and scripting
engines. This robust technology allows us to take on many
multiples of the volume of delinquencies we have already cured
in our portfolio.
I would be remiss if I did not recognize the critical
assistance provided to us by our nonprofit consumer advocacy
partners. When, for whatever reason, a homeowner in distress
does not respond to our letters or phone calls, we are unable
to help them. Through grassroots outreach and educational
initiatives, community groups, such as the National Training
Information Center, Home Free U.S.A., National Fair Housing
Alliance, National Association of Neighborhoods, National
Council of LaRaza, St. Ambrose Housing Aid Center, and so many
others, have greatly assisted us in making that key
communication link with our customers. We have also recently
established a relationship with National Community Reinvestment
Coalition to broaden our homeowner outreach, and we will
continue to support the foreclosure prevention efforts of the
HOPE NOW Alliance.
[The prepared statement of Mr. Erbey can be found on page
70 of the appendix.]
Chairwoman Waters. Thank you very much.
I must move on to Ms. Mary Coffin, executive vice president
of Wells Fargo Home Mortgage Servicing.
STATEMENT OF MARY COFFIN, EXECUTIVE VICE PRESIDENT, WELLS FARGO
HOME MORTGAGE SERVICING
Ms. Coffin. Chairwoman Waters, Ranking Member Capito, and
members of the subcommittee, I am Mary Coffin, head of Wells
Fargo Mortgage Servicing.
Throughout this crisis, the mortgage industry and the
government have collaborated on ways to reduce foreclosures and
stabilize the economy. The homeowner affordability and
stability plan is yet another positive step in addressing these
challenges. As further details of the plan are defined, we
fully support striking the delicate balance between providing
aggressive solutions for those in need and guarding against
moral hazard.
Last year, we made it possible for half-a-million families
to purchase a home, and we refinanced another half-a-million
families into lower mortgage payments. At the end of 2008, for
8 million mortgage customers Wells Fargo services, 93 of every
100 were current on their mortgage payments; and for the 7 who
were not, we have worked hard at keeping them in their homes.
Since our servicing is predominantly held by other investors,
this has required gaining consensus to honor our contracts.
Over the past year-and-a-half, we have delivered more than
706,000 foreclosure prevention solutions. We work with all of
our customers, including those who are not in default, to
determine if they qualify for a modification. They simply need
to prove they have experienced a hardship that significantly
changed their income and/or expenses. When we do modify a loan,
about 7 of every 10 customers remain current or less than 90
days past due 1 year later. We connect with 94 percent of our
customers who have 2 or more payments past due. To be
responsive to requests for help, we have more than doubled our
staff to 8,000 default team members, all U.S.-based.
These times are unprecedented, and we certainly are not
perfect, but we do our best. And we thank you for taking your
personal time to reach out to us when our servicer does not
meet the standards we have set so that we can immediately work
to correct the situation.
When the foreclosure crisis began 2\1/2\ years ago, the
first customers challenged were those with subprime ARM loans.
To address their needs, streamlined processes to modify these
loans into fixed products were created. But, clearly, as the
housing and economic crisis has compounded, servicers have
needed to go deeper with modification tools to provide
sustainable solutions. In the fourth quarter of 2008, we
provided 165,000 solutions, including term extensions, interest
rate reductions, and/or principal forgiveness. Also, given the
unique nature of the Wachovia option ARM loans, we used more
aggressive solutions through a combination of means, including
permanent principal reduction in geographies with substantial
property declines. In total, 478,000 customers will have access
to this program if they need it.
As the number of customers in need rises, Wells Fargo has
advocated the creation of a standardized modification process
that is aligned across all investors. The one described in the
Administration's plan will significantly improve our ability to
serve more customers and to set appropriate consumer
expectations for a modification. According to third quarter
2008 FHA statistics, 56 percent of the Nation's 55 million
mortgage loans are owned by Fannie and Freddie who are already
aligned with this process. But more critical are the 16 percent
held by private investors, which represent 62 percent of the
serious delinquent mortgage loans.
In the modifications we do today, loan terms are adjusted
to achieve at least a 38 percent affordability target. By
bringing borrowers to a 31 percent target as defined in the
Administration's plan, we further increase the odds they can
better manage their overall debt, thereby lessening the
likelihood of redefault.
Even though the details are not finalized, Wells Fargo has
already begun to operationalize the standard modification
program. We stood ready to assist our customers with
information immediately following the President's announcement
and our analysis to find those who may qualify is underway. We
also will continue to stress the importance for FHA to be
granted the authority to expand the 601 program to allow the
assignment of mortgages to FHA and the payment of claims upon
modification. We also support the recommended changes to HOPE
for Homeowners.
When asked what makes it difficult for us to help more
borrowers, it is simply that their challenges are complex.
Income disruption is at the root of the issue with many
customers who are in variable or commissioned income situations
that began destabilizing in the early part of the crisis, and
the full impact of unemployment or underemployment is still
unknown. While there are many tragic hardship cases, there are
also people who got caught up in the excess of the growing
economy and the real estate values who can no longer sustain
the lifestyles to which they have become accustomed. No loan
modification alone can solve this dilemma. In certain
circumstances, counseling which considers full debt
restructuring is required.
In conclusion, we look forward to continuing to work with
you on ways to turn the housing and mortgage industry around,
and we will assist in any way possible to advance the issues we
have addressed today.
Thank you for your time.
[The prepared statement of Ms. Coffin can be found on page
67 of the appendix.]
Chairwoman Waters. Thank you very much.
Our next witness is someone who has been here more than
once, Mr. Michael Gross, manager and director for loss
mitigation, Bank of America.
What do you have new to tell us today, Mr. Gross?
STATEMENT OF MICHAEL GROSS, MANAGING DIRECTOR, LOAN
ADMINISTRATION LOSS MITIGATION, BANK OF AMERICA
Mr. Gross. Madam Chairwoman, and Ranking Member Capito, I
must confess, it is a pleasure to be here before you again.
Chairwoman Waters. I bet.
Mr. Gross. Good afternoon, and thank you for the
opportunity to appear again to update you on our efforts to
help families stay in their homes.
As the country's leading mortgage lender and servicer, Bank
of America fully appreciates its role in helping homeowners
through these difficult times. We want to ensure that any
homeowner who has sufficient income and the intent to maintain
homeownership will be assisted using any and all tools we have
available.
Bank of America applauds the Obama Administration's
Homeowner Affordability and Stability Plan's focus on assisting
financially distressed homeowners with their mortgage payments
using their refinancing and loan modification program. Ken
Lewis, our chairman, has assessed the plan as very thoughtfully
constructed, and believes it has a very good chance to make a
significant and positive impact on today's crisis. We strongly
support the Administration's focus on affordability in the loan
modification processes in order to achieve long-term mortgage
sustainability for homeowners. Bank of America recently
announced a moratorium on foreclosure sales that is in effect
until receipt of guidelines for implementing the President's
plan. Simply put, we want to have every opportunity to help
eligible homeowners who can be assisted by these new
initiatives. We have already begun working with the
Administration to develop guidelines for the implementation of
the Homeowner Affordability and Stability Plan modification and
refinance initiatives in order to ensure its success.
The Administration's focus on affordability and
sustainability is consistent with the approach that we have
implemented which has led to more than 230,000 loan
modifications for our customers in 2008 and 39,000 customers in
January 2009 alone. In 2008, Bank of America committed to offer
loan modifications to as many as 630,000 customers over the
next 3 years to help them stay in their homes, representing
more than $100 billion in mortgage financing.
I would also like to provide a brief update on our mortgage
business. We strongly believe that long-term recovery in the
economy and housing markets relies upon lenders' responsibility
and effectively providing loans to credit-worthy borrowers. In
April, we will unveil our new Bank of America home loans brand.
This launch will confirm our longstanding pledge to be a
responsible lender and to help our customers achieve successful
sustainable home ownership.
Importantly, I want to emphasize that we are very much open
for business and making new loans. In January, we produced
$21.9 billion in new mortgages. We are now routinely publishing
public updates on the Internet regarding our lending activity.
Since I last appeared before Congress, Bank of America
launched the Homeownership Retention Program. The program,
launched in December, is designed to achieve affordable and
sustainable mortgage payments for borrowers who financed their
homes with subprime or pay-option adjustable-rate mortgages
serviced and originated by Countrywide prior to December 31,
2007.
The centerpiece of the program is a streamlined loan
modification process designed to provide relief to eligible
subprime and pay-option ARM customers who are seriously
delinquent or at the risk of imminent default as the result of
loan features, such as rate resets or payment recasts. The
program's goal is the same as the President's: to reduce
monthly mortgage payments to affordable and sustainable levels.
I would also like to update the committee on additional
progress we have made to date on our entire home retention
operations. Since early last year, the home retention staff for
Bank of America has more than doubled to nearly 6,000 staff
members. We also are continuously improving the training and
quality of the professionals dedicated to home retention.
As we have learned through experience, early and open
communication with customers is the most critical step in
helping prevent foreclosures. In 2008, we participated in more
than 350 home retention outreach events across the country. We
are also proactively reaching out to customers by making more
than 10 attempts per month to contact delinquent homeowners. In
January alone, we placed nearly 12 million outbound calls.
In addition to sharply increasing the pace of workouts, we
have been more aggressive in the types of workout plans
completed. Loan modifications are now the predominant form of
workout assistants. In 2008, loan modifications accounted for
nearly 75 percent of all loan modification plans. Of these
loans, interest rate modifications accounted for approximately
80 percent of all of the loan modifications.
