>> so your ability to sell into the future is dependent on the quality of the product that you are selling today. >> yes it is. >> okay. >> thank you. senter kaufman. >> mr. beck, what is the state of the income loan? >> the borrower does not document their income on the application. islamic and why was that developed? it seems a little unusual, doesn't it? >> state income loans were developed for customers that didn't get a w-2. >> why did they go beyond that? is clearly went beyond that, right? >> yes it did, senator. i think what happened in the

industry is if you look at performance of mortgage loans was the dominant driver of performance with the fico score and income was not at least in the older vintages 205 to two under six immaterial driver performance i think as we got into 2006 we saw some of the changes and that is where the industry started to tighten the standards and require additional documentation. >> can you think of another place you can go to get a loan without disclosing or in complex >> the income was disclosed -- >> i mean where people actually take your word, just it seems such a foreign concept you could go into any one and part of money and they say what is your income can you document and they say i'm just going to tell you what it is. >> no, senator. >> what size mortgages were used for wamu?

>> i don't recall any specifics. >> so basically any mortgage sold. >> when it was sold did they close of the loan was made without verification of borrowing in come? >> the documentation is disclosed. spec in other words it says if i picked up the whole thing on the mortgage-backed securities it would say they are based on state come? >> the would be the perspective in terms of this closers and that is not limited perspective, that is what the information and a barber or an investor would have if they had access to the loan that had each loan and characteristics on it and we talk about they had rating agency feedback and they knew the historical platform is the shelf that we had been selling

so they had a significant if information beyond the perspectives supplement. semidey think they were lobbying and other income on these products? >> as we look at performance and the early payment default we did see instances where the borrowers were lobbying. >> did everyone that the management of wamu notes that do you think? >> i can't speak for everybody. >> the top manager of wamu were you aware of the fact there was a problem with steven come was not accurate? >> i would presume so. >> at what point did you get worried about this? the state income just seems like so difficult to understand. i have a hard time of dealing with the concept and more difficult time as things go on

and are growing in the more and more in the case you're getting the state income of working. >> senator i.t. we were all concerned about it. we tightened the credit standards and disciplines be significantly in 2006 when we started to see the changes and then we tightened credit standards and frankly all lending types throughout 2007 as we experience challenges with the performance. >> did you have a baby glisson -- reason to believe fraud in these products? >> senator, i think as over the course of the two and a half years i was there i think we need improvements. i don't think we were ever fully satisfied all of the improvements were in place. >> mr. beck did you inform

prospective investors you were concerned about the internal fraud in the organization? >> we informed investors of the characteristics of the loans and as i said in my previous testimony with internal policies in place to remove loans that had identified fraud before we sold them. having said that some fraudulent loans to flip through loans with underwriting defects and the way that the investor had the opportunity to put those back to us. >> mr. schneider did you ever -- a.q. said he decided to stop the income loans and when did you do that? >> it would have been late 2006. >> why did you do that? >> we were not satisfied with performance. >> sidley we eliminated all of them? you didn't go back and just eliminate some of them? you just said now wamu will not

accept the state income loans on a prospective basis. >> this. islamic at that point what did you think of the state income loans not accurate? >> i'm not sure. spec it was more than just opposed to -- it was 10% it clearly wouldn't but it would put an internal controls to the 10% or 15% or i would assume it would have to be a big number to just say we are not going to do more. >> our expectations around the delinquency are in the digit numbers so the delinquencies did get to the 10% number on a particular product we would stop it. that was too high even at that level. >> and use it to close the long beach? >> yes, sir. >> why did you do that? >> as we got into 2007, three of four things happened.

the subprimal market was increasingly challenged, home price was starting to deteriorate. long beach showed the numbers earlier as a percentage of our business was relatively small actually very small and abort the management intention at that point. >> again reports these terrible things are the went on long beach. just what you said it was a small portion of business and there was so much problem in that area i just wondered why you waited until 2007 to close it down. >> my initial charge was to see if i could fix it. we tried as hard as we could. >> how would you characterize

wamu's relationship with its regulators? >> we had a positive working relationship and met with them on a quarterly basis. i probably met with the individual leave regulators monthly. >> they both testified that while the line regulators were diligent the leadership did not support the conclusions. did you find that? >> that would not be something. >> how this wamu u.s fico scores? >> fico scores would be one attribute so we would have fico score criteria as well as the documentation etc.. >> speed they are a pretty good indicator? >> i think it is the best measurement that is available to

give investors an opportunity to understand one load versus the others, the characteristics of the creditworthiness. >> mr. beck? >> my opinion on fico is it is one of many risks evaluated. it is important, documentation types we've talked a lot about, occupied or not occupied, geography and california rest so there's a variety of risks important in evaluating losses of alone. >> mr. lewis's book said there were loans of 550 range fico range. did wamu have mortgages they securitized in the 550 range would you say? >> i can't recall for sure that we may have had fico under 600. under 600 would be low.

and so would you agree with michael lewis that those loans are certain to default? >> i would agree that they had much higher credit losses the in a bar where that has a 750 fico. sprick in order for the 552 servile if you would have a hands-on management day-to-day with the borrower. does that go on to either of your knowledge is it wamu? >> yes, senator. for the sub prime servicing we put them in a high risk servicing protocol which meant we call them earlier and more often and worked closely with those borrowers. >> what is this concept of the file? you're familiar with the term

steny file. >> i'm not, senator. >> that is the policy the file is a good file in fact there's a quote from the article wamu employees said the skinny file as a good file. this can e-file but you didn't have an indication of that mr. schneider and mr. beck. you have no knowledge of that? okay. >> did you feel pressure from wall street in terms of generating more mortgage-backed securities in addition to the effect was profitable but did to get a feeling this was something that is competitive and something that you should be in to? >> this wasn't a driver. if you look at the results of the mortgage business, the washington mutual i did not see the volume systematically shut down the business. >> how would you characterize of the top durham this sounds to me we are restore is this morning

-- koret stories. some of them came before you came. when you showed up at wamu and took a look at what was going on, you know, you were assigned to look after long beach and the rest of that. what went through your mind? was it like a while this is a challenge or is it serious? what were you thinking? how difficult? how unusual do you find the situation? it sounds unusual. >> senator it was a very big challenge. i spent a lot of time trying to make long beach as successful as possible. i tried management changes. we changed product so it was a significant job. >> thank you, senator. on the members of a rich nations, securitizations you testified that the option arm lending decreased by more than 50% from 05 to 06 which you of course the doud is your option

on lending still in 2006 was significantly higher year than it was in 03 and you also don't mention the major reduction that you will see in originations occurred on your fixed traditional loans. that is what caused the drop from 03 and at that point on there was a slightly different story with different mortgages but the major drop which hewey and others from wamu refer to came in the 30 year loans and that took place when you decided to engage in a high risk strategy so you've got this origination and purchases of your traditional loans, were risk loans and it engaged in 04 and higher risk strategy and we saw what it was but in terms of option arms and we will put this in the record according to the sec filings option are as were 30.1 billion in 03 and were up

to 67 billion in 04, up to 63 billion in if the 03 level and 05 and still was above the 03 level in 06. six loans went from 663,000,000,003, a dramatically down in 04 to 77,000,000,078,000,000,000 the real explanation here for this shift that you make reference to has to do with the dropping of the fixed loans secured positions that originated and the increase in the option arms was pretty steady through 2006 the rate dropped from 05 to 06 still it was above the 03 level. i want to talk of exhibit 50 mr. beck and this is from 06 that made reference to the long beach paper being among the most

performing paper. this was in november of 06 and then the comptroller of the currency, the occ did an analysis and 08 and this is exhibit 58 and showed long beach the top ten in nine out of ten medullary as. were you aware of these findings of the occ? >> no i was not. >> should you have been made aware of it? >> mr. chairman, i'm sorry i'm not tell your with the document from the occ.

>> should you have been aware of the occ findings is my question did in your possession. >> i was not aware of this report. >> should you have been familiar with the findings that's all. >> i can't say. take a look at exhibit 22 al if you would pick this is a november 2005 internal wamu memo called southern california merging markets targeted loan review results. it describes the yearlong internal investigation into suspected fraud affecting loans issued from the two processing centers montebello and downing we heard in the prior panel that lead out of extensive levels of loan fraud 42% contant suspect activity or fraud all the

footage of a double to some sort of employee malfeasance. then exhibit 22 erbe and 23 be there is additional detail about the investigation including the percentage of loans containing fraudulent information to the montebello office and 83% percentage of the downing office, 58%. were you aware at the time of those findings? >> no i was not. i'm not copied on this. >> should you have been? >> i was aware that there was fraud as i said earlier and i was aware that the loans had underwriting defects and it's part of the post closing review that our origination was conducting. i understood that loans were the identify fraud or underwriting defects would have been removed

from the pool of loans that would be securitized in to be a disconnect you thought they were going to be removed. >> did you check to see if that was through? >> what we did subsequent to that, mr. chairman, is to do a due diligence review separate and distinct on the underwriting the respected you check to see whether they were removed before you put the securities on the market? >> no i did not petraeus >> purchasers of the securities are relying on you as an underwriter to provide truthful information he had evidence of fraud. you knew it, you had heard that you didn't check to see whether or not the fraud painted securities were if the fraga painted mortgages were removed from the security. wasn't that your job? part of your job? >> by understood that there was

fraud -- >> did you need to shore the fraudulent tainted mortgages were not part of those securities before you peddled them? is in that part of your job? >> no its not. it's not. i -- the important aspect of this and they are defective however the review conducted by the origination channel conducted by credit in the origination -- >> who is that specific? >> the review will be conducted by the operations department within the origination channel with the help of credit. >> just give me the names of the people cherished. >> i would point you to the prior panel to ackley . >> so it was their job to check to make sure the mortgages that

the and you knew were not part of securities. >> the process in place was removed and loans that were detected. >> and it was not your job it was their job, the previous panel? >> i have a separate responsibility to conduct underwriters due diligence which we did. spaghetti never asked to see if they were removed. >> i did not. >> [inaudible conversations]

[inaudible conversations] >> mr. schneider to the leggitt exhibit 24 if you would. >> fraud problems resurfacing in the early 2008 was an april 4th memo from the wamu corporate fraud investigation and audit

section says one of the mortgage insurance reform used to insure loans issued by the loan officer from the monticello loan office the was the same loan officer investigated in 05 and describes the early 05 investigation that virtually no actions were taken in response to it. this is another review of the loans issued by the montebello office and 07 and this is now what is reported in the april audit found 62% of the fraudulent information. were you aware of this audit? >> yes i was, mr. chairman. >> what did you do? >> this audit was actually conducted by the legal -- i was aware they were conducting it. whenever i found out about cases of fraud by ask the investigation happened. we had no interest and fraud or originators perpetrating -- >> year after year after year

you are selling the securities that the fraudulent mortgages were included. what action did you insist upon? you were out there selling the securities. >> in cases where we found fraud and the loans we would buy them back. >> and people complained about. when you saw the audit in april to use all the continuation of fraud year after year and said the 05 fraud continued and it said the 07 from what continued. you're out there selling securities. do you not have a responsibility to make sure to take steps and make sure that fraud and this senator norm just looking back after someone finds out after the securities sold but that to take actions to prevent the securities from being sold. isn't that your responsibility? >> it's my responsibility to handle fraud.

