Hearing of the Subcommittee on Housing and Community and Opportunity of the House Committee on Financial Services - H.R. 5679, The Foreclosure Prevention and Sound Mortgage Servicing Act of 2008
Interview
Hearing of the Subcommittee on Housing and Community and Opportunity of the House Committee on Financial Services - H.R. 5679, The Foreclosure Prevention and Sound Mortgage Servicing Act of 2008
REP. WATERS: The hearing of the Subcommittee on Housing and Community Opportunity will come to order.
Good morning ladies and gentlemen. I would like to thank Ranking Member Capito and members of Subcommittee on Housing and Community Opportunity for joining me for today's hearing on H.R. 5679, the Foreclosure Prevention and Sound Mortgage Servicing Act of 2008.
Yesterday RealtyTrac released data on foreclosures for the month of March. The figures are soaring. Over 234,000 homeowners nationwide were hit with foreclosure filings, which include default notices, auction sale notices and bank repossessions, an increase of 5 percent since February, and 57 percent compared to March 2007.
Of these filings, over 51,000 homes were actually repossessed by banks, in other words actually foreclosed upon, a 10 percent increase over February. Year to date such foreclosures have taken place at a rate that is shocking -- a shocking 129 percent greater than during the same period last year.
Clearly then, we have now emerged from the biggest foreclosure wave to strike this country since the great depression. Today's hearing is about strategies to prevent further increases in foreclosures.
I took a careful and comprehensive look at the subprime mortgage and the subsequent foreclosure crisis before introducing H.R. 5679, the Foreclosure Prevention and Sound Mortgage Servicing Act of 2008.
It became clear to me early in this debacle that mortgage servicers hold the key to any foreclosure prevention strategy. Simply put, they are the direct point of contact for nearly all borrowers in the contemporary mortgage market.
The vast majority of home mortgage loans do not remain on the books of the bank, or the financial entity that originated them. Rather they are typically bundled together and securitized, sold in the secondary market as a part of investment trust, in which the investors hold financial interest in particular bundles or tranches of the underlying mortgages.
The trust then contracts them with the mortgage servicer which takes payments and is responsible for taking all steps to address delinquency, including foreclosing on behalf of the investment trust.
Loss mitigation refers to a range of activities that a mortgage servicer may offer a homeowner as an alternative to foreclosure, and includes repayment plans, loan modification, short sells, and deeds in lieu of foreclosure.
On November 30, 2007, this subcommittee convened appeal hearing in Los Angeles entitled "Foreclosure prevention and intervention, the importance of loss mitigation strategy in keeping families in their homes."
There homeowners, homeownership counselors, legal-aid attorneys, and local government officials testified to difficulties they encountered in getting prompt reasonable loss mitigation action by the mortgage servicers.
Witnesses described challenges in finding and speaking directly to a person at the services, who were empowered to engage in meaningful loss mitigation. Additionally, individual borrowers and even their trained advocates found it difficult to obtain accurate information on the status of their loans.
Those that did receive loss mitigation offers were sometimes required to waive their legal rights or agree to pursue further complaints only through arbitration.
Unfortunately, since that hearing I have not been satisfied with the progress made by the voluntary loss mitigation efforts undertaken by the industry.
I think the rising foreclosure figures speak for themselves, although I look forward to hearing from my witness, our panels today on that issue. Meanwhile the data provided by industry to date has struck me as opaque.
At best, in terms of whether distressed borrowers are being offered sustainable repayment plans or loan modifications that will remain affordable over the loan term.
In my view, the fundamental problem is that the mortgage servicers have no legal obligation to engage in reasonable loss mitigation efforts to keep a borrower in delinquency in his or her home even where that borrower may have been the victim of a predatory unaffordable loan, the only duty is to the investment trust that holds the bundle of mortgage they service.
Simply put, absent a statutory duty of some kind, I am concerned that consumers have little leverage with mortgage servicers in the current crisis and will continue to lack it in the future.
H.R. 5679, The Foreclosure Prevention and Sound Mortgage Servicing Act creates this enforceable legal duty, specifically the legislation amends the Real Estate Settlement Procedures Act or RESPA in the following ways.
First, it would permit foreclosures to proceed only after reasonable loss mitigation.
Loss mitigation analysis would be required to consider the long-term affordability of the home loans using the standard employed by the VA Loan Guaranty Program, including analysis of junior liens and the borrowers' other secured -- unsecured debt.
