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. KEITH ELLISON (D-MN): Thank you, Mr. Chair for -- Madam Chair for having this important hearing.

Ms. Maggiano, and Ms. Caden, one of the major goals of H.R. 5679 is to ensure that loss mitigation efforts by servicers result in offers to distressed borrowers. Be they repayment plans, loan modifications, or some other option that are sustainable for the longer term.

The key to such long-term sustainability, it seems to me, is whether the resulting payment plan is affordable to the borrower. Borrowing some other is significant drop in income.

Can you help me understand if and how HUD and VA make this evaluation for their servicers?

MS. MAGGIANO: FHA has a financial evaluation requirement. And servicers, when they are evaluating a borrower for any of the options, even if it's a pre-foreclosure sale, or a deed-in-lieu, must gather the borrower's income and expenses, and use that in a formula that we have published in writing to calculate what we call surplus income.

And that is the income over and above their household living expenses and their other debts like car payments that they need to make, that they have available to support a repayment plan.

It is not acceptable in FHA to put a borrower into a repayment plan if you cannot demonstrate that they have sufficient surplus income to make that plan.

REP. ELLISON: And I wonder if -- you know, if you could just perhaps make -- put a finer point on your response. And now wondering if you could be, you know, very concrete in describing the debt to income and residual income analysis your agencies undertake in determining whether a particular loss mitigation offer is workable?

For example, I've heard that the VA requires that at least $200 in residual income be left over after a borrower's household expenses including payments on all secured and unsecured debt are taken into account. And that would be a good standard across the industry.

So could, you know, both of you provide details of your agency's DTI and residual income analysis for loss mitigation?

MS. CADEN: I would be happy to provide that in more detail for the record. But basically, we don't have a standard such as the one you mentioned of the $200. There is no hard and fast rule, and residual income is looked at as a guide.

It's mainly used -- both residual income and the debt to income ratio -- at time of loan origination.

That's part of the underwriting standard to make sure a veteran can afford the loan they are attempting to get for the house they are trying to buy.

We would expect servicers to use those same guidelines. But there is no hard and fast rule about the $200 over or under.

REP. ELLISON: Thank you very much.

And I had some more questions right in front of me and they just disappeared. I don't know what happened to them. I've got too much stuffs in here I guess.

You know, I do have a question I did want to ask you that I didn't write out and it's off the cuff. And that is -- so FHA does -- you know, has a requirement to do this mitigation services.

Other than the FHA. But what about the rest of the industry? You guys only address about 60 -- 40 percent of the industry. Am I right about that?

Do other -- what other incentives are in place for, you know, the non-FHA mortgages? The -- those trusts that -- those PSA trust to do loss mitigation?

MS. MAGGIANO: Again, FHA provides loss mitigation for FHA insured loans only.

REP. ELLISON: Right.

MS. MAGGIANO: The GSEs have similar programs for all of the loans that they either own or securitize -- that are securitized through them. And then there -- I'm not aware of any formal overarching loss mitigation program for loans that don't fall within those categories.

However most of the investors also -- it's clearly in their interest to keep borrowers in their homes, so there are loss mitigation requirements in many of the trusts --

REP. ELLISON: You know, I guess, one of the reasons that I was, kind of, surprised when it sounded like -- you know, there was the provision, the so-called cram-down provision -- I'm sure you guys know what I'm talking about -- when we were going to try to give bankruptcy judges the power to restructure debt going forward on a primary residence. There is a lot of resistance to that.

My thought would be, you know, why would there be resistance to that? I mean, we want people to stay in their homes, and when -- and most people, well, out of their own incentives, try to -- try to do loss mitigation.

But for those who don't -- I mean there is a social purpose in trying to make sure people can stay in their homes. Why then doesn't Congress have -- why wouldn't this be a good idea?

Why -- where would -- could you help me understand some of the pushback. Not that it's your responsibility, but just in terms of your expertise in the field? Would you mind sharing your ideas on that with me?

MS. MAGGIANO: Well, I believe the primary objections that I have heard are that that would, sort of, undermine the sanctity of contracts and prevent mortgage originators from being willing to enter into contracts over which they thought other people then had control.

REP. ELLISON: But you know, we've always --

(Sounds gavel.)

REP. ELLISON: I think I'm done.

