Panel II of the Hearing of the House Committee on Financial Services

Statement

PANEL II OF THE HEARING OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
SUBJECT: LEGISLATIVE AND REGULATORY OPTIONS FOR MINIMIZING AND MITIGATING MORTGAGE FORECLOSURE

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REP. AL GREEN (D-TX): Thank you, Mr. Chairman, and I think that I can say that America thanks you for this hearing because all of America is concerned about what's happening in the subprime market and in the housing market in general. I'd like to also thank Mr. Perlmutter for staying so that I'm not last. (Laughter.) To my friends who represent the GSE, one of the problems that we have, of course, is qualifying for a teaser rate and not qualifying for the adjusted rate. Do you have in your portfolio these types of instruments?

MR SYRON: Well, as you -- excuse me -- earlier this year in February, right? We said that either in portfolio or in loans that we buy in a portfolio or loans that are in securities that we might hold -- that we would not have loans that were not done at the fully amortized rate. Now, I think we have some legacy loans that have been done in that and that became effective given the market chance to adapt by September 13th.

REP. GREEN: As of September 13th you are no longer doing it?

MR. SYRON: That's right.

REP. GREEN: Okay.

MR. MUDD: Structurally the same answer, Congressman. We're fully in compliance with all the interagency regulatory guidance both on subprime and nontraditional that speaks to this, but even before that we had a set of policies that we adhere to internally where when the market had none with respect to prepayment, credit life insurance, origination processes and so forth. We adhered to those and also did our best with the voice that we had to sound the concerns that when all of the chickens came home to roost on the various features in these loans the consumer would be facing a vastly different deal than they thought they had.

REP. GREEN: In trying to find a cure, if you will, for this -- having a teaser rate and an adjusted rate that you don't qualify for -- how does one do this? How can you possibly qualify the person for the adjusted rate when you don't really know what it is at the time the teaser rate is accorded the borrower?

MR. MUDD: The -- typically what's done is that the underwriting is done to the first adjustment level or to an average adjustment level over a period of time and not just to the teaser rate itself. So it happens at origination and I think with this interagency guidance that came through there's -- there seems to be a high degree of compliance with that, Congressman.

REP. GREEN: Okay. Mr. Marks, quickly -- can you tell me please the source of the billion dollars that you have at 5.375, no down payment, no fees -- the source of that?

MR. MARKS: Yes. Actually, it's $10 billion.

REP. GREEN: Ten billion (dollars)?

MR. MARKS: And it's with Citigroup and Bank of America, and so we have one product and we counsel people in -- to that one product and our buyers and the people that we refinance would be considered subprime borrowers.

REP. GREEN: Thank you. The renters -- I am concerned about them. I was at one time fortunate enough to be the judge of a court that had exclusive jurisdiction over forcible detainers -- forcible entry and detainers -- that we commonly called them eviction lawsuits. Tell me -- what is your proposal such that we can embrace this on a national scale as opposed to on a state-by-state basis because I'm aware that in Texas we have some notice requirements once there is a foreclosure. But I also am aware that this varies from state to state. So how would you have us embrace it? Do you have some language that perhaps you might not be able to share now but you can share with me later or if you can generally tell me I'd be most appreciative.

MS. LIBEN: I can share some broad ideas if that would be helpful. First of all, you're right -- foreclosure and eviction of residents in foreclosed property is a matter of state law -- changes from state to state to state. There are a few states that do a terrific job on this and in fact do not allow eviction post- foreclosure unless there's another grounds for the eviction.

But lawyers and housing advocates and homeless advocates have started on their state level first and when they can get their head above helping the individuals they look to their state legislatures, and they say, "Couldn't we have more protective laws?" And some states are starting to do this. In our own state we're making progress on a law that says foreclosure does not automatically terminate a tenancy, but even those are somewhat modest steps. But when -- and no one has taken a hard look yet of what could be done on a federal level but we have a few ideas.

First of all, just on the issue of Section 8 tenants -- that we should involve HUD and people who know what's going on and saying, "Let's take a look at this and see what we can do to assist Section 8 tenants and make sure that our Section 8 money isn't going to landlords who are not applying that money toward their building and toward their mortgages." So that's some work with HUD.

I think the second thing is within the jurisdiction of this committee or other agency is to take some appropriate steps to discourage or to penalize lenders from evicting tenants per se just as a result of the foreclosure or at least penalize them for evicting them very quickly and in -- certainly in violation of state law. The process needs to slow down. And then third, if there were a way to think about creating incentives for lenders to maintain or redevelop their rental properties especially as affordable housing. As always in these moments you may have an opportunity and --

REP. GREEN: I'm going to have to thank you. My time is up.

I thank you, Mr. Chairman --

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