>> we terminated the people who had tended to committing the fraud. >> did you offer them jobs? >> malae did not. >> did the company offered jobs? >> the people we terminated did not. >> and did you go after the securities that included fraudulent mortgages to notify the people there may be fraud in the securities? >> that initiative was taken by the legal department was able to address the situation. >> you know they took the initiative to notify people or you are saying it would have been taken? >> it was my understanding they were going to make the determination. >> as to? >> whatever determination was appropriate. >> did you find out whether they did it? >> i did not. >> you are out there selling these securities and you know there is fraud in the securities to reduce its your job to make sure it doesn't happen. the legal department was presumably going to take action

if you never follow-up to ask the legal department whether they took action? i don't get it. >> i would expect they would a -- >> but you didn't ask to see it. >> i did not, mr. chairman [inaudible conversations]

take a look if you would on page seven of this exhibit 24. [inaudible conversations] >> it says that wamu has no action with certain loan officers.

if i could find out where that says -- i will get back to that. right in the middle and says walker has no record taken for performance issues with those two officers that are named their. and that's referring to which summarized on the previous page that prior referrals to the corporate fraud investigations office had eight separate investigations from 2004 to 2007, two cases each year with the loan officers from the montebello office listed as persons related to the case. that is what is on page six you will see the term cry your referral in the fourth paragraph you see that? >> yes i do. it's been a good lead to eight

separate investigations and that period. >> people involved in january of 08 by the way, and then it says wamu, going back to page seven, had no action of records taken for performance issues with those loan officers. now i don't know how the bank could possibly operate with credibility with this kind of problem, this kind of fraud but instead of getting disciplined or fired from fraudulent loans coming out of the office is those top loan officers were montebello and downey during the same period they were being investigated that is 04 to 07 they were rewarded each year with an invitation to the president's club which is wamu's hi yes donner including expenses

paid trips to places like hawaii and the bahamas. you were i think very much involved in the president's club could make sure those all expense trips were made. how does that happen? officers under investigation year after year after year instead of being disciplined or fired they are giving a rewarding trips to hawaii and the bahamas. how does that happen? >> mr. chairman and in case of fraud where there is an investigation i ask the h.r. group to the investigation if they come back with a recommendation to terminate or punish an employee i would have taken that recommendation. spec were you aware of the fact they are going on every one of those years? >> i was not. >> should you have been? >> it depends how people thought it was.

>> was there a recommendation in 2005 to take action against those officers? >> the 2005 report which i see here is something i was familiar with. i don't know the specific recommendations were. right at the beginning of the time i joined the company. [inaudible conversations] back in 05 this memorandum outlines exhibit 22a at the beginning of the memorandum outlines a few of the most egregious activities identified based on targeted reviews of the documentation with specific areas of failure to follow policy. based on the consistent pattern of activity among these employees we are recommending

firm action to be taken to address these willful behavior is on the part of the employees so that action paid trips to hawaii, the bahamas. that is what the action was? troubled by that? do you think the banks are troubled by that? should be investors and stockholders or anybody be troubled by that except us? >> mr. chairman any time there's fraud we to get very serious. >> no, what you do is reward the folks being investigated with trips. that's the action. year after year to the president's club. exhibit 62 by the way you hope to see these folks -- the top

salespeople who wamu hopes to see in hawaii david schneider. take a look if you would, mr. schmieder, exhibit 30. it is an internal wamu document called the notification dated april 1, 2008. this is westlake village said that as mara los angeles. these were loans issued in 07 that the reports state april 1 of 08. many of the loans had several fraudulent finding such as fabricated assets, steegmans, income misrepresentation and one altered statement believed to have been used in two separate loans, and of quote. the third point, one sales as yet admitted during that crunch time some of the associates talking here about westlake village, some of the associates

would manufacture es at statements from previous loan documents and submit them to the office. the associate said the pressure was tremendous to get them the documents, the documents since the loan had already been funded from loan consultants to get the loans funded. take a look exhibit 31. there is a memo summarizing the april 8 investigation. page two of exhibit 31. the sales associates would take asset statements from other files and cut and paste the current name and address. weren't you and mr. schmieder the investigation of the west

lake village office? >> i was. >> you were? >> i was. >> i'm not sure you city i was or i wasn't? >> i was. >> were you aware that wamu employees work cutting corners to turn out loans? >> mr. chairman, when that have and we took it very seriously. odierno no way did i think prada shouldn't be treated with utmost seriousness and ultimately some of the sales associates were terminated for the peter the violated -- >> the guys there were terminated were told they were offered jobs. what did you do it the time? did you get back into the securities that the people bought them and were notified? >> i don't know specifically what was done.

>> ticker look exhibit 28. these are december 1206 when the market race committee page four. delinquency behavior was flag in october of 06 for the for their review and analysis when recent securitization deals appeared to have more severe delinquency behavior than i experienced in past deals. the primary contributor to the increased the length of security caused by process issues

including securitization of delinquent loans, seals and securitization of delinquent loans, loans not underwritten to standards, credit quality of loans and sell our services reporting faults delinquent payments status. what did you do about it? >> mr. chairman i wasn't a member of the market risk committee so i had not seen the document. >> they had never seen the document at that time. >> is this the first time you've seen this document? >> i think i saw it yesterday. >> yesterday you saw it for the first time. what was your reaction? >> should not happen? >> it should not happen.

these are securities that happened on your watch. >> mr. beck, were you aware of the documents? >> ibm. >> were you then? >> i was aware that at the time i do recall this and about the security -- we bought the loans back -- but there were brought to your attention? >> disk, we did. >> what? >> we bought the loans -- >> after you found out about it -- when you had these documents, fraudulent mortgages, securitized, this document since we sold loans that were delinquent and that's never right. that is never what we represent.

>> use all this at the time. >> we bought the loans back. >> did you initiate the recovery -- >> tom lehman worked for me -- >> did you tell them go and find every single one of these loans and the other documents as well where you come all of this fraudulent loan -- >> i am talking about this specific question -- the previous documents. >> when we identified -- >> when you is all these documents, three or four documents when they saw the documents you are seeing every case you told your people to find every single security that incorporated these fraudulent loans we are going to buy them back. is that -- >> that's not what i said. i said i remember and recall this specific event because we

did go out, we securitized loans that were delinquent which we represented and we won't do and we shouldn't do and these were purchased from third parties and a loan servicing we document was incorrect and we've found and purchased the loans back. >> you notify the brigety. >> i believe we did i believe we made a filing on this. >> what about the earlier ones where the fraud was identified, did you go back to what securities that were fraudulent from those offices? >> i'm not certain. that the loans from that analysis from the securitization and the first point -- >> i never saw the audits. >> you never saw the audits we talked about?

>> i don't know the answer to that. i didn't see the audits. but i rely on that was the origination and the post closing review would remove defective loans before they were put in the warehouse. >> did you ever check that all? >> no i did not. >> senator coffman. >> the 2005 reports as 42% of loans creates suspect activity or fraud. did you buy those back do you know? >> i don't know that those loans were sold. >> thank you. >> did you check? >> i did not. i wasn't copied on the report.

>> in general were you aware that 2005 and 2008 investigations we have been discussing that you were not aware of that time? >> i was not. >> as you supervise the program that was set up to investigate any complaint about your securities and loans? is there is a been step program at long beach has set up? do you remember that?

>> i do. >> that was to investigate a complaint about the loans; is that correct? >> said at the end of 2006. >> you supervise the program, write? >> yes. >> deduce up a similar program for wamu's loan? >> the program was designed for long beach. >> my question is did you set up a cellular program for wamu's? >> the purchase recovery team also looked at requests for the repurchasing for wamu loans the sentenced the process that you are referring to which was used at long beach. >> why was it not set up for the loans? you had all this evidence there was fraud at the offices at wamu. why wasn't that set up for wamu's loan? >> we have a high level of repurchasing requests from long beach.

>> take a look, if you would, ed exhibit 34. [inaudible conversations] >> exhibit 34 is a report from wamu's corporate credit review group found that wamu's loans marked as containing fraudulent information was nonetheless sold to investors. on page three to take a look at page three in the first bullet

point. it is intended to prevent of seals loans that contained misrepresentations or fraga are not currently effective so the controls are not effective. there's not a systematic process that prevents the loan and a risk mitigation mengin torian door confirmed suspicious activities from being sold to investors. the accuser to find a risk mitigation feel does not to really affect the sale ability of the loans. the review is completed a sample

of the 25 loans. this is a sample of 25 loans that closed in 08 at the appropriate risk mitigation of the 25 loans tested 11 reflected a single state after the completion of the investigation that conference called. there was evidence this control weakness has existed for some time. >> you recall this report? mr. beck? >> i do not. >> should you have seen this? >> yes. >> you are aware for some time wamu had been selling loans to investors even after the loans had been marked for retaining fraudulent information. >> no.

>> now you were head of the capitol markets group, right? at that time? >> that's correct. >> should you not have been informed about this? >> i would expect i would be informed of this, yes. >> this is damning and stuff. you are working for a bank that 25 wones has almost half reflecting a sale after an investigation is confirmed for what and this review says that that failure has existed for some time that control weakness has existed for some time. now to deliver it at exhibit 40

be if he would. senator kauffman, anytime you want to jump in, please. exhibit 40b. now this one is going to take some difficult following because it's e-mail so we have to start first e-mail on page four at the end and work back up to the page one. take a look on page four. you will see february 14th, 2007. michael rights to mr. ellison subjects.

now the senior vice president for if portfolio management and here's the subject. option arm mta which is the monthly treasury average, often are mta and option arm mta delinquency. notice that. delinquency. so now we've got an option yarmuth mta which is an option arm that has an interest rate adjusting to the monthly treasury average. is that right? >> that's right. >> the e-mail points out some information fico scores of a delinquent on forming option arms. see where it says that? information about fico scores and loan-to-value. you see that there?