I want to thank you for the opportunity to describe our
ongoing home retention efforts. We recognize there is still
much more to be done, and we look forward to working with
Congress and the Administration.
Thank you.
[The prepared statement of Mr. Gross can be found on page
111 of the appendix.]
Chairwoman Waters. Thank you very much.
Ms. Molly Sheehan, senior vice president, Chase Home
Lending, JP Mortgage Chase.
STATEMENT OF MARGUERITE SHEEHAN, SENIOR VICE PRESIDENT, CHASE
HOME LENDING, JPMORGAN CHASE
Ms. Sheehan. Chairwoman Waters, Ranking Member Capito, and
members of the Subcommittee on Housing and Community
Opportunity, we appreciate the opportunity to appear before you
today on this most important topic of helping homeowners.
My name is Molly Sheehan. I work for the home lending
division of JPMorgan Chase in housing policy.
Chase is one of the largest residential mortgage servicers
in the United States, serving more than 10 million customers
located in every State of the country with mortgage and home
equity loans totaling about $1.4 trillion. Chase is also one of
the largest residential mortgage lenders, and we continue to
make mortgage credit available even in these difficult times.
We provide loans directly to consumers, and we purchase loans
from smaller lenders so that they can lend to their customers.
In 2008, Chase originated or purchased more than $105 billion
in mortgage loans, even as mortgage applications declined
significantly.
At Chase, we are not only continuing to lend; we are also
doing everything we can to help families meet their mortgage
obligations and keep them in their homes. We believe it is in
the best interest of both the homeowner and the mortgage holder
to take corrective actions as early as possible, in some cases
even before default occurs. We apply our foreclosure prevention
initiatives to both the $325 billion of loans that we own and
service, and the $1.1 trillion of investor-owned loans that we
service.
We expect to help avert 650,000 foreclosures, for a total
of $110 billion worth of loans, by the end of 2010. We have
already helped prevent more than 330,000 foreclosures,
including modifying loan terms to achieve what we expect to be
long-term sustainable mortgage payments. We are well underway
to implementing the commitments we made in announcing our
expanded foreclosure prevention plan last October. We have
commenced mailing proactive modification offers to borrowers of
Chase-owned option ARM loans at imminent risk of default. We
have selected sites for 24 Chase homeownership centers in areas
with high mortgage delinquencies where counselors can work
face-to-face with struggling homeowners. We will have 13 of
these centers in California and Florida open and serving
borrowers by the end of this week. The other 11 around the
country will be open by the end of next month.
We have added significantly to our staff, and we continue
to add more capacity in our operations to help struggling
homeowners. We initiated an independent review process to
ensure each borrower is contacted properly and offered
modification prior to foreclosure as appropriate. We have
developed a robust financial modeling tool to analyze and
compare the net present value of a home foreclosure to the net
present value of a proposed loan modification, which allows us
to modify loans proactively while still meeting contractual
obligations to our investors.
We believe programs like ours are the right approach for
the consumer, all consumers, and for the stability of our
financial system as a whole. We support the Administration's
proposal to adopt the uniform national standard for such
programs and to encourage all sensible modification efforts
short of bankruptcy as much as possible.
As our CEO commented last week, we believe the Homeowner
Affordability and Stability Plan announced by President Obama
is good and strong, comprehensive and thoughtful. We think it
will be successful in modifying mortgages in a way that is good
for homeowners. Most particularly we applaud the fact that the
plan focuses on making monthly payments affordable; will create
a national standard and create fair and consistent treatment
across the industry; and the standard will include verification
of income and expense. We also applaud the partnership with
government to reduce interest rates and payments for borrowers
and the expanded ability of borrowers to take advantage of
today's lower rates through refinancing. We look forward to
working with the Administration, Congress, and others as we
work forward on this plan.
As we advised Chairman Frank and the members of the House
Financial Services Committee on February 12th, we have stopped
adding loans owned by Chase into the foreclosure process as the
Administration's plan is being developed.
Thank you.
[The prepared statement of Ms. Sheehan can be found on page
152 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Steve Hemperly, executive vice president, real estate
default servicing, CitiMortgage.
STATEMENT OF STEVEN D. HEMPERLY, EXECUTIVE VICE PRESIDENT, REAL
ESTATE DEFAULT SERVICING, CITIMORTGAGE, INC.
Mr. Hemperly. Chairwoman Waters, Ranking Member Capito, and
members of the subcommittee, thank you for the chance to appear
before you today to discuss Citi's loan modification efforts.
My name is Steve Hemperly, and I am the executive vice
president for CitiMortgage Real Estate Default Servicing.
Citi services approximately 7 percent of the loans in the
United States. In this enormous difficult housing market, Citi
has moved aggressively to help distressed borrowers. We have a
high degree of success in keeping borrowers in their homes when
we are able to make contact with them and they want to remain
there.
Citi specifically focuses on finding long-term solutions
for borrowers in need. In support of this, a key loss
mitigation tool is loan modification. A modification agreement
is typically used when a customer has a significant reduction
of income that impacts his or her ability to pay and lasts
beyond the foreseeable future. This agreement makes the
mortgage more affordable for the customer. We have found
modifications to be effective in helping borrowers manage
through difficult times and avoid foreclosure.
Citi has a specially trained servicing unit that works with
at-risk homeowners to find solutions short of foreclosure and
tries to ensure that, wherever possible, no borrower loses his
or her home. Citi continuously evaluates each of its portfolios
to identify those customers who can save money and reduce
monthly payments and offers them timely loss mitigation
solutions. We also provide free credit counseling, make loss
mitigation staff available to borrowers or counseling
organizations, and provide work-out arrangements and other
options.
In keeping with our commitment to help borrowers stay in
their homes, we are implementing the FDIC streamline
modification program for loans that we own where the borrowers
are at least 60 days delinquent or where the long-term
modification is appropriate even if the borrower is not yet
delinquent.
In November of 2008, we announced the Citi Homeowner
Assistance Program for families in areas of economic distress
and sharply declining home values. For those borrowers who may
be at risk although still current on the mortgages, we are
deploying a variety of means to help them remain current on the
mortgages and in their homes.
Citi's foreclosure prevention activities have good
resolution rates for distressed borrowers whom we are able to
reach. For example, for those going through the foreclosure
process with whom we are in contact, we are able to help
approximately 70 percent of them. However, we are not able to
reach every one, and in those circumstances, there are limits
to what we can do.
To better meet the increased needs of the struggling
borrowers we service regardless of delinquency status, we have
dedicated significant resources to our loss mitigation area. We
have stepped up our loss mitigation staffing by almost 3 times
from last year, since last year's staffing levels, and we will
be providing additional training to all of our staff.
Additionally, as promised by our CEO, Vikram Pandit, to the
House Financial Services Committee on February is 11th, Citi
initiated a foreclosure moratorium on all Citi-owned first
mortgages that are the principal residence of the customer as
well as all loans Citi services where we have reached an
understanding with the investor. The moratorium became
effective February 12th and will continue until March 12th,
before which time we expect finalized details on President
Obama's loan modification program.
Citi will not initiate any new foreclosures or complete
pending foreclosures on eligible customers during this time.
This commitment builds upon our existing foreclosure moratorium
for eligible borrowers who work with us in good faith to remain
in their primary residence and have sufficient income to make
affordable mortgage payments.
In order for policy makers, regulators, consumers, and
market participants to better understand the extent of the
current situation and our efforts to ameliorate it, we think it
is important to share what we know. To assist in this effort,
for the past four quarters, we have produced and publicly
released our mortgage servicing report, which provides specific
detail on our originations, delinquency trends, ARM resets,
loss mitigation efforts, loan modification, foreclosures in
process, and new foreclosures initiated. Our soon-to-be-
released fourth quarter report will also include detailed
information on our modification redefault rates for the first
time.
Our report will show that distressed borrowers serviced by
Citi who received modifications, reinstatements or repayment
plans outnumbered those who were foreclosed on by more than six
to one in the fourth quarter. The number of borrowers who were
serviced by Citi who received long-term modifications in that
quarter increased by approximately 51 percent as compared with
the third quarter.
Our redefault rates, meaning the percentage of borrowers
who have become 60-plus or 90-plus days past due at a given
period of time after the loans are modified, do not exceed 23
percent for loans modified over the past year. For example, of
the loans modified in the second quarter of 2008. Only 14
percent were 90-plus days past due 6 months after the
modification. The fact that these borrowers are delinquent does
not mean that will result in foreclosure. In fact, we will
continue to work with those borrowers to make sure that we are
able to find some kind of a long-term solution to keep them in
their homes.
I want to assure the committee that we share your interest
in helping homeowners, and we strongly support this committee's
leadership in foreclosure prevention and its tireless efforts
to solve the housing crisis.
Thank you, I will be happy to answer any of your questions.
[The prepared statement of Mr. Hemperly can be found on
page 120 of the appendix.]
Chairwoman Waters. Thank you very much.
I would like to start with Mr. Erbey.
Mr. Erbey, you are an independent loan modification--a
servicer, servicer, I am sorry. Who do you contract with? Who
do you do business with?
Mr. Erbey. Our customers are the securitization--
Chairwoman Waters. I can't hear you.
Mr. Erbey. Our customers are the securitization trust. When
Wall Street put together securities, they would contract with
servicers to service those loans. That was our main line of
business.
Chairwoman Waters. And how do the customers who are in
trouble find you?
