and foreign policy with the critical players in foreign policy so you can take us back to your local communities and determine what kind of programming and educational work you want to do in your communities with us. and i would like to thank our speakers over the past several days. our donors, chevron, thomson reuters, stanley foundation, northrop grumman, the cambria's company, but most importantly want to thank you. you've taken the time out of your very busy schedules to come here and engage on these very critical issues facing our country. you take -- you spend your lives trying to build our democracy by ensuring that americans have the opportunity to learn more about global issues. thank you for what you do. thank you for coming. we'll see you in the east room for the reception and dinner with larry summers and the global economy. thank you.

[applause] [inaudible conversations] [inaudible conversations] >> senate democrats and republicans each met today to reelect their party leaders. after the meetings, senate leaders spoke to capitol hill reporters. [inaudible conversations] [inaudible conversations]

>> okay, everyone, it's been my honor to serve as the democratic leader for the last six years and my team was just did. and i am really grateful for the caucus supporting us. just to remind everyone, senator durbin is the way it. senator schumer is the vice chair of the caucus. patty murray as the secretary. these are the elected positions. i have appointed as head of the dpc, senator schumer. vice chair will be senators that are now. and how did this during and policy committee will be mark begich. we feel very sound in our approach to this lame duck and of course next year and the year after that. our focus is on the middle

class. it's on creating jobs and it's working in a bipartisan basis in any way that we can. we reach our hands out to the republicans. we want them to work with us as they didn't do the last two years. we feel it's very important that we work together. we're going to go more than the extra mile to work with them, to accomplish things for our country. the american people elect to does to get along. the american people elected us to do something about this economy. we were not reelect bid, democrats or republicans. we were elected to do things for her country. it's not a democratic way or the highway. it's not the republican way or the highway. at the american people want for us to do something about the staggering economy that is improving, but not rapidly enough for the american people. the american people want us to work together for the third

time. that's our goal. we're going to buy the caucus this afternoon that will last for several hours. we'll have another one tomorrow took over the many issues facing us as a country. we had a wonderful organizational meeting, recognizing that we have things to do. we have some procedural things. for most things are going to do with our sensitive nature. we'll do some questions after the caucus, but that's enough for now. thank you. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> welcome back, everyone. it doesn't work. microphone is not working. what do we do about that? >> try and talk as loud as you can. >> okay. again, welcome back, everyone. i had a president in august, september, october.

i hope you did, too. we just had a very good meeting. our meeting this morning, leadership election was very, very good. as i indicated earlier, we were all reelect ted. we have just finished our first caucus here. it was a long one. it was a very good caucus. i think it's fair to say that every democrat is on the same page. that is our number one responsibility, is doing something about the economy, putting people back to work. we also understand those changes here. and it's interesting to note, is the first time in 100 years when the house has flipped and the senate hasn't. one hundred years. we know the house will have new majority -- has a new majority of new leaders. i look forward to our meetings with later boehner in the next few days. we welcomed our new senators who

are coming in. our two new senators and blumenthal, even though he doesn't start now, he was there and participated in our discussions today. we recognize the great work of senator lincoln. she was there. she sat through the whole caucus which we all admired and appreciated. it's clear that we recognize what the house having changed hands, we're going to have to work harder to make sure that we're ready for every opportunity to recognize the needs of our constituents and the country with jobs is the issue we talk about all the time. i think that's what the people demanded two weeks ago today. they demand that we get things done and that we start working with each other for them talking past each other.

so we have free votes that are set up now. one is on environmental issues, which at this stage it appears probably will not go forward with that. i think weld to vitiate closer. "avatar" to senator mcconnell on that. the next will be on pay equity, more equalize pay between men and women. and then we have the food safety issue. so i am very concerned about the list of noncontroversial judges that we need to clear another nominations and i hope we can work something out with the minorities so we can do that in a fashion with cloture and everybody, which prevents our time. we all agree that by the time we adjourn here, this congress and we have to make sure we do something to protect middle-class families. they shouldn't be penalized or

held hostage by those who want to protect billionaires. questions? >> senator reed, would you allow on senator rockefeller's legislation to delay ppa? >> a meeting with jay later today. i want to see how we can do that. we're at a critical time here. it's real hard to say we can do that because we have limited time here because of all the procedural motions. if there's a way we can do it, i'll be happy to. [inaudible] >> i talked to senator kyl who is the person on the minority that has been working with senator kerry and the white house on that and he told me he didn't think we could move forward on it. now i was told just before starting my second caucus at the white house was in further discussions with him, so we'll have to see how that works out. [inaudible conversations] >> far too much time on the

right. >> on earmark reform, there was a couple today to expand earmarks for two years in their caucus. i'm curious to know, they seem to be season and for the reform that was demanded for last election. are you concerned democrats will let the voters are calling for by pretending? >> i believe, personally, that we have a constitutional obligation of responsibility to do congressional directed spending. i do not feel comfortable turning them over to the people downtown. i think that what we wind up doing is the big universities on the western part of our country, mainly in one state and those in the eastern part of the state get everything. i don't accept that. i think i have an obligation to the people of nevada to do what is important to nevada, now what is important to some bureaucrat down here with green eye shades.

so i'm not going to personally back of two bringing stuff back to nevada. this is an issue that we can talk to the caucus about. i hope we can have a debate on it and have people vote on it. but i don't accept what you're talking about as reform. i think it's tremendous step backwards. it just gives more power to the executives. i am not one who believes in that. i think with three separate and equal branches of government and i think they should be equal in power. i am not in favor of delegating my constitutional responsibility to the white house. >> would allow senator coburn to have a vote on this amendment to dan earmarks? >> it's my understanding that senator mccaskill has asked to have a time set that we can vote in and i hope we can do that. i would be happy to do that. the legislation were dealing with, we as you know, with the teatime we have, if i'm able to

get cloture on issues i bring up, it's not going to be open amendment process because we simply don't have time for that. i would be happy to work to set up a reasonable time to have a debate on that and have a vote on it. >> senator, do you expect to have somebody named to be tfe by the end of the week? >> i expect to have somebody named to the dnc soon. >> senator, what are your top legislative priorities in a lame duck and how do you figure out the sanctity which takes precedence? >> a wonderful discussion with my caucus. i'm not sure i'll be a lot to do it tomorrow in total. but by thursday will have to make a decision on what were going to focus on what we get back after thanksgiving. so i'm not in a position to tell you that right now. but it's no secret what the issues that we have to deal with. as a long line of stuff, some of which is our detention by questions that have been

nastier. [inaudible] >> if i can't get a compromise on what i have filed dealing with natural gas, and of course i can't do that because we can't do that on separate issues. >> do you support a temporary extension of other tax cuts for two or three years? >> no. no, this is something that we will take a look at. you see, the thing i think is so important to remember, dealing with tax cuts, is that my main concern is to prevent a tax hike on the middle class. and for people to say that these upper income tax cuts affect most small business is simply not true. my main concern is to prevent a tax hike on the middle class. i look forward to continuing to discussions with my caucus, the

white house and republicans on the best way to move forward. as i sat in my prepared remarks, hope the middle class will not be held hostage to the billionaires extra money that they're going to get. we must recognize the impact of our deficit. remember, some of the people pushing the hardest for extending the tax cuts to billionaires are the same people who are complaining about the death sentence. if the legislation and senator mcconnell introduced gets passed, it would be $4 trillion hole in our budget. so i'm seeing how my caucus comes down on this. but it's clear that the vast majority of my caucus believes that we should protect the middle class. [inaudible] >> now, an interview with congressman, eric cantor. the house republican whip talks about his party's legislative priorities in the next congress,

when they'll have a majority in the house. he is interviewed by "wall street journal," managing editor, robert thompson. this is 20 minutes. [inaudible conversations] [inaudible conversations] >> good afternoon, everyone. the senators you see before you have just been reelected by our conference. to be retained for another year. let me just say that i think we have a great opportunity here to demonstrate that we are responding to what the american people clearly weblike for us to do. cut the spending, cut the debt and get her job creation going again. it is our hope that we will be able to work with the administration on all of those

issues. i and others about numerous conversations with the president over the last week or so and we look forward to it learned the ways in which we could go forward together for the american people. with that, let me turn to the newly elected with, jon kyl. >> thank you, leader. in the last several months, we have tried as best we could as leadership of the republican conference to reflect the will of the american people. i think our colleagues have expressed confidence in the leadership team by returning all of us to the positions in which we've previously served. i appreciate the fact that my colleagues were cooperative in my responsibilities as with. and i think that the tone of the meeting that we just had was one of the team that together has heard with the american people have to say and want in every way we can to translate that into legislative and the united states senate.

>> our goal as a country should be to make sure that the next generation is a period of american exceptionalism or american greatness as any senator, marco rubio, talks about. to do that, we know exactly what to do because we've heard it from the american people. number one, make it easier and cheaper to create new private sector jobs. number two, to control spending. number three, and washington takeovers. number four, to defend constitutional liberties. and to recognize that congress is proved conclusively we don't do comprehensive wealth that we need to move step-by-step to read and the trust of the american people. >> i think what the american people were saying by giving the 60 senators and a big majority of house of representatives, they want us to rein in out-of-control government. i think that was in the primary message coming out of this

election, the american people didn't like what they were seeing. there was an overreach and agenda in washington d.c. that consisted of expanded government and higher taxes, more spending and more debt. and so, we are in a better position now and hopefully the democrats will join us as we embark upon an agenda that tries to rein in out-of-control government, get spending and debt under control and get the american people that work are putting policies in place that will enable economic growth and job creation rather than killing jobs. >> we've clearly heard the american people stay focused on jobs, the economy, the debt and the spending. and they were screaming out loud to stop the spending. thirteen newly elected republican senators, i'm going to work with each of them to try and make them effective and and successful as possible and certainly the health care -- new health care law has been an important part of each of their campaigns and we're going to work together to repeal and

replace the health care law. >> will take a couple questions. [inaudible] [inaudible] >> yeah, i believe senator coburn is indicating he started going to do that and i think that's a good idea. [inaudible] >> yeah, i addressed that issue yesterday. [inaudible] >> were going to discuss that issue this afternoon and i addressed it yesterday. >> senator mcconnell -- [inaudible] >> a look, we will be addressing our views about how to go forward on health care.

ascender barrasso expressed their preference will be seen if we can get the votes to repeal and replace the health care bill. i think that is the first step. and you will hear from us on that subject early next year and probably again quite often over the course of the next two years. i'm going to take one more. >> do you think we should take action to change the federal reserve's mandate to accommodate the community to maintain full employment as a counter to the bond buying? >> yeah, that's one of many issues will be working with and digging about in the coming weeks. thanks so much. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> and titles i guess it's not right to close nancy pelosi. i guess we're now in the post below is the area. >> almost. >> how important is it that the congress seem to be doing something?

