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
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REP. AL GREEN (D-TX): Thank you, Madam Chair, and thank you to the Ranking Member as well.
I am pleased to be here today and honored to be here. I was pleased to be in California when the subcommittee met, and we dealt into these issues, and it was quite revealing because we had persons who actually had experiences who were sharing with us their personal stories.
I am looking forward to hearing some of the concerns that were raised at that hearing, addressed at this hearing. We heard concerns with reference to loss mitigation and the whole question of whether or not there is an incentive to perform loss mitigation or is there an inducement not to perform loss mitigation. That's a serious question that has to be addressed.
Also we heard concerns about Hope Now, and the clarion call from the persons that we talked to was an indication of a need for Help Now, and the question became whether Hope Now was going to become a cure, or was it some sort of allure, was it a long-term cure, or was it a short-term allure that would get persons to sign certain documents that might cause them to find themselves in a position that would not be to their best benefit in the long term, but doing so because there was short-term gain, meaning that they could stay in their homes for a little while longer.
Also concerned about the whole question of tranche warfare, tranche warfare. Apparently there are some tranches that hold positions that are antithetical to allowing some sort of settlements, some sort of restructuring to take place, because they have these superior positions and foreclosure in effect can benefit some persons in certain tranches.
So you have this tranche warfare, higher tranches having one position, lower tranches having another position. These are the kinds of concerns that I think we have to address at the hearing but we need -- pardon me, we need a bill, we need some sort of act of Congress to ultimately propose solutions for the questions that we can address at a hearing, but we cannot resolve without an actual piece of legislation from Congress. And I yield back the balance of my time.
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REP. GREEN: That's quite all right. Thank you, Madam Chair.
Let me start by making a basic statement, and hopefully I can get some agreement on it. Is it true -- and I'm speaking to the representative from HUD. And if you would kindly pronounce your last name for me.
MS. MAGGIANO: Maggiano.
REP. GREEN: Ms. Maggiano. Is it true that while you do not have a perfect paradigm you have perfected a paradigm that produces lower foreclosures in your opinion?
MS. MAGGIANO: Yes, sir.
REP. GREEN: And is it true that the reason you believe this paradigm works as effectively as it does is because the basic premise that it is built upon is one of home retention?
MS. MAGGIANO: Yes.
REP. GREEN: And is it true that you have a contractual agreement with your servicers, a codified agreement, that requires certain things if a borrower falls into the class of possibly being foreclosed upon.
MS. MAGGIANO: Yes.
REP. GREEN: And would it -- would these things that are codified, that must be done, include special forbearance, mortgage modification, partial claim adjustments, pre-foreclosure sales, and deeds in lieu? Would these be the essence of what must be done when -- or options that are available, as opposed to foreclosure?
MS. MAGGIANO: Those are certainly the options that are available. It's important to make a distinction that we delegate to servicers the responsibility to evaluate the borrower --
REP. GREEN: Agreed. Agreed, but let me recede, you also have something else. Along with that delegation you have the power to punish.
MS. MAGGIANO: That's correct.
REP. GREEN: Now, that is for an FHA loan.
MS. MAGGIANO: Yes, sir.
REP. GREEN: Let's talk about a loan that is not FHA. Let's for our conversation call it conventional. In the conventional market do we have the same paradigm in place? I assume your answer would be no. Same paradigm as FHA.
MS. MAGGIANO: FHA has no authority --
REP. GREEN: I agree with you. I'm not asking now whether FHA has authority. I'm asking if the paradigm that FHA employs is the same paradigm that's employed in the conventional market. Maybe it should be reversed, is the conventional market paradigm the same as FHA's? And I assume your answer is no.
MS. MAGGIANO: No, actually it's not no. All of these loans that are -- where Freddie Mac and Fannie Mae are an investor, those loans also are subject to very, very similar loss mitigation programs with oversight and monitoring by the GSEs. As a matter of fact we have --
REP. GREEN: Is the power to punish there?