Second, it would provide fair compensation for servicers' loss mitigation activity. The bill ensures that mortgage servicers have a monetary incentive to engage in loss mitigation by authorizing reasonable fees for these activities.
Third, it will facilitate referral to housing counselors. Servicers are required to refer homeowners who are late on their mortgage payments to HUD-certified housing counselors.
Fourth, it would institute comprehensive loss mitigation activity data reporting. Servicers are required to report various loss mitigation activities with specific geographical designations, just as lenders must report data on known originations under the Home Mortgage Disclosure Act.
Fifth, it would strengthen the duty of servicers to respond to homeowners' request for information. Servicers must provide timely responses to request from homeowners and housing counselors for payment histories, loan documents, and loss mitigation document.
In addition, all servicers must provide a toll free or collect call phone number that provides the borrower with direct access to a person with the information and authority to fully resolve issues related to loss mitigation and undertake all loss mitigation activities in the United States.
Lastly, it would better protest borrowers' legal rights. Servicers may not condition a loan modification on a borrowers' limitation or waiver of legal rights.
The bill would also allow damages or damage actions for individual violations and increases maximum damages. In sum, I believe that H.R. 5679 is a prudent piece of legislation designed to balance the needs of lenders, investors, servicers, and borrowers in an effort to reduce foreclosures.
I also see it as an important step in regulating what has been to date a largely below the radar screen and under regulated sector of the mortgage industry.
With that I will now recognize Ranking Member Capito, for her opening statement.
BREAK IN TRANSCRIPT
REP. WATERS: Thank you very much.
I will recognize myself for five minutes for questioning.
Ms. Maggiano, I would like to make sure that I understand exactly who the servicers are, and the relationship to FHA. Who do you contract with to provide servicing activities?
MS. MAGGIANO: FHA does not contract directly with anyone. FHA, unlike the GSEs, doesn't actually own loans. We insure those loans against default. So an originator would either service their own loans or they may sell the servicing rights to their loans.
There are currently 1,200 FHA approved servicers in the United States. However eight of them have 75 percent of the business.
REP. WATERS: So if you are guarantying loans from Countrywide, for example, Countrywide would be responsible for servicing their own loans, because they also provide servicing to other entities, is that right?
MS. MAGGIANO: Countrywide may service some of their own loans, they may sell the servicing rights to some loans that they actually own, or they may service on behalf of other holders of the mortgage.
REP. WATERS: Is Countrywide one of the big eight you just referred to?
MS. MAGGIANO: Yes, ma'am.
REP. WATERS: So they do a lot of servicing --
MS. MAGGIANO: Yes, they do.
REP. WATERS: -- of their own loans that were originated by Countrywide, is that right?
MS. MAGGIANO: That's correct.
REP. WATERS: All right. Now having said that, you have a responsibility to ensure that the loan originator whose loans you are guaranteeing, and whose loans are being serviced by the same originator are doing a credible job.
MS. MAGGIANO: Yes --
REP. WATERS: And if not you have the ability to fine them, is that right?
MS. MAGGIANO: That's correct.
REP. WATERS: Now, tell me who you have fined in the last two years, and how much were those fines.
MS. MAGGIANO: Madam Chairwoman, I don't have that information with me, but I can provide it to --
REP. WATERS: Ms. Maggiano, have you fined anybody? I don't want you to put me off.
MS. MAGGIANO: Yes.
REP. WATERS: You have had some fines?
MS. MAGGIANO: There have been servicing violations --
REP. WATERS: Just one second, because this is in the record.
MS. MAGGIANO: Yes, ma'am.
REP. WATERS: My question to you is, are you aware, or do you know of any of your servicers who have been fined by you who were not in compliance with your rules and your guidelines?
MS. MAGGIANO: I personally cannot give you any names. However, we do have an aggressive servicing audit program. We audit servicers every 18 months --
REP. WATERS: Do you have anybody that's with you today who can help you with that information?
MS. MAGGIANO: I'm sorry, that I --
REP. WATERS: Did you bring anybody with you that could help you with that information?
MS. MAGGIANO: No, but I would be happy to provide it to the committee.
REP. WATERS: Do you think that there have been any fines?
MS. MAGGIANO: Yes.