MS. : Thank you.

REP. ELLISON: Thank you.

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REP. ELLISON: We are under a short time, so I am just going to go quick.

Ms Schwartz, questions -- a few questions about HOPE NOW. HOPE NOW data reveals that about 1.8 million loans were delinquent by 60 days or more during the first two months of 2008, and about 346,000 went into foreclosure. However, only about 114,000 received modifications. That means that more than three times as many borrowers entered foreclosure as received loan modification. Further, HOPE NOW projects that more than ($) 2 million loans are estimated to enter foreclosure in 2008, a 37 percent more than 2007. Does this not suggest to you that the administration's program designed to address this crisis are just a wart by the sheer magnitude of it?

MS. SCHWARTZ: Well, we are clearly in a crisis and there is a magnitude of housing issues to address. I would like to clarify two things. I think you are confusing foreclosure starts with actual foreclosures. Less than 50 percent of loans that go to foreclosure starts to go into foreclosure, the foreclosure sale. So actual workout exceeds foreclosures monthly and certainly year-to-date, that's the case.

This is -- while the administration Secretary Paulson and Secretary of HUD strongly urged the industry to get together, I would like to comment that this is -- there is no money from government and thus this is everyone coming together. We do have an industry trade groups coming together, we have dispirit interest who seemingly didn't always talk, talking together. We have workshops with nonprofit counselors.

REP. ELLISON: On that score --

MS. SCHWARTZ: Yeah.

REP. ELLISON: -- can you share a data or provide data on who is paying for the services provided by HOPE NOW? Is that published data?

MS. SCHWARTZ: No, the only collections for HOPE NOW is from the server service and it's a very lean overhead; there are only three of us that are on payroll. This is all a voluntary effort with --

REP. ELLISON: Right, I know that, but who -- so who are the three services I --

MS. SCHWARTZ: No, no, all servicers pay --

REP. ELLISON: Okay.

MS. SCHWARTZ: -- a nominal fee really to make sure that we have -- someone is helping coordinate the effort. All of the committee work, all of the heavy duty resources comes from the industry, across the industry, to chair the committees, et cetera, to keep us moving in the same direction.

REP. ELLISON: Okay. So I guess -- I guess my question is that, so --

MS. SCHWARTZ: Oh, I -- yeah, I just like to add, servicers also do pay for counseling sessions and we're working with the investor market to also embed a new model to pay for servicing in the market in addition to the government funding that's come.

REP. ELLISON: I'm just asking, could -- do you have a list of which services and how much -- servicers and how much they contribute?

MS. SCHWARTZ: I have a list of servicers and the --

REP. ELLISON: That's fine.

MS. SCHWARTZ: -- fee ranges, yeah.

REP. ELLISON: To share with --

MS. SCHWARTZ: -- 27 services.

REP. ELLISON: Okay. Well, we'll get together and get that there.

MS. SCHWARTZ: Okay.

REP. ELLISON: And then my last question before we got to run, is in your recent press release, you indicated that ($) 1.2 million loan workouts have been completed by HOPE NOW servicers since July 2007.

MS. SCHWARTZ: Right.

REP. ELLISON: How many of these workouts were permanent loan modification?

MS. SCHWARTZ: You know, I don't have that data but a recent survey on the 228 and 327 armed from February backwards, we requested that the servicers tell us how many of those are five years or greater and we did get over 60 percent in that number.

But just a point to make on that, whether it's two years, three years or five years, if that has taken a pause and foreclosure has adjusted or someone has been in foreclosure and now is in a modification, a servicer can go back and will go back if circumstances need to to go and work with that borrower two years later, if need be.

REP. ELLISON: Now, you will now provide me with the information on how many were permanent loan modifications?

MS. SCHWARTZ: As I said, I'm sure I have a 60 percent or greater of the survey I took where I have no loan level data on that.

REP. ELLISON: Okay. Well, we've have got three minutes to go vote.

MS. SCHWARTZ: Sorry.

REP. ELLISON: So, I'm going to submit some written questions to you and Madam Chair I can count on some responses?

REP. WATERS: Oh, yes, we have questions that certainly we are going to submit and we will get those responses.

REP. ELLISON: All right, thank you.

I thank all the panels. I had questions for everybody, but time is running short.

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