is it a sufficient policy just to say no? obviously there's some characterization that will be the strategy. so what signals are you going to send that this is going to be a period of productive activity? >> well, first of all, i think it's necessary to sort of look back and if we can take some lessons learned from the congress assuming majority and 94 and 95. i was not a part that congress. but i think it's fairly certain -- fairly decent to say that control in the house doesn't allow for control of the government. this is got to be a partnership. you know, congress is going to be in place. republicans will be a majority to providing oversight. and the congress that we're talking about embarking upon come january is one very much focused on the oversight authority that we are given, connected with the lever that comes with appropriations

authority. and it's the coupling of those i hope will allow us to identify where things have gone wrong, how to follow up on the regulatory uncertainty on the epa issue, on the issue of dodds frank. and they're a number of areas in agencies were think many of you have said, look, we cannot deal with this kind of uncertainty continuing. and i do think that congress that says no to antibusiness, anti-growth regulation is important. but at the same time, we've got to go back to putting in place signals and policies that are incentives for capital formation, which is ultimately we've got to lower the price of risk for all of you. >> congressman sidney, one area of uncertainty of the extension of president bush's tax cuts come forward to read between the lines of what the treasury secretary, tim geithner, told us earlier today it was two-year

extension for all cut public fine as is been made public opposition at this stage for permanent extension for wealthy recipients. does that give you something to bargain with over the next few weeks? and would you agree to your extension and then use that. to broaden the tax system? >> first of all, i think all of us, you know, the message from the election again as the insurgency connected with the tax rates was primary. it really was. and many of the folks were looking at whether it was constant state planet are in a small business person understanding whether it is capital gains go up. those of you who are dividend issue or is no good and well the dangers of having dividend rates go from 15 to 39 cents. i look at tom ferrel shaking his head they are. so it is something that

hopefully we can resolve prior to the end of the year. it's something that i think the administration understands cannot be done by decoupling the rates for those making under $200,000 to those higher earners. that's a direct signal that higher earners are going to experience a tax hike with however long the extension is. and again, the argument that we made during the election, i think successfully come even before the election when congress adjourned without dealing with the issue is that it's not only the likes of you in this room that are running, you know, the very large corporations. but it is the small business people. i mean, if you look at the numbers, 50% of the taxpayers over the $200,000 individual mark get at least 20%% of their income from entities that are small businesses. such oscar -esque partnerships. and the higher the percentage goes, the more jobs though

create. and i think that is the message that the elect jury gave us. stop even thinking about raising taxes on anybody right now when we're facing this economic times. i'm hopeful, rubber, we can get this resolved in the next couple weeks. we've yet to hear any definite progress on that front. >> but if you're listening to the mood music coming out of the white house now, are you reasonably optimistic that a deal? and which accept a temporary exception? >> the mood music is probably an interesting way of looking at it. i have heard and i heard mr. axelrod on television on sunday say the certainly of us to get done. he would not say the president has ever come off of his assistants that we need to rescue the middle class. i think all of us will agree the middle class has been hard hit. but you know, when you say

temporary or permanent extension, you know were talking about the budget window. do you know, right now i think it is best for us to focus on however long we can in terms of extending these rate so that uncertainty is diminished. and that has to be the goal. and i'm hopeful that we can work together toward that end. >> congressman, one thing that didn't happen at the g20 or in south korea was the trade pact and with south korea bilateral as well as seemingly fed to get done at least the mood music in my case turned out not to be fair. you are someone who has spoken publicly in fact for free trade. and yet i miss her to say that free trade is becoming almost kind of words. what can be done to change the nature of the debate to broadening understanding of free trade? and is it possible for congress at the moment to even consider, for example, the colombian pact

for the rescinding of the ban on mexican trucks? >> i think you can count on the republican-led house to push some free-trade bills this session. because we believe very strongly that there is a lot of jobs to be gained if we can't get back on track towards free trade. politically that is also we've got to address the sense of fair trade and making sure that we are applying the rules under which the international community and gauges in multilateral, bilateral trade. and that seems to be the political challenge that we've got. because somehow, the electorate, especially in the states that have suffered manufacturing losses seem to think that all that is happening is growth of jobs overseas without any sense of job growth at home.

so we've got to make the case that strong american companies, and if they're multinational but based year, growth for them is good growth for all of us and means ultimately more jobs here at home. i think coupled with a free-trade agenda needs to be a recognition that there is going to be a lot of temptation on the part of our international allies to engage and perhaps trade wars. and now, we see this on a currency discussion going on right now. the monetary policy that the fed has embarked upon as we all have seen evoked quite a response from our international allies. and you know, i think many of us have questions about how that monetary policy will or even have an effect on the economy. i think it makes the point even louder that we've got to pay attention to her own house first. our economy is still three times as big as china's economy.

instead of focusing on just aiming towards currency policy and that country, we can do a lot more if we focus on our taxation and the competitiveness of our tax rates, focusing on the regulatory environment as well as our litigation environment, what continues to be a hamper and a damper on the fact that we can't continue to attract our capital here. ..

ferc is going to deliver on the job creation of the wealth effect that perhaps the fed thinks it will. and, you know, i do think that we need to be very mindful that the potential specter perhaps for monetizing debt or enabling the facilitation of fiscal policies we've been about is something to take into consideration. i'm not necessarily under the belief cognizant fact is there, but there are danger signs obviously as we do that, and again, keeping our eye focused on what the goal should be. we've got enough on the fiscal and in congress i think to take care of the agenda. we've got tough decisions to make when it comes to discretionary spending. we put out some proposals as republicans. we've got tough decisions to make and we've got to start coming to the table on these entitlement questions. and i think as any splendor or

investor would look towards a borrower or entity to put confidence in, we in this country in washington have to demonstrate that we are determined to get back onto a path of fiscal sustainability. and all of what we do in our conduct will bear on whether we are successful. >> bearing in mind the fiscal stability, the deficit commission report. did you see much in that? >> and there's room for us to begin adult discussions finally announce the document. obviously some troubling issues especially when you're dealing with an economy the way we are in right now. certainly there are formulaic suggestions on the entitlement we got to take a look at, so i think it's a positive thing but out of the political realm and begin to talk about what's good for the country long term. spec retirement age, are you in favor of increasing or them

short to medium term? >> i think the discussion has to be look, there's a difference between those nearing retirement and those seniors existing right now. and those who are younger are not going to see the benefits that seniors today are just by virtue of the application of statutes. the formula is such the benefits will be reduced. so if we do not do something to expand retirement age from if we do not do something for me lately -- formulaic clique in the top tier of income earners you're not going to have this program, you're just not going to have it. that's reality. so i'm hopeful these suggestions that came to the commission will help facilitate some real discussion and hopefully your news organization will treat that in the way it needs to be which is to focus on the work that we've got to do and help promote that productivity. >> on the concept of evaluated

tax, for or against? >> i have not come out in favor of the vat fax. my concern -- and i know those who favor the vat tax may think the incentives are better for the growth oriented economy that if you favor at least on the application of a tax on the consumer side tend to provide disincentives while providing incentives for investment savings. i think the concept is very good for us. if you have to deal with the here and now. right now. now is the congress has a right to levy income tax and the other taxes associated with the current regime. we cannot and i don't think any of us want to go the direction of the social welfare state around the world that we seem to be had it right now. and right now unless we do something to drastically reform the tax code, you can't put that out there assuming we will have it all in terms of the

government ability to taxes. so right now i'm not in favor of that. >> have you and the president have a conversation since this election? >> i have. the president called the day after that he election. said mr. president, how're you doing? he said life had better days. [laughter] but i do think that was something that we look forward to having further conversations looking to the president to encourage the senate to work with us as a house. i think the blame game should be over. we have serious problems to deal with, and i know that we in the public majority look forward to working out with this republican administration. >> in the earmark agreed upon by the senate republicans already in the house you're in favor of such a ban. i guess it depends whether or not the president will veto any bills that come before him with your marks. >> i think the first thing the president can do is call up harry reid and tell them she's got to join us now in saying an

end to the practice that has been in place for way too long, and it is really about the oversight whole but we are going to play hopefully that will help engender more support around the country for this new way of doing business. and hopefully the president will be successful and encouraging. harry reid as well as agencies and his administration. >> i'd like to throw open to the floor. we are privileged to have the congressman here on the eve of the -- actually to january 3rd; is that correct? we have the remarkable opportunity to play him with questions. yes, bill. >> i just had a very naive question i thought i would ask related to your marks. how much of this infamous stimulus funds have been spent

and of those that haven't come is there a way to go back in and reallocate and in effect of unearmark and free prioritize that spending? in light of the electrons sentiment. >> i'm afraid to give you a number right now in terms of how much is not spent, how much is unallocated, because there are two different points. and yes, there could be a possibility for us to go in and rescind some of that. and i did your going to see congress starts in january that is going to be bent very much on cutting spending, saving dollars rather than coming and say we have a better way to spend so we are going to spend this way. it is going to be focused first and foremost bringing down the discretionary levels. we already talked under bringing down discretionary levels that will produce $100 billion in savings the first year. if you look at the growth and

discretionary including the stimulus, over 80% the last couple of years. so we've got a job to do their but i think was also committed and you will see a weekly focus on bill is brought to the floor that will actually cut spending. you look at the federal bureaucracy and the growth in the budgets, you look at the growth and the pay scale and a disproportionate now they are to those in the market and in the private-sector. those are the kind of bills i think you're going to see together if you look at the stimulus. >> [inaudible] >> if you could introduce yourself. >> glenn hutchins of silver lake. as we look at making long-term decisions on things like capital spending, job creation etc., what portability should we attach that there will be a long-term plan and binding plan

by the government to balance the budget? >> there is every bit of commitment for us to get back on a path to a balanced budget, and i say that because to say we will be on a balanced budget tomorrow is certainly a tall order and i think it recognizes we didn't get to where we are over night. but going back to the overall goal of reducing uncertainty, going back to the sort of sense that if you look at the u.s. government as a borrower or an entity for one to invest, we've got to be concerned about sending signals that we are serious about long-term viability and fiscal stability. so why do think that you, with all confidence i would ask you to have in us, given the situation we are in as a house under republican control in

january with a democratically controlled senate and white house under democratic control, hopefully the party can begin to work together to do that. now, the prospect of an election in two years may play in our favor. we will see. >> time for one question if you can identify yourself. >> my name is david crane from nig energy and first this question, we own power plants in trying to develop new nuclear power plants and the new nuclear renaissance that people talk about in the united states actually started in congress in 2005 with the policy act of 2005 passed by the republican house. i think the house recognized back then that without -- even before the financial meltdown wall street was not in position to finance nuclear plants after a 30 year hiatus so there was provision for a guarantee that was pre-stimulus.

what you have now you have an overriding concern about budgetary constraints, this is clearly discretionary spent on the new nuclear which all the republicans support. how are you going to balance those? which ones are going to take precedent as you move forward? >> underlined the question is priority. what is the congress going to be about and it has to be about cutting spending, got to be about sustaining some sense of fiscal viability for the government. and jobs. first i would say we are looking to the private sector as an answer a long term job creation. you lay energy on top of that and energy we've had discussions about the nuclear play being a job creator. i don't know the proper balance is as far as federal participation in that program

and whether there are other things we can do right now they're in the way of seeing an industry flourished but i do think the message is received that the nuclear component of our energy future is imperative. it's from a national security standpoint and from reali domestic standpoint. hopefully the forces that have been against in the post the growth of the industry has gotten the message well, although i'm not too certain about that, and we will have to get there. i don't have an answer for you as far as what kind of commitment to a of a budget allocation can we make. we are having a home grown utility that by the bills to into locations of the costs are to those plants and how to expect companies as big as some of yours with market cap that you have to undertake an

8 billion-dollar expenditure is unrealistic. >> the congressman has been very generous with his time. we should be and generous with our applause. [applause] if i could ask you to go upstairs now where mayor bloomberg awaits and begin to ask whether he has aspirations to be president. [laughter] ♪

the senate banking committee held a hearing on allegations of improper mortgage foreclosure practices. witnesses include iowa attorney general tom miller, head of the 50 state investigation into the practices of the mortgage industry. we also hear from banking

executives and attorneys. the committee also takes a vote on the nomination of economist peter dimond to the federal reserve board. this hearing is two hours and 45 minutes. >> the committee will come to order. let me thank my colleagues and witnesses for their with patience and adults the various meetings that unfortunate not at the same time to try to schedule him the hearing but you've come a long way might have friend tom miller from iowa as well as i wanted to make sure we could have the hearing and yet accommodate the interests of all members of the committee so we moved to this time. bob and i and senator shelby will be here at some point shortly. and the idea being that our -- against the democratic caucus this sort of wrapping up, but there is a republican caucus which is going to start in about an hour.