MS. MAGGIANO: Yes.
REP. GREEN: Is that power to punish employed?
MS. MAGGIANO: You'll have to ask the representatives of the GSEs when they speak.
REP. GREEN: So in your opinion, the paradigm that includes special forbearance, mortgage modification, partial claim, pre- foreclosure sale, deed-in-lieu, is the same paradigm being employed in the conventional market?
MS. MAGGIANO: Not exactly the same, a similar paradigm.
As I mentioned in my remarks, partial claim is a rather unique workout structure that until very recently was really only employed by FHA, and Fannie Mae has adopted something not exactly the same but similar. But both of the GSEs have very strong and aggressive workout toolboxes and they do monitor --
REP. GREEN: Then question becomes -- if I may, the question becomes, if the paradigms are the same or similar why are the results so vastly different?
Your contention might be that you received a product that is not the same as the product that the GSEs received. Is that a fair statement?
MS. MAGGIANO: Yes.
REP. GREEN: Meaning 327s, 228s, prepaid penalties, no-doc loans, you did not receive these products, is that your contention?
MS. MAGGIANO: That's correct.
REP. GREEN: And as a result of the lack of products your contention is that the results are different.
MS. MAGGIANO: I believe that would be my conclusion. Yes.
REP. GREEN: Do the GSEs, by way of these conventional loans, do they monitor the servicers to the same extent that you do? You have indicated clearly that you have a very close relationship with the servicers.
MS. MAGGIANO: Yes.
REP. GREEN: Do we have that same circumstance?
MS. MAGGIANO: I don't wish to speak for the GSEs, they will be testifying later in the morning --
REP. GREEN: Would that circumstance -- would that monitoring make a difference, in your opinion?
MS. MAGGIANO: Monitoring always makes a difference. Yes.
REP. GREEN: And finally, if I may. Tell me quickly about your debt to income residual analysis, please.
MS. MAGGIANO: Were you referring to VA or -- I didn't mention debt --
REP. GREEN: My time is up, and I will yield back. Thank you.
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REP. GREEN: Thank you, Mr. Chairman, and I commend you on how well you're -- you have acclimated to your new station in life. Let me ask questions to the panel as a whole if I may, and if you would, you may respond by raising your hand.
Does everyone agree that aside from FHA and the GSEs we have other institutions that are involved in this market what we are calling subprime that are making loans and that are having homes foreclosed on, and that these institutions -- well, let's just find out if you agree that that market exist.
(Sounds gavel.)
REP. GREEN: If you agree that it exists, would you raise your hand please?
Okay. Is there anybody who doesn't agree that it exists? Yeah.
MS. : I'm --
REP. GREEN: I'm asking you aside from conforming -- conventional loans, do you also have non-conventional conforming --
MS. : And the answer is, yes.
REP. GREEN: -- conforming non-conventional. Okay.
MS. : The interesting -- but let me just say that the -- what's interesting is that Countrywide, or Wells Fargo, or any of these lenders that you've heard service for GSEs and service for Fannie and FHA also service the subprime loan.
REP. GREEN: I understand.
MS. : Okay.
REP. GREEN: Okay. But we all agree that they exist. I just want to make sure that there's no -- nobody assumes that they don't exist. Okay, for the record --
MS. GORDON: Correct. Let me add one other --
REP. GREEN: Well, let me just do this, for the record all persons agree that they exist.
Do you agree that there -- a substantial number of foreclosures are in this market? Everybody agree, raise your hand if you would, please. This is going to be -- good.
For the record, everybody has raised their hands.
Do you agree that this market is, when compared to FHA and the GSEs, not nearly as regulated. Do you agree? That they are not as regulated as FHA and GSEs Do you agree that they are not regulated?
Yes, (Ms. Homes ?) do you agree that they are not regulated? Excuse me -- Ms. -- that is Ms. Beckles. Do you agree that they are not regulated to the extent that the GSEs and FHA?