Mr. Erbey. We are a servicer much like the other bank-owned
servicers. In other words, we send out bills and statements. We
have call centers. We are not affiliated with the bank, and we
do not originate mortgages, but we actually, whenever you take
over a portfolio, you send out hello letters and you call the
people up and verify the information with regard to that. So
there is extensive contact with our customer base much like any
other servicer would have.
Chairwoman Waters. Have you found any claims of fraud by
complaining mortgage holders that they were tricked, they were
misled, that they did not sign certain documents, that they did
not falsify, but it was done by a loan initiator?
Mr. Erbey. Yes.
Chairwoman Waters. And what do you do?
Mr. Erbey. We try to basically, in all those cases, we try
to basically re-underwrite that loan specifically to the
person's ability to pay that for that loan and to get them on
to a modification plan that is sustainable and get them going
in a stabilized situation going forward.
Chairwoman Waters. We don't have anything in the system to
go after those loan initiators who appear to be guilty of some
kind of fraudulent operation, do we?
Mr. Erbey. Unfortunately, we do not.
Chairwoman Waters. Do you think that is needed?
Mr. Erbey. Yes, I certainly do.
Chairwoman Waters. I appreciate that, thank you.
Ms. Coffin, I thank you for being here today. You know of
my experience with Wells Fargo. And I am appreciative for your
CEO who sent us a letter apologizing for any inconveniences,
saying this is not typical of the way your servicing operation
works.
Now let me understand that the Wells Fargo home mortgage
servicing is separate from the bank; this is a separate
institution or business, is that right?
Ms. Coffin. Well, we are part of Wells Fargo.
Chairwoman Waters. I cannot hear you.
Ms. Coffin. Is the microphone on?
Chairwoman Waters. Pull it closer.
Ms. Coffin. We are definitely a part of Wells Fargo bank,
so any customer who is in need of our services can either call
our centers, can walk into any of our branches, can look
through our Web sites. We are very connected with the banks.
Chairwoman Waters. So you are only servicing Wells Fargo
loans, is that right?
Ms. Coffin. No, that is not correct.
Chairwoman Waters. What other loans do you service?
Ms. Coffin. We also service loans under ASE, which stands
for America's Servicing Company, or to the loans, just like the
gentleman from Ocwen just mentioned--
Chairwoman Waters. So you have contracts with investors
also.
Ms. Coffin. Right.
Chairwoman Waters. The contracts you have with the
investors, do they have clauses that prevent you from doing
loan modifications? Do they set that out in the contracts with
you that you sign sometimes?
Ms. Coffin. There are a few.
Chairwoman Waters. What percentage?
Ms. Coffin. A very small percentage.
Chairwoman Waters. I have run across this where I am told,
sorry, there is nothing we can do, because we signed a contract
with this investor where we said we would not use loan
modifications as a way of servicing the customers.
Ms. Coffin. When we do have those contracts today, in the
current environment that we are operating under, we still reach
out to those issuers and ask, based upon the net present value
that we have calculated, if they would like us to do the
modification.
Chairwoman Waters. How many say, go ahead and do it?
Ms. Coffin. Some do, and some don't.
Chairwoman Waters. What do you think we should do about
that? Should we support those kinds of contracts that will not
give the servicer the opportunity to do a reasonable, credible
loan modification?
Ms. Coffin. As I stated in my testimony, what I think is
most important right now is the Administration's plan that
provides a standardized modification program that all investors
should follow.
Chairwoman Waters. All right.
Now have you reduced the wait time on customers calling in
to get some help? I waited over an hour or more. You know, that
is a deterrent To people trying to get loan modifications.
Ms. Coffin. I do understand.
Chairwoman Waters. Have you increased the employment, so
that you have more servicers?
Ms. Coffin. Yes, we are. We continuing to hire all the time
because of what is before us. And we strive for an 80 percent,
which means within 3 to 4 rings, we hope to answer 80 percent
of our calls, at all times, every day of the week.
Chairwoman Waters. Who trains your servicers?
Ms. Coffin. We do.
Chairwoman Waters. There is no licensing of servicers. This
is kind of an unregulated part of the industry. Is that right?
Ms. Coffin. That is correct. We train them in-house.
Chairwoman Waters. Describe their training. Do they train
for 1 month, 2 months, a year? What kind of training do you
give them?
Ms. Coffin. 6 to 8 weeks, and what we normally do--
Chairwoman Waters. What kind of background do they have to
have?
Ms. Coffin. In our default shop, it is a collections
background. What we are looking for is people who have
understood how to solve problems for people who are stressed,
who are in these type of situations with affordability issues.
When we bring them first on and they are trained, we do a buddy
system. We make sure that they are sitting--
Chairwoman Waters. What is a typical job they would have
had prior to coming to your businesses?
Ms. Coffin. A collections job or loss mitigation, which is
people who help borrowers through modifying the terms of their
loan.
Chairwoman Waters. Any particular education?
Ms. Coffin. No.
Chairwoman Waters. Any particular requirement that they
would have worked in a bank or worked with loans, mortgages?
Ms. Coffin. What is most important to us is what we train
them on in--
Chairwoman Waters. Yes, but that is not the question I
asked you. I am asking about qualifications. I am trying to
determine how you select and identify these people that you
train for 6 to 8 weeks. Do they have to have any background in
finance or in working with mortgages or anything like that?
Ms. Coffin. We will always look for people with a
background in finance.
Chairwoman Waters. But they don't have to have one, is that
right?
Ms. Coffin. No.
Chairwoman Waters. So you are training people who may come
from almost anywhere for 6 to 8 weeks. Do you think they are
able to take every aspect of this mortgage and make decisions
about whether or not or what kinds of loan modifications? They
have a lot of flexibility there.
Ms. Coffin. We normally don't bring people straight in as
we hire them and bring them straight into a loss mitigation
area of our operation. What we will often do is bring them in,
train them, put them in a buddy system, which means they will
first answer what we call the easier questions, and what we do
is continually move our well-trained people who now have had
months, sometimes years, of experience and continue to move
them to our area which takes more skill and is more
complicated, which is actually working through the loan
modifications.
Chairwoman Waters. Thank you.
Mr. Gross, we have talked about this before, and you know,
it is a particular little problem with me. Your loss
mitigation, you still have some offshore?
Mr. Gross. Yes, we do.
Chairwoman Waters. Why?
Mr. Gross. Because we find that the job responsibilities
that we have assigned to that staff, which is primarily
customer-service oriented, answering questions that homeowners
may--
Chairwoman Waters. Give us an example of where these
offshore operation are? India?
Mr. Gross. In India and Costa Rica.
Chairwoman Waters. In India, we have people who are helping
Americans who are in trouble who understand the system and what
we are doing and are able to make decisions?
Mr. Gross. No, that is not what I said. The people in India
will receive calls from homeowners who are typically--the
homeowner is calling in to make a promise to pay or to say a
date specific on when a payment will be received. If they say,
I am not able to make this payment this month and I am going to
need long-term help, that call is immediately transferred back
to State-side and will be worked by one of our State-side loss
mitigation staff members.
Chairwoman Waters. Well, what if I said to you, if you are
going to get TARP money, you have to hire people in this
country to do loss mitigation? Would you agree with that, since
we are trying to create jobs?
Why are you smiling?
Mr. Gross. That was probably more of a grimace. I
understand the question, but that is really outside my frame of
reference.
Chairwoman Waters. No, you have been here long enough to
know that you were going to get this question from me. You
always do. And I am sure you anticipated it.
Mr. Gross. The--
Chairwoman Waters. It seems to me you would have come here
today and said: You know, we appreciate the American citizens
having given us so much money. We are coming back to ask you
for more. We are going to take all of our offshore operations
and bring them home and create jobs for the taxpayers who are
underwriting us. Well, I have said that.
The other thing about Bank of America, you talk about this
home retention program. I discovered in doing loan modification
implementation work with my constituents that you have several
departments. Have you merged them all, or do I need to go
through with you the different ways you can end up in several
different departments at Bank of America when you are trying to
get help?
Mr. Gross. They have not yet been merged, but we are
actively working on our phone systems to make sure that when
you call in or a homeowner calls in, that they are immediately
connected with the appropriate individuals.
Chairwoman Waters. Well, how long is that going to take
you? This has been going on for an awfully long time. If you
call in and you say, I am late on my payment, you go one place.
If you call in and say, I am not late on my payment, but I went
to talk to somebody so I don't get in default, you go another
place. If you call in and you say, I have a loan modification,
but I may reach a default on it, you go to another place. So
what is this home retention consolidation that you have when
you still have all of these different departments that you send
people to.
Mr. Gross. The process that you described, when a homeowner
calls in and they are current on their mortgage, they are
automatically routed to our customer service environment, since
the vast majority of those calls do not deal with delinquent
payments; they deal with other questions.
So when a homeowner calls in and reaches the customer
service staff and says, I am not going to be able to make a
future payment, and they need in-depth assistance, then that
call will then be transferred to the home retention department,
and that staff member will then work with that current
homeowner on what their issues are. That process I do not
envision changing.
Chairwoman Waters. Well, let me just say this, the system
that you use is confusing to constituents. I was on the phone
with Bank of America for hours, and your people sent me all
over the country to different departments. And nobody seemed to
understand what I was asking.
And if you have something called home retention, it seems
to me it would be consolidated so that when someone called,
they would not be transferred around to several different
departments and that the people who were directing them to
supposedly the correct department would know exactly what to
do.