REP. WATERS: About how many do you think there have been?
MS. MAGGIANO: Madam Chairwoman, I can't answer that question.
REP. WATERS: All right. But you do think there have been some?
MS. MAGGIANO: Yes, ma'am.
REP. WATERS: All right. That's very good, thank you.
Let me ask you also -- listening to Ms. Caden describe the servicing of the veterans leads me to believe that they may have guidelines for their servicers that maybe a little bit or much more directed and provided than you do.
Let me ask Ms. Caden, who are your servicers?
MS. CADEN: Like FHA we don't contract. The loans are guaranteed, so it's whoever is holding the loans. Countrywide is a big one, Wells Fargo has the most. They are our biggest servicer of VA loans.
REP. WATERS: And do you have the ability to fine?
MS. CADEN: I don't believe we fine. We do audit. We do look at what they're doing. What we're trying to do now is build a program of incentives and disincentives for doing proper services.
REP. WATERS: So right now, while you're trying to build a program for incentives and disincentives -- let's take Countrywide for example, have your audits shown that they were not doing a good job, or they could be doing a better job? Or did you caution them, did you do anything in working with Countrywide as a servicer to say something is wrong, we don't think that you're doing the kind of mitigation that we think can help people in their homes?
MS. CADEN: I would have to go back and look and see, but I don't think we have taken them to task. In fact, I think Countrywide has been doing an adequate job on the VA loans that they service.
REP. WATERS: That's why they have so many foreclosures?
MS. CADEN: Well, I don't believe there are so many foreclosures on VA loans, on the VA guarantee loans. It may be on other parts of their portfolio.
REP. WATERS: All right. I'm going to turn to the ranking member. But let me just say to both of you, you knew you were coming here today, and it seems to me you would have come armed with the kind of information that can help us to learn about how this business works.
Unfortunately, our regulators don't have any responsibility to regulate the services, and we have to learn the best way that we can, and we are pecking information out of people to learn this servicing business. And I really don't like the idea that you can't tell me how you monitor and oversight your services.
Ms. Capito.
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REP. WATERS: Thank you very much.
There are no other members here to ask questions.
We're going to thank our panel for being here today and thank them for helping us to learn more about how mitigation worked, particularly in their own agencies and helping us to understand the standards that you have set. We certainly are going to use these as guidelines as we talk to some of the other persons responsible for servicing.
Thank you very much.
Some members may have additional questions for the 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.
Thank you, and the panel is dismissed.
(Change in panel.)
REP. WATERS: I'd like to call our second panel to the witness table.
I'm pleased to welcome our distinguished second panel.
Ms. Tara Twomey, senior counsel, National Consumer Law Center; Ms. Julia Gordon, policy counsel, Center for Responsible Lending; Mr. Kevin Stein, associate director, California Reinvestment Coalition; Mr. Kenneth Wade, president and chief executive officer, Neighborworks; Mr. Jason Allnut, vice president for Credit Loss Management, Fannie Mae; Ms. Ingrid Beckles, senior vice president, Freddie Mac, thank you for coming today.
We will ask you to keep your testimony to five minutes. You do not have to read the testimony if you do not wish. You can basically concise it.
Ms. Tara Twomey, senior counsel, would you begin our panel?
BREAK IN TRANSCRIPT
REP. WATERS: Wow. Thank you very much, I'd like to yield to myself time to raise some questions. Before I get into some of the questions that I prepared to ask you, I need to be educated some more about this business. Let me ask Fannie and Freddie, you have underwriting standards, is that right?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And you have loan originators such as Countrywide, is that right?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And you buy the products, you buy the loans from Countrywide or you -- on the secondary market --
MS. BECKLES: Yes ma'am, those that meet our standards, yes, ma'am.
REP. WATERS: Those that meet your standards?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And some of those loans -- well, all of those loans -- all of your loans are serviced by Countrywide and others, is that right?
MS. BECKLES: By Countrywide and others, yes, ma'am.
REP. WATERS: So Countrywide is servicing some of the loans that they -- that you picked up from them?
MS. BECKLES: That we purchased from them.
REP. WATERS: That you purchased from them, they're servicing some of those?
MS. BECKLES: Yes, ma'am.
REP. WATERS: All right. What's -- they meet your standards for the loan origination?
MS. BECKLES: And for the loan servicing ma'am.