MS. BECKLES: Based upon the outcome they appear not to be.
REP. GREEN: Okay. Well do you have any empirical evidence of actual regulation?
MS. BECKLES: I don't spend time studying the other markets --
REP. GREEN: So your answer would be no you don't have it, is that correct?
MS. BECKLES: I do not have empirical evidence --
REP. GREEN: Evidence. All right, that'll be sufficient. Thank you.
I did not hear from Mr. -- is it -- Allnut. You did not respond.
MR. ALLNUT: Yes, Allnut. I have no empirical information one way or the other --
REP. GREEN: -- as to whether they are regulator or not?
MR. ALLNUT: -- other market especially.
REP. GREEN: Okay, now, given that you have no empirical evidence, Mr. Allnut, why do you defend that which you have no empirical knowledge of?
And I would ask the same thing of you, Ms. Beckles. You have no empirical knowledge of their regulations, but you defend the notion that they should be regulated or am I incorrect and you do not defend?
MS. BECKLES: I'm not making that assumption --
REP. GREEN: Excellent. Okay, you do not defend. So then let me ask now of the entire panel if they are substantially unregulated when compared to the others, would you agree that some regulation can be of help? If so would you kindly raise your hand?
Okay, I have three persons. Are you a "yes," or a "no," or a "maybe?" That would be Mr. Wade, is that right?
MR. WADE: Yeah, I just wanted to clarify that the way we experience it there's no question, the inconsistencies create a challenge for the consumer and those trying to help the consumer.
REP. GREEN: I understand.
But do you agree that if all markets were regulated to the extent that FHA was regulated that we would probably have fewer foreclosures?
MR. WADE: Well, I do agree that if --
REP. GREEN: If you would give me a -- you know what -- how FHA is regulated?
MR. WADE: Absolutely.
REP. GREEN: Would we have fewer foreclosures?
MR. WADE: If the same products --
REP. GREEN: If the same -- well, FHA requires the same products.
MR. WADE: Right, I see what you mean.
REP. GREEN: Okay. So -- and my question is --
MR. WADE: If the other products were not --
REP. GREEN: -- assume whatever you like as it relates to FHA, but if they were regulated to the same extent that FHA is regulated, would we have fewer problems?
MR. WADE: There would be fewer problems.
REP. GREEN: Okay. So now I've got -- you -- again, let me ask, do you think that some regulation would help these markets -- this market that is apparently not regulated to the extent that FHA and their GSEs are regulated. If you -- so would you raise your hands please?
Okay, now we'll get back to Mr. Allnut. Mr. Allnut, you have no empirical evidence of what their reg -- their standards are, yet you conclude that no regulations should apply to them, is this correct?
MR. ALLNUT: No, that's not my conclusion --
REP. GREEN: Well if it's not your conclusion and I say "some regulation," and you don't agree with "some," then "some," would include a scintilla to some large amount. But you don't -- I have to conclude that you wouldn't even want a scintilla of regulations.
MR. ALLNUT: That's not my conclusion.
REP. GREEN: So you would want "some"?
MR. ALLNUT: What I am suggesting is that the regulations that that Fannie, Freddie, HUD, VA abide by has to do with the products that are available to the marketplace and had those same regulations been applied to this other category that you're talking about, many of the products that are out there right now would not be out there and could have a positive impact on the rate --
REP. GREEN: Okay, well, then you're in agreement with me there? Okay.
MR. ALLNUT: It -- yes.
REP. GREEN: Okay. All right. For the record, Mr. Allnut is in agreement. Okay.
Now, let's go to Ms. Beckles. Is it your opinion, that there should be no regulations with reference to this market?
MS. BECKLES: Freddie Mac's opinion is probably that there should be some form of --
REP. GREEN: Okay, well, then if you say "some," then you -- your hand should have gone up with the others.
MS. BECKLES: Well, I think there's a difference between regulations, statutory requirements and oversight.