and so i'm going to try but i'm going to do is have already made a brief comments, senator shelby will do so as well and ask the witness is if they can to abbreviate their comments even further so if they can accommodate to accommodate the republican colleagues who are here who still have an obligation to get to that caucus in which caisse our own members will be sherman appear so it's a little different than we would normally proceed but i want to make sure we get all members a chance to be heard and the witnesses come a long way and for her testimony are going to get a good healthy discussion. on the federal reserve board as my colleagues will recall pheresis per koza nomination

under the law we had to be sent back to the white house and resubmitted therefore requiring another vote by the committee even though we've had a hearing and voted on the dimond nomination once before. so when that time comes i will interrupt the hearing to perform that function knowing that a quorum could slip from time to time. with that in mind i would like to begin. i will make my opening comments and then turn to senator shall be your senator benet, which first year, with whatever thoughts they may have and then return to our witnesses. again i thank all for participating. >> the hearing today as you are all aware of the problems of mortgage service for modification to foreclosure. obviously received a great deal of attention over the last number of weeks in the media and we thought it was appropriate even in this lame duck session we invite those involved in putting attorneys general represented by tom miller and others including the

institutions involved to share their thoughts as to where we are with this matter and give us an opportunity to move forward and obviously as i've prepared to leave tim johnson, richard shelby and other members will pick up this issue involves the traveling out the door and then move to respond to this issue accordingly. i want to thank the witnesses appearing and for their testimony about the problems in mortgage servicing for modification asset to foreclosure. as many of us know or all of us know we've had numerous hearings on the problems of the mortgage industry in fact the second hearing i held as the chairman of this committee and the first week of february, 2007 was on the residential mortgage markets and problems. during that year 2007 we have almost 80 different hearings on the subject matter at one time or another including informal gatherings in this very room with a leading servicing companies in the nation to talk about plans they have to minimize the fallout from the

mortgage crisis. it's a subject matter of the last four years the committee spent a great deal of time and attention on. in addition to today's hearing on the intent to have another hearing and i will consult senator shelby about the timing to do this. we are only here for a couple of weeks we have to break on thanksgiving but if we can we want to fit that into in by the regulators to come before us as well to share with us their thoughts on the subject matter. first let me explain what we mean by mortgage servicing people that when a homeowner takes on a mortgage that loan is often bundled with a pulled similar mortgages and saved in the secondary market as a mortgage-backed security. commonly known as mbs. all processing related to the loan is managed by a mortgage servicing company. the four largest banks, jpmorgan chase, wells fargo, bank of america and city are also the largest mortgage servicers, mortgage servicers bill and collect monthly payments come

operate customer service centers, maintain records of payments and balances and distribute payments according to the terms of the trust. principal interest distributed to the investors of the mortgage-backed securities through a trustee, taxes and insurance are paid to local government and insurers, servicers retain a servicing fees. it's a brief description of how this is supposed to work. it is the problems that we have arisen with the process that have led me to call the hearing today. hasn't been my habit to call "the wall street journal" editorials in my committee status by the falling from a column last month captured perfectly the essence of the issues we will examine today. the column is entitled a foreclosure suit, it starts by saying first we learned america's biggest banks couldn't properly planned. it goes on to say then we learned they couldn't keep themselves solvent without taxpayer assistance, then we learn they couldn't effectively work with troubled borrowers and

the bursting housing doubled but now we've learned they don't even know how to foreclose. this is more than just a little paperwork problem. ohio attorney general richard to put it best this is about the private property rights of holders and for closure on the integrity of our court system which cannot enter judgment based on fraudulent evidence, and of quote. this editorial provides a short description in my view of the situation in which millions of americans find themselves today. whether we are talking about a homeowner facing possible eviction, and investor and nds or simply an average american family. watching the value of their home dropped as more and more homes went for closure around them. i want to provide a bit more context of a can to today's proceedings. in april, a 2007 after holding a number of hearings on predatory lending as my colleagues will recall and the foreclosure crisis which would leave, to which would lead a tuesday meeting of large mortgage servicers in this very room

including regulators come civil rights and consumer groups and others to discuss ways we can prepare for the wave of loan defaults and foreclosures many expected. that summit we held resulted in a statement of principles to which all participants agreed may 2nd 2007 among the items to which the service agreed with the following. early contact and evaluation, modification to create long-term affordability and providing dedicated teams or resources to achieve the kind of scale many new would be necessary to face the coming tidal wave of foreclosure. unfortunately rather than living up to these commitments many in the industry wasted a lot of time denying the culpability with a mortgage problems or are doing the problems wouldn't be as severe as they turned out to be. as a result we see even today more than two years later a number of points. servicers to keep up with

demand, numerous and repeated cases of lost paperwork, ceres allegations by investors including the new york fed, federal reserve and advocates of self dealing some of the largest mortgage servicers in the country. and people needlessly move losing their homes according to some reports people who have no mortgages on their homes at all. more than a month ago, the signing scandal of course the press. many in the industry were to put in my view to call the problems tactical alone and to insist that nobody is losing a home to foreclosure without cause. however the focus of the road cosigning problem is limited in my view pitted many believe that the signing errors are simply the tip of a much larger iceberg and they are emblematic of a deeper problem and the mortgage servicing business. problems that have resulted in homeowners of course losing their homes and unjustifiable foreclosures in fact servicing practices may be putting homeowners at risk. even the industry now acknowledges the current

mortgage servicing business model is broken and is not equipped to deal with the current crisis. many observers put out the interest of third party mortgage servicers are not aligned with the interest of the homeowners or investors. so for example a permanent modification might result in a homeowner keeping the family's home and the investor being assured of a better return but the same modification could cause a servicer to lose money. the shot is that there would be extensive problems without the servicing process. that may have led to in the words of the federal reserve board and i quote her pandora's box of predatory servicing tactics. according to the governor these tactics include padding of fees, strategic misapplication of payments which can sometimes cause the loan to be considered in default which some people call service durbin defaults, and the inappropriate assessment

of the insurance which is extremely costly to the homeowner. let me a list others including failure to transfer and a charge of notes and mortgages become a failure to maintain proper custody of titles, failure to properly and the minister of the home affordable modification program, a failure to meet the requirement of the foreclosure process such as by the use of the signers and failure to establish read mr. the market's trust in accordance with applicable wally or contractual agreements. this hearing will explore these potential problems and the implications. in addition the congressional oversight panel has raised concerns today that the feeling of services to correctly handle mortgages and documents could create systemic risk for the financial system. the professor will also discuss this in his testimony this afternoon. it's a very important issue to explore both here today with the regulators of the next hearing. in my view we treated the

financial stability oversight council to examine exactly this kind of issue. it needs to really drill down in my view and find out the scope of the problem and determine the steps that may need to be taken. if they conclude that their artistic implications in fact let me assure i don't want this hearing to be simply about casting blame. it's extremely important to lee of the problems and challenges in today's hearing designed to do exactly that. i also hope we can work toward solutions as we do need to keep in mind that mortgage servicing, that mortgage servicing is far more than a tactical issue. at the same time we must all acknowledge that not all every delinquent borrowers ought to be saved or can be saved. in my view me to strike a balance, we need to be more robust loan modifications including loan modifications the result in real principle forgiveness that will finally

help put an end to the housing crisis. the same time i hope we can agree we should expedite foreclosures that cannot be prevented and example a significant portion of homes awaiting for closure are vacant in the country. there's no reason in the world to slow down the process on these homes. we need to put together going forward if we hope to finally put an end to the housing crisis and i look forward to the witnesses and comments and questions raised by my colleagues. [inaudible conversations] >> let me do this and if we have the quorum, mr. diamond, the want to -- let me turn to senator shelby. >> thank you. i ask enemas consent my full statement, mr. chairman of the big name be -- be made part of the record. it's to examine the qualifications of the nominee in terms of their technical proficiency as well as the

underlying policy philosophy. professor dimond is a skilled economist and it's not axiomatic however that every skilled economist is the best qualified individual to serve on the federal reserve board. there are many factors to be considered before we can perform any particular nominee professional accolades is just one. but before we even begin to consider the personal and professional qualifications of a nominee that the federal reserve we should stand for and must determine whether they are eligible to serve. in this particular instance it's come to our attention recently that professor dimond's nomination does not comply with the express language or the implied intent of the wall. according to section 10 of the federal reserve act, and i quote, in selecting the members of the board, not more than one of whom should be selected from any one federal reserve

district. the president shall have regard to a fair representation of the financial agricultural industrial commercial interest and geographical divisions of the country. that's the federal reserve act. that is the law of the land. the requirement across the district and across the sector representation has a rich history stemming from the american tradition of questioning, concentrations of power and since the founding of the federal reserve system the congress recognized the need to protect the interest of the country's diverse economic regions. such concerns help shape the federal reserve act in geographical balance is required on the board. it appears professor dimond and his nomination papers indicate he is, and i quote from of massachusetts and current board member whose nomination paper also indicated he was of massachusetts cannot serve the

same time and comply with section 10 of the federal reserve act. understand that the white house, whoever that may become a stated that professor dimond will be representing the chicago area for purposes. i think we know however that the geographical diversity requirement of the federal reserve act, the law is not an expert facto this occasion. the nominee also according to the law has to be, quote, selected from that district, and the only one in the white house who matters in this instance is selected professor dimond from massachusetts and would be the second one from massachusetts. i realize that the committee has reported nominees in the past who should have been disqualified for the same reason it did have been raised. i'm not aware, however, the committee didn't so knowing that the nominee had virtually no

nexus to the relevant district. in this instance, we are all fully aware of the conflict, and i don't believe that we should or can receive of the nomination in the willful violation of the law. we certainly shouldn't. i and a stand that the chairman has recently referred to such an objective as men's decius because the requirement has been disregarded in the past. i don't believe it or your failure to adhere to the law is insufficient basis for ignoring it again today. therefore i move that the committee, mr. chairman, disapprove the nominee and inform the president that he must select a candidate comports with the geographic diversity requirement in the federal reserve law. in fact, he should encourage, we should encourage the president to select individual from know how your kentucky because they lie in the federal reserve district that has been historically the least representative and would be proper in this case.

>> let me respond. and i can appreciate senator shelby's plight on this. we anticipate to this event as was raised, and so i appreciate getting an early warning in the sense this argument may be raised and let me briefly briefly respond to the first regarding section 10. it was not drafted until my colleagues as a residency requirement. the first cause in the sentence of section ten states no more than one member shall be, selected from anyone federal reserve district the remainder of the sentence instruct the president to, quote, have to regard to the fair representation of the financial agricultural industrial and commercial interest in the geographical divisions of the country and have congress intended to impose the domiciled it could have done so as it did so in other statutes instead instructed the president to seek nominees who could represent a fairly the diversity of geographical and other interests with in this country. second, this reading of the

statute is supported by the following explanation of section section 10 from the house report language of the time. quote but the provision, the house report goes on to say the provision that the president in making his selections shall so far as possible so let them in order to present a different geographical country has been inserted in very general language. i'm quoting now in order that while it might not be minute for mandatory it should be the expressed wish of the congress that no undue ponder vince should be allowed to a portion of the nation at the expense of other portions. the provision however does not bind the president to any slavish recognition of giving geographical sections, and of quote. third, dr. dimond's nomination as consistent with precedent established by both democratic and republican administrations. i have several examples. i didn't go back to the history 100 years of the federal reserve but i have one, to commit three,

four, five, six, seven examples just going back in the last decade of nominees within disqualify if we had originally applied the language of section 10 which the framers of the language never intended to be the case. obviously in the case of bin bernanke the chairman is designated in the atlanta district also born in augusta roger, his family moved shortly thereafter to south carolina which is in the richmond district educated at harvard, mit, stanford, princeton, nyu and mit. his appointment from the atlanta district is based on its place of birth which the only lived every briefly. elizabeth duke, again i think my colleagues supported that nomination who was presently there, nominated in 2008. designated in the philadelphia district of virginia native and a point that she was the vice president of a virginia-based community bank and virginia is located in the richmond district. her connection to philadelphia and appointments in that area as based on the service as an instructor for two weeks sections each year at the stone

graduate school in banking. from to those into to the intent from the kansas district court in philadelphia educated to the college and the university of michigan he worked as a financial economist in the kansas city fed from 70 to 75. from '75 he worked in the various positions the federal reserve in washington until his appointment to the governorship in 2002. his appointment from the district is based on his work experience. 2006 to those in a designated born in new york city attended college in boston began teaching at columbia 1983 when he returned after a service on the board in 2008. his appointment based exclusively on his college education and that community. randall, susan, roger ferguson, all of them and if you what i will take the time to read the every single instance it was

relatively short or in significant periods of time in the area for which they were appointed. it goes back to the intended congress and drafting section ten. so with all due respect to think there may be other reasons people don't want to vote for this nominee but on the basis he's not from the district of qualified doesn't seem to be valid. i would point out as well since we first met on this nominee and again having been the president of major economic association's, highly regarded as an economist by many people in mainstream economist in many ways i think it's appropriate move forward. it was endorsed by the committee when he first came up and obviously since then he's been recognized by the nobel committee to think the highest honor of economics and one might disagree but certainly qualifications ought not to be an argument against this nominee. i would urge we vote on the nominee. mr. dimond served on the board and i would ask the clerk to call the roll.