REP. WATERS: How does the loan servicing that they do for you compare with loan servicing they do on loans that they would keep in their portfolio, is there a difference?
MS. BECKLES: Well, I cannot comment to what they do on the loans that they keep in their portfolio or that they sell to other people, but they do -- are required to follow a very strict standard.
We monitor their performance, we actually model our loans loan by loan to predict their -- to determine their probability of default.
We put those into their call campaigns, they use our models to drive their call campaigns to make sure that we're reaching out to borrowers and then we compensate them when they do successful workouts to keep borrowers (in a home ?).
REP. WATERS: Describe to me how the loans that you have picked up from Countrywide perform in relationship to foreclosure, what's the percentages?
MS. BECKLES: One moment. I do not have specific lender percentages, I have some state information, but on the whole they're performing at par with their peer groups, I can tell you that, because they're one of our largest customers and we do look at our largest customer performance. So they're -- our loans are performing on par with our peer groups.
REP. WATERS: Well, that's not good enough, I need to --
MS. BECKLES: You want a overall --
REP. WATERS: Let me just say this --
MS. BECKLES: Our overall foreclosure rate is --
REP. WATERS: For Countrywide loans.
MS. BECKLES: If they're performing on par --
REP. WATERS: For Countrywide loans, that's all I want to know.
MS. BECKLES: Countrywide loans are performing on par, which is less than 100 basis points.
REP. WATERS: I want the exact information, and I guess, I'll have to write and ask you for it, because you obviously don't have it with you today.
MS. BECKLES: I did not bring lender specific information, ma'am, but I can certainly get that --
REP. WATERS: I'm going to ask, because this is important, we have a crisis out there in America, I've been -- not only in my own city, but in Cleveland, Ohio and Detroit, Michigan, where blocks are boarded up.
And other people who are living on those blocks, their values have been driven down, the homes are not being taken care of, they are being vandalized, we have a real serious problem.
MS. BECKLES: Yes, ma'am.
REP. WATERS: Obviously, Countrywide emerges big in this problem, you understand that.
MS. BECKLES: I do understand that, ma'am.
REP. WATERS: Okay. So it is reasonable with that coming here you would know that we want to ask you about your relationship with Countrywide and the performance level of Countrywide.
MS. BECKLES: Our relationship with Countrywide is very strong, they perform on par with their peers and that's a very good group of folks, are -- if they -- as they are a large customer, you would think that they would drive down our overall performance rates and they are not. So when I say that they're performing on par, they are not aberrant to our average 90 --
REP. WATERS: I'm going to ask you some specific information that obviously you don't have today, but let me ask you this, do you know whether or not the loans that were originated by Countrywide are originated by a combination of individuals that either are hired or contracted with by Countrywide in California.
For example, we have licensed and unlicensed brokers --
MS. BECKLES: Yes, ma'am.
REP. WATERS: Were your loans, any of your loans originated by licensed brokers with Countrywide?
MS. BECKLES: I'll have to get that information for you ma'am, I'm focusing on the servicing side, so I will get that information for you.
REP. WATERS: Let's get to servicing.
MS. BECKLES: Okay.
REP. WATERS: You have standards?
MS. BECKLES: Yes, we do ma'am.
REP. WATERS: And they are monitored?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And they are audited?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And you have written documentation on the auditing of the servicing that Countrywide is doing for you?
MS. BECKLES: Yes, ma'am.
REP. WATERS: And you can make that available to this committee?
MS. BECKLES: Yes, ma'am.
REP. WATERS: We shall require from you -- we will ask of Freddie and Fannie, to give us that information, we want to take a look at what you do now, how many times have you determined that Countrywide was not in compliance with your servicing standards?
MS. BECKLES: We haven't found that -- so -- okay, how many times have we determined. They have an acceptable rate of performance on our audit, that means that they do have some outliers just like any other mortgage servicer.
And when we found -- when we find outliers in the performance of the servicing duties, we develop work plans with them, we give them correspondence and we go on site and actually train them on how to improve or remediate that performance, their inability to service properly for us also affects their ability to receive the incentive compensation, because they will not perform well on their workouts stats if any of our servicers are not following --
REP. WATERS: Do they subcontract any of the servicing they do for you?
MS. BECKLES: I beg your pardon ma'am?