So would you consider it fair for us to say to the
President, you must do something to force the Bank of America
to have a consolidated effort to help homeowners in trouble
before they get any more TARP money?
Mr. Gross. I am not prepared to comment on the TARP funds.
What I will commit to is that within a very short period of
time, we will deliver back to the committee an in-depth
description of what we do and how we do it, so that you have a
complete written understanding of our processes.
Chairwoman Waters. Thank you very much.
Ms. Sheehan, you--well, before I leave Mr. Gross, are you
doing all of Countrywide's loan modifications?
Mr. Gross. Yes, we are. There is still the Countrywide
mortgage servicing operation that in April will be changing
over to the Bank of America name.
Chairwoman Waters. But right now, Countrywide is still
doing some of its own servicing, is that right?
Mr. Gross. They are, yes.
Chairwoman Waters. Okay, and Ms. Sheehan, you also contract
with other entities to do their servicing, is that correct?
Ms. Sheehan. Yes, we do service our own loans as well as
loans for third parties, including Fannie and Freddie.
Chairwoman Waters. Would you give me an example of those
third parties?
Ms. Sheehan. Well, it is Ginnie Mae for FHA loans,
obviously for our GSE loans, which the bulk of the portfolio is
Fannie and Freddie. And then there are other private investors
for whom we service--
Chairwoman Waters. So GSEs, Fannie and Freddie, are not
doing their own?
Ms. Sheehan. No, we do the servicing for them. They are the
investor in the loan.
Chairwoman Waters. Okay, all right.
Mr. Hemperly, do you do servicing for anyone else other
than Citigroup?
Mr. Hemperly. We do. Our answer is very similar to Ms.
Sheehan's that she gave for Chase. We do a substantial amount
of servicing for GSEs, Fannie and Freddie, in addition to loans
we service for the FHA and also our loans that we hold on
balance sheet.
Chairwoman Waters. My last question is, for those of you
who do loan initiation and then sell those mortgages to Fannie
and Freddie, you do the loan initiation, you sell it to Fannie
or Freddie, then they give it back to you to do the servicing?
Mr. Hemperly. Yes. We originate the loan. We deliver it to
Fannie or Freddie, and we bore the loan on to our servicing
system. So the loan is actually what we call servicing retained
by us, and then we are responsible for all the servicing
activities that occur on those loans.
Chairwoman Waters. Fine, we need to take a look at that.
And I would like to thank my members for indulging me. I
appreciate it so much.
Ms. Capito.
Mrs. Capito. Thank you, Madam Chairwoman.
Mr. Erbey, in your testimony, you mentioned that in your
modifications, that you did a write down of the loan balances.
Does that mean you write down the principal in some?
Mr. Erbey. On 18.7 percent, yes.
Mrs. Capito. 18.7 percent of your loan modifications you
are writing down the--
Mr. Erbey. The principal.
Mrs. Capito. Does anybody else here in their loan
modifications write down the principal?
Mr. Hemperly. We write down principal on occasion, not 18.7
percent of the time, though.
Mrs. Capito. Like how many?
Mr. Hemperly. It is a minority of the time. I don't have
the percentages. It I think is probably less than 1 percent of
the time.
Mrs. Capito. Mr. Gross, you said you do?
Mr. Gross. Yes, it is on a small amount, and if I could
expand on that answer. We are contractually bound in most cases
to present the investor for whom we service the loans the best
return or smallest loss that we can. And in most cases, we can
achieve a smaller loss or better return to the investor by
doing an interest rate reduction, having an affordable and
sustainable payment for the homeowner without having the
principal reduction.
Mrs. Capito. I understand that, but you were looking at a
program here in the next--first of all, let me ask another
question. Of all of you all on the panel, who has used or
worked with the HOPE for Homeowners Program?
Ms. Coffin. We have.
Mrs. Capito. And how has that worked?
Ms. Coffin. We have set up a separate segmented group who
were fully educated on the HOPE for Homeowners program. We
dedicated and analyzed our portfolios to look for those
borrowers who looked like they were eligible. We proactively
reached out with letter campaigns and calls to those borrowers,
and then we began the screening process to find those borrowers
who would actually be eligible. Unfortunately, we found very
few under the current requirements of HOPE for Homeowners who
met the standards.
Mrs. Capito. My understanding is when you came, I am
generalizing here, institutions have come before this committee
before, showing great hope for the HOPE for Homeowners products
as a way to help people who are in trouble. And it hasn't
turned out that way, and that is deeply troubling to all of us
here.
I think part of it, and correct me if I am wrong, is part
of it the write-down on the balance has prevented, maybe
contractually, but otherwise because it is considered
financially to your disadvantage to go this direction, so now
the President's program is going to incent your institutions to
do what Mr. Erbey's does 18 percent of the time? Am I
interpreting the new program correctly?
Mr. Hemperly. The new program, as I understand it relative
to loan modifications, is not going to be very different from
the program that we are headed towards currently with our
commitments to the FDIC modification program. The FDIC program
is essentially an affordability-based model, which is not
terribly different than what we have done in the past. So we
are headed down that path where we are going to try to get
customers with affordable payments and they prove to us how
much they make, and then, as a percentage of that, 31 percent,
as a housing ratio, we give them an affordable payment to keep
them in their home. That program is not terribly different at
all from what we have done historically, and our redefault
rates, we believe, are quite good.
Mrs. Capito. And on the FDIC program, is there a fee when
you write down principal?
Mr. Hemperly. No, there is not a fee.
Mrs. Capito. I mean, a reward payment of $1,000; I believe
that is the program we are looking at.
Mr. Hemperly. Well, on the Administration's program, my
understanding is that there is an incentive fee to the
servicers for booking loan modifications.
The FDIC program is basically going to be for, our
commitments there are for balance sheet held assets. There is
no fee that we will collect under our current commitment to
that program. The benefit that we get is, hopefully, we will
get the kind of performance through that program that we have
seen on our redefault rates that I shared in my testimony, that
we believe keeping homeowners in their home is great for
communities, and also we believe that it is the best way to
minimize our own losses.
Mrs. Capito. Let me ask you just a question out of the air,
it just kind of hit me. You are talking to people every day who
have mortgages who either are in trouble, anticipating being in
trouble, and I am sure you are talking to your folks who are
scrimping, saving, paying those mortgages everyday, are you
hearing anything about what we are hearing in some fashion, is
this fair? Is there a fairness quotient here? And I don't know
if I am asking too much of an opinion here, but I would like to
see if you have one on that and if you are hearing from your
customers on that, who obviously are not going to qualify for
any of these loan modification categories.
Mr. Gross. I would say, yes, that we do hear this from our
customers, the questions about the fairness issue.
On the flip side of that coin, we hear from the same
customers regarding the trauma that is caused in their
communities and in their neighborhoods with the foreclosure
events. And ours is a balancing act to try and make sure that
we are as fair to all parties as we can possibly be.
Mrs. Capito. Does anybody have--
Ms. Sheehan. I would say, we have had a similar experience
in terms of hearing from current customers, but I also agree
with Michael that we need to be focused on customers and
communities. And I think we are concerned, all of us are
concerned, about the impact of the foreclosed property
destabilizing neighborhoods.
Mrs. Capito. I share that concern as well. I think, and it
is, as Mr. Gross said, it is a balancing act. It is difficult
for the homeowner on the verge. It is difficult for the
neighborhood. It is difficult for the family. And so we are
trying to weave a solution here, and I appreciate you all
coming here and testifying.
Thank you very much.
Chairwoman Waters. Thank you very much.
Mr. Cleaver.
Mr. Cleaver. Thank you, Madam Chairwoman.
I would like to follow up on the Chair's questioning.
If I could start with you, Mr. Erbey, and move down, do all
of you have operations offshore?
Mr. Erbey. Yes.
Ms. Coffin. No, not for customer-facing.
Mr. Gross. Yes.
Ms. Sheehan. Not for customer-facing and loss mitigation.
Mr. Hemperly. We have offshore operations, but we do not do
any loss mitigation work offshore.
Mr. Cleaver. I don't know if you realize how utterly
disgusted the voters are with that. And it is ineffable, but I
have to just say, it really creates a problem.
Do you save money? Is this what the goal is?
Ms. Coffin. I will make a comment to this. Wells Fargo has
always been very strong about creating American jobs. The place
that we do have offshore is in some of the technological areas
where we could not find the appropriate number of people to
help us with some of the automation of our systems.
Mr. Cleaver. Like the dumb Americans couldn't--
Ms. Coffin. No, sir. Not at all.
Mr. Cleaver. The stupid Americans?
Ms. Coffin. No.
Mr. Cleaver. I am not sure I understand.
Ms. Coffin. It was a supply and demand.
Mr. Cleaver. The demand was greater than the supply?
Ms. Coffin. And we don't have it now, sir, but this was
previously when there was a lot of infrastructure that we were
rebuilding and looking for a lot of technological expertise,
and everyone was in the demand for that at the same time. Many
of our systems were all being retooled.
Mr. Cleaver. So it is not a financial issue where you save
money?
Ms. Coffin. We do not use it for that.
Mr. Cleaver. Is everybody else the same?
Mr. Gross. If I could comment, the global operations for
essentially the Countrywide service portfolio, this operation
has been in existence for 3 to 4 years now, I believe. It might
be a little bit longer. The size of the operation is actually a
little bit smaller than it was a year ago. And in terms of
staff that we have added during the subsequent period has all
been added State-side.