[roll call] [roll call] [roll call]

>> the clerk will report. >> the lotus 16 in favor, seven opposed. >> as i know you have a caucus to go to so we will do this above differently. and i'm going to turn to my republican colleagues for questions you can get your questions in. >> we like u.s. chairman right now. we are going to miss you. [laughter] thank you. >> thank you, mr. chairman. i will go back to the subject matter now. on october 60 called for an investigation into the growing controversy surrounding the home foreclosures. at this point, they're appeared to be a number of issues senator

dodd has raised a lot of them that need to be examined very thoroughly. first, we need to determine the extent of the problem. it appears thousands of so-called robosigners working for banks signed the foreclosure related documents, swearing that they had personal knowledge of the facts of each foreclosure case. it now appears that few if any of these people had such knowledge if this were to it. second, we need to determine whether the flaw in the process led to the and proper results. in other words, were any homeowners foreclosed upon when they shouldn't have been. i think that is a big issue. third, we need to examine the activities of the law firms that work for the servicers. many questions have been raised regarding the conduct of the firms during their engagement in foreclosure proceedings. for, what role did the gse of larger securitizations play in

this debacle? tabare actions contribute to the problem? or or fannie and freddie complicity in any way? finally we need to examine the role of the regulators. where were the in this process? what release appears to be doing and what were they doing and if not, why not? i think these questions have to be asked and answered and to determine the extent of the problem we need to speak with all of the major services. unfortunately, we only have a small subset today. for example, allied financial was the first major servicer to recognize that it had problems with its process. that firm and among others isn't here today. mr. chairman, it's my understanding that many if not all of the law firms under investigation were selected by the housing gse. to best understand how and why the firms were chosen by believe

we need to hear from frannie mae and freddie mac. unfortunately, they also didn't make the witness list today. perhaps the most complex you involved securitization. it's highlighted in the congressional oversight panel most recent support the most severe potential fallout from this will be found in the securitization market. according to the report this could have a devastating effect on our broad financial system. on this critical topic, we have a professor in georgetown university, the iowa attorney general and the ceo. each witness has an important viewpoint to share with the committee but none of them represent the views or perhaps the expertise of the securitized terse. given the complexity of this issue, perhaps the committee should have invited others and perhaps as the chairman said have another hearing regarding

the securities securitization community to answer our questions. finally, the regulators are also significant players here or should be. each of the major services have regulators on site in their operations. how did those regulators missed the widespread foreclosure problems at the firm's there was supposed to be regulating? that's the question. we could ask them but unfortunately, they, too, are not here today. senator dodd said he was having another hearing. i expect this to the focus on the foreclosure process. as i've already stated and you've mentioned it, too, there's a great deal examined on this topic alone. it appears that this hearing has also become a foreclosure litigation hearing. mortgage modifications is an important topic to be sure it is certainly one that warrants its own hearing. but if we are to examine the

issue of foreclosure litigation we should examine the extent to which bar where fraud has distorted the modification process and inflated overall foreclosure numbers. this is a critical issue considering the u.s. taxpayer has spent more than $50 billion on forclosures mitigation programs. we need to know where our mitigation efforts are best directed and where our money is being wasted as a result of fraud. understand there are no witnesses today that can address the topic of the bar were fraud, but we should have that. mr. chairman, i call for a full investigation on this matter in early october because i believe that those who face for closure showed at the very least know that the process is being handled fairly and legally according to the law. weigel i believe the we will learn a great deal from this hearing i hope that it does not represent the committee's complete examination of this

important issue, and i commend you for saying you will look into it some more. >> thank you very much and obviously this is a matter the will go beyond the time constraints we have over the next couple of weeks in the lame-duck session and i will be watching c-span from hopefully some comfortable spot in january as tim johnson and richard shelby, this whole extensive hearing. bob benet will be joining me along with evan bayh. [laughter] and watching you move forward. let me turn first of all to the attorney-general fallujah dewitt tom, we think a very much and i know you fort on this issue with others. in fact, my new senator from the state of connecticut of course, mr. blumenthal, the last 18 years i know has worked with you on this issue as well as i am anxious to hear what you have to say and we will move right along. i'm not going to the extensive introduction of all of you. i will put that on the record so your children and family to make sure you were recognized for your contribution to mankind.

[laughter] attorney general pete >> thank you, mr. chairman and members of the committee. this hearing mix a lot of sense. these are very important issues that have difficult, difficult questions and difficult resolutions, but hour are very important to america. the housing market, the home to individuals, the report to everybody. we have 50 attorney general's working together on this issue. we have more than half the banking regulators working with us. we've developed the last ten years a remarkable working relationship with the bank regulators. we've gone through three cases together, and we have worked since 2007 on the foreclosure prevention task force. it's a very important relationship and we work together. what the 50 of us and banking regulators are looking at is a series of issues. it was triggered by the robo signing and let me say we don't do that as a technical issue.

it is an affront to state courts signing an oath to produce a judgment of foreclosures and it is a very serious matter. we are following the sort of outline of the chairman, senator dodd in terms of looking at other aspects that have appeared in our investigation it we think are important. the include other surfacing issues, the whole issue of the paperwork the income lost and people having to start over and over again not hearing from the services for two or three months. that's an issue. the modification, the decision concerning modification is an important issue. i think that after three years to servicers, whoever is making the decision on modification, there should be a rhythm, there should be a pattern. they should see patterns developing and quickly people fall within modification are out or marginally. it's more ad hoc we think, and that just hasn't come together. we are concerned about some of the fees that are charged and on

assignment issues, those are some that we are looking at. the so-called dual track issue is something that's important as well and by that we mean a person is working on modification and all of a sudden the foreclosure process starts at the same time. it is the enormously frustrating second lignes prieta problem when the banks hold the second volume and also to the servicing there's a dynamic that doesn't work as well as it showed. we have -- we are talking and working in what the federal people level of cooperation with the federal agencies particularly justice and treasury, like never before i've been around for awhile and worked with a lot of the administration's, democrats and republicans. we've never had a group working relationship is good and this productive as with the this administration. we've opened a dialogue with the investors. we think they are an important part of the solution of this whole problem and have started

productive meetings with them. we've had sessions with bank of america, two sessions recently to get they've been productive to be a we view this as a chance to assault some or much of the problem that has hung on for over three years as senator dodd outlined. it started as a mess in the robo signing. we want to figure out a way that leaves the whole situation much better than when this mess started coming and there is a number of things that we are working on, trying to make sure that this is never repeated again. that is the simplest and for the basic that there is some redress to consumers are harmed, but then how do we develop a way to change the paradigms in the system so that works and much more productively? because as i said before there is so much at stake for the homeowner, for the investor come for the community and the overall economy. >> thank you very much, general.

i appreciate your work and those of your colleagues around the country. barbara desoer -- the bye pronounced correctly? is the president of the bank of america home loans. she oversees the business economy for almost one the five mortgage originations. and if america home loan test $2 trillion in the servicing portfolio that serves 13 million customers dewitt she also manages the bank's home-equity business and insurance service organization. thank you for joining us. >> thank you and a ranking member shall be and of the committee. thanks for the opportunity to testify. the economic downturn and the sustained high unemployment coupled with the housing market collapse has challenges for more profound than anyone anticipated. important become a more than 86% of bank of america customers are current on their mortgage. unfortunately others are in distress. at foreclosure sales one of three properties are vacant and

there are far too many abandoned properties in our communities the drive down home values in neighborhoods across the country. helping customers remain in their homes wherever possible remains bank of america's number-one priority as evidenced by were over 700,000 completed loan modifications. we reached the crossroads in to the modification efforts and reality of the foreclosure. despite our best efforts on the numerous programs, for some customers for closure is unavoidable. that is an increase in the concerns that you and we are hearing from our customers. it's our responsibility to be fair and treat customers with respect as they transition to alternative housing. we have an obligation to do our best to protect the integrity of the proceedings of for clochard and when that hasn't happened we accept responsibility for it and we deeply regret it.

we are the only service and who stopped the sales nationwide to review our procedures. we know the concerns are not just technical issues. we have confirmed the basis for the forclosure decision has been correct and accurate but we didn't find a perfect process and are already moving forward with the needed improvements. as a servicer we have responsibility to follow the guidelines established by our investors leading to modifications and other foreclosure alternatives. where we can't ask to improve the process alone we have and will continue to innovate. we also need to work with others and we are committed to further improvements first to improve the communications with our customers. a frequent source of customer frustration is they can't deal with the same person to times during the process was alone three or four. we agree to freeze on the of success in process to offer a single point of contact to the customers and be of more than

140,000 customers who are experiencing this today. we are in discussions with key stakeholders like the state attorney general to determine how that approach can be expanded. second, we need to provide greater liquidity to customers who are going through the process. and attorney general miller reference the parallel foreclosure do von trapp process of modification and for closure. we want to partner with you and other stakeholders to find a way to eliminate that track to improve the understanding of where a customer is in the process. third we are making and professed to the foreclosure process. we determined during our ongoing review our process for preparing affidavits of indebtedness and the judicial for closure state did not conform to best practices in some cases to date we've introduced an affidavit form, we've added additional quality controls and are implementing new procedures for

selecting and monitoring the performance of outside counsel. we are carefully restarting the affidavit process with these and other patrols in place our commitment is to ensure that no mistaking into a sale unless our customers get a fair opportunity to be evaluated for all of the programs that exist under modifications or a short sale or solution to it for closure is of last resort. thank you. >> thank you very much. appreciate. mr. arnold is the president and ceo of the subsidiary mortgage electronic verification. it's created by the mortgage industry president as a central electronic register with the help of streamlining the mortgage process by eliminating the need to prepare and record keeper assignments of mortgages. it's not registered as more than half the mortgage loans originated in the united states. mr. arnold has been there since

the inception in 1996. thank you for joining us. >> chairman dodd, ranking members of the committee, i appreciate the opportunity to be here today. if it's all right with you, mr. chairman, i would submit my remarks for the record. >> to all of you by the way any documentation you want to add to your testimony we will include as part of the record so consider that done. >> thank you. i'm ready for your questions. >> that was the testimony. [laughter] stomach makes me want to do the same. professor levitin -- is that correct? levitin. thank you for joining. mr. levitin is associate professor georgetown specializing in bankruptcy, commercial law, financial regulations, he's done extensive research in the role of financial institutions and business transactions including mortgage finance payment systems and bankruptcy organizations also served as the special counsel of the congressional oversight panel and is currently

a fellow at the center of what we george washington university. thank you for joining. >> i hope i can keep my comments as brief as mr. arnold. i'm here to testify with academic and not on behalf of the congressional oversight panel. the mortgage world has been run by issues the discovery that meter believe the major mortgage servicers have faulty fraudulent affidavit case is the emergence of concern over securitization chain of title and mortgage backed securities investors put back demands. although seemingly disparate these issues are in fact connected by the two common threads. the necessity of putting standing in order to maintain a foreclosure action and severe conflict of interest between mortgage servicers and investors. in order to bring the foreclosure the point must have legal standing. only the mortgage has such standing. many of the issues relating to the regularly on the effect of

an offer to counterfeiting relate to the need to show the standing. the problem of the various types of the faulty audits to the to affidavits and counterfeit notes, mortgages and assignments relate to the evidenciary need to prove standing. concerns about securitization chain of title go to the standing question. if the mortgages were not properly transferred and the securitization process, the party during the foreclosure does not inflict on the mortgage and therefore lacked standing to for close. of the market was improperly transferred the profound implications for investors as the mortgage-backed securities they believe the purchase would in fact be a mom mortgage-backed securities. if so, title most properties in the united states would be clouded and they would also be liability bill would greatly exceed the capitol of the major u.s. banks. but that claims underscore the conflict of interest between mortgage servicers and investors. servicers are responsible for prosecuting violations of

representation and warranties made to investors and securitization deals. servicers bring such actions however not least because there would often be bringing them against their own affiliates. the countrywide home mortgage servicing would be bringing those claims against countrywide is self. i'm guessing that many of you received this morning a copy of the american securitization white paper on a residential mortgage backed securities transfer. it's a good document. and i agree with most of the legal analysis as far as it goes but that's the problem. the problem is the white paper neglects to address three important points. first-come it fails to address the parties can contract about the uniform commercial code which is what asf says he governs the transaction. parties are about to contract by the terms of uniform code and arguably that is exactly what mortgage securitization service cited the agreements do. if that's correct then the asf

white beavers analyze the long law. second, the asf went to first neglects what ever the applicable law is. and there are a lot of potential noncompliance problems to such as premature spreading its notes and signing of the purported agents of now defunct companies. the scope of the problems is not clear but noncompliance with transfer could void the transfers. third, the asf white paper but neglects the issue and the securitization. most residential mortgage securitization trusts are governed by the new york trust all week and poses additional requirements on the transfers. arguably these requirements are not meant by many securitization deals. the new york law provides of the transfer does not comport with the trust documents, the transfer is void even if the transfer or otherwise comply with the law. that is the transfer of avoid the trust do not on the mortgages and therefore lacks the standing of to close.

i want to emphasize i am not saying this is the case. there are many unresolved legal issues and if the evidence your questions. i'm not predicting is a problem of mortgage-backed securities. instead, my point is that they are unresolved questions and the law is not as clear as either the american securitization forum or any law firm with of the standing opinion letter liability would like to to believe. some of these -- we don't know how the questions are going to be resolved but some of the potential resolutions have daughter systemic consequences and the congress should be aware of the possibility because we do a lot better ahead of the ball than behind on the systemic risk one of the system a chris aspect is taking into consideration the context of other problems and a mortgage securitization world. i think it makes a compelling case for early intervention and a global settlement of the foreclosure crisis and investor in litigation against services and securitized terse. only a global settlement will help revise the mortgage market,

will remove the debt overhang from consumers and financial institutions and restart the u.s. economy. thank you. >> thank you very much. .. >> we take these issues seriously. we regret the errors in ourived process --

affidavit processes, and we apologize. we want to reach a solution that permits them to keep their homes. >> that's a lie. that's a lie. >> they cannot have their -- we can hear -- he is lying. [inaudible] no, you have home owners here. chairman, let the home owners speak. >> sir, sir -- [inaudible conversations] [inaudible conversations] [inaudible conversations] >> sit down.