REP. WATERS: Do they subcontract any of the servicing they do for you? They service for you, do they hire other people, do they have contractual relationships with others that are doing servicing for you?
MS. BECKLES: As -- to my knowledge, Countrywide uses Countrywide's employees on the Freddie Mac portfolio.
REP. WATERS: Fannie Mae.
MR. ALLNUT: Same question?
REP. WATERS: Same question. Do they subcontract -- does Countrywide subcontract its servicing?
MR. ALLNUT: I've focused on the borrower contact aspect of who Freddie Mac -- who Countrywide uses for servicing and those are Countrywide employees?
REP. WATERS: So your answer is either you don't know or no, they do not subcontract out their servicing.
MR. ALLNUT: The portions of the work that they do that I oversee are not subcontracted out.
REP. WATERS: Okay, well, let's talk about the work that maybe you don't oversee directly, but because you're a smart employee, you know what goes on around you, do you know or have you heard that they subcontract out any of their servicing, have you heard any of that from anybody, somebody who sits next to you, works in the same area that you work, are doing what maybe you don't do, but it is connected to servicing?
MR. ALLNUT: No, I have not.
REP. WATERS: So you haven't -- you don't know, is that it?
MR. ALLNUT: No, I have not heard through conversations or elsewhere that Countrywide subcontracts out the servicing portion of their responsibilities.
REP. WATERS: Okay. For either of you, whether it's Countrywide or any of your other servicers, have you heard that it is -- they utilize foreign operations to do some of the servicing, have you heard that some of the servicing that's done by Countrywide or any of your other services is actually being done from India or any place else?
MR. ALLNUT: I have had conversations with servicing management at Countrywide relative to their desire to use offshore call centers for --
REP. WATERS: Not their desire, I don't care about their desire, I want to know whether or not they're doing it and whether or not you know about it.
MR. ALLNUT: I am not familiar with them doing it today. And I've voiced ma prospective that they not do so.
REP. WATERS: So you had a conversation with them because you heard they were interested in doing it?
MR. ALLNUT: I heard that there was a possibility that Countrywide was looking into off-shoring early borrower contact and voiced my concern and opinion that that was not in the best interest of our --
REP. WATERS: Okay, so they don't do -- you know that they don't do that for Fannie Mae, they're not doing offshore contracting for services, and same thing for Freddie Mac?
MS. BECKLES: Freddie Mac, yes, ma'am.
MR. ALLNUT: That is my understanding.
REP. WATERS: Okay, now I want to hear about the incentives.
MS. BECKLES: Okay.
REP. WATERS: You have alluded to incentives and this is one reason why you know that they're doing the best job that they could do. Would you explain those incentives to us?
MS. BECKLES: Certainly, ma'am. We measure our loans and model our loans based upon their probability of default. Those models are used to drive car campaigns.
Now, since we have access to all of our loan data and can track the progression of a loan, we can determine how well or how the loans are moving through their performing cycle as well as their default cycle.
We measure our services based upon their ability to mitigate losses to the borrower and to the organization. Servicers are ranked according to their effectiveness at doing this.
So on a loan by loan basis, we watch the population of loans that becomes early stage default such as, you know, day one after 30, and watch its movements through the pipeline.
And based upon our models we give them benchmarks that say, you should not be exceeding these thresholds and when you do you get disincented for exceeding thresholds at each of the major categories.
REP. WATERS: How do you get disincented?
MS. BECKLES: Pardon me?
REP. WATERS: How does one get disincented?
MS. BECKLES: The first way they get disincentive is that they don't get as many points. I know that sounds pretty mundane, but the points add up to their tier ranking.
If you maintain a tier 1 or a tier 2 standard, which is basically an industry standard, you are able to get delegations of authority, which means that you can respond to borrower situations more quickly.
REP. WATERS: Okay, let's back up.
MS. BECKLES: You're authorized to act on our behalf.
REP. WATERS: Let's back up, hold it for one second.
MS. BECKLES: Okay.
REP. WATERS: I think it's very important, because like I said, since we have no regulation --
MS. BECKLES: Yes.
REP. WATERS: -- of mitigation services, we don't know this stuff.
MS. BECKLES: That's fine, I'm sorry --
REP. WATERS: And --
MS. BECKLES: -- I did not mean to go so fast, I apologize.
REP. WATERS: -- when you talk about tier 1 or whatever else you just said --
MS. BECKLES: Yes, ma'am.