Mr. Cleaver. Okay.
Mr. Gross. But, yes, the initial motivation when we opened
these call centers a few years ago was based upon cost.
Mr. Cleaver. Okay.
I am going to tell Lou Dobbs on you people.
But let me go back to the program as laid out by President
Obama, the Administration, is herculean. What kind of beefing-
up of the servicers will you need to accommodate this program?
Has there been any look at the size of the staff that will be
needed? I am thinking a part of this whole thing that we are
doing is creating jobs. And I am wondering if jobs can be
created also as we try to reduce this new burden on
neighborhoods all over the country by hiring people to do the
modifications. And obviously, based on what Chairwoman Maxine
Waters is experiencing, there is a need for a larger staff. So
has there been any time spent in trying to come up with an
estimate on when the staffing needs will be?
Mr. Gross. If I could, as far as what the staffing needs
will be, will be somewhat difficult to determine until the
final rules are published on March 4th, but I would also
suggest to you that in the mortgage servicing loss mitigation
process, this home retention process that we are all engaged
in, under the President's plan, we should become much more
efficient and effective than we are today because we are going
to have a single standardized plan that we will be able to use
across all different portfolios.
Right now, we have a modification plan for FHA, a different
one for Fannie Mae, a different one for Freddie Mac, and a
different one for privately-issued securities. So this
standardization should enable us to process many more
modifications and workouts using the same staff, hopefully in a
much faster timeframe.
Mr. Cleaver. Thank you, Madam Chairwoman.
Chairwoman Waters. Mr. Marchant.
Mr. Marchant. My question is about the whole
standardization of modification. It seems like Chase, have you
gone to your biggest investors and gotten pre-authority to
authorize, to do modifications, so that you don't have to
handle it on a case-by-case basis?
Ms. Sheehan. We have spent a lot of time working with our
investors to make sure that they understand the modifications
options that we wanted to be able to make available. Two of our
biggest investors are Fannie and Freddie. They have recently
come out with a new streamlined modification program, very
similar to what many of us offer for our own portfolio. That
was sort of the first step towards standardization.
I do agree with Mary, though, that we still have
situations, not that many, but we still have situations where
individual, you know, pooling and servicing agreements may
hamper our ability, and in those instances, we have to go out
for permission on a case-by-case basis.
Mr. Marchant. And the way I read the President's proposal
is that this will only affect the GSEs, and it well affect your
private label investors, so it is going to force the private
investors to accept these modifications. Mr. Erbey?
Mr. Erbey. That is still an open issue that was being
discussed this morning. In our portfolio, more than 90 percent,
we have no limitations on modification at all. There is about
say 5 percent that it is affected by, you have to get approval
by the related agencies; another 5 percent that you have to get
individual investor approval. But the issue becomes one of, in
terms of the implementation of the plan, are you required to
apply it across your entire portfolio? And if so, what impact
does that have on the contractual obligations that you have, no
matter how small they may be?
Mr. Marchant. So 90 percent of your investors or REMICs
have already given you authority to modify?
Mr. Erbey. The structures in our part of the market, they
have migrated over time, so that the standard pretty much for
any of the modern ones would be that it is the servicer's
discretion to maximize that present value on the portfolio.
Mr. Marchant. So, in your case, you have more discretion.
Do you service any portfolio loans that you own?
Mr. Erbey. Nominal, I mean very, very insignificant to our
balance sheet.
Mr. Marchant. Well, it sounds to me like the question is
still, that I have about the modification process, is the hit
of principal and whether you are allowed, whether in the new
plan, the President's new plan, whether there will be a
substantial write down in principal, or will all the
modification be towards the 38, 31 percentages? Do you
understand it could be a stepped process? You go to 38 first,
you go to 31, then you go to the principal reduction? Is there
any kind of a look-back provision if one of the spouses is
unemployed, and then a year later, that spouse becomes re-
employed, is there then a recertification at some point where
that person will call and say, ``I have a job now, I no longer
need this 31 percent or 38 percent?'' Is there a look-back, or
is this a once-in-a-lifetime snapshot that will be taken?
Ms. Coffin. There are, like Michael just spoke of, there
are details of the program that still need to be completed. But
there is--you don't do a look-back, that if somebody then gets
back a job, you kind of unwind the modification--
Mr. Marchant. That is the way I read it.
Ms. Coffin. We don't do that. But what we do in some cases
is we may have to mod originally to a lower interest rate or
other things to get to affordability, but then you can step
that rate back up over a period of time.
Mr. Marchant. So in the proposed, another piece of
legislation that has the cramdown in it, how much more
success--under what kind of a situation then would you put a
person in a situation where they would not go this route
instead of going to a bankruptcy route and put them in a
position where they would make the decision to go the
bankruptcy cramdown route as opposed to trying to go this
route?
Ms. Coffin. I would only tell someone they should go to
bankruptcy as a last resort. What I applaud that the
Administration has done is the standard modification program
that should hold all of us accountable and provides
expectations that say, if a borrower who is at risk comes to
us, we now have the standard modification program. If, for some
reason, that borrower cannot find a solution through that, then
their final resort may be to go to bankruptcy, and this same
standard modification program should be applied.
Mr. Marchant. And this is an opinion question. Is a person
who gets a modification at a greater risk of destroying long
term their credit than a person who goes into bankruptcy?
Mr. Gross. No, I think the modification approach is
actually to the homeowners' benefit, that very quickly they
will be showing current on their mortgage and that their credit
score will improve dramatically. I think the bankruptcy option
provides very serious negative implications for the homeowner
on a long-term basis.
Mr. Marchant. So if you were trying to prevent there from
being a generation of borrowers who are forever doomed to be
subprime borrowers in a world where there are no more subprime
loans, would you go--if you were the government trying to push
somebody towards a direction, you would push them more towards
a modification, extended amortization instead of towards an
easier route.
Mr. Gross. Absolutely, we would hope that whatever
legislation is enacted would in fact require homeowners to seek
these modifications and to, in fact, prove that the
modification was not attainable before the bankruptcy reduction
was allowed.
Mr. Marchant. Thank you.
Chairwoman Waters. Mr. Green.
Mr. Green. Thank you, Madam Chairwoman.
Mr. Gross, let's continue with what you were just
addressing, the cramdown. Is that something that can work in
concert with what you are currently doing or, is it at odds
with what you are doing?
Mr. Gross. There are aspects of the current legislation
which we find troubling. I would say that it can work as long
as we put in sufficient safeguards that the homeowner works
with their servicer and that the homeowner seeks available
modifications before they do the bankruptcy cramdown route.
Mr. Green. Is it your understanding that the current
proposal has that language in it?
Mr. Gross. I believe that the current proposal, and I
apologize, I am not an expert on this, but I believe that the
current proposal does contain some reference to it. I don't
think that the requirements in there are as strong as we would
like. There are probably a few too many holes in there that
would allow homeowners to seek the bankruptcy option with
minimal resistance.
Mr. Green. If that aspect of it can be satisfied, would it
then meet with your approval, ``your,'' meaning your company's
approval, not your personal approval?
Mr. Gross. Thank you.
I think it would go a long way to that, because I think at
that point what we would find is that we can effectively,
especially under the President's new plan that we are all
working on desperately right now to write the rules for or to
assist in that effort, we want to have this new plan have a
chance and to show the American public and to you that we can
perform under this new plan and that the bankruptcy cramdown
provisions that are currently being contemplated largely should
not be needed.
Mr. Green. Is your moratorium still in effect?
Mr. Gross. It is.
Mr. Green. Let me just ask the other participants. Do you
have a moratorium in effect? If so, would you kindly extend a
hand into the air? Anyone. So we only have--and you would not
have one, is that right Mr.--is it Erbey?
Mr. Erbey. It is Erbey.
Mr. Green. You don't have one?
Mr. Erbey. We don't have our own loans. Under the contracts
that we have, we don't feel that we could have a moratorium.
Mr. Green. Let me pause for a moment and thank all of you
for the moratorium. It is something that I think is going to be
a benefit to your businesses as well as to the consumers, so I
thank you for the moratorium.
How long will it stay in effect, Mr. Gross?
Mr. Gross. It will stay in effect until the rules are
published, which should be March 4th. From that point, what we
would do is take the final rules, evaluate our portfolio to
determine which homeowners who are at risk of foreclosure would
in fact qualify, and then we will actively seek out those
homeowners, offering them this plan, and we would reinstitute
foreclosure proceedings after we either hear from the homeowner
and determine that they are not eligible, that we cannot do it,
or if the homeowner does not respond.
Mr. Green. Ms. Coffin, how does yours measure up?
Ms. Coffin. Our moratorium is in place until at least the
13th of March. We have announced that to our borrowers. And we
have, as I said in my testimony, already proactively began to
analyze our portfolio with the information and the data that we
have about the program for both the refinance opportunities and
the modifications. And what we will turn to first, once we
understand more of details after the 4th of March, is we will
first turn to the borrowers who are most seriously delinquent
or on the verge of foreclosure sale and proactively reach out
to them.
Mr. Green. Mr. Hemperly?
Mr. Hemperly. Our moratorium started on February 12th, and
it will extend for 30 days through March 12th. We are also
eager to see the Administration's plans. Hopefully, we will see
them on March 4th, which should give us time to understand them
before we would schedule any additional foreclosure sales.
Mr. Green. Ms. Sheehan?