>> i do. >> a few minutes later still on february 14th working ourselves now to page three you will see he forwards this e-mail to somebody who's name i believe is u.e. chan to read to you know who that is? amana bartleman? >> it is a man psp mix he is being sent this e-mail subject option arm delinquency. it is attached as a description of the option arms that were delinquent in the 20,064th quarter. you can see that it is a function of fico and load document loans. we are in the process of updating the matrix. your comments are appreciated.

so now go to that page and you will see shortly thereafter a couple of hours thereafter there is an e-mail sent from mr. u.e. chan. you said he was male or female, i'm sorry. >> mail. >> from him to you on february 14th, the subject of an armed delinquency. ansel this answers mr. schneider's question partially on the breakdown of the option are the delinquency the details show low fico and where most of the delinquency comes from and not a surprise. now the next e-mail if you keep going up is from you.

the same day he wore for wording that e-mail on option arm delinquency to mr. schneider to sharyl, the head risk manager of the home loan division and here is where you write. what you might add the top of the page please review the performance of the option of our loans causing us problems. cheryl can validate my views are all-day high margin option arms not providing well. we should address selling first quarter. that is the quarter that your income as soon as we can before we lose the opportunity. in response to the delinquency as a snub of option arms on the portfolio you want to sell the newly originated arms as soon as you can, right?

are you with me so far? that's what you want to do? >> yes. >> now, later that day so we are still working up this chain of e-mails later that day -- [inaudible conversations] same option, delinquencies. this is from you to davis had schneider. february 18th, 07. i'm sorry, this is from schneider, dr. david schneider to you and a sense show your

thoughts. the copy goes to you and cheryl. now mr. schneider is saying cheryl, your boss. do you remember this, mr. beck? >> i do. >> mr. schneider, you remember this? >> i do. >> later that day still on the 40b, cheryl replies the subject still option or the delinquency. the results described below and i am reading now from her e-mail similar to what my her team has been observing california option farms large mona size one to 2.5 million have been the fastest increasing delinquency rates in the single-family residential portfolio. there is a meltdown in the

subprime mortgages creating equality. i was talking to robert williams after his return from the trip when he and al lynn talked to potential investors for upcoming covered bond deals backed by mortgages. there is a strong interest around the world and u.s. presidential debate to residential or images on option arms. this seems a great time to sell as many options arms as we possibly can. kepplinger was in courage and thus to think seriously about at the monthly business review last week. what can i do to help? >> on a certain groupings of option arms on overall delinquencies? that is refreshing someone making clearly what is the when on cheryl describes the quote

immelt done in the supermarket the slight quality who is went by option arms if you will be delinquent? she has talked to the wamu executive sutphen to asia and talked to investors backed by wamu interested upon this time initiatives and there is a strong interest with he was a residential mortgages as long as we can still sell our option arms in some places. so she writes this seems to me to be a great time to sell as many options arms as we possibly can. mr. beck, you said this in things of the option arms as soon as we can before we lose the opportunity. the idea is to sell as many delinquency loans as possible from investors before the performance gets worse and wamu gets stuck with that. the only way that could happen is because you guys knew something the potential investors didn't and that is these loans were likely to build a one point. here is what happened.

mr. schmieder that sunday evening of the subject again option on delinquencies and here's what you suggest in this e-mail you say that mr. beck was asked to select the sample for the portfolios and coordinate with financing by selling analysis cheryl -- [inaudible] this exhibit, 40b. early in the morning, 79:17 a.m.. subject, option on delinquency falcon and mr. schneider making

the plan to sell dee dee to provide a low level to kill and coordinate. on the final e-mail of the chain which is the top of page one the subject line now reads urgent need to get work done in the next couple of days. that is added about option arm delinquency. she directs her staff to start analyzing the option on loans in the portfolio and she wrote, quote, we are contemplating selling a larger portion of our option arms than we have in the recent past and this could be a way to address california concentration rising delinquencies falling house prices in california with a favorable arbitrage given the market seems not to be yet discounting these factors and she asks for input on portions, her words of the option on portfolio which should be considering selling. when you turn to exhibit 41 if

you would. so far you remember everything i've read, do you? okay. now you can turn to exhibit 41. this is another e-mail change same day. mr. shaw since to ms. falcon and analysis of the characteristics of loans and wamu portfolio that contributed to the rising delinquency rates. from meshaal to voltmann and a few other subject urgent need to get work done in the next couple of days on all russian arms delinquency. cheryl, i reviewed this hfi, the prime loan characteristic that

contributed to the rising 60 plus delinquency rates between january 6th -- january 06 and january of 07. the result of the analysis shows seven combined factors containing 8.3 billion for investment of sharm balances its experienced above-average increases of the 60 plus delinquency rate during the last 12 months. this is an 821% increase or ten times faster in the average increase of 79%. i recommend we select the loans with some or all of these characteristics to develop a whole foresail pool, shift in other words holding on to them to selling the van and then he lists the factors that went into this change and he lists the

eight specific factors one being an option on loan, to of recent vintages, 2000 for to the seven, three in california, three in new york, new jersey, connecticut, jumbo loans in specific fico scores and he wrote i recommend we sell loans with some or all of the characteristics to develop a whole for sale will so he presented a recipe for selecting option on loans likely to go along quite so they could be put up for sale before they actually went delinquent. wamu books are discounted. is that right? is that a fair reading of that mr. beck? ..

>> he instructed me to take

action from the portfolio with the option arms available for sale of like to dead the loans into sale immediately is why can sell as many possible for first quarter. >> is that mr. snyder you are referring to? >> yes. >> you recall giving that instruction? >> so it provided more liquidity and capital. >> do you remember giving that direction? >> guess i do.

>> two weeks after this the man on the market risk in me gives approval to move at $3 billion of option arms out of the investment portfolio and into this sale portfolio. is that correct? to read that is correct. exhibit 43 of the market risk committee reflects unanimous approval of the transfer. how many billion an option arms authorized for sale by the market risk committee were sold? do you know, ? >> i don't know. >> i don't recall precisely. >> about half. >> a billion and a half of the 3 billion do know which were sold in which weren't? >> no. >> the reason the option of our loans were delinquent to

the market was not yet aware. did you notify investors when you securitize the option and farm loans that the delinquency rates for several wamu securities were going up and were expected to go up did you notify the investors? >> mr. chairman the market was keenly aware. >> we're notified? >> investors were notified of the risk characteristics of the loan. >> were they notified a billion 1/2 in loans were selected because they were option arms and with your expectation they would go delinquent in greater numbers were they notified specifically of your findings? >> no. >> knows option arms called

wmalt07 they should delinquency rates for a number of wamu securities and that our missouri put the delinquency option norms and by the way they are supposed to be prime. supposed to be but these delinquendelinquen cy option arms now you cannot see that you have to look in your book. they now have a delinquency rate of more than 30% which means more than half of the underlying loans are now delinquent to more than a quarter of the underlying mortgages are in foreclosure. purchasing a securities to

complete the truth of information. >> guess i did the investors know everything that you knew about the is expected delinquencies? >> mr. chairman, the risk characteristics. >> or they notified. i am asking a specific question you have an expectation to have a high delinquency rate based on an assessment that you may and you did a study by question is where the investors notified that wamu did its own analysis to identify option arms that had a propensity to go delinquent? >> mr. chairman i am not even sure the loans were part of the transaction. >> do you know, if they did a didn't? >> i do not.

i am not sure if so well. >> but should you have known? you are being told your option arms have a high propensity for delinquency. high delinquency and fear of delinquency. so you buy those options. billions of dollars are authorized you have done a steady and you know, the propensity to your investors know the year high delinquency expectations? >> mr. chairman it is important to understand that

this is the beginning of 2007 the subprime market is pretty much shut down and delinquencies are rising very fast and that is based at the prime space and was pointed out in earlier testimony because we cannot sell loans they come back on to the balance sheet using capital in the delinquencies are rising so loan loss reserve is going up. one alternative would be to sell loans from the portfolio. >> to identify the option of arm. you knew all of this did you know, those that were buying your securities of the option of arms? do you know, ?

>> they don't have the e-mails but including one mr. zhao would have put in there the prospectus notified investors. >> know i am not mr. chairman i am not saying that the the first quarter option of our had a high risk delinquency? you are telling us you didn't notify the investors of that study and that and whether or not those option arms ended up in security of the 3 billion included those? >> that was irresponsibility the securities that went out to the investors were following notice to the

investors of everything they needed to go that the information the complete. >> it is a real possibility that the loans that went dow were better quality a very good possibility. >> and exactly the quality he laid out? is that right. >> yes. you don't know and apparently you don't care if you should have cared because there is an obligation to make sure that your investors know and they did not know critical of permission that is the problem. >> to make sure i got this straight 78 high-profile loans from robert shaw on very 20 1/5 so for there a

high fico. >> looking at exhibit of 41 that the fico increase in delinquencies was a 1100% increase the fico 600 and the 800% increase of a looking at the portfolio the high fico had the incredible increase in delinquency rates. >> >> that was netted out of the thousand. >> why is that to 4.2 billion?