REP. WATERS: -- you're basically explaining to us, if you do a get -- good job, you get more flexibility.
MS. BECKLES: You get more flexibility --
REP. WATERS: To -- work out --
MS. BECKLES: -- to work out products --
REP. WATERS: -- and to do modifications.
MS. BECKLES: -- and to do other foreclosure alternatives, yes ma'am.
REP. WATERS: So that if they're in -- not in the top tier --
MS. BECKLES: Right.
REP. WATERS: -- as you alluded to, they are doing servicing and doing modifications with less flexibility and less authority.
And some of those people who they are servicing don't have the advantage of the flexibility, because this servicer is not in the right tier, is that right?
MS. BECKLES: Yeah, well, what happens unfortunately is that if they are in the lower tier, that means that they are not effective at mitigating losses and doing workouts for the borrowers.
And in those cases, we work with them to bring them back up. So we look at case files to understand why they're missing handouts. In many cases, the reason that a servicer is not able to catch a borrower before foreclosure is because sometimes they miss the handout between the collection call and the loss mitigation activity.
So we go through all of that with a fine toothcomb to help them see where they can harvest more borrowers who want to stay in their homes and have the potential to stay in their homes, do a workout or some kind of a foreclosure alternative.
REP. WATERS: Okay, I get it.
MS. BECKLES: Okay.
REP. WATERS: You don't have to go any further. And I'm going to -- Ms. Capito, I was out, have you not had an opportunity?
MS. : (Off mike)
REP. WATERS: I'm understanding more than -- I thought I was going to get out of understanding -- of trying to understand --
MS. BECKLES: Yes, ma'am.
REP. WATERS: -- how mitigation works. I have a lot more questions I'll ask some of the financial institutions that are here today.
But I'm more convinced than ever that mitigation needs regulation.
Ms. Capito?
BREAK IN TRANSCRIPT
REP. WATERS: Thank you very much.
All members have been -- Mr. Cleaver, you had your chance too.
Thank you very much, panel. Thank you for being patient and waiting for us to return after having gone to the floor. Actually, we could do this for hours because there's so much information that we need to learn.
I am pleased to have some of our consumer advocates here who are concerned about this area of servicing and who have gathered a lot of information. We will continue to work with you and get advice from you about what we can do to assist our homeowners in staying out of foreclosure.
To our friends here who do not think we need to do anything, let me just say that we're -- we have to pursue this. We have to pursue this because servicing is unregulated.
And it appears that the complaints are overwhelming about the lack of being able to reach anybody on the telephone, the lack of being able to talk with anybody before foreclosure actually takes place.
And also the -- what appears to be in some cases, we have to continue to investigate, that servicers are actually making a profit on foreclosures. So we have to continue to investigate this and see what we can do to provide some assistance to our homeowners.
Thank you all very much for coming.
We'll call our third panel up. The chair notes that some members may have additional questions for the panel that just completed this testimony. And we 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. The panel is dismissed.
(Change in panel)
REP. WATERS: And I'm welcoming our third panel. Let's see who our witnesses are here today on the third panel.
Ms. Faith Schwartz, executive director of HOPE NOW Alliance. Mr. David G. Kittle, CMB, president and chief executive officer of Principle Wholesale Lending Incorporated, Louisville, Kentucky, and chairman-elect of the Mortgage Bankers Association. Mr. Tom Deutsch, deputy director, American Securitization Forum. And Mr. Steve Bailey, senior managing director, Countrywide Financial.
I'd like to thank you for being here today. I'd like to ask you to present your testimony. You don't have to read all of your testimony. You can condense it and concise it. You'll have five minutes. And we'll start with Ms. Faith Schwartz.
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REP. WATERS: Thank you very much. Let me just take a few minutes here to raise some questions. I think it was -- Mr. Kittle just said -- talked about all of the support -- re-supporting the Barney Frank draft bill that would do a couple of things.
It would support FHA being able to refinance when there has been a write-down on a mortgage. I think it's about 85 percent and it would also appropriate maybe up to $15 billion that would go to cities and maybe counties and states in order to assist in purchasing foreclosed properties, rehabbing them, and putting them back in the market, have you taken a look at that?
MR. KITTLE: Yes, Ma'am and we are still considering it. We have not come out with a position on it yet. But we worked very closely with Congressmen Frank over the years and have a great relationship with him.