>> sit down so we can hear the rest of the witnesses, and i'll just make those engaging in that outburst, we have to ask you to leave the room. we hope that's not necessary. we are glad to have you hear to hear this important hearing. >> foreclosures cause hardship and they result in severe losses for lenders and investors, and therefore we consider whether there are viable alternatives to foreclosure. chase adopted its own modifications programs in early 2007. since 2009, chase offered 1 million modifications to struggling borrowers and has permanent modifications. sustainable modifications are not always possible and some cannot afford to stay in their homes. while we make repeat the

efforts, we must proceed to foreclosure. a property does not go to foreclosure if a modification is in process, but if the foreclosure has begun, and a borrower continues the modification process, we are instructed to allow the two processes to run at the same time. however, we don't allow a foreclosure sale if a modification is in progress. i understand the focus of the committee is to sus pent foreclosures in a number of states. to be clear, we service millions of loans, and we make mistakes, but when we find them, we fix them. it is important to note that the issues arisen in connection with the foreclosure proceedings does not relate whether the foreclosures were warranted. we have not found issues that would have led to foreclosures on borrowers who are current. a recent temporary suspension of foreclosures arose out of concerns about affidavits

prepared by local counsel and signed by chase employees and losed in proceedings. specifically our employees may have signed affidavits on file reviews and other affidavits performed by other chase personnel and may not have signed them in a presence of the notary, but the facts set forth in the affidavits with respect to the borrower's default, the fact were foreclosure were verified prior to the affidavits. we take these issues seriously. our process did not live up to our standards. our foreclosures have been halted and we have thoroughly reviewed our procedures and undertaken a complete review of the document policies. we have also rolled out extensive training for all personnel involved. i will be happy to answer any questions you might have. >> thank you very much. last witness and not the least, diane thompson, a familiar face

to us here, and written many articles to the foreclosure process and provided and worked rather from 1994 until 2007 at the land of lincoln legal foundation representing low income home owners in east st. louis and testified at our hearing in july of 2009 before this committee, and i'll be interested to hear how progress was made since the last hearing of july of last year. i thank you again for joining us. >> thank you. thank you for inviting me to testify today and to answer your question, no, not enough progress has been made. i was shocked when i took out my testimony from last july in getting ready for this how much of that testimony is still relevant. aam an -- i am an attorney, and with my work i provide training and support to hundreds of attorneys representing home owners from

all across the country, so i hear what's going on in alaska and in mississippi on a daily basis as well as in new york and illinois. the recent signing scandal reveals the contempt that exhibited the rules. the rules in the court procedure in the scandal and the contract rules breached by miscommon application and the rules for modifications honored unfortunately were more in breach. servicers do not believe the rules apply to everyone else applies to them. this lawless attitude created in part by financial incentives and tolerated by regulators is the root cause of the robo signing scandal. in my written testimony, i

provided dozens of examples of the harm caused to homeowners by services. many of the foreclosure cases coming to national attention involving signing allegations originated due to the unnecessary force placement of insurance, sometimes at more than 10 times the actual cost of the homeowner's existing insurance policy. often misrepresentations lead directly to foreclosure. in one site cited in my written testimony, a north carolina woman was placed in foreclosure by chase after 15 months of timely and full modifications payments. when she made the mistake of following the advice of a chase representative to make a partial payment in the 16th month. in another case, they told an attorney that the pooling and servicing agreement prohibited all loan servicing modifications. they went so far to provide the attorney with an electronic

snapshot of the relevant section of the psa, but that snapshot converted a comma to a period, and removed the immediately following clause which provided for loan modifications in most circumstances after default. these abuses occur because servicers have strong financial incentives to deny modifications and proceed with foreclosure. the illegal fees that push homeowners into foreclosure are profit centers for servicers. they recover their cost faster in modification than in foreclosure and servicers and affiliates profit. this strips wealth from investors as well as homeowners. unless, and until services are held accountable for their behavior, we will continue to see flaws in servicing in cascading costs throughout our society. the lack of restraint on

servicers abuse has created and deepens the foreclosure crisis, and at worst, it threatens our global economic security. solutions must address the affidavit and ownership issues address the recently, but more is needed. we must require servicers to modify before foreclosure, offer modifications will provide a net benefit to the investors and provide that the failure to do so is a defense to foreclosure. funding for mediation and representation of low income homeowners is desperately needed. principle reduction must be mandated and reign service abuse and restore rationality to the mortgage markets. thank you for the opportunity to testify here today. i am happy to answer any questions you may have. >> thank you very much, ms. thompson.

appreciate it. [applause] >> audience please, this is a hearing, not a rally. republican colleagues have a caucus, and i've invited senator shelby to go before me. >> i have a number of written questions to be summited -- >> go ahead. >> i'll start with you and ms. thompson can chime in here i hope. as i understand, i used to do this many years ago, let's say a bank in anywhere in america, we'll use my hometown in alabama. a bank makes a loan in a home or a mortgage, banker or whoever it is, and that mortgage, that note is signed and the mortgage, you know, is recorded at the courthouse, and the bank owns

the mortgage, that's the security for the loan. now, it used to be, and correct me if this changed, that they would sell that loan, and they would do an assignment of record saying x assigned the record to y bank or pension fund, and that's recorded, and they went on the mortgage of record, you know. there'd be a rorpd of that in the -- record of that in the courthouse there. if they foreclosured, you recite this in the foreclosure notice of the default made in certain mortgage dated so and so to x bank and subsequently assigned three or four times, and you'd have to do that. what has changed, electronically what is the problem and what has caused it? did you get away from the basic property laws of the state?

you know, i don't know. is that causing the problems when you -- i realize that you in the securitization you maight take a -- might take a thousand of these mortgages i talked about and you pool them and securitytize them, but still the fundamental of the hole owners remains, and they are in debt and there's a record of their indebtedness. am i right? what has changed? i'll ask ms. thompson. thanks. >> excuse me. there's been a great deal that has changed -- >> tell the committee. >> part of that is that the sheer velocity of the transactions jammed up the recorder's offices. there would be mistakes in the assignments, filed in the wrong order. >> wait a minute, excuse me.

you say there's mistakes you say in the courthouses? >> no, senator. >> where are the mistakes? >> in the assignments the banks were prepares. >> okay. the banks made the mistakes? >> yes. >> okay. >> and that would ultimately cause title problems, breaks in the chain of title. it was unnecessary that those assignments would be recorded every -- >> why would it be unnecessary to show who owned the mortgage before you foreclosured on it? heretofore you close in the holder of the record, did you not? i guess? is that right? >> yes, that's the general rule in most states. >> go ahead, sir. >> that still happens today. what merse is is a common agent for all of those banks, and that way when servicing changes hands covered under the truth and lending act, there's a

hello-good-bye letter, and any time that changes, that's reflected on the system -- >> excuse me. it might be reflecting on your computer, but is it reflected in the courthouse where the mortgage is recorded? >> merse is reflected in the courthouse at all times, and then if -- >> wait a minute. do they record the assignment there at the courthouse? i could go look it up and see who owned the mortgage? >> there is no assignment if merse is the mortgaged -- >> that's what i'm getting at. you're correcting yourself. actually, what you're doing with the electronic transfer, you take the place of historically the property laws of the states. is that wrong or right, ms. thompson? >> that's correct, and it is true that mers has the case from new york and several cases where clerks challenge the

notification and removes from the record any chain of title and complicates the holder of the mortgages. >> isn't this part of the problem in the foreclosure process? people are saying -- i'm asking you mr. arnold, you don't check this mortgage, you have no -- there's no record of you owning it, how can you forclose on it is that right? >> if there's a mortgage in the name -- >> is that legal? is that the law of the land? >> the mers can be fore closed. >> no, i asked you a question. is that the law of the land? you can do this? you used to not do this. you had an assignment properly recorded in x county to show, would you not? >> whether or not mers can

foreclose is a hot issue and varies state by state. in other states there's litigation and other states there's litigation that has forbidden mers to foreclose in its own name. >> mers is part of the problem? >> it complicated what the correct standing is and has the affect of concealing from the public the role of major lending institutions in foreclosures. >> i don't know if you have answered my question correctly or like i want you to, but i don't -- i'm looking for the truth of what the problem is. i think that when you deviated from the basic property laws of the country, you got yourself in trouble. maybe i'm wrong. >> i think mers is one piece of the problem. there's more serious and complicated pieces of the problem. >> okay, thank you, mr.

chairman. >> thank you, bob, and turning it to senator. >> thank you, i appreciate the curtesy from both senators. ms. thompson, help me understand this if you will. all of the abuses that you've described somebody altering a document and trying to mislead someone. i don't think there's anyone in the room or anyone in the country that would try to claim that that's right. it's not right. i mean, fundamentally it's just not right. i want to kind of drill down on the mortgage-foreclosure issue itself, and try to help get your help in me understanding this. as i've done many mortgages through my life, my first mortgage was probably when i was

in my 20s and bought my first house, and my understanding is complex as those documents are, and you know they give you a stack about that thick to sign, my understanding was that somebody was giving me money that would at least partially buy the house. these days maybe buy most of the house, and that if i failed to repay that in a timely way, they would take the house. i mean, as sad and unfortunate as that is, that was the bottom line. how many instances have you run into, or is it a common practice that these foreclosure people are foreclosing on properties where in fact someone has not failed to pay? do you see what i'm getting to? >> i do, and in my written

testimony i believe there's three examples of cases where people were not actually in default when the foreclosure was initiated. >> let me say again, that's not right, but i'm trying to figure out if it's 3 million or 3,000 or 3 because -- >> i think it's very -- it's certainly more than 3. i certainly had many examples like that in the course of my practice. it's a complicated question because sometimes a person's absolutely not in default, and they initiate foreclosure. sometimes the wrong bank initiates foreclosure, and sometimes -- >> but -- >> there's a placement of fees that make the payment double or triple, and at that point the person goes into default. now, -- >> yeah, let me just -- >> in that case, it's a placement of the improper fees causing of foreclosure even though the person is in default. >> let me just say again. i don't think that's right.