>> that is the aggregate size that is not the amount that is delinquent. >> what percentage of that is delinquent? >> 0.4%. >> one other question on the earlier memo on the fico? listing that total optional spreadsheet with the option of there is 500 million in nonaccrual between 540? >> which document? >> page 40. >> yes was the nonaccrual goes a link with the credit

score is impacted significantly so that would not be a surprise or indicative of what the alone-- alone originated. >> then the fico drops and that shows after the delinquency not at the time they apply for the loan? to read that is correct. >> thank you. >> you were told then investors are to all of the characteristics of loans all of the characteristics of lowe's that loans of those characteristics of a greater propensity toward delinquency in the wamu analysis? >> they were not told of the wamu analysis it may be a

long list of characteristics but they were not informed that the loans that some of the characteristics according to the wamu analysis had a greater propensity toward delinquency? is that correct? >> yes. >> end the subprime mortgage market if they knew this is a bad situation i think they did they did not know how bad it was ultimately at that point* in time they were demanding wider margins for the securities that they bought and had not stop buying at. >> making reference to the subprime market the option arms are prime not subprime?

yes. thank you both you are excused for we appreciate you being here we will go to the third panel

of the. >> and and come to order i

apologize. the ongoing question of how do we deal with the foreclosure crisis you should be clear. our great motivation is the extent to which the ongoing problem of mortgage foreclosure damages the national economy. this is a fundamental problem that we have got to and a consensus one of the obstacles to the fullest recovery possible is the overhang in the housing area. we have no magic buttons to push your a series of preference is one of the things that became clear

with the relationship and talking to investors to have a significant number of second mortgages that they own and to find out what could be done to help resolve the crisis with regard to second mortgage and what they plan to do about them and if there is obstacles how can we be helpful and now i will preserve my time. >> thank you mr. chairman i think you her holding this hearing on modifications of the properties by also like

the testimony what the serious issue, and has a great impact on the economy were the homes are located the leading credit provider it estimates of four institutions testifying today hold 423 billion in home-equity loans including 151 billion in loans to borrowers who are either under water or close to it. further research shows that may's 51% of the planes have a subsequent mane they have multiple liens on their property as well as the balance sheets and securitization markets and also impacts our prospects for housing recovery is the chairman mentioned. many well-intentioned foreclosure mitigation programs have already failed

to accomplish the mission and many believe that the latest attack by the administration will do little to stem foreclosures and troubled homeowners and created uncertainty in the market and encourage homeowners and servicers to wait until the next best offer related to distrust mortgages and additionally many americans continue to be concerned about the inherent moral hazards that the foreclosure mitigation programs it is fair -- is it fair to provide taxpayer funds to overextended homeowners who have fallen behind on mortgages for homeowners who have been struggling to stay current to meet commitments received no help? i think not i think that ignores the problem that

many do not even have a mortgage or do not have a second lane it is unfair to ask them to guarantee to participate in programs critics say and mocks the hard work and foresight of those who may larger down payments or took out smaller mortgages to buy more affordable homes now struggle to make the monthly payments. there now forced as taxpayers to foot the bill to rescue the less prudent neighbors and the administration intends to use t.a.r.p funds to pay for the initiatives designed to pressure banks to modify troubling lows. with the bailouts and interventions must end. it is particularly troubling to me that the banks are being told to forgive

principal too rather reduce the interest rates and blended government gets into that detail to forgive principal fad is a slippery slope. nassetta of new programs and bailouts congress should focus on job creation policies to help homeowners make payments and burma of foreclosures to get the economy back on track. that includes reducing debt to keep interest rates low the market needs to find its own floating free of intervention and manipulation to revive our economy and get on with the fall housing market recovery. i know it will not be easy. i think the witness for being here and he'll back the balance of my time. >>

>> about two-thirds of all distressed mortgage loans the same four banks between 500 billion and second mortgages secured by the same distressed assets that would be directly affected to modify the first mortgage it is hard to understand well servicing a first mortgage on investors while holding a second lien on the same property is not the irreconcilable conflict of interest between servicers and investors with the fiduciary duty it makes no sense as the testimony says will tell us that the second mortgages are performing better than first part of that makes no sense for the homeowner telling them to pay the second mortgage before the first and they can only pay one. congress and investors should begin by asking

whether there is any way to permit servicers to own debt secured by homes to secure a mortgage that they also serve as. hearing and so far i have introduced legislation to prevent one bank, one entity from doing both. thank you, mr. chairman. >> >> we would examine the 56 generation with the foreclosure mitigation plan offered by the obama administration and congress that throws mud on the wall to see what sticks very expensive mud that belongs to somebody else by the way and none of it is sticking. we have one of the highest default rates in the nation's history bided ministrations own admission the programs have now restructured over 169 permanent modifications out of the stated goal of three or 4 million.

those studies of empirical evidence show at least 50% of those who have mortgages modified will be in the default. it is unfair and yet another chapter in america but bail-out nation co-authored by the president and vice -- speaker pelosi it takes $50 billion from taxpayers are borrows the money from the chinese to build up the bank's have made bad loans and two bail-out many who bought more home than they can afford and speculator used the home as the atm machine 94% owned a home our right they are current on the mortgage and being asked to bail-out the other 6%. is a policy that says to the citizens to work hard and live within their means and save for a rainy day you are

a sucr. when you struggle to pay your own mortgage you should not be forced to pay your neighbors as well. the program is unfair to taxpayers according to the gao and the cbo they say the t.a.r.p $50 billion program includes 100% of the tax payer investment although i know that nine of the majority memo under this hearing of the subchapter who will absorber the losses curiously the word taxpayer is never mentioned. a program hurts the economy and fails to recognize the only foreclosure mitigation plan is a good job with a steady paycheck and a bright future unfortunately over 7 billion of the jobs have been lost investment capital remains on the sidelines but that is hampering economic

recovery surrounding a sea of debt to to put a plan to put the nation on the road to fiscal sanity that would create jobs and thus have the effective foreclosure mitigation for the nation. i yield back the balance of my time. >> i yield myself 302nd. >> tell based talking about the president and nancy pelosi since every single bail-out began to request president bush although they are being continued by president obama? >> it is not the president continue the policies? >> i just said continued by a bomb that obviously he prepared his response think of myself another 15 seconds every single parallel is now undergoing was begun as a

request a unilateral decision of president bush. but then but we have with president obama continuing to bailouts that is what i was saying. >> 30 seconds? >> mr. chairman i think the american people are not interested in whether it was democrats for the administration or wall street i would focus i would be more approach which fact -- impressed with that yes. i agree. i appreciate this gentleman's comments by the gentleman's time has expired

>> >> having been here mr. chairman when the request was made for the toxic assets program to be implemented with the capital purchase program implemented i do have some degree of institutional knowledge of what actually occurred and my hope is that we can get beyond that but my sincerest thought is we will not. but the truth has to be told only by telling the truth making it clear to future generations what occurred we have to concern ourselves with moral hazard also the moral hazard. the moral hazard has to do with the possibility of persons taking advantage of

a program to help people in times of need and the a moral hazard has to do with doing nothing after having seen the millions going into foreclosure and do nothing and help millions more that is the moral hazard that is a great challenge before us if we do nothing the impact on the economy can be devastating if we do nothing the moral hazard will be secondary to the moral hazard at a time is the time we are called upon to do much. we simply have to understand clearly here to make sure that moral hazards are avoided andy is a moral

hazard of doing nothing. >> we'll begin with the statements here with the bank of america president of home loan. >> thank you ranking member pockets and chairman of the committee thank you for allowing us to talk about the loan modification performance. we have a critical focus over the past two years to sell more than 560,000 customers with a permanent modification including 33,000 under the affordable modification program. modification of birds have been successful in helping many customers stay in their homes but there is a limit to what the current programs can accomplish for public to discuss a number of customers we believe we can assist with as well as focus on the role of principal reduction and and our total portfolio 14 million

loans, bankamerica has 1.4 million first mortgage customers who are more than 60 days delinquent. of that number 621 customers are eligible for a mortgage modification her cup by subtracting customers whom it was not intended this includes those with non owner occupied are vacant homes, the unemployed and customers with the debt to income ratio less than 31%. for those who fall outside the scope bankamerica continues to have propriety touche proprietary information we make trial offers despite aggressive our reach with face-to-face business and the homes we have not experience the kind of response rate we anticipated. in addition, a significant number of customers in the trial modification point* are not completing the

requirement to obtain permanent modification. we continue to look at ways to resolve the problem with higher acceptance rate and on principal reduction and the second liens are examples of those. bank of america is supportive of principal reduction for customers who are experiencing hardship and have extremely high loan to value ratios. were recently announced enhancements to our own proprietary national homeownership retention program that is a forgiveness approach which strikes the necessary balance between customer and investor interest. we understand their questions about the impact of a second lien on loan modifications in the use of principal reduction. secondly, met needing to be a part of the modification process however we believe broad scale extinguishment

out of 2.2 million and the portfolio only 91,000 moss's behind the delinquent first and unsupported by any equity important to note in the first mortgage we have already been modifying first of including principal reduction regardless of whether or not there is a second lien behind her. also modified second loans of lavigne's and have written down a significant number as well. we recognize more needs to be done particularly when the first lien is held by a different investor. we believe a solution is contained within the treasury second lien program. the holder of the second lien is required 24 bair eight similar percentage has

a first lien holder and we wouldn't indicate working at a similar process to require the second lien holder to take a principal balance reduction proportionate to the first lien holder. bank of america is a proud participant and on april 1st became the first major loan servicers to began having a trial modification offers to customers under the program. despite these considerable efforts not everyone will be able to afford to stay in their homes given the depth of the nation's recession a considerable number of people have to move to parental and other housing solutions. bank of america is committed too passionately and responsibly helping customers make this transition. we've recently launched the treasury alternative program on april 5th and have implemented our own expanded

short sale program to help customers avoid the stigma of foreclosure and reduce the damage done to their credit. for those not interested in the short sale process as the alternative stepping up efforts to provide incremental cash excuse me funding for the hot deed in lieu program. cash for keys program we will continue to partner with officials and community groups and our customers to provide a dignified transition where required at bankamerica we're working to balance the needs of customers and investors and shareholders and the committee's we serve retake very seriously our will to help customers as well as restoring confidence in the u.s. housing market. we appreciate the leadership of this committee and will continue to work with you to develop solutions onhe critical issues. thank you. >> we have asked the four banks to send a high-ranking

official and if they wish to bring with them to do technical backup we are well bear of the importance. [inaudible] >> i am explaining we'll call one every the redness because we have high-ranking executives accompanied by other executives who have the knowledge will be helpful to answering the questions of the next witness is it sanjiv das from city mortgage. >> ranking member raucous and members of the committee thank you for the opportunity to discuss citi effort to help families stay in their home. i am the ceo of citi mortgage sanjiv das. head of the c tye operations and i am honored to be given a chance to describe our

efforts. has thus the tye ceo harry vikram pandit has said we owe a debt of gratitude to the american taxpayer it is our responsibility to help american families in distress and help families stay in their homes we are committed to modifying loans facing hardship to help americans in this difficult time i a gillette -- joined this the thai in 2008 i manage the efforts to help families pursue their dreams of buying a home, making homes more affordable for assisting those families who may be facing financial hardship. city mortgage has a long history of helping homeowners. last year we originated brokerages to approximately 336,000 homeowners 80 point* $5 billion total.