REP. WATERS: So you are not supporting the bill as of now?
MR. KITTLE: We have not come to an opinion either pro or con for it.
REP. WATERS: Ms. Schwartz?
MS. SCHWARTZ: Yes.
REP. WATERS: Did you -- did I hear you in your testimony say you sent out 1.2 million notices, alerts of some kind?
MS. SCHWARTZ: The servicers agreed under HOPE NOW letterhead to send out to at-risk borrowers who they have not been able to contact 60 days or later in delinquency of a no-contact borrowers and we sent in 4 months 1.2 million letters to those borrowers at risk of foreclosure, yes.
REP. WATERS: And that's the same number of borrowers that you have been able to help, 1.2 million?
MS. SCHWARTZ: Yes, in aggregate and what we are measuring that is from July through February just to get a snapshot where the market was and where it is today and what's moving to the loss mitigation. So those are additional at-risk borrowers who could be going into foreclosure.
REP. WATERS: Now, let me see if I understand how you work. We have an alliance of the financial services industry which includes some non-profits -- you know, banks securitizes everybody.
MS. SCHWARTZ: Right.
REP. WATERS: And do you think that you are doing an adequate job without any government support or intervention?
MS. SCHWARTZ: I think for an industrial alliance that's come together and working towards it --
REP. WATERS: No, no, no. Do you?
MS. SCHWARTZ: Yes, I think we are doing an adequate. Can we do better? Sure.
REP. WATERS: So you don't think that the government needs to do anything more like Mr. Frank's bill that would get these properties rehabbed and back on the market, helping to stabilize the market with the support of government, you don't think you need that?
MS. SCHWARTZ: You know, I actually don't come in in any of the legislations because I represent a very broad variety of people in what I do. My job is to keep HOPE NOW focused and what we can do today with phase laws and we've been watching together.
REP. WATERS: Well, everyday and I don't know what the numbers are, I wish someone would tell me. Everyday we are getting information about increased numbers of foreclosures. It seems there is no end in sight and you think you are handling that well enough and the American people should be appreciative and understand that because you are doing a great job.
MS. SCHWARTZ: Actually in our testimony, I was quite clear that it was not a silver bullet.
This is about people coming together and seeing what we can do to do better and raise standards and bring more focus on the contacting borrowers who are not calling their servicers, working with housing counselors who will help --
REP. WATERS: Where did you get your numbers from about how many people you have served? Some of the organizations that you work with, you have asked them, some of the non-profits, others, you have asked them. How many "what" did you do? How do you compile that?
MS. SCHWARTZ: The actual loss mitigation data is from the HOPE NOW servicers who is comprised of the majority of the mortgage market. This is the most comprehensible set of mortgage industry data in loss mitigation that's available. And it's a voluntary alliance and I see it in aggregate and it is released monthly and will have state and national data. I am happy to walk through that any time with you.
REP. WATERS: Well, I am not so sure I want to do that because it's not audited information. I mean, I've asked some of our regulators. How do you know what HOPE NOW is doing? How do you document that? How do you audit that? Nobody is able to tell me how it's done. And I am getting some disjointed information about how you collect the information. First of all, you are telling me that you basically get it from the servicers --
MS. SCHWARTZ: Yes.
REP. WATERS: -- who tell you what they are doing. And from others, who tell you what they are doing, a combination of the counseling and the modification that have been done some of the non- profit and the workouts in modification that have been done by the services. This is where you are compiling this information?
MS. SCHWARTZ: That's right.
REP. WATERS: All right let me go over something. You state that 5,607 of 80,652 subprime armed rescheduled to reset in January or February are not paid in full through refinancing or sale, received loan modification. And 60 percent or 3,334 of them received modifications of 5 years or longer.
MS. SCHWARTZ: Uh-huh.
REP. WATERS: And I guess I have two questions. First do you think that a rate of long-term loan modifications of subprime armed of percent, 3,334 out of 80,652, is sufficient to stem the tide of foreclosures?
MS. SCHWARTZ: Well those numbers, Chairman Waters, are because the rate environment has decreased and that was based on the streamline modification that Tom Deutsch has testified to. We can do more and we want to do more. But we are trying to report every month no matter what the data says. So, whether we will be disappointed or not disappointed, we are going to report the actual data. So we inform the public and inform Congress and everyone what's going on in the market.