again, i don't think you're going to get much debate from anybody about that. i just don't think that's right, and i want to make that clear, but for the purposes of this banking committee, in this area it's so important that we understand what we're dealing with, and so at least today you can give me three cases where a default was initiated in a situation where a person wasn't in default, three. >> i said there's about 26 example in the written testimony, and i believe three of them involve cases with no default. three of them involve cases where the homeowner submitted a modification by the servicer rs and the servicer then declared a default, and at least three or four involve cases where people went into default solely because of the placement of improper fees. it is not uncommon, i think it

is very difficult for us to assess the magnitude of it in part because there's no verification of the modifications they submit. to determine whether this is correct requires hours of analysis of the payment histories. >> ms. thompson, i make this request to you. again, i'm trying to get a notion of the scope of what we're dealing with here, and so we can understand what we are to fix, but if this is truly a case where you're telling me out of all of the work you've done in this area that you can bring to mind three cases where somebody was default or sued and foreclosed upon, that's a different dynamic for me then if there's 300,000 of them. >> out of all the cases i took,

out of the hundreds of homeowners i represented in, every case, i believe the homeowner was not in default looking at the surrounding facts. >> would you be able to provide us with some information to back up that statement? you just made a statement out of all of these cases and virtually every one, the homeowner was not in default. that really -- i find that troubling that there's people out thereforeclosing when the homeowner is not in default. you see how that doesn't -- >> yes, and as a legal services attorney i had precious little time, and i only took certain cases. i represented in court dozens of homeowners. in every case i believe there's a strong defense to beat the foreclosure. you can only beat the

foreclosure if you establish there's not a legal default. it is a widespread problem throughout the country. >> i'm a lawyer myself, and although i did a little bit of this work in my career, i department do a lot, so i start with that deficiency, but i will tell you there are legal defenses, and then there's defenses to the fact that my client is not in default, and that's what i'm trying to get to here is how many of those are in defense. were you actually filing an answer to the foreclosure petition saying made a mistake, my client is fully in compliance at least in terms of the payment of this mortgage? >> well, again, i don't think there's a simple yes or no because if you have these improposer fees, that causes a technical default under the note. if you're looking at the cases where someone was absolutely not in default and no question about

their payments, maybe 10% of the cases i handled. if you look at cases like it's something the servicer did that triggered the default, maybe about 50% of the cases. >> okay. i'll wrap up with this because i'm over my time. you've even caused me more concern by your testimony because again if people are doing things that aren't right, we should stop those things. we all agree to that, but what i'm trying to get to is this issue of if you haven't paid and somebody's suing you because you haven't paid, then i need to know the scope of that problem, and if it's 10%, then again that causes me a great deal of concern about your testimony, so hopefully you can provide more information to this committee to try to clarify what you're saying here, and i would welcome that. i think --

i thank the chair i've gone over my time. >> no, i'll tern it over to senate bennett and my colleagues on the democratic side. i noted to the colleagues there's 86% of homeowners in compliance. obviously the number troubling to me is the 14% who are not. as i understand it, we've talked about it. today it's around 1% under current underwriting standards of the like. normally it's around 2% would be the people in default. the fact it's at 14% speaks of another larger -- the coming down to the point where whether or not somebody is in default or not, that's the end of the process. there's a lot to occurs before that moment that causes so much concern as well, but i just make that point generally. senator bennett. >> thank you very much, mr. chairman. unlike senator johannes, i'm not

a lawyer. my experience with mortgages like his started with getting one. i have defaulted on payments at various times in my career when i simply didn't have the money. fortunately, i got it in time to make up the payment before any legal proceedings were made. i was 60 days late or whatever it might be, but i know the angst that comes from having missed a mortgage payment and worrying about what's going to happen if you can't get the money to make it up with six children and a foster child at home and a situation where your own economic circumstance is not good, so i have all kinds of emotional reactions to the testimony and to the emotional reactions to the testimony, but let me try to follow-up on senator johanns with the things

he was getting a hold of. we have two people here in the business of home loans, the president of the bank of america home loan and ce on of chase home lending. i want your response that we got from ms. thompson. she either deliberately or otherwise gave us the impression that it was the policy of the servicers, that there is a built-in conflict of interest so that it's their policy to try to pile on extra fees, to try to force people into bankruptcy so they can make more money, and i'd like those who were on the receiving end of that implication to have an opportunity to respond, and as a businessman, i'm not a lawyer, but i am a businessman, i would say to the business people in the room, if that is indeed your policy, it's a really stupid

policy because while you may make a little short time revenue out of such a circumstance, you build in very serious long-term customer resistance to dealing with you, and i do not suggest that there are not businessmen and women who are stupid, and therefore, there are not businessmen and women who don't do that. i think there are some who are stupid and who do do that, but if i were an employee of any company that was involved with this or serving on the board of my company like that and found out you were deliberately trying to maximize short term profits with these kinds of fees, i would say that's about a dumb of thing you could possibly be doing from a business point of view. we have two business people here, and i'd like to hear your response to this. ladies first. >> thank you.

senator, we absolutely do not sacrifice the long term brand of bank of america for the opportunity to have short term gains in fees. at the same time, and for what ms. thompson referred to our inaccurately portraying a psa in a customer experience, that is an error on our part. we take that seriously. we make them, and we are not perfect. when they are brought to our attention, we work to fix them as quickly as we can. we apologize for that error, but we make them, and we work to correct them because our best financial interest is aligned with keeping the homeowner in their home. we've been creative as we can under the circumstances, and unfortunately the 14% of customers late on mare mortgages

to attempt to reach out to attempt to make offers of government programs, our own programs, working with others to try to do everything that we can to keep customers in their homes, and where that's possible, we have succeeded, 700,000 times with permanent modifications enabling customers to stay in their home, and we continue to work to do that to extend programs and one of the first in the industry to offer a principle reduction program as an example under a proprietary program to participate in the hardest hit states of the government funds and to participate in the principle reduction portion of that where it's important in states that have experienced the most severe depression in home prices. at the same time, there is no question that we have to balance interest. we put the interest of the customer front and center,

that's part of the core value of bank of america, you we also reference the issue of the investors whether that's government agencies or private investors as well as our role in the responsibility as servicer, and we take that balances very seriously. we do not always get it right, but we certainly focus on trying to keep the customer in their home, and that's where the financial incentives are aligned. >> yeah, i would echo mrs. desoer. we don't make money when we foreclose on customers. it is our purpose to -- as a result of that we have invested in significant effort to beef up our modification efforts. we have 6,000 customers facing employees, we have 1900 people that are the single point of contact for troupe led --

troubled borrowers and extensive analysis to determine whether or not a borrower is eligible for a modification, and as a result modifications are in our best interest and in the interest of the investor. like she mentioned, we have a balancing act to do. we have to do what's right for the borrower and the vine vest -- investor. >> one last comment. ms. thompson, i'm sure your information is accurate when you say employees of these companies have misled people and given them improper advice. if you call an irs agent for advice on your taxes, there's a very good chance you'll get wrong advice and end up in tax court. human beings do make mistakes,

and i would just say to the two representatives of the two banks, i hope you're checking your training at all times to make sure those kinds of mistakes are not made because as they say, the irs is a government agency, but it has a history of misleading taxpayers, and they act on the basis of the advice they're getting, and they end up in tax court, and it's not a defense to say i did what the irs agent told me. it doesn't matter. did you want to comment? >> yes, i think it's also important to actually hear the words of another servicer, and this is in a public document. countrywide's third quarter 2007 earning call, i quote "we are frequently asked what the impact on our servicing costs will be

from lost mitigation efforts and what happens to costs, and what we point out is as i will now, is that increased operating expenses in times like this tend to be fully offset by increases in ancillary income from our servicing operation, greater fee income from late charges and importantly from insourced vender functions that represent part of our diversification strategy. in 2010, countrywide settled with the ftc on charges that overcharged charges including markups on services by over 100%." that's the head of countrywide admitting we sacrifice long term for short term. >> as i say, there's some people who are stupid. >> mortgage daily news hardly a radical publication reported

that servicers generally, their profit per loan had increased over the previous year despite the fact that foreclosures were rising. servicers business model is not based or not long term profitability of the loan, but based on the fees. the fees make up a large chunk of the profits because they are allowed to retain the fees under their current business models, and that's a structural problem with the existing business model, it insents them to charge and retain the fees. >> thanks. >> i think that's something to look at. >> i'm going to turn to jon tester and i'll include a letter from the new york fed to, i think it was bank of america or bank of new york and others on october 18of this year. there's one paragraph that goes to the very question senator bennett asked. the psa's, the pulling services

association provides that the master services are entitled to recover service advances that are necessary out of pocket costs on expenses incurred and the performance by the master servicer of the servicing obligation is including but not limited to the cost of preservation, restoration, and protection of the mortgage property. that's end of quote. that's the section of the law. the letter from the new york fed goes on to say despite the requirements that servicing advances were to be incurred only for reasonable necessary out of pocket costs, the master services used affiliated venders marking up to 100% or more above the market price to have restoration and protection of mortgage property in a fraudulent and deceptive effort to supplement its servicing income. that's from the new york fed, not from, you know, with all do respect, this whole letter, by the way, is lengthy, and should

be part of the record. >> we've heard criticism at loss regarding documentation having involved quickly enough to address innovations in business. does the law need to be changed to ensure proper documentation throughout the mortgage process? >> no, sir, i don't believe that's the case. i don't think the problem is the law. the law is actually pretty good. the problem is compliance with the law, and there are, i think, are two potential problems. one is so according to the american securitization form, and i agree with them, there's two ways to transfer the notes and mortgages in a securitization. one is you negotiate the notes through the procedures set out in article three of the uniform commercial code, just the way you sign the back of a check to negotiate it to the bank to deposit it, and you could

endorse it to someone else. that way is fine. alternatively, article nine of the commercial code allows for promissory notes and mortgages to be transferred under just a regular contract of sale. that system works fine. the question is, first question is whether that system was actually the one that governed securitization. the answer i believe, but i can't say for certain, but i certainly believe the answer is no. instead i believe that the law governing securitization was private contractual law. the parties are allowed under section 203 of article i of the uniform uniform commercial code to contract under article 9. pooling and servicing agreements are trust documents creating a trust and have a transfer of assets to the trust and set forths the security holders because the trust pays for the

assets and sets forth the rights and duties of the servicer. the securitization documents themselves call for a rather specific method of transferring of mortgage notes. my understanding, and i cannot -- this is a secondhand understanding. i want to emphasize this. i have not seen more than a handful of loan files. my understanding is that generally the requirement set forth in the pooling and servicing agreements were not followed, and they were not followed in the following way. pooling and servicing greermt says that -- agreement says there has -- when the notes are transferred to the trust, there needs to be endorsement in blank to the trust as well as a complete chain of endorsements for all proceeding transfers. that means the originator of the loan has to have a specific endorsement transferring to the securitization sponsor, the sponsor to the depositor, and

the depositor to the trust. what i'm told is that in the majority of cases, that chain of endorsements is not there. there's just a single endorsement. that creates a problem because it doesn't comply to the trust documents and a severe problem because most pooling agreements are trust governed by new york law, and it says if you don't follow the trust documents for a transfer, the transfer is void. it doesn't matter if you intended it, it's void. in addition, there's a very good business reason for having that particular form of transfer. a critical form of securitization is to ensure the assets in the trust are bankruptcy remote means that if any of the upstream transfers to the trust or itself end up in bankruptcy, they could not claw the assets out of the trust. this is to protect the mortgage backed security holders. if you don't have that specific chain of endorsements, just an endorsement in blank, it's going

to be very difficult to prove you have that chain of transfers necessary for bankruptcy remoesness, so this is -- remoteness. this is the concern. this is not a problem with the law, but a problem of following the law. i don't think there's a a need to change the law to catch up with the market. i think this is rather a problem with the market, the law itself would have been fine and historically these procedures were followed, but as volumes grew during the housing bubble, it just became easier to disregard the requirements and, you know, just as the underwriting standards fell, similarly the transfer diligence fell. >> attorney general given that foreclosure is a judicial process in many states, what were the barriers to recognize the documentation problems that insisted? >> well, i think what happened

was recently in some litigation, people that did the signing were deposed and admitted that, and you know, once that happened, then this investigation started in earnest. i don't think there was any way to for the banking regulators just looking at the documents to know they were robo signed as opposed to done properly as the affidavit said, so i think it was really sort of people coming forward. i think in some foreclosure actions that were being defended in an aggressive, very capable way that these disclosures became public, and then you know, i think the attorney generals, the banking regulators, federal authorities and class action lawyers and the companies have been energized, and so i think what was sort of

an unusual occurrence or a happenstance, if we can convert that, that problem into multiple solutions like the ones i've talked about earlier, you know, we can come out of this much better than we came in. i just agree with senator dodd saying we need a broadly based look at all the problems that he described and i described, and try to work with the companies and the investors and the federal regulators to come up with a comprehensive resolution that gets us back on track and corrects as many problems as we can of those on the table. >> when you -- another question for ms. desoer. there are been serious questions, concerns raised that it's in the best interest of the

back to modify and there's serious concerns raised that is in the servicer's best interest not to file a loan in the structure and potential conflict of interest regarding second liens owned by servicer's present company. can you address that criticism? >> certainly. i'd be happy to start. we are a large servicer of first mortgages, and also we have a large servicing portfolio, much of which we own of second lien home equity homes and lines of credit in bank of america, and in that context, we didn't even take the second into consideration when modifying the first. it is absolutely not an obstacle that stands in our way. we do modifications on second liens. we've done 95,000 of them

independently of the first lien, and also, we were the first servicer to sign up for participation in the hamp program, a second lien modification program that now others in the industry as well as are participating in, so the second lien is not an obstacle, and has not been an obstacle or get taken into consideration when we look at modifying a first lien, so it does not stand in our way. >> i echo her comments. the seconds liens do not stand in the way of modifying the first. we too are participants in treasuries to mp programs recently just rolled out which will allow for an automatic modification of the second when the first is modified and that first is held by another servicer. >> all right. my time has expired.