REP. GREEN: Okay, well, in your mind define it however you like, should there be some regulation?
MS. BECKLES: There should be something.
REP. GREEN: Something, what -- can we call that thing regulation?
MS. BECKLES: I'm not sure how you're going to define regulation, there should be something --
REP. GREEN: You define regulation in your mind as it relates to your business and then apply it to this question. Some regulation of the market that has a overwhelming majority of problems, should there be some?
MS. BECKLES: I believe that there should be oversight and consequences.
REP. GREEN: Okay, does oversight entail regulation and consequences, isn't that a form of regulation? Is -- let me ask you this, is it hard to say "regulation," as it applies to this market?
MS. BECKLES: It's hard to say "regulation," when -- at times "regulation" is taken with a broad brush and does impede practical business --
REP. GREEN: Okay, but I'm not -- let's not talk about impeding practical business, let's just talk about a market that we conclude has not been regulated to the extent that FHA has, and whether there should be some regulation given that this is the market where we have the problem, should there be some?
MS. BECKLES: There should be some -- oversight and consequences of management.
REP. GREEN: Okay, I'm going to define oversight and consequences as regulations, with that definition, should there be some regulations?
MS. BECKLES: Yes, there should.
REP. GREEN: Thank you. And I'll yield back, Madame Chair
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REP. GREEN: Thank you, Madam Chair.
Let me go quickly to Mr. Deutsch. Am I pronouncing that correctly sir?
MR. DEUTSCH: Correct.
REP. GREEN: Okay, Mr. Deutsch, good to see you again. We were together in California.
MR. DEUTSCH: Good to see you.
REP. GREEN: You talked about the 327s the 228s and you mentioned LIBOR and how under the current conditions with LIBOR having declined to the extent that it has that this means that when the arms adjust that persons will be -- some paying lower than they actually are paying currently and you seem to indicate that this has -- this will act as a means by which the mitigation that we are looking for will take place and hence things are getting better and no need to do more.
My concern with your perception is this, the 327s and 228s don't end right away. We are talking about 27 additional years of adjustable rates or 28 additional years of adjustable rates and as a result if we don't do something now when these loans can adjust and have them refi into a fixed rate, all we do is -- say, you are really doing well now, but two years from now, you could very well be paying twice the rate that you are paying currently. Do you agree?
MR. DEUTSCH: I agree and that's why I would say currently right now the American Securitization Forum is working feverishly to put together a proposal where our frame work would be extended to where not only would existing rates, but of LIBOR rates were to raise again on a subsequent rate --
REP. GREEN: Okay. Well, I am glad you said that because you left the impression with me, and I suspect many others that because of the current conditions, the 327s and 228s were going to be okay. They are really not okay. And we agreed that they are not okay; there's still a problem there.
All right, you and I are familiar with the terms trench warfare, aren't we?
MR. DEUTSCH: Correct.
REP. GREEN: All right. And you and I agree that in trench warfare we have some people who have positions that are superior to others.
MR. DEUTSCH: Correct.
REP. GREEN: And those people who have positions that are superior to others, there are some who literally don't take the same -- to use some highly technical terminology -- the same hit that others will take if foreclosure takes place. True?
MR. DEUTSCH: Correct.
REP. GREEN: And when this occurs, then you have the trench warfare which means that you have people in different trenches who are at odds with each other.
MR. DEUTSCH: Correct.
REP. GREEN: And some will say I am really not eager to see you do anything to adjust the loans such that it impacts my position because I paid more money to have a superior position and if it goes to foreclosure, I really don't want to see that happen. I love everybody, but I've already taken care of that by locating myself in a superior trench. True?
MR. DEUTSCH: Is that a question?
REP. GREEN: Yes, isn't that true?
MR. DEUTSCH: Well --
REP. GREEN: Because even in a superior trench, you may not be -- you can withstand foreclosure to a greater extend than a person in a inferior trench.