I think that is additive. I think 5,000 borrowers who get a modification is better than no borrowers getting one under those circumstances. And more importantly, we show in January and February that modifications and repayment plans were exceeded 300,000 loans for prime and non-prime borrowers.
REP. WATERS: Let me stick with the arms I am talking about. What evidence do you have that the remaining 77,318 resetting arms, which presumably are subject to repayment plans some other loss mitigation offer or nothing at all are affordable for the short or long term for the borrowers?
MS. SCHWARTZ: Well, all of the repayment plans under modifications are presumed to be affordable because it is between the borrower and the servicer and their reworking loans so that they can be sustainable.
It's in no one's interest to have a re-defaulted modified loan or a short-term repayment plan. For servicers, it's a high cost to keep going back time and time again. And they will go back if it re- defaults to look at another solution, but it's in no one's interest not to have the first time to get it right.
REP. WATERS: Let me go to Countrywide and ask you. You heard a description from Freddie Mac about its servicing arrangement that they have with you and they talked about the tiered system. Are you familiar with that?
MR. BAILEY: Yes.
REP. WATERS: And how many tiers are there in the contract?
MR. BAILEY: There's four possible tier ranking.
REP. WATERS: Describe those tier arrangements to us.
MR. BAILEY: They are generally stem off of points that you receive for different levels of effectiveness within a range of different servicing functions. So you receive points for or points against based on your performance in those different categories. And then depending on how many points you receive, it adds up to which tier he would achieve.
REP. WATERS: Okay, what do you receive points for?
MR. BAILEY: Things like doing effective workouts, staying effective in the foreclosure process, reporting, things of that nature.
REP. WATERS: What you have is a tiered system, and I can't tell from talking with you right now what the incentives or disincentives really are, but you get some points. And if you are high up in the system -- the tiered system, you get points, but if you are -- you get a certain number of points.
But if you are low in the system, and you are not getting the points, let's say that that means you are not doing a good job, whatever a good job is. But the people that you service don't know whether or not you are good, bad or indifferent. But those people just get bad services. Those people don't get fired. They don't get the contract separated. You just go and work with them and try and make them better. Is that what you do?
MR. BAILEY: What Freddie Mac would do with us or any servicer, first the incentive reimbursement that you would get, for example, for doing workouts, if you are the top tier, you get the full reimbursement.
REP. WATERS: Are you getting paid because you have stopped a foreclosure?
MR. BAILEY: Yes, essentially if you do effective servicing Freddie Mac, you are entitled to those incentives.
REP. WATERS: No, no, that's not my question. My question is, are you getting paid because you have stopped a foreclosure or are you getting paid because the criteria that is evaluated shows that you did a good job whether you stopped a foreclosure or not?
MR. BAILEY: No, one of the key measurements is stopping foreclosures. It's performing low workouts compared to the foreclosures that precede.
REP. WATERS: Are these tiers spelled out in the contract?
MR. BAILEY: Yeah, they are clear.
REP. WATERS: Okay, I would like to request from you copies of the contracts that you do with Freddie and Fannie.
MR. BAILEY: Sure.
REP. WATERS: And they should be one and the same.
I think I have one more question that I would like to -- well, I won't raise a question at this time. We have other members who need to ask questions. Mr. Green
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REP. WATERS: Thank you very much. I do want to -- just one thing, is there a fee for modification of workout to the borrower, from anybody -- servicers?
MR. : Yeah, now especially in subprime there is no modification.
REP. WATERS: No, no -- just, don't -- (inaudible). Is there a fee for modification to workout?
MR. : There can be a fee in some investors, yeah.
REP. WATERS: Thank you very much.
Let me just thank all of you for your testimony. We are learning a lot. We have lots more questions. We will continue to have more hearings. The Chair notes that some members may have additional question 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 question to these witnesses and to place their responses in the record.
I thank you. The panel is dismissed. But before we adjourn, the following written submissions will be made part of the record of this hearing: a letter of support for H.R. 5679 from various consumer laws, civil rights and other organizations; statement of the American Banker's Associations; statement of Professor Kate Porter, University of Iowa; and statement of the National Alliance of Community Economic Development Associations.
And we will have staff (off mike) provide those submissions. Thank you very much. The hearing is adjourned.
(Sounds gavel.)
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