Ms. Sheehan. We also announced our moratorium on February
12th. At that time, we announced it would be extended through
March 6th. That was before we knew when the details of the
program were going to come out. So we will this week reconvene
and consider, based on the information we know now, what is the
next step we should take to be fair to our homeowners.
Mr. Green. Thank you.
I yield back.
Chairwoman Waters. Thank you very much.
Mr. Clay.
Mr. Clay. Thank you, Madam Chairwoman.
Let me start with Mr. Erbey.
Mr. Erbey, in your testimony, you propose two solutions for
advanced financing to servicers. One proposal is to provide a
$1 billion government infusion to minority-owned Robert Johnson
Urban Trust Bank to establish a new operating division to
provide advanced financing to servicers who commit to
aggressive foreclosure prevention and loan modification
measures. Currently, how many communities does the UTB service,
or do you know?
Mr. Erbey. I know of a handful, but I can't accurately
describe that.
Mr. Clay. Okay, give me examples of some.
Mr. Erbey. They are in Florida, in the Orlando area.
Mr. Clay. How would Mr. Johnson assist servicers with
homeowner outreach to minority communities hardest hit, do you
have any idea of how we he would pull that off?
Mr. Erbey. I believe Mr. Johnson thinks he has quite a
well-known name and reputation within the communities and that
by being able to get out there and get the message out, that he
would assist in that manner.
Mr. Clay. Okay, all right. Thank you for that response.
Ms. Coffin, when considering your total number of
modifications, what percentage of them are modifications that
produced a decrease in monthly payment of at least 10 percent?
Can you give us that percentage in your reported modifications
that fit that category?
Ms. Coffin. I don't have that data directly here in front
of me, but to state I think what is important about these
modifications, and I heard the discussions earlier today, what
is important to understand about whether the payment reduces or
not are the circumstances of each of the borrowers that we work
with. We have cases of borrowers where they come to us, and if
you take the President's, the Administration's plan that they
just announced and the affordability targets they have set, I
tell you today we have many borrowers who have come to us who
are already below those targets. What we still try to do is
help them. And sometimes that is taking those payments.
Sometimes it is the taxes that they have not paid on their
homes. Sometimes it is payments they are in arrearage, and we
do capitalize those, we re-amortize the loan and try to get
them back into a performing loan. So I think, more than just
stating the numbers, it is important to understand when and why
we do that particular type of modification.
Mr. Clay. So that may include making the terms longer?
Ms. Coffin. It could make the term longer, but it could
actually increase their payment if they have not paid their
real estate taxes and they have significantly missed many
payments. If they made no payment on their homes for 8 months,
lets say, and not paid their real estate taxes, to get them
back in a performing loan and have them stay in that home, we
he have to do something with those missed payments and those
missed taxes.
Mr. Clay. Which means these people have to have employment,
of course.
Ms. Coffin. That is correct.
Mr. Clay. Given the size of the program being proposed by
the Administration, and the need to look at the ability of
homeowners to sustain a modification, how large of an increase
in manpower do you believe would be needed to get this job
done? Do you have any idea?
Ms. Coffin. I would support what Mr. Gross stated. We
actually see the standard modification program, as laid out and
what we know of it so far, will actually be much more efficient
for us. We have never stopped and we didn't just because of the
plan decide then to start hiring. We are continually in this
kind of environment reforecasting and preparing months ahead.
As you heard, you don't just hire these people and put them on
the phone tomorrow. You have to go through the hiring and
training phase. You want to make sure they have the expertise
to actually help our borrowers. So we are forecasting months
and months in advance, and we will continue to do that.
But this actual plan, we believe, will make us more
efficient for the reasons Mr. Gross stated. If we get a
standard modification program, as we too serve Fannie, Freddie,
FHA, multiple privates, if we got to one program and there was
an accountability of what we were to move to a target of, it
would be much more efficient for us.
Mr. Clay. Anyone else on the panel?
Ms. Sheehan.
Ms. Sheehan. I would agree with what Mary just said. I
think we do have 8 to 10 flavors right now of loan modification
programs that are very complex. We have to go into databases,
it complicates the training we talked about earlier, to be sure
that the individuals understand all the different programs. So
I believe it will be a tremendous benefit to servicers.
I also would like to say on behalf of Chase that we are
trying to look at different ways to deal with our borrowers,
which is why we have started to set up our homeownership
centers around the country. Not everybody is going to work well
in a call center. In some cases, you need to do face-to-face.
And we actually have seen some very preliminary but very
positive results from the centers that are opening right now.
Mr. Clay. Thank you very much for your responses.
I yield back.
Chairwoman Waters. Thank you very much.
Mr. Ellison.
Mr. Ellison. Thank you, Madam Chairwoman.
And thank you to all of the witnesses.
Is your servicing process different between cases where the
servicers own the mortgage and where they don't own the
mortgage?
Can we start with you, Mr. Erbey?
Mr. Erbey. Yes, certainly.
We have almost no mortgages that we own ourselves. So
essentially, our process is exactly the same. Every loan is
treated individually.
Mr. Ellison. How about by you, Ms. Coffin?
Ms. Coffin. Yes, I will try to give you the spectrum. We
obviously on, let's take the Wachovia option ARMs that we just
acquired, we are going aggressive. Those are loans that we own.
We know the geography in which many of them are located is
extremely distressed, and so we are going aggressive with
modification programs. But as soon as we learn from the
programs that we develop and implement on that, we reach out
immediately to private investors and other investors to share
our learnings and hope that they will deploy throwing programs
also.
Mr. Ellison. Mr. Gross?
Mr. Gross. I would concur with what Ms. Coffin has just
said. One of the standard provisions in service pooling and
servicing agreements--
Mr. Ellison. Mr. Gross, forgive me, but when you said you
concur with Ms. Coffin, do you mean, when the servicer owns the
loan, you are aggressive, and when you don't, you share the
information because that is what I heard?
Mr. Gross. Yes, and I was amplifying on that.
One of the standard provisions in a servicing contract
generally is that we will service loans for that investor as we
would for those in our own account, which means that we will
not give loans in our own book of business, loans that we hold
for investment, any preferential treatment over loans that we
service for them.
Mr. Ellison. Ms. Sheehan, how do you view this issue?
Ms. Sheehan. I would concur with both Mr. Gross and Ms.
Coffin. Our core servicing processes are all the same. But when
we come to loss mitigation and loan modification, we are more
aggressive with our own portfolio loans for all of the reasons
that we have been talking about today.
Mr. Ellison. Sir?
Mr. Hemperly. A similar answer. We service for a lot of the
same people that are our competitors do. And we also feel that
we have more flexibility on our own portfolio.
I didn't get to answer the last question, but we also
believe that a standardized approach that the Administration
plan is proposing is also going to be a more effective way to
deal with this situation, and it should be easier to train our
folks on a standardized plan as well.
Mr. Ellison. Can you tell me about what your outcomes have
been when you have the loans that you own, loans that you
don't, have you been able to--have you written down more or
have you remodified more loans when you own them as opposed to
the ones that you don't own? What has your experience been, is
what I am asking?
Mr. Erbey, you only have one kind?
Mr. Erbey. Correct, we have modified about 20 percent of
all loans in our portfolio.
Ms. Coffin. To answer your question, and as I just stated,
we just acquired the Wachovia option ARMs, which is where we
are going the most aggressive. I think what is important to a
redefault, and I know there is a lot of analytics and a lot of
speculation on redefaults, as was stated earlier, coming to a
common industry definition of redefault, which we would stand
by that any loan that has been modified, and seriously
redefaults, which means 90 days delinquent within a year, is
our definition of redefault. And because these are new
procedures that we are developing and applying against this
portfolio, it will take a while for us to determine what the
true redefault is compared to historical redefault rates.
Mr. Ellison. Do you have any numbers so far on the
difference between the remodified loans that you own and the
ones that you don't?
Ms. Coffin. Well, I want to be cautious that Freddie and
Fannie and many of the privates who have worked with us are
very aggressive. I don't want to leave today that--
Mr. Ellison. I am just trying to get a statistical
understanding. Do you understand what I mean?
Ms. Coffin. Between what we do in our portfolio, we are
seeing a redefault rate that is probably lesser in our case
that is lower than the 30 percent on average redefault, and you
will so a little higher on those that do not go as significant
in the modification terms.
Mr. Ellison. Maybe I don't understand. Are you modifying
more loans that you own than the ones that you don't?
Ms. Coffin. I think the way I am interpreting this is we
modify differently, not whether there is more or less; it is
that we are modifying possibly differently.
Mr. Ellison. But is there a numerical difference between
the ones you own and the ones you don't?
Ms. Coffin. No.
Mr. Ellison. They are the same?
Ms. Coffin. By numbers, just sheer volume?
Mr. Ellison. Yes.
Ms. Coffin. No. I mean, you would have to do that in
relationship to the size of the portfolio. No. We are
modifying. Like I stated earlier, there are very few of our
contracts that don't allow us to modify.
Mr. Ellison. So you modify the same number for the loans
that you own and the ones that you don't?
Ms. Coffin. The majority of the time, yes. On a ratio of
how many loans we have, you still have to--if you want sheer
numbers like 100 to 100, it would depend on the size of the
portfolio and the number of loans that are in distress as a
ratio.
Mr. Ellison. All right. Well, do you have that information?
Ms. Coffin. I don't have that right in front of me, but I
can tell you that--I don't think there is a difference between
that we can't modify. It is how we are modifying. What we are
doing on the Wachovia loans is going more aggressive with the
terms, such as principal forgiveness.