>> thank you very much, senator. because we have a good number of colleagues here, if we can keep it down to five or six minutes. >> i'll do my best, mr. chairman. thank you all for being here. i very much appreciate your time. i am very deeply troubled about the allegations that have been made about improper fraudulent servicing and foreclosure processing, and what compounds this is the firsthand reports my office received in montana. i reached out to many foreclosure counseling agencies in montana and i read through the cases my staff worked on in recent months, and it's not a pretty picture. mismanagement and signing issues. before the foreclosure crisis begun, we urged those to be proactive and reach the servicer before they were in trouble, before foreclosure is downing to say the least and paperwork, computer systems, conflict information, so it's a big deal, and the misalignment of the

servicer incentives with homeowners is a recipe for disaster. i have some examples and then questions. in montana one of was told by a servicing associate while the loan modification was in review, the homeowner should not make home mortgage payments. he was told by the servicer, bank of america, not to make payments, and if they did, they wouldn't qualify for modification, that resulted and they were hit with pents and lapse in payments in addition to badly damaged credit. there's a case of a gentleman fighting with voa for over a year to prove that he has should not be in foreclosure despite having the paperwork to say his modification was approved. he never missed a payment with his mortgage after being told the bank confirmed his

modification, and he received a letter two weeks later saying he was in foreclosure. i appreciate bank of america's work to resolve the issue, unfortunately no everyone calls their u.s. senator when they have a problem, and i'm still trying to understand how this goes on for a year in the case of the gentleman in helena to receive a foreclosure notice, and this was received in a time when there was a self-imposed pause in foreclosures in montana, so i need to know how this can happen? there's far too many stories out there and it doesn't have to do with ms. thompson's testimony, although i appreciate it. this is stuff i get in my office. i have staff members spending a ton of time on this issue, and i think it's more than an isolated case, and if it was the folks not paying their bills, i get that. i have empathy for them, and i

understand it, and we'll do what can do to help them, but in this cases the folks never missed a payment, and they are getting hammered. can you tell me how a servicer tells a homeowner to not pay a mortgage? >> thank you for bringing those to my attention. we apologize that it's not part of what we are telling homeowners. of course, homeowners who are current facing default can be considered for programs that they can demonstrate their payments are at risk, and we take those into consideration and doe the modifications, and we should never be advising -- >> do you attribute this to an employee who screwed up? >> an employee that somehow -- yes, unfortunately, and we will after conversations with the staff, we've gone back and reenforced that aspect of our communication to our teammates, and it's a critical part of our training. >> i think it's absolutely critical. if i take myself and put myself

in a position, i mean, in these economic times it's tough enough, and then something like this happens, it's wild to think it's possible. the yes manl from helena how it is possible he received a letter indicating he's in foreclosure? >> this goes back to what i referenced in my written testimony and oral testimony about the dual track of if someone is delinquent and subsequently engage in a conversation about a modification, the foreclosure sale will not take place, but that customer continues to get notices, and that's a requirement by certain investors that we do that on a parallel path, and that's where we think there's an opportunity if we work together to, and we're talking to the state attorney's general under attorney general

miller's leadership to try to amend that process because we understand how confusing it is, but a customer does not go to a foreclosure sale. >> okay, and i've run out of time. i have a quick statement, and i appreciate everyone being here today. these hearings are not enjoyable for me so i know they cannot be enjoyable for you. the fact is why we're here is not an isolateed incidence. montana is not a state where people come to the u.s. senator just willie-nilly. they are in trouble and thing they have been wronged, and i don't know how many people didn't come to me and ended up on the street and never did anything wrong. it's crazy. i just want to say in closing i'll remain very concerned about the scope of this problem, the impact it has on the financial system and in the housing market i know the fed is focused on it, and i hope it's something the financial stability oversight counsel takes a closer look at.

it strikings me some of the biggest servicers have been glib about the potential mag my to do of the risks and at a minimum we need to understand these risks before the fed moves forward because quite frankly, there's not going to be anymore bailouts, and it's important to get this squared away. i think both sides can agree on that. mr. miller, you had a comment? >> just a quick comment. i agree with you. we hear it more often than just being isolated. we hope we can get to the bottom how often it happens, why it happens, and how it can be stopped. it's a daunting challenge, but we want to work with the banks and fed to figure out how this happened and how it can be resolved. >> i appreciate that. if you go to what was said about countrywide ceo said, this can be taken care of quickly by the servicers, i mean, really quickly by the servicers.

i mean, to be honest with you heads have to roll if they are given that advice. that's just the way it is. [applause] >> senator? >> thank you very much, mr. chairman. you made a statement and if i understand it correctly that is if a foreclosure begun before the modification starts, these servicers should continue foreclosure proceedings, did i catch that correctly? >> you did. >> okay. so we have so many folks coming to our office in oregon working with the servicer to modify their loan, but then they're getting foreclosure notices, phone calls, agents coming to their door and call up the servicer saying i thought there was a loan modification under way. is that a result of these processes going forward together >> >> yes, it's a result of the

dual processes, and as i mepsed at chase -- mentioned at chase we have a process in place to make sure if there's a modification in process, and if there's a foreclosure in process, and you, you know, initiate a modification during that period of time, that we won't allow a foreclosure sale to happen. >> you don't take the final step, but you continue the steps leading up to that? >> correct. >> just short. . this is a story from one of my constituents. my husband and i signed a loan modification and approved. it was a steep loan rate and our payments went up. we submitted a payment of $577 and made our new payment each time we called in and there was confusion. we got a foreclosure notice in the mail. they assured us everything is okay. make your payments. we made our new payments for a year and still get foreclosure notices. the bank says the account is not

updated and don't worry. we went out of town last month and had a note of foreclosure on the door. when the bank called the bank the lender never signed out on the modification and it was not valid. when i called to check on the account in november, this month, the bank says we are late. i asked what we should do. she told me we may qualify for a loan modification. i said, i do that. i told the woman we were approved and paid our new payment for a year. the woman said this happened before, and asked what happened with the money we paid, it went towards the account but only a a partial payment, and now we don't know what to do, we want to make a payment, but not if it's a partial payment. it's embarsing for your neighbor to tell you about the foreclosure on your door. we had a man come to us says he's from the mortgage company and we lived here. this has created a huge strain

in our family causing stress and our children have been affected by this as well. i have stacks of these stories, this conflict between foreclosure processes. can't we just change this policy and suspend the foreclosure proceedings when a modification is underway, not keep it going forward and create this stress for america's families? >> so the new process, you know, prescribed by hamp instituted this summer was necessitate that we enter into the modification process and engage with the customer to initiate a modification prior to commencement of foreclosure, so that's the process that's happening today. the other major key difference today from in the past is that at the beginning and on set of the hamp program and other modification programs, we did things based on the statements from the borrower. we entered into trial

modification plans based on what they told us over the phone, and then we got into the game of collecting documents, not getting the documents, i'm sure in many cases misplacing the documents, but at the end of the day, this period of time just took way too long, so the new process is such now that we collected the documents before we entered the trial payment, then really the only thing that has to happen in order -- >> let me, my time is almost out. have you changed your practices to suspend the foreclosure proceedings? >> not the final step, -- we have not. >> i just want to put that forward. ms. desoer, how about with bank of america? is it possible to set aside the foreclosure when in the modification process? >> we're considering that, but we can't do it independently,

and that's why we're working with the state attorney's general to do that. >> i think that's one substantial simple step that would have substantial positive consequences because this -- the homeowners are completely confused, and completely stressed by these foreclosure notices, and then suddenly in some cases, people find out the foreclosure is actually gone through which leads us then to talk about mers, and in common law, if you had a stake in the house, you can put a lien against the house because you had that stake, and that is captured in our modern law with a contract that is a promissory note on the contract side and a lien on the mortgage property side, and if you contract right is violated you have a property right to reclaim your damages essentially, but the separation that has occurred in mers between the property law and contract law is creating a lot

of court cases. weaver trying to get -- we're trying to get the details, but we think there's a case in oregon where mers doubt doesn't have the standing or in a situation where they have damage. i have your testimony from last year, your deposition saying mers suffers no damages or has economic stake in these mortgages. i'm very concerned about the legal issues getting resolved in part because this poses a huge systemic risk to our banking system as a whole. we're talking here both about the rights of the homeowner being honored, but also confusion that can throw shock waves through an already challenged system of home finance in our country that's important to all of our homeowners. can any of you kind of comment on what needs to be done to make sure both homeowner rights are honored, and we don't send shock waves through our entire economy

with this question? >> well, senator, i would say that one thing that mers does is make all of that more clear. the public can look at the mers system free of charge find out who the sfer is and -- servicer is and who the note holder was. that was never available prior to mers. that gives a homeowner the two key players that they would have to negotiate with for a modification so with mers and the land records and the more system keeping track of the servicer free of charge consumers can get that information and go straight to a modification. with regard to a foreclosure, mers, if the foreclosure is done in the name of mers, we have a nationwide requirement that the promissory note be presented at the time of foreclosure. ..

that they can do for mers. there are 20,000 of those nationwide. >> i'm sorry, i'm out of time. but it's created legal confusion and that's an issue and i'm sorry. thank you all very much. >> thank you, senator. senator bennett. >> thank you, mr. ewing. thank you for holding this hearing. i must say it's a depressing how

little we've moved in the last three years on these questions. i wanted to just clear something up but i didn't understand the answer to the question. i'm a ham program i read in february suggesting that servicers that were part of the hip program out to not pursue foreclosure while they're working on modifying modes. it was my is my understanding mushy in the administration put forward a policy like that. and you just spoke to that, confused about what the status is in the servicers give beard are you in a position now to be able to say we're going to not pursue foreclosures while we're doing modifications or sounds to me like it's not a something at stake may have imagined it was. or straightforward. >> were not in a position to say we're not going to follow for colder process and failure to modification. if there is a modification process of being considered, we will not proceed with the

foreclosure sale. so the work that i suggested that we considered eliminating the approval process has not yet taken. >> what are they keeping items they are? preventing you from able to do this? >> investor requirements. >> okay. which brings the action to my second. >> senator bennett, may i address the question about the hamp. don't be supplemented to acted to hamp does hold the foreclosure process, but only for loans that are not yet in foreclosure at the time that the modification review is initiated. so at the foreclosure process is already started receiving for one reason or another, that process is allowed to continue to the point of sale of the one modification review croissants. so while supplemental trick to turn out to his hopeful comment it did not relate back to cover loans that were already in the

foreclosure process. >> you've heard the stories here today and i want to say that my office is facing exactly the same things they senator tester through the offices facing. at the 22 months at town hall meetings and people bring in their documents in the transcript to voicemails, e-mails from servicers telling them what they are doing is okay, but they are in compliance of the loan. and then they find out they've been hit by a penalty of some kind or another. mr. chairman, there was an article in sunday's denver post that he has to be included. i won't go through the two stories, but one of the people that were affected by all this sorted through the the looking glass business, when the dearest thing we did everything we were supposed to do. this is such a boondoggle of the mask she describes it. and it is a boondoggle of a mess. and i think the thing that i can't understand is where the

misalignment of interest is here. as we have millions of people in this country better underwater in their mortgages, right clicks they know that. i for one don't believe that it's possible to prop up the value of all of these houses. that's impossible. and it would be foolish public policy to do that. but it seems -- it is clearly in the interest for people that can pay on their loans at a reduced value and you want to stay in their home. it's clearly in their interest to do that, right? for investors in the securities, it would seem to me that it's clearly in their interest to have the homeowner be able to do that because the value of the modified mortgage is worth more than the foreclosure -- the foreclosure sale would be. it seems to me -- and i could be wrong, any of this you want to correct, please correct.