last year we also had to drop 270,000 borrowers and refinance them and in the midst of this highest-- housing crisis we put considerable resources to face financial challenges remain in their homes. we describe lending and foreclosure prevention efforts in detail and a quarterly report we replace -- riposte publicly and report on the website. o.c. tye as for close with the treasury to executing the making homes affordable program we have helped more than 825,000 families and their efforts to avoid foreclosure. we have over 1400 new employees dedicated to supporting the foreclosure prevention ever and have more than 4,000 employees of the focus has paid off we are pleased to be ranked

consistently near the top four at the top and in the fourth quarter 2009 we could help the efforts ever ratio of 15 /1. our goal is to work with customers to find the most affordable solution and to assist those who are in need be have addressed affordability with programs that go beyond and we believe they are responsible, timely and most importantly effective pork-barrel programs address core issues. but their risk imminent default and the needs of alternatives for those who can't afford owning a home. we had used and continue to use principal reduction as a solution we weren't supposed to tailor solutions for a

family is unue needs for something that is affordable and lasting. we do not believe there is a one-size-fits-all approach to affordability. proof is then the portfolio the ranks lower than industry averages. we caution that applying principal reduction on a broad scale could raise issues of fairness among consumers. have also signed for the treasury second main program and support recent changes to the first program and expect these changes to result in more reductions going forward and continue to be thoughtful and how we implement the programs. just as it is not the only solution is not so the only solution for those experiencing financial hardship for a while we have made progress i fully appreciate there is more work to be done berkeley staunch supporters of the

treasury program to help supporters because we believe action among all banks will be more powerfully and ultimately more effected of an individual bank actions in addressing consumer financial hardship. let me conclude by restating our unwavering commitment to help american families during these challenging times. all of us at city remain focused on achieving affordability and the response all manner while helping families stay in their homes. thank you, mr. chairman for the opportunity to speak before you and the members of the committee. i'll be happy to answer any questions you may have. >> up next we have a chief executive officer from two peat tease jpmorgan chase. >> members of the committee and chairman baucus thank you for the opportunity to appear before you today.

i am dead chief executive officer of jpmorgan chase and joined by my colleague for the jpmorgan chase s shares your commitment to stabilizing the nation's housing market and that chase we work hard to help families meet the mortgage obligations and keep them in their homes by making home payments affordable parker to date we have helped to prevent 965,000 foreclosures through our own proprietary modification programs and other programs and in addition we have refinanced and the $16 billion of loans under harp. helping hundreds of thousands of homeowners achieve affordable mortgage payments and at chase we are now completing more than 10,000 permanent modifications her month than an average to minors receiving a monthly payment reduction of $548 through the modification that represents on average a

payment reduction of 29% and in addition we adopt the home affordable foreclosure program and the second name modification program actively use forbearance agreements were unemployed bar were similar to the program being contemplated by the administration. you asked us to focus the testimony on second lien and principal forgiveness and fell like to make a few points per we have given the issues a great deal of thought and 11 testimony contains the thought of the expensive tastes extensive analysis brother have been many questions and the process of helping borrowers we estimate 70 percent of the first plane are unencumbered 95% of the second name far worse continue to pay as agreed even among loans under water 95% continue to pay and more

than 90% of the customer with loan to value greater than 125% continue to pay for the been our experience second lien is not an impediment to the first lien modification. the completion rate is virtually the same whether or not we are aware of the existence. is important to distinguish between payment priority and lean priority and in almost all scenarios the second lien holder has rights with respect to what the cash flow and the same is true such as credit cards or car loan they can decide how new-line to manage the monthly payment. it is only at the of liquidation and that the first lien investors have priority. we routinely modify the second believe whether or not we own the first mortgage and have offered

almost 44,002nd lean modifications and 12,000 more permanent part of approximately 45% of these were loans we do not service the first lien. on the topic of principal reduction, there are certainly individual cases or segment of borrowers where it that may be appropriate and last year we may have targeted principal reduction programs for certain high-risk borrowers to see if it could be effective. 13 see the results we can better evaluate the effectiveness of a broader reduction program but we are concerned about large scale broad-based reduction programs for first and second mortgage lien and current cars with the ability to repay obligations. the first concern is such programs could be harmful to consumers investors in the future mortgage market conditions and not

undertaken without first having other solutions including the modification ever and a principal reduction could result in decreased access to credit and higher costs for consumers because lenders will price for forgiveness let the fluent buyers who will be hard to disproportionately also the important issue of cost reduction program could have the industrywide cost of 700 to 900 billion of our estimates the cost of fannie mae and freddie me alone is in the neighborhood of $150 billion and in addition the man the size we have contractual obligations to investors including fannie mae and freddie mac that to do not have principal reductions responsible lenders and major servicers offer programs that offer reduction features based on

the characteristics of the different portfolio of loans and believe these targets emissions are more appropriate. thank you for your attention i'll be happy to answer questions you may have. >> up next we have mr. mike heid from lowe's fargo mortgage. >> it chairman frank rica member baucus and members i am the co-president of wells fargo home mortgage and here today with kevin maas the executive vice president from the equity group i would like to state what we believe is the overarching issue that it requires constant consideration of the difficult to believe all hell the financial stress must be balanced with those who remain current in their mortgage payments. much focus is directed at consumers behind we cannot lose sight of the 91% current on their loans and 3% were to payments past due

at the end of 2009 to and without perspective in mind the assistance programs already and way and is already up and the concept. first, we offered a short-term relief option but since january 2010 have helped more than 100,000 customers experiencing unemployment or underemployment the new program is consistent that if it proves to be true with the details are released we can put this enhancement into practice and a matter of weeks. second. more than a year ago we began using forgiveness as an element of the loan modification program for certain portfolio assets in 2003 completed more than 50,000 such modifications with a total reduction principle of billions of dollars and raising immediate and permanent principal forgiveness and october time but on average customers receive 15% principal reduction

amounting to more than 50,000 and when combined with term extensions and rate production stop payment by 25% and principal forgiveness is not across the board solution not every homeowner sees they fall behind most of miners are doing what is necessary to stay current on payment obligations to protect the credit standing. for this reason principal forgiveness needs to be used in a careful and focused manner. we have found it is customers in areas so there is low prospect of full recovery and they have sufficient and lower-income stew be able to afford to stay in the home but the real default rates on these loans are less than half of the rate of civil loans in the industry. in 2010 we expect to use principal forgiveness on the same basic tenets and in addition would available in

the new program details will be used for our conceptual understanding absent of any accounting issues to to clear that up as rapidly as possible spy from the very beginning we have said it is part of the story when it comes to helping homeowners. we have been issued are completed more than half a million three quarters of which were done elsa of the program but wells fargo now does three modifications for every completed foreclosure as a standard practice we ensure all other options are exhausted. with respect to the refinance program it was announced in concept on march 26 simply -- signature requires work we intend to offer the refinance opportunities to closely follow the guidelines including fannie and freddie

and the of home-equity powerful they we have to make sure that we do not notice of recurrence is an closings mimic these are very different than one year ago we have assigned one person to manage alone modifications availability or she is dealing with an we have hired a total of 17,400 staff and expanded preservation centers for face-to-face health and instituted five day credit decision turnaround for those who supply required documents. wells fargo committed to working with this committee and others on balance initiatives that considered the names of all investors and our country. i look forward to your questions to iraq prior to the five minutes each hour want to say this and compliment you. i am not sure if it was intentional but we have this

hearing at 12:00. the testimony usually comes in at night but one of us could read them testimony prior to the hearing which was a great help. i think it makes for a better hearing. >> i appreciate that prepared 212 set the precedent of members having to read the testimony. [laughter] but that is clearly unintentional but we never heard time for all involved and they put a lot of strain on the people who work for us. what i did today that is one reason to do this have note -- noon. i would feel terribly guilty

public-sector nonprofit if they sit for one hour but we turned it down so in that period of time we will work together as we have done to pick other-- when members are coming but that was made possible. >> you're an agreement not everybody is in default and then there may be some people who make mistakes and i felt we're pushing too many people into home ownership and not do enough for the rental housing so that was such a favor to anybody. it also believe talking about people who had milan then another home-equity loan and but when people cashed out on the other

hand, there are categories talking in particular do in new differentiate based on thenemployed? i think but to that was either because they were persuaded or made miss judges that is one thing but there are people who were unemployed and they cannot take the market data on employment those of the people but nobody should be arguing while house third differentiated of people have been unemployed to no fault of there on. >> under the new treasury guidelines there is a standard of three or six months of forbearance. >> i wish i could say that it was so transitory but i am disappointed in the obama administration i think that is insufficient you go

beyond that? >> h1 is a customized solution so it depends on the state of delinquency from when the request was initiated. but it is within this timeframe. >> blinder stand but i don't see any reason for not being very sympathetic to people who are unemployed the an employee group are the ones getting hit by the double whammy too also lose their jobs. citi have the perspective of a year's advantage because we lost -- launched last munch so we learn prior to the administration's program and between three months and the six months we did not

want a program to go so long it would change people's employment seeking behavior three have learned it does not. >> and we found people who look for work they found work but more importantly found the alternative solution with us. would strongly recommend that. >> as we mentioned in our testimony we had a program that provided for what has been a part of represents a is for a while and the changes in one that provide the same. >> we have done this for years and in addition to what has been said the key is to make sure the customer has a desire to

remain in the home. >> the question of fairness for people unemployed and i also agree the public money we'd to give the and two other things i would hope we would be forthcoming but let me ask you quickly if the holder of the first mortgage is ready to do some principal reduction and you hold the second mortgage separately from that are you prepared to do a proportional reduction? >> yes. especially under the two and the program. >> that will be required in this building with the principle forgiveness first communion we did not get to pick that. >> so you was it except a

proportion of the second if you knew there'd be something in the first. >> we would consider the same. what we were using the it fdic program when we modified we automatically isified the second. do that but i would ask you in writing to let me know of any circumstances in which there was a reduction that was clearly made in the first to you would not except a proportion of the reduction. with the category of cases not as much have been issued by will you on the year talking about a proportion. >> if there were not that would trouble me.