Mr. Ellison. Okay. Mr. Gross.
Mr. Gross. I apologize, I do not have the data that you are
requesting at this time, but I would be glad to follow up with
the committee afterwards.
Mr. Ellison. Thank you, Mr. Gross.
And, Ms. Coffin, I am assuming you would supply the
information?
Ms. Coffin. Yes.
Mr. Ellison. Ms. Sheehan.
Ms. Sheehan. Our servicer loans are much larger than our
owned loans, so even if we are doing it proportionately the
same, those numbers will be--the servicer numbers will be
larger. But we would be happy to get that.
Mr. Ellison. Thank you. We would request that. Thank you.
Sir?
Mr. Hemperly. We will pull the exact data for you as well.
I believe that on a percentage basis, we do more deals on the
loans that we hold on balance sheets than we do for others; and
I think it is because we can do them earlier in the process in
some cases than we can. And I think we have a little bit more
flexibility to do that. But we will be happy to pull the
numbers.
Chairwoman Waters. Thank you very much.
Mr. Donnelly.
Mr. Donnelly. Thank you, Madam Chairwoman.
Ms. Coffin, under Wachovia ARMs, when you look at them,
what interest rate are you putting people--what product are you
primarily putting folks into or trying to put folks into?
Ms. Coffin. We are trying to get them into a fixed, but
most importantly is when we see what the payment that they are
currently able to afford, we are trying to keep them to that
payment and modify the terms of the loan to get them to that
payment.
Mr. Donnelly. That is the ARM payment?
Ms. Coffin. Yes.
Mr. Donnelly. What is the average interest rate on those
ARMs at the present time?
Ms. Coffin. I am a little cautious in saying this because I
don't have--
Mr. Donnelly. Ballpark.
Ms. Coffin. I will say ballpark, 2 percent, maybe slightly
higher.
Mr. Donnelly. So what you are doing is looking at that
payment and saying, what kind of product can we produce that
will keep them in the house at about that number?
Ms. Coffin. That is correct.
Mr. Donnelly. How many of those do you have, of these ARMs,
of these mortgages, the Wachovia?
Ms. Coffin. The Wachovia that we inherited was $122
billion.
Mr. Donnelly. I am sorry, the total number of homes.
Ms. Coffin. The total of the portfolio, I believe it is
approximately 350,000, I believe, 400,000.
Mr. Donnelly. And how long does it take you to get to all
of them? I mean, how do you prioritize that? Is it you look and
say, this one is in trouble, they missed a couple payments, we
had better get together with them? How long will it be before
you get that cleaned up? Is it, these ARMs go off next month,
so we had better do those first?
Ms. Coffin. Let me be clear that much of this portfolio is
performing. If they are current, we continue to look at them.
We are looking for imminent default. We want to make sure that
we are proactively trying to predict those loans that will
probably have imminent default. But we are starting with the
most serious and those that are close to foreclosure. We are
looking at those whose ARMs are ready to recast, those who are
delinquent, and those who look like we would predict imminent
default.
Mr. Donnelly. So say the ARM goes off in another month or 2
months, but they are performing. Those ones you would already
be working with to try to get into a new product.
Ms. Coffin. We are working across that entire portfolio
very aggressively.
Mr. Donnelly. So there is not going to be folks who look up
and their ARM is about to go off in a week, and they haven't
heard from you yet?
Ms. Coffin. That is correct.
Mr. Donnelly. Mr. Erbey, when you look at the loans that
you have in your portfolio, are there red flags that you look
at to indicate to you, this is one we have to work on? For
instance, somebody who has been put into a 10.5 percent rate at
20 years, is that something you would look at and say, how do
we rework this? Are those important figures to you, or is it
only you look and you go, who is in trouble this month?
Mr. Erbey. Well, you certainly sort your portfolio based on
characteristics to try to do imminent default, where you think
somebody will try to default and try to deal with it ahead of
time, such as a reset or a very high-interest-cost loans. So
you would proactively be approaching those individuals. The
vast majority of the work, however, because of the type of
portfolio we have, is spent on basically people who are already
in trouble.
Mr. Donnelly. I know you use mathematical models. Do your
models tell you, here is the income that they have? Here is the
interest rate? This isn't going to--you know, they are paying
it now, even people who are current; we have to get into this
one and get this fixed?
Mr. Erbey. Yes. We run models that look at the person's
ability to pay over time. So it is not just a snapshot of what
can they do today; what are they able to do in the future? You
also look at redefault probabilities as well as prepay
probabilities and future housing prices. And so you are looking
at pretty much three-dimensional vectors on all those factors.
Mr. Donnelly. And this next question would be to the whole
panel. I met with some mortgage folks earlier today and spent
some time with them, and one of them was saying that one of the
biggest problems they are having with modifying loans is some
of the servicers. And, you know, this was not any of you folks,
but some of the servicers that they would call, the servicers
said, ``I have a pile 5-foot high on my desk; I am trying to
get through them as quickly as I can. I haven't gotten to that
one yet, and it may be a while.''
Are you facing those kind of problems, where they are
coming so fast, the requests for modification, or the screening
that you are doing is indicating this should be modified, that
timewise it is tough to get to all of them? Mr. Gross.
Mr. Gross. In all candor, yes. Obviously, the volumes of
homeowners who are approaching us today looking for
modifications at times can be overwhelming. One of the
significant issues that I think most servicers are confronted
with today is the volume of homeowners who are current on their
payments, but are coming to us and seeking a modification, and
trying to determine which of those homeowners is doing it based
upon a true financial hardship either now or in the near future
based upon some event that may have taken place--unemployment,
a rate increase, something has occurred--versus those people
who have heard many statements in the media about all of the
modifications and principal reductions that are coming forward.
And, unfortunately, we have a lot of folks who are coming
forward saying, where is my deal?
Mr. Donnelly. So you would have a form or like almost a
test?
Mr. Gross. We would have to go through and perform the
analytics on each loan, getting the income and expenses and
trying to determine from the homeowner what is the hardship
that causes you to make this request?
Mr. Donnelly. And would something like, I started out in an
ARM, I am now locked in at 10 percent over the next 20 years,
and it is very tight every month; is that the kind of
situation?
Mr. Gross. Absolutely. Yes.
Mr. Donnelly. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
Ms. Kilroy.
Ms. Kilroy. Thank you, Madam Chairwoman.
First, I would like to follow up on Ms. Coffin's answer
regarding offshore employment and moving operations offshore,
that Wells Fargo moved operations overseas because of a lack of
qualified available IT personnel. I would like to suggest that
Wells Fargo might want to take a look in my district in central
Ohio where we have hundreds of IT persons, well-qualified, who
have been laid off from various businesses, but including being
laid off from major national banks; and before they were laid
off, they were sent to India to train their replacements.
Ms. Coffin. May I comment? I want to make sure that I am
setting the right timeline of all this, and to be candid and
honest with all of you, because I feel very strongly and I have
known this, and have worked for Wells Fargo for over 11 years:
It is one of their top principles that we create American jobs.
And when I spoke, I wanted to make sure I was honest that it is
that we do not go offshore. Where we have gone offshore in the
past, not in this current unemployment environment--as a matter
fact, I would probably have to state to you I would have to
check whether we have anyone even in our technology today who
is offshore. This was in our past, not maybe today. So I
probably misstated that.
Ms. Kilroy. I am glad to hear that correction, because what
I heard and what I heard follow-up questioning was a comment
that there weren't qualified people here.
I also want to find out your philosophy or the emphasis of
quickly liquidating assets that are deemed to be maybe
unproductive versus working out with those homeowners. Of
course, in my opinion, working out helps the community,
stabilizes prices, and, to me, not only being a good social
policy, I think ultimately in the long run is a good business
policy.
But I am concerned that Professor White at Vanderbilt
recently told the New York Times that despite your testimony
that you are aggressive on that, that Wells Fargo has modified
few loans as a percentage of delinquent holdings. Would you
like to comment on that?
Ms. Coffin. Well, I am not sure if I remember that exact
quote as you put it. I think you have to look at the nature of
the makeup of our portfolio. Again, Wells Fargo's portfolio is
predominantly investor owned; we do not own the loans. There is
very little of our portfolio that we own as a balance sheet.
And as I stated earlier today, I can give you this as fact, 8
percent of our portfolio is held by private investors, but they
represent almost 70 percent of our serious delinquents, and
they represent 50 percent of our foreclosures.
Ms. Kilroy. And do you take a different approach to those
loans than the loans that Wells Fargo has initiated?
Ms. Coffin. I think it is not the approach we take to it.
There is some because of the contractual obligations I spoke of
earlier. But more importantly is how these loans were
originated and who was put into these loans to begin with,
which is the importance of responsible lending. These are loans
that we did not originate; they are loans that we did not
underwrite. These are loans where the companies reached out to
us to do the servicing, and that is what we are doing. But many
of these borrowers, we are not capable of finding an affordable
situation.
Ms. Kilroy. What period of time are you talking about for--
let me strike that.
Are you aware that there were 31 complaints filed with the
Ohio attorney general in 2007 alleging that Wells Fargo had
refused to accept homeowners' offerings of their late mortgage
payments?
Ms. Coffin. You said 31?
Ms. Kilroy. Thirty-one complaints filed with the Ohio
attorney general.
Ms. Coffin. That we were unwilling to accept?
Ms. Kilroy. The late payments. That people were offering up
their late payments, and Wells Fargo was refusing to accept
their late payments.