MR. DEUTSCH: I think the general characterization is accurate. I would say that there is two things that are different from that characterization though. I think, one is that a servicer who is acting on behalf of all of the security holders is making that decision and they are doing that on the best interest of all the security holders.
I think secondly, most of the loss triggers have been breached at this point. So it is irrelevant as to whether you would foreclose or not. The people in the lower trenches effectively will have nothing.
REP. GREEN: Exactly. But the people in the superior trenches still have a vested interest.
MR. DEUTSCH: No, I would disagree because --
REP. GREEN: You are saying that people in the superior trenches don't have a vested interest?
MR. DEUTSCH: I would say the lower rated trenches --
REP. GREEN: Vested interest is -- (cross talk.)
MR. DEUTSCH: The lower rated trenches at this point have been extinguished. So there is no trench warfare between somebody who's interest has been extinguished or superior.
REP. GREEN: You are saying that there is no trench warfare because you don't have two --
MR. DEUTSCH: You don't have two people fighting. You have one person left and --
REP. GREEN: Yeah, you don't have two people fighting. I agree. I agree. But let me go on quickly. In that sense, yes. But in the sense that the person who still remains has an interest, do you agree with that?
MR. DEUTSCH: The person who remains has a very strong interest in avoiding foreclosure.
REP. GREEN: Exact. Strong interest of avoiding foreclosure. But if foreclosure takes place, that person still has some benefit from the foreclosure -- some benefit, not 100 percent of what the person may have had invested.
MR. DEUTSCH: Well, they'll still receive some proceeds, but they are a lot lower proceeds than the loan would perform.
REP. GREEN: Yeah. I understand.
Okay, let me quickly now to another point. With reference to ex post facto regulation, Mr. -- is it Bailey?
MR. BAILEY: Yes.
REP. GREEN: Okay, Mr. Bailey, you oppose Ex Post Facto regulations, right? Ex post facto meaning after the fact regulation.
MR. BAILEY: Yes, since you --
REP. GREEN: Okay. All right. Just for edification purposes, would you oppose -- you opposed it because you don't want to infringe upon contracts that are already made, right?
MR. BAILEY: It would make it difficult to enforce that.
REP. GREEN: Okay, well just for edification purposes, what about regulations that is not ex post facto? Do you oppose that as well?
MR. BAILEY: I don't mean to run on, I'll say no I don't. But I would back up. Regulations --
REP. GREEN: I only have a little bit of time. So you -- ex post facto you oppose. But if it's not ex post facto, you may be able to live with some kind of regulations that is not ex post facto.
MR. BAILEY: Yes. Absolutely.
REP. GREEN: Okay, Mr. Deutsch, you would be able to live with some that is not ex post facto?
MR. DEUTSCH: I would agree if on a going-forward basis, you are looking for something that makes sense.
REP. GREEN: Okay.
Madam Chair, could I ask one more question?
Okay. To Countrywide, quickly, I what to ask you in your servicing portfolio, what percentage of it emanates from GSE?
MR. BAILEY: If I combine GSE and FHA, VA, prime, it's over 90 --
REP. GREEN: Just the GSE -- I want the GSEs segregated along with the FHAs. Put them in one lump in the VA, and then the others.
MR. BAILEY: Okay. Well, are you trying to get after what is subprime?
REP. GREEN: Yes.
MR. BAILEY: Okay. Subprime makes up about 8 percent of our portfolio.
REP. GREEN: Eight percent? That 8 percent is not performing as well as the FHA and those that are through the GSEs, is that correct?
MR. BAILEY: Correct.
REP. GREEN: Okay. And sometimes when we talk about these things, we tend to confuse these with our questions and our answers which causes us to have a convoluted opinion as to what is really happening in your portfolio, true?
MR. BAILEY: True.
REP. GREEN: Okay. Thank you.
REP. WATERS: Thank you very much.
REP. GREEN: I yield back my time.
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