>> thank you, mr. chairman and add what we're talking about is forgiveness and a benefit or really a modification of the contract. it is all important for us to know any time you create a benefit or at they create a need. congressman hensarling often says if you build it they will come. that is one of my concerns here. . .

increase the cost to those with less than perfect credit because sooner or later they have to show when the benefit and these are probably that wouldn't have defaulted. my question, first, you talked about an industrywide cost $700 billion. that is a large cost. how would the industry work through the underwater borrowers in the near term or maybe a better question will this cost be incurred were passed down to other borrowers in a -- how would it be made up? >> i think the cost obviously is great for everybody that is

holding home loans, every type of investors. it to the extent we were required to forgive those loans it certainly would be a hazard and risk we would have to bear in the future and as a result we would do one of two things, we would increase the down payment requirement to protect ourselves from that in the future or raise the prices were both so i think the cost of homeownership in the future would be greatly increased as a result. >> do the other three institutions agree with that analysis? >> yes i would agree if there were wholesale reduction that is the total amount and my view that as hypothetical because the constraints that exist i believe what stand in the way of the ever reaching of that number of

making the barbers. >> i would say the only other issue i agree with is an expected to increase the [inaudible] i think the cost would actually be higher. >> thank you i also would like to hear from the regulators. i don't know the bank regulators would want lenders to take such risks, some of the risks that may be associated with this type of program. it certainly will have an impact on the financial, the finances of the company. let me ask all of you this in conclusion. the rollout of this program will not be effective until september of this year.

but under this program a servicer cannot execute on foreclosure until all of able modification options have been tried and i know the chairman asked you to write a letter saying the you would agree to that. does this -- does this cause particularly with the account rollout, does this basically operate almost like a six month mortgage foreclosure moratorium? >> i will take that one. the 2mp operates as a second deed of trust after the first mortgage has been modified to a permanent modifications of the foreclosure event is passed as long as that first mortgage modification continues to perform and then it's just a different in timing. >> do you think this will be

viewed as a mortgage foreclosure moratorium? >> i don't think so, no. >> how about the other institutes? >> i think what is getting lost in the broad sweeping delays on foreclosures, the fact there are a number of property is also getting swept up so the communities are being harmed by the fact there's a vacant property sitting there can't move the process forward and i don't believe that was the intent but that is one of the casualties of the process. >> so what does have a tendency to slow the foreclosure? >> i wasn't calling -- i want to know if they were also modified and that does not impose a requirement to modify the first. whether it is a 2mp program. >> so it would still be voluntary on everyone's part; is that correct? >> i understand unless we change

the law, yeah it is all winter. i voted for bankruptcy but it didn't win. >> i just -- we have a tendency to all of a sudden you made the commitment to do something and then i didn't know whether these letters would -- when you say assurances i don't know what that means. >> the gentleman from pennsylvania. >> thank you, mr. chairman. i am asking myself the question why are we here today? it seems you all are very happy with what is happening in 64% of the market that you control and i haven't heard anybody make a suggestion that you have a plan or you are able to put a plan together better than what is presently being implemented. is that a correct hearing to your testimony as? >> i would disagree with that and the kind of recommendations are to embrace the programs that have just recently been announced and launch 2mp we

started mailing of current modifications on april 1st. the home of portable foreclosure short sale went into effect on april 5th so there is new performance that will indicate whether in fact there is further impact that could have and the recent principal and feg bald go into effect in the fall. there is certainly more that needs to be done -- >> that's the question if i may. i'm a limited on my time. do we have to do the extra work in the concrete or is the private-sector able to come up with solutions to this? it seems to me the four institutions that that table can't get together and conspire but if you came up with good ideas and implement them important it require the congress to take any action. >> i would say much of that is occurring. we've stated the number of loan

modifications happening all side of the various government programs so i would say the private sector is already stepping forward. >> the other question listening to the testimony it doesn't seem the numbers are very high with what is being done at this present time. there are a lot more potential foreclosures out there that may be caused or come about because we haven't arrange things; is that a correct impression on my part or do you think that he wore out the absolute optimum level and we have nothing more to do and what you're doing is going to satisfy the market because i just want to make the observation -- we talked about certainly we want to help homeowners stay in their home and are opposed to do so but let's not miss the fact we are trying to get the economy stimulated and if we can get the homes being sold and financed again we can change the recession to recovery and we can be on our way to some good times but i've been given the impression from the testimony of witnesses that everything is

hunky dory and we don't really have to do anything. i don't know why the chairman got me back today so early for this hearing. >> with the gentleman yield praxis because sometimes i find that calling a hearing things get honkier and dorier. [laughter] >> mr. miller talked about the internal conflict between a servicer and an owner of a lean position and quite frankly maybe your marvelous in the approach in the private sector that concept never rises but i have a hard time believing that and i wonder do you see the need for us to address the issue of separating and taking away that conflict of interest if either of you could be the owner of alien or servicer of the mortgagor but you can't be both. can i just have your expressions

on that? >> i do not feel that that is required when you look at our portfolio mortgages about 30% of them have a second lien behind them, about half of those is us and have the faith is another investor and i think i heard another competitor saying similar statistics. but as i mentioned in my oral testimony and written testimony we are doing modifications but an investor would not want to make a principal reduction that could benefit the cash flow of the border were if the bar were turned around and used the cash flow to pay get second and that is why our recommendation and the testimony is to further advance 2mp to the principle forbearance on a share of a percentage basis across the first and the second to principal forgiveness across the first and the second and a similar percentage would help

resolve but. >> i would add to that we have requirements on the service of the first mortgage appropriately that topic and that issue is getting lost. i do not believe it is appropriate to legislate this matter and i think the customer choice is the missing piece. it's not because a shift of cash and portfolios or anything of this sort. >> mr. heid you think the customer has anything to do with servicing his mortgage? >> no, what i'm saying is the customer chooses which bills to pay. >> but not under the advice from the servicer were not with any coercion or thought process? >> that's my believe. >> i would attest to that. i would say the modification which happens to be the single biggest debt for most consumers has been the one that we have fled as opposed to what the

investors might want in this case but what i think we have tried to solve here is solving the greatest source distressed people and help them keep in their homes. the issue in separating the two is as we know there's about $440 billion in the second mortgages and there wouldn't be enough liquidity if we didn't have the same services so there is a certain amount of liquidity that needs to be looked at but there is no contact. >> the gentleman from illinois. no, i go back to the gentleman from texas. >> thank you, mr. chairman. >> mr. neugebauer. >> when i listened to your testimony as you went down the line i heard you talk about some

of you participated in the program and then others have done things i think you use the word proprietary. it hasn't been overwhelmingly received or effective up to this point. so, i guess the question just to kind of go down the road is why isn't the program working in our your proprietary solutions better than the h.a.m.p. program? >> it depends on the circumstances of the bar were. the advantages of the h.a.m.p. program and what it's done for the industry and establishing standards that enable us to apply programs across the portfolio has been an advantage. but there is no question there are certain borrowers, a jumbo mortgage conlon owner occupied property and fha loan where h.a.m.p. wasn't built to modify

those loans and that determines the need for special fha program or proprietary programs so the to work in complement and i think as an industry we are trying to get the message across that both are effective for whom they are targeted. we agree that we are disappointed in the rate through the permanent modifications under h.a.m.p. of the performance so far and that is what we have been working on fixing but so far required because the portfolio was rot. >> mr. das? >> i have a different view on h.a.m.p.. if you recall this year at this time all of us banks had and consumers were concealed. this was a large problem and consumers need to know what options were available to them and is awaiting h.a.m.p. provided the standard view of what a consumer could expect when they call their banks of we took it very seriously and when we walked out of the offices and started designing the program we

decided we would adopt it in spirit and in the up with 52% of our a live eligible portfolio and what we are finding is not compared to 29% for the rest of the industry so it really depends on how you adopt it. i will give you an example 33% of all of the portfolio loans have been h.a.m.p. by study, compare that to a share of portfolio loans we have and our experience on that is pretty good. we have been constantly contacting customers to make sure that they understood what they were signing up for in the documents to come in and i will say with respect to owner occupied that is our number one priority. we need to keep people in their homes and i think that h.a.m.p.'s focus was good so it gets an unfair share of publicity, negative publicity but i actually applaud the treasury for having come up with a program.

>> mr. lowman? >> we believe h.a.m.p. is a good program. i think one thing we need to remind ourselves of as we put a program and of lightning speed from the time it was announced to the time we implemented it took a lot of systems prophecies, sites for people to sit and thousands of people. we had a lot of learning along the way and i think we continue to be able to shape the future of h.a.m.p.. i think the new requirements that were just announce require the documentation of the borrower's situation prior to the commencement of the trial will prove to be really effective. >> i.t. with the discussion around h.a.m.p. has also donner is urging consumers to reach out

and that has been a positive development in the standardization. if anything is getting lost in the discussion i think the peace getting a loss is the fact the industry is doing a substantially greater number of loan modifications and outreach efforts and providing assistance in ways that go beyond the h.a.m.p. program. this command i think that was part of my point. my final point and my time is going to run out of here is the whole scenario. 1i don't know that the government needs to be sending the signal when politicians get up and say no one should lose their homes that raises the expectation level that all i need to do was call my lender because the president said last night no one should lose their home here's the thing i1 you to think about when the customer calls you and he and his neighbor of the house of the same time, paid the same amount and that neighbors started saving money and put money behind and now their neighbor is leveraged up their house, of bought a boat, but a second loan on their homeland now they are

guinn to get a participation from a reduction in created inequity by either a federal program or you're lending and the guy next door is out of a job as well but he is using his savings to make his payment. and again we are going down this road we keep having the government pick winners and losers and unfortunately in this case, the people making their mortgage payments are going to be the losers and there is something wrong with a system that supports that. >> the gentleman from kansas. >> thank you, mr. chairman. by understand some are concerned about the principal of the mortgage but it also seems unfair to be blaming millions of homeowners for a housing vv didn't create that inflated home values. many recent foreclosures are due to unemployment which we wouldn't have millions of unemployed americans in the first place if it were not for this a prime lending crisis at the center of the financial crisis. i offered an amendment to h.r.