Ms. Coffin. I don't have the cases directly here in front
of me, and I always love to state that it is very important, as
I see in all the complaints that are brought to our attention,
and I appreciate all of them that are, is that you have to look
at the details case by case. Many of those that we find where
if they are in a very serious or late stage of delinquency or
foreclosure, and we are still looking at the income and expense
analysis--every borrower that we look at is an income and
expense analysis to find affordability. So just accepting late
payments, if we still see that there is no chance of
affordability with the modifications that we can do, we are
avoiding the inevitable.
Ms. Kilroy. Let me give you an individual situation
reported in one of the local newspapers with respect to Wells
Fargo for John and Sharon Vasquez, who bought a home in 1994 in
Clintonville. And they had some ups and downs, once or twice
fell behind, but they would typically get their payments back
on track until they had a significant health issue. But even
when the wage earner went back to work at the Postal Service,
and they tried to work out a situation with Wells Fargo,
initially the company refused the $5,000 that she offered. And
then after that situation was worked through with the help of
attorneys, they were required to pay--instead of $5,000, pay up
$3,900 before the company would talk to them about
restructuring the loan: A pre-payment of $3,900, and then we
will talk to you about restructuring. They made that payment,
and then the restructuring included terms that--included a
balloon payment of $10,000 that was known that they can't pay.
They are now in foreclosure proceedings.
Also, I just had a concern. We talked a little bit about
some of the refinancings or modifications that ended up with
lower principal, and also you mentioned many that ended up with
higher principal. Of course, my concern is that a home
modification with a higher payment is far more likely to end up
back in a redefault situation.
Again, in the New York Times on February 19, Wells Fargo
declined comment on increased principal charged to a Mr.
Mitchell with back fees--fees, back payments, penalties. His
principal was raised to above $300,000, his payments virtually
unchanged, and he had to make an immediate $5,000 payment. He
has now again fallen behind on his payments.
So I guess I am not sure what the--exactly the philosophy
is here, but it seems it is not necessarily liquidating the
assets quickly, it is not keeping the people in their homes,
because the terms and conditions were such that people were not
going to be able to keep up with them one way or the other. Is
the philosophy more of maybe getting whatever you can out of
the mortgagee before foreclosure is initiated?
Ms. Coffin. No. I can make that very clear, it is not
trying to just take as much cash as we possibly can. And that
is one of the reasons we won't receive partial payments. We
want to make sure that if we establish what a true modification
that is sustainable with affordable payments, and that those
payments are made, that is a performing loan. And we will not
take just partial payments because, again, we could be taking
payments on something that ultimately is going to end up in
foreclosure.
In all of the cases that you mentioned, I want to be
protective of privacy rights and what I can and can't say, so I
would like to talk more generically. Any case that anyone
brings to us, we will look under every detail and look at every
piece of information. But until you understand the uniqueness
of each of those cases, I think it is important to understand,
for instance, there could be an example that the $3,900 being
requested is for back real estate taxes. And if someone has not
made a payment on their home in 6 months, and they have not
paid their back real estate taxes, and we are looking at their
income and expenses, it could be that we see they cannot afford
the home.
Ms. Kilroy. Let me ask you another question about
refinancing and modifications, and that is, separate and apart
from back taxes or penalty payments that were part of the
mortgage, what kind of additional costs are there? We had some
discussion of this with the earlier panel. What kind of
additional fees are required of the home purchaser, the
mortgager, in a refinancing in terms of title searches, title
insurance, etc., things like that, appraisals? What
requirements do you put on homeowners?
Ms. Coffin. First of all, I am not an originator. I am on
the servicing side of the business.
Ms. Kilroy. But this would be for refinancing or
modification.
Ms. Coffin. I don't know that I can quote every last fee
that is done on a refinancing, but I think what is more
important is, I want to make this clear, that on a modification
there is never a fee, ever. And I want to make sure our
borrowers understand. There are some for-profit companies out
there starting to charge them to get modifications for them,
and they should avoid those. There is never a charge. I think I
can say that for myself and my colleagues sitting here at the
table.
Number two, I think it is important that when working on a
modification, if--I can state this for us, if there are late
fees that are part of the back, those are waived.
Ms. Kilroy. Is there a differentiation that you make in
terms of a modification or refinancing in terms of those kind
of fees?
Ms. Coffin. Yes. Because a modification is taking the
current loan in the state that it is in, it is usually a
customer who is in a distressed situation, and you are trying
to modify the terms of the loan to reach affordability for
them. A refinance is usually a customer who has good credit and
who wants to refinance to a lower rate, and they are trying to
get out of the current loan they are in to get into a lower-
interest-rate loan.
Ms. Kilroy. So somebody who is working hard, playing by the
rules, may be suffering some issues financially, but not in the
foreclosure situation, not in the delinquency situation would
be asked to pay these fees?
Ms. Coffin. And that is also where I believe the
Administration's plan is providing new guidelines to help more
people to refinance into that program. And I believe the
program in the Administration's plan is a streamlined plan that
has very few costs associated with it. I don't believe it is
even going to require an appraisal.
Ms. Kilroy. The situation that I was referencing was
somebody who e-mailed me what they said was a Wells Fargo
streamlined plan, and the closing costs that were associated
with the loan which would increase their principal slightly,
lower their monthly payments slightly, shorten the years left
on the mortgage, but the closing costs were 9 percent of the
value of the house. That seemed to me a little bit extreme.
Ms. Coffin. I would like--if you could, I would love to
know the details of that e-mail and send it to us. I can have
our staff look into it. That seems like something I would need
to check with the group that does that. I am in charge of
servicing.
Ms. Kilroy. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much.
I would like to thank all of our witnesses for
participating today.
I guess one thing that I heard was that everybody--you are
all happy with the President's proposal, and you are glad that
standards are being set for loan modifications. Is that
correct? And let me just close by asking this question: How
many of you or your companies were involved with the HOPE NOW
program that was originated, what, a year-and-a-half ago? How
long ago was that voluntary program put together?
Ms. Sheehan. That really started coming together in mid-
2007. We kicked off initially that fall.
Chairwoman Waters. And the idea of that program was that
instead of trying to impose upon you rules, regulations, laws,
that you would voluntarily get together and deal with this
foreclosure problem; is that right?
Ms. Sheehan. Yes.
Chairwoman Waters. That was the idea?
I may be a little bit naive, but given your expertise and
everything that you know about this industry, why has it taken
so long and why has it taken the President's initiative to get
you all happy about standards? Why didn't you come up with
something? Why didn't you propose standards? Why didn't you all
tell us how this should be done? That was the whole idea
putting together HOPE NOW. Did HOPE NOW fail?
Mr. Hemperly. The President's plan encompasses the GSEs,
and up to this point, we hadn't had any kind of standardization
where the GSEs were participating. And I think all of us
probably served--the largest percentage of our servicing
portfolios are Fannie and Freddie loans.
Chairwoman Waters. I don't get the answer, because what I
am asking is, you were at the table, and you were there to deal
with this problem of foreclosures. What happened was you came
up with a very, very weak program of using these HUD-approved
counselors and nonprofits to counsel people and to help people,
and that is about all you did. Why didn't you use your
expertise and your talent to shape and form a response to the
foreclosure meltdown that we were having? I am trying to figure
out why the voluntary effort didn't work?
Ms. Coffin. I would like to comment on that. I think one
thing--and many of us have worked together outside of HOPE NOW
and with HOPE NOW, and when this program began and when we
launched it in 2007, the most prominent problem--the problem
was subprime ARMs that you spoke about earlier today, and also
getting borrowers to call us. And where HOPE NOW was very
successful in its initial efforts was a streamlined ASF which
allowed us to proactively go after and modify those ARM loans
into fixed products before their ARMs reset.
Chairwoman Waters. Let me say this, because our
representative here representing Citi talked about having
adopted Sheila Bair's program that she put together after she
took over IndyMac, which really for the first time showed us
what you can really get done. And so Sheila Bair basically took
the IndyMac portfolio without your input, without your help,
and came up with standards and ways by which--and one of the
things that she did was she constructed letters that went out
to the homeowners that said, this is what we can do for you,
you know, under these conditions. Some other attempts, I am
told, were letters that went out and said, come in and talk to
us. And people said, I am not going in there; they are going to
take my home. But she constructed letters that basically said,
if you are in this kind of situation, here are the kind of
things that we can do to help you.
So I guess I point that out to you, because we have
struggled with this problem far too long, given you were all at
the table under a voluntary program called HOPE NOW. I want to
abolish HOPE NOW. And I know, even though the President may be
relating to it in his plan, I think that HOPE NOW did very
little to deal with this crisis. And I would just like you to
think about how you can get in front of these problems that is
going to affect the entire industry and come up with
resolutions if you are truly interested in helping the
homeowners.
I know that many of you can give me a lot of responses to
that, but of course, we don't have any more time. And because I
am chairing, I get a chance to do this. So I thank you for
having been here today, and I am hopeful that as the President
unveils his program, we are going to have the kind of
cooperation and input to implement something that is truly
going to deal with what is the problem facing our entire
economy at this time. Thank you all very much.
I am reminded that I should tell you again that some
members may have additional questions for this panel which they
may wish to submit in writing. Without objection, the hearing
record will remain open for 30 days for members to submit
written questions to these witnesses and to place their
responses in the record.
Now, the panel is dismissed.
[Whereupon, at 6:10 p.m., the hearing was adjourned.]
A P P E N D I X
February 24, 2009
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