1728 later incorporated into the house passed regulation reform bill to strengthen the practices. my amendment requires the barbara's and come e-verify this weekend with an end to the dangerous products like no doc loans that create damage in the housing market. for each of the four banks represented here do you support income verification requirements and depending on housing prices how have your firms changed your underwriting practices to focus on the border were ability to repay? ms. speed? >> we do believe that income verification as part of the documentation process and as you know most of the production donner in the market today is with the gse have those requirements as well but also do it for our own portfolio. >> we do the same. verify income and we continue to do that for the new originations

>> we began requiring full documentation in late 2008 so we had no programs that don't require and fully supported. we published our responsible lending principles on the web site back in 2004. we believe very strongly in the ability to repay and support documented cases. >> thank you. in an article in american banker bank of america spokesman said, quote, we support the idea of a consumer protection entity with a federal preemption and believe that any new regulation of should focus on activity that would apply evenly to all rather than be focused on particular entities. i share that view which is why i support independent csb and work with mel watt and others to continue to the pre-2004 preemption standard, the need for the state-supported and forcing consumer protection laws and a fair uniform standard that provides from across the country. representing further verified the standard before the full house approved the bill.

to confirm the spokesman's state and busbee bank b of a ogle look consumer protections help mitigate against a future wave of foreclosure and tapped on housing bubbles wax >> i agree with the statement the spokesperson made from bank of america about the support and i do believe a level playing field regulation in the consumer space would help avoid problems in the future, yes. >> any other comments? >> we believe the concept of the central authority is very important however we also feel it's important for us is an institution every institution should do to take responsibility very carefully which is laid out

by the ceo within the company. >> thank you. >> our chairman has also spoken extensively on the need for regulatory reform so we would support comprehensive reform obviously he has reiterated the details. >> we believe national access to the products is critical and to achieve this through national standards and relative to the regulation i think that the connection needs to be that they apply to what is today on the unregulated entities. >> finally won on growing concern as homeowners may not be aware of foreclosure mitigation opportunities you robert voluntarily or through programs like h.a.m.p. and i think many of you have spoken to this before the to the banks represented what steps has the bank taken? anything you can add to what you said to make people aware of this opportunity.

any of you, these. >> creating ways to go to salvage the context using local gun manatee nonprofit organization where someone might be familiar and feeling more comfortable responding to someone participating in housing evens through the country participated in over to wondered 50 last year as a way to attract consumers and borrowers to a place we have representation to support those telephone and e-mail contact, text and contact and we try to be as creative as we can. >> thank you. i see my time is expired. >> thank you, mr. chairman. first of all we are hearing about the regulators coming in and saying to the banks you have

to write down certain loans because they will not be good in a year or two and i wonder how this -- if you are hearing from regulators about the potential write-down associated with the program is their concern how this will affect your balance sheet in the near term? what anybody like to answer that? >> i can take that. >> i think the concept of breaking down the distinguishing second mortgage needs to be reexamined and i would say that when we do a modification we should put a potential income and we should really be accounting for it. i think that we may be going too far to the extreme saying the

second mortgage is nothing but in fact all across the sit by and large they are performing really well and the reason they are performing well is because borrowers tend to look at them as an important source of cash flow and tend not to think of them as in terms of how much collateral they have for the equity in their home. it would be like them on secure line of credit and that needs to be taken into account. >> do you think there will affect your availability of credit for consumers? what have any affect? >> the way it is structured for it now is we are lending prudently to prevent customers. but taking it too far to the extreme could have the potential loss of flooding the number of the mortgages available to consumers is to make anybody else? >> i think the totality of all the programs and changes

happening and are yet to happen all of them would be factored into the credit decisions in the future. >> another question with the fha refinance program and tend to rid of the total debt obligation the primary mortgage and the second of the 115% of the current value do you have any concerns about the appraisal of the properties how are they going to determine what the current value it seems like this is an unknown particularly to use comps. will this require an up-to-date appraisal and what's going to happen with that? >> this would be under a standard fha financing of it exists today that requires the approval to do updated appraisal

and the industry is we did three ander $78 billion of new originations on mortgages cluster all of which appraisal associated with them so we are finding a way to what is a difficult period of time to establish comps and this sort of thing that is happening day in and day out and that would be required under the fha. estimate a kind of percentage wearing the appraisal of the house? >> it would be whatever the independent appraiser thought the appraised value of the home is today. >> the details of that program haven't been provided the concept south but to the extent the broken details follow the established mechanism for revalues so i wouldn't anticipate that being a problem

as long as the ultimate rollout of the new refinance program follows as closely as it can the standard requirements feg today. >> thank you pra yield back. >> the gentleman from north carolina. >> i know the idea of taking the reduction of principal and to any reduction principal in the second is supposed to sound generous but first and second lien holders don't have equal claim to defend the rebel law is supposed to work is that first mortgage holders get paid. second mortgage holders lose everything before the first mortgage holders lose anything. so suggesting agreeing to a pro rata reduction in principle the second of the hold the own to go with a reduction principal the agreed to on behalf of investors

strikes me as evidence of a conflict of interest not absence of conflict of interest. in mr. lowman's testimony he said that the servicing agreement for private label securitization of mortgages as well less fruity and fannie would require a change in the agreement to make it legal to modify to reduce principal and it's very difficult to agreed to get to that amendment that took everybody's interest to the different trenches. there's been a lot of proposals how to cut through that legal problem and i thought there has to be something in voluntary to do with whether it was purchasing having the government purchase mortgage interest through eminent domain and then modifying ourselves which is similar to what the corporation

did in the great depression or modifications in bankruptcy. citigroup team and support of that two years ago which i appreciated. bank of america went to the brink that never quite got there. what is your current position? >> as we've gone through the lessons we've learned with modifications and other programs there is a segment of borrowers whom there would be inappropriate alternative at this point in time. >> so you would support that? >> uncertain circumstances yes, thank you. >> oh-la-la would have to be modified but we should make clear we can't change case by case so it would have to be a general peace. >> you would support the general to allow the modification of home mortgages and bankruptcy.

>> i believe there is a segment of vara resume that is the alternative and subject to them having gone through qualification for h.a.m.p. or something like that and failed that that might be an alternative, yes. >> the customer is already getting assistance in terms of the program so you have to ask yourself whether changing along is the best way and fastest way to achieve this and i think there's other alternatives. >> we are trying other alternatives now and have been for three years without much to show for it. the stress test of a year ago assumed that second mortgages held by the 19 banks were worth 85 cents on the dollar. other analysts have said 40 to 60% loss is a more realistic number. hauer you tell you when your

second mortgage portfolio now and was the stress test and accurate estimation of time to be affected stress test? >> of the evaluation or the value of a particular asset is watched on the losses and stressed under economic situation to see the expected loss might be in that situation and we evaluate based on what the models tel. we expect the losses would be paid to the market is valuing the disconnect in the sense that the market is valuing not on the basis of the performance but on the basis of the equity that is in people's homes and we believe there is a disconnect between the market and what is and these cases are market disconnect with what is on the book as we saw indicated non-performing loans last year, nonperforming loans

were at one end and we valued then at another and the king and converged to the point where it was similar to what was on the books. >> a 50% loss of power for the second mortgages with acid fallujah asian? >> yes. >> my time is expired mr. chairman. >> the gentleman from texas. >> i have no doubt that in this economy there is a lot of pain and misery that has taken place throughout and i'm still curious why we are examining a program that seemingly will bail out banks who made bad loans, people who may have purchased more, than they could afford yet someone who invested 100,401 agreed to increase $100,000 or no plan for them. somebody decided to rent their

primary residence and invest money perhaps it a realistic investment trust of 100,000-dollar loss there is no program for them so i question the fairness of this particular approach and though they met 94% of americans who either own their home alfred, rental runs a current mortgage. be that as it may i heard of the germanic i say and others say they want to persuade you to modify mortgages. i know in that regard there is a member of carrots and sticks floating around here particularly one as having fha insures mortgages so the taxpayer takes the rest of you. surely we are all aware it may conference a capital market reform bill that has a lot to do with your bottomline so i suppose there is sticks floating around there as well but i want to talk a little bit about the

continue along with this particular matter for about the organic carrots that are already out there. i previously served on the congressional oversight panel for the program and in testimony we've received before that panel on october, november i believe it was a number of different academics and people from numerous markets said typically the average foreclosure could cost you anywhere in the neighborhood of 60 to $80,000. is their anybody on the panel who wishes to disagree with that assessment? those good numbers is that a ballpark range? and subleased some kids are shaking in the affirmative. >> let me just say we have very good reporters but had shakes don't make their way into the transcripts. >> for the benefit i will note

this particular member at least observed some head shaking. that begs the question again you already have built an incentive to modify a number of these and i'm not sure how much more taxpayer incentives you ought to have much less need. clearly there's a large concentration i suppose among the banks of the second liens. i assume there is a fear of a parent for regulatory capital plan also question why is the real legal and impairment or practical and payment on the homeowner, the first lienholder contracting that the second lienholder in order for writing down some principles for them to receive a contractual equity perception and upside appreciation in the fur market value of the residential collateral. i think the gentleman from pennsylvania negative aren't

there and number isn't that a market solution? is there a legal practical impairment this number of to be aware of? anybody who cares to handle the question? >> i think your point is a very good one in that there is significant incentives already for all of us to do what's right for the customers. >> thank you. recently there was an article in "the wall street journal" and i will quote from the moral hazard question. the board officials worried some borrowers get their principal reduced even the borrowers who are not behind will stop paying unless they get the same break for argument's sake let's assume "the wall street journal" got it right and we sort of touched about the moral hazard question. i don't think i heard you address it specifically. does anybody care to comment on this particular article?

>> congressman, the only thing i would say is while it is quite likely a lot depends on how we sensible reduction war particular modification in fact i will give you an example you could have a principal reduction where the principles taken straight off or you could have a principal reduction where it is taken off or clearly if it is not done properly you can provide incentives for people to default to we estimate it can absolutely lead to that however you mentioned earlier there was a shared appreciation then perhaps that could be mitigated to some extent the there was no doubt it would lead to some issues. >> my time is expired. thank you. >> we may have a second round. i have a couple of institutions specific questions i was going to ask so we made to give little more time. the gentleman from texas. >> mr. chairman i would like to ask all of the witness is a

question and the question is was it appropriate and necessary for the government to intercede with the 700 billion-dollar bailout if you don't think so don't you think we should have done nothing would you simply raise your hand? i'm going to take it from the absence of hands that there is a belief among the witnesses that there was a need for a bailout that is the terminology we are using nowadays to be consistent to communicate. mr. heid i believe it is you indicated that there is enough incentive to buy believe you said to do the right thing for your customers. maybe it's not really the heat

-- mr. heid, excuse me, is there a incentive to do the right thing for the economy? >> i guess the way i think of it is if we do right with our customers we are doing what is right for the economy and if you find it is not necessary to make modifications, then you have customers who go into foreclosure and that impacts the economy and adverse ways. have you done the right thing? >> the fact we've done a substantial number of loan modifications and we've done a substantial number of forgiveness loan modifications since we are doing everything we possibly can to stabilize. >> that percentage to consider substantial? >> in the course of answering differently about 2% of the overall portfolio is what works its way through the foreclosure. >> have you reached the 10% pattillo?

>> it's been a consistent trend in you'll basis -- >> 10% of those in foreclosure? >> the portfolio of americans that have homes tends to go through the foreclosure. >> i understand. what percentage of your homes in foreclosure have you modified? >> a couple of ways to answer that. if you look at the h.a.m.p. -- >> no disrespect of the time i would like you to get a percentage if you could of these many ways. >> i don't have a specific answer to the specific question. >> i think most to examine these numbers have concluded that we have not significantly impacted the number of homes in foreclosures. do you agree with this contention? >> nope. >> do you think that you've significantly impacted? if you have it would seem to me he would be prepared to talk about how you performed the

significant feat. >> let me answer it this way. certainly there's no question that more does need to be done. >> more needs to be done? you see it as if we do something else we will make a great difference. a lot more appears to me should be done because we are facing a lot more foreclosure. what are we going to do about them? let me just excuse myself for a moment if i could and no disrespect to you but i have to go to bank of america. let me compliment you on this principle reduction program. i think that when businesses do while we have to acknowledge it and you should be complimented for what you've done. [applause] >> there will be no demonstrations. >> tell us briefly what you think principal reduction, as you can come as a significant means by which we couldn't act for closure.

>> because there are some borrowers for whom the offers we have extended so far have not been generous enough and in order to enable -- who want to stay in their home. >> let me move one step further because i'm about to lose my time. would this impact the overall economy what you are doing? >> we believe that bringing stability to aid the kurds by insuring that homeowners who want to stay in the homes can get to an affordable payment and half through the vision for the future of that home ownership is important and that the same time we do believe there are some are worse for him being able to afford staying in that home is not a viable alternative so we need to work with them to transition them of that home and its in a dignified way as possible without having to go through foreclosure but a short sale or other alternative and to an alternative housing

arrangement. >> thank you mr. chairman. >> the gentleman from illinois. >> thank you and thank you to the witnesses for the testimony. was almost two years ago we had a hearing about the than looming foreclosure crisis in this committee. we were concerned the debt to income ratios that were unsustainable and at that time what we produced at the committee level was hope for homeowners program which i thought provide the proper balance between providing relief to those who found themselves upside down while also protecting taxpayers against moral hazard by requiring those that receive release to pay back the taxpayers by sharing and upside in equity appreciation back with of the government. clearly the hope for homeowners program has had little to see roe participation from organizations like yours also my

question is why and recognizing the there were compliant issues we later a first about a year into the program, does that include the second lien treatment and how it's different than the h.a.m.p. program and my selzer question would be do you believe that approach does tackle moral hazard by discouraging homeowners from intentionally defaulted because they think the are going to get a deal if they have to share equity later that would discourage them also encourages those that are in a troubled situation to stay in their home because they have a more realistic potential that some equity appreciation in some realistic future than just adding all of their debt at the end of the day. is their anything precluding you as servicers from already working out your own equity of arrangements with powers to the two borrowers and is their something we should do in the h.a.m.p. program relative to that? can we start with this is

desoer. >> hope for homeowners have -- >> please identify yourself. spent by with bank of america homeowners. the hope for homeowners program on a theoretical point it looks nice because the idea of the appreciation featured in the home under the transfer appreciation and investors the chance to share is appealing but every program has operational concerns and would probably hurt hope for homeowners the most was because it was a sycophant deviation from the standard feg program and the operational hurdle to put in place has been difficult so we've been working on rolling out question time and we are not very get. if we look at the new program put out by fha which is simpler like lamenting the appreciation will be operationally easy to roll out and much more effective on that point of view. >> thank you.

>> hope for homeowners was a complicated program in terms of how it could be executed. i generally tend to be a little bit more in favor of shared appreciation because i believe that unless there is some sharing of the up side the the notion of sharing on the downside doesn't seem fair. i will see if my colleague has any additional kallur on this. >> i think i -- >> i am steve from city mortgage for the record. i would tend to agree with mr. schakett's comments. we look forward to the new fha program as well as hope for homeowners. >> congressman, this is a complex program and one that we have wrestled with. we are in the process of doing what is necessary changes to the systems to allow wait and we plan to launch it this summer.

>> thank you. >> at the new fha program has had bandages over the hope for homeowner. it is a simple program that is what we know what it so far it would appear to be using standard fha requirements. the approach between firstname and secondly it is a more equitable sharing under the new program and as i sit in my testimony we intend to make sure we prevent this from happening. >> can i ask what may be a nod is their anything precluding servicers from working out the air arrangements with borrowers now, you can and are you giving those in some situations? >> we do need oral responses. >> you can just say whether you are or whether you are about to. >> we are not but we have introduced the concept of the principles into the principal reduction program.

sprick we currently don't have any programs operational that include the shared equity but we do have -- we're in the process of constructing pilots. >> we currently don't have a program. and we've been using the principle forgiveness as a part of the program starting in the debris to thousand nine as a way to get the customers help. >> thank you. i see that my time is expired. >> the gentleman from indiana. specs before. in yesterday's wall street journal a bankamerica spokesperson is quoted as saying quote, its efforts to fail with foreclosure field and we do reserve the right to recover the unpaid balance of the second pnac presinal by state law. however our practices and to only pursue the recovery in situations where we believe the customer had sufficient not retirement assets to satisfy the debt obligation. madame desoer, could you expand upon the process your bank goes through in determining which customers they deem appropriate to collect on the second wing?

>> it's probably the evaluation of underwriting to determine the hardships or we'll get verification on income and other assets the border were might have and in order to mitigate the risk of moral hazard to draw the line to determine who is eligible for certain programs based on a hardship and if there are not eligible we might reserve the right to pursue other assets or through income and their ability to afford the payment of their right to do so. >> i yield back. >> i would like to begin mr. hensarling. mr. lowman, i was approached yesterday in my office in newton by an attorney who reported we've got people who are in modification programs who were still getting collection

letters. i'm wondering if you or ms. sheehan would know about that and how to solve that. i'm assuming it's not appropriate. >> we do make mistakes. we are dealing with a lot of customers and a lot of transactions. i would be happy to -- speed along those same lines i've been told by the organization of they had difficulty getting some answers on some pending requests for modifications which the channel -- what do people do when they don't get the answer they thought there were going to get and who do they talk to? >> we have a special group that deals specifically with community groups including nafta and through those channels is how -- >> in some cases it isn't working is there a peer or where do they do when they are frustrated? >> come to me.

>> miss sheehan, your first name is? >> moly sheehan. >> she indicated she could be the one who talks on this and the gentleman from texas. >> thank you, mr. chairman. there have been a number of editorials written about the approach of the administration on for closure mitigation. usa today wrote on the first of this month quote, helps irresponsible lenders, far worse, the end of quote. "the wall street journal" saying the road instead we are headed towards your five of the housing recession with washington proposing even more ideas to prolong the agony one senior banking regulator we talk to cause, quote, extending and pretending.

>> the question i have i made part of the congressional recess over easter speaking to a number of private equity funds, banks within the dallas metropolitan area which i have the opportunity to represent a section of the city of dallas in congress and there is great concern that the government is artificially propping up values in a market place to create uncertainty and leave private pools of capital on the sideline. i add that most of my evidence is anecdotal but i hear it over and over and over that people are afraid to invest in pools of residential mortgages because number one they don't know the market has reached its true value in a second of all the don't know what the next public policy shoe to drop may be so in

my mind i'm not sure washington is helpful at the moment. they may be more hurtful and i would like any comment on the validity of the observations made by a number of people in the investment and banking community and dallas texas. anybody care to comment? >> certainly it is not a good thing for the investor community. >> , chris mann, but like to weigh in on that little bit because it is somewhat of a sanguine view of the world. we are actually seen in certain markets there is in fact improvement, general improvements have seen civilization. we are the point of inflection and the government's role is welcome in terms of getting dustin together and i don't want to believe that this

interventionist creating pools of opportunity for capital. i believe it is important to the working together that is a importance of the factions that will make the market more efficient. >> this will be my last question. i guess i'm looking to be persuaded as a member of conagra's this a good investment of taxpayers' money. i know there is a $50 billion pool money here and the chairman and i had this exchange earlier at least it is a matter of fact the h.a.m.p. was accretion of the obama administration be that as it may. so there's a $50 billion pool of money. we know that we are a nation that is today on and on sustainable fiscal path not my language i believe that comes from dr. elmendorf of the

ngssional budget process. chairman bernanke has a code that and i feed -- i think paul samuelson has said we have a cancer that could threaten our -- that is a paraphrase i don't have the quote in front of me but already we are looking at levels of debt ggp guinn from 40% to 90% and we are looking at a budget that is going to triple the national debt over the next ten years. we are looking at almost a trillion dollars of interest payments alone at the end of the decade and so the question i have when everybody from the big ceo to the omb, to the president's own director says unsustainable gistel pass why not use the money to pay you guys to do something that you probably already earned and our incentive to do as opposed to paying off the national debt?

>> if i see no enthusiastic takers of the question i will yield back >> the gentleman from illinois will have the final questions. >> thank you. my question is one executive year from my constituent focus in my district is people who have been trying to get free ma edged many of them were on unemployment insurance. but then they are not approved for a permanent modification because they don't have an appointment. can someone explain to me why you would be able to get into a temporary but not a full modification and shouldn't we be using the same criteria? can i start with you.

>> yes and there is a change in the program, so the only way that i believe that could potentially have and as if in establishing that customer into a trial modification we ask what the income was that maybe not the source of their income and we verbally verify that they could meet the requirements and put them in a trial modification and once we got documentation of income and understood the link of time that there was going to be in place because the intent of the program is to make a long-term affordable demint that is when the disconnect would potentially have been. >> so they don't qualify in either case or either case? >> it is qualifying income but it is only for nine months so you have to see the path to either another member of household having in come that would be part of theat