the third piece is that it is clearly in the interest of the adjacent homeowners but that will be modified and that person remained in their house. because if they don't, the value of their house is just going to go down and that can be repeated over and over and over again until the neighborhood is actually the entire united states of america, not just one place or state that's been particularly hard hit, but the entire economic recovery in many respects. respa aren't able to get this sorted out. but the self-interest that would seem to be president. so the question i have is -- and we've had this hearing and other hearings in the audience loved him unclear, where the miscellaneous cliques why can't we get all of the self-interest aligned in a way that will allow us to proceed expeditiously so that -- not just of my constituents can get on with their lives which they

desperately want to do, but so we can get the economy moving again, professor? >> i think there are at least two problems. one problem is mortgage servicers and i think you've heard a fair amount of testimony already of this hearing about the incentive alignment problems. cindy polk, foreclosure is either less costly or more profitable to modification in many cases. the second problem -- >> not as far as the investors are concerned. >> the services within their own financial interest in me to not match the investors. the second problem is that comes a month better not be serviced by third-party service, both loans that are on. there is a strong disincentive for banks to recognize losses on mortgages quickly. >> what percentage would you say? 's >> around 40% of mortgages are not securitized. we don't actually know how many mortgages are on the u.s., which is kind of an astounding

regulatory failure to gather information. no one knows the number. somewhere between 50 and 60 million. of the mortgages on bank books, if the bank -- is the one default, the bank can stretch out the period of time before foreclosure. that means the bank is and time before it has to recognize the last. at the bank modifies blue nile and wrightstown principle now come it's taking an immediate loss. and this is particularly a problem as i get liens because almost all second lien mortgages on bank stocks. there's about $40 billion in mortgages out there. that is roughly held by the four largest banks, bank of america, chase, citi and wealth. that's roughly equal to the market capitalization of those for banks. so if they started writing up their second lien mortgages, they would have no capital left. he would be insolvent. and that creates a strong incentive not to recognize

losses and just try and pretend that you're there. >> mr. attorney general, did you want -- >> yes, briefly. first of all, you gave my speech, although you give it better than i give it. i just agree with you completely in the fundamental alignment of interest to describe. and i think there's a series of fat there is, some are just mentioned including the second plane and the recognition of loss. in addition, i think there's a question of putting enough resources into the servicing process. there's been an enormous demand on what they need to do. they've added a lot of people. i think they need to add more and add more resources. and i think additionally the quality of decision-making that i -- it's hard to tell and i hope we get to the bottom of this as well, but i think in the decision-making may make

modifications, they aren't making some of the modifications that they should. for a whole variety of reasons, in some cases i think competent the end in some cases i'm not sure. also, there is a culture here to get over, that servicers traditionally -- their job was to collect money and turn it over to investors. and now they're being asked to do something totally different to make these judgments to underwrite loans than before the first time. and for someone accused of collecting the full amount to write off part of it, there's a hurdle they are. and i think they're getting over that hurdle more and more all the time. but you know, our belief from the state attorney generals believe is, like yours, but a lot more modification should be made that are being made. we're going to try and find out why that's happening. and as they say, we're working a lot with the services to figure

out what the solution is. but i couldn't agree more with the fundamentals of your question in your statement. >> just quickly, i appreciate the attorney general's comments on that. i just want quick yes or no is, if you disagree with senator bennett? 's >> no, we are the largest consumer u.s. bank and our financial interests are aligned with can tumors being healthy and the economy recovering. so i agree absolutely when you look at community and the impact of the foreclosure has in a community versus a household been able to stay together, a family being able to send their kids to the same school. [inaudible] >> i'm sorry, we are very aligned i agree. >> i suspect everyone is going to agree with what senator bennet said. is that true? 's >> no. >> yes.

>> yes. >> and yet here we are. >> if i may, we spent at the center a lot of time trying to answer that question. why does that servicers have failed to modify and produce this report, looking very carefully at the legal and financial incentives that they face and to keep charging and reproducing the testimony submitted today. third three key recommendations we believe would do a great deal to aligned servicer incentives for homeowners, investors and the american public at large. of those three are web of senator merkley on senator bennett have talked about, and in the true track system and not cases with a valuation for the modification be performed before the foreclosure process is initiated and requiring a loan modification be offered to the homeowner if in fact it's going to provide a net benefit to the investor. so the investor will profit you should be offered to the homeowner before his feet get tacked on the foreclosure process starts down the road.

that's one. two is there are complicated rules imposed by the credit rating agencies and in the service agreements that make it it -- they reduce repayment of servicer expenses when there's a modification. so when there's a foreclosure, servicers get repaid off the top before the investors can anything, all of their fees and advances. all of those broker price opinions, their title work, foreclosure, all effective feedback directly to the servicers when the home is sold in a post-foreclosure sale. the repayment of those advances is delayed and much, much less clear if there is a modification. so that is almost a certain disincentive in many cases to perform modifications. and there are to be guidance issued that would clarify that you can get repaid from the pool when you do a modification for

your advances, so that servicers would get legitimate advances repaid. the third thing is we talked about the role of season pushing people into foreclosure and encouraging servicers are people and default because there is these extra fees they can pack on and put in their pocket to offset the cost of foreclosure. we believe you need to regulate those defaults used to reduce the incentives to put homeowners into foreclosure. >> thank you very much. senator cochran. [inaudible] [inaudible] >> is your microphone on, dan? >> thank you very much, mr. chairman. too many homeowners in our country has faced the threat of foreclosed on turn foreclosure. and herein are witnesses here, i

think of us suffering from this. we at this time, the foreclosure rate in october was the 12th highest in the nation. and in september this year, families in hawaii faced 67% more foreclosures than in september 2009 and 172% more in september 2 years ago. these are alarming. reported problems among mortgage service providers are. and so, without question, we must do more than we are doing now. and our business here really is legislation. and mr. levitin it did mention it's not the law. it's not been complied to.

and so, that is not the problem. in many problems have been -- have been addressed here. and this issue is very complex as it is now. and though, but may cut this down to asking three of you, and that is, mr. miller and mr. levitin and ms. thompson to help us and to help us and what we're trying to do. and that is, what recommendations do you have to protect homeowners in foreclosure proceedings from abuses of legal uses? >> you just answered that question i thought pretty well in the last three things you

said. >> is there something you want to add to that? >> i do. with more recommendations recommendations in our testimony. one key point about compliance is you can get much better compliance with the fund quality mediation programs and newfound legal services attorneys. the mediation programs in new york city and philadelphia are reducing foreclosures by 50%. people that participate, about 50% of those avoid foreclosure. so peeved at the servicers into a program where they are forced to focus on that particular loan and get it out of the automated processes, you are very likely to avoid many foreclosures and reduce the numbers dramatically. those programs need to be funded. the other thing that dodds frank authorized legal service programs to assist low-income homeowners and tenants facing foreclosures but that is not been appropriated. all of the robo signing allegations from discovery

brought to life by aggressive, company attorneys working diligently to represent their clients. homeowners can not negotiate these kinds of issues about lawyers. low income homeowners need funding for legal services and foreclosure defense had taken several hit in recent years. we urgently need the funding. >> thank you for that. mr. miller? 's >> i would underscore the funding set of issues, you know, we have federal funding for our hotline and idea what that's working very well to try and help people modify loans in the whole system of support that. legal services also is terribly underfunded by the congress for a variety of reasons. i'm also a former legal services attorney. in terms of substantive legislation, you know, it might

depend on, you know, how we come out with their investigation and our resolution and what we find. hopefully we can all these issues, but, you know, if we can't come you might want to think about regulation on the fees. >> tom, can i jump in? how do you anticipate the attorney general's going to take in this? >> is hard to tell, mr. chairman. her thinking in terms of months rather than a year or longer. it depends really on how far we get, how the negotiations get. and as we expand the scope, like you and i believe strongly we should, that expands the time someone as well. >> excuse me, dan, i apologize. >> maybe something on the fees that are the very paper the forced insurance has a huge abuse they are enemies to either be corrected by agreement or by legislation. same thing with the dual track foreclosure and modification at the same time. and if you all could solve the

second main problem, which i think is a daunting problem, we'd all appreciate that. you might want to take a look at that as well. >> thank you. mr. levitin? >> i would certainly support everything that ms. thompson and attorney general miller have suggested. but i would also suggest he might consider an alternative that would go a bit further. namely, taking servicers out of the loan modification process altogether. servicers whenever the loan modification business during the transaction processing business. we're trying to get them to country business line that they are used to doing and to expect them to succeed or not is really asking too much. and the way to get them out of that would be having some federally administered loan modification program, where you could do this under the bankruptcy power. it would not necessarily have to be done through bankruptcy courts even although certainly be one-way. it would not necessarily have to be a repeat of the chapter 13

crammed down legislation that the senate failed to pass a couple years back. and you could do this through something like mortgage only bankruptcy chapter, where you have an immediate triage between homeowners who can pay and those who can't. and if they can't have an expedited foreclosure proceeding. if it's an empty house come into the back of the market as fast as you can. if the homeowner can pay given the cookie-cutter mod including principal reduction. if you did something like that, though certainly get rid of the second main problem altogether. you would have another problem, which as you might have four very large large insolvent banks. that's a problem that exists whether or not you recognize losses in our leisure. >> thank you here's my time has expired. >> thank you very much. senator reed. >> even anticipated my question, mr. levitin, which is how do we deal with millions of individualized cases given the general models of the hamp

program, et cetera, which apply to a specific case which require someone to wave the ability of the borrowed to pay, job prospects, et cetera, which all comes down to some type of impartial, both sides respect and impartiality seems over going to do. you might be aware -- i became aware to senator white house's hearings in rhode island at the southern district of new york, their bankruptcy judges are participating in a program like this under their mediation procedures. they've taken a step forward and apparently it is working. they are quickly, as you suggest, finding debtors who in no way can pay given their job circumstance is in the pain and the insurgency is over it and the pain might linger, but at least i won't mind the

foreclosure is completed. rather the modification is going to affect and make good on there, et cetera. i think that suggestion is. he mentioned previously and i get comments from others, too. you were talking about a global settlement because you also suggested the implications on the ballot sheets of the banks, the overall economy. what are the components in addition to this bankruptcy type approach would you suggest should be in this global settlement? >> you need to make sure that there's quiet title on real estate in the united states. that's also something bankruptcy can do. that's something bankruptcy of courts routinely do. so that is one way of sorting through the change of title programs. i think ultimately our real problem is that there are losses in the system and we have to figure out how to allocate them. there's not a solution where everyone walks away happy with no losses. right now both houses are being put on mortgage-backed security holders and frankly on, you

know, average homeowners. not just one of foreclosure, but the ones who live next door and have the vacant property next to them for the lawn hasn't been watered and so forth. that may -- the losses have to go somewhere. they can go on the banks. they won the masters or the homeowners with the government. those are the four choices. i certainly don't like the losses going on the government. we made a move that way in 2008 i don't think there's a lot of appetite to see that expand. the homeowners -- >> very perceptive. [laughter] >> maybe give me tenure. i don't think anyone wants to see these losses borne by the homeowners, but that's where it's going right now. it's really a question between the investors in the bank. and frankly i think the investors have really the argument of the more innocent party that they didn't originate these. there was a lot of problems on

the origination end. that wasn't the investors part. certainly they bought the stuff and made a market for appeared in certain cases the investors are saying now is that we were buying at her paper that you sold us. he said you were selling b+ paper and it turns out this was actually, you know, c+ paper. we want our money back. but we need to recognize where to allocate the losses. and we can either just avoid that for a time, but recognizes long as we don't specifically address the loss allegation, we are making a choice. and that choices stick all the losses on the homeowners and investors. and that's really not where they should be. >> just one point. i want to ask the general his comments about the direction your investigation is going and recommendations and also give you the opportunity for the financial representatives to respond. one of the phenomenon, and ms. thompson as it here. it's worse today and it might

get worse. and if the strategy is to just try to hope for recovery independent of anything we do here of solving the problem, we could find ourselves coming back in months or years now with even a worse situation and investors seem more frustrated and more willing to see the banks, et cetera. so there is i think a problem -- a problem for the two shins. the homeowners, financial and the two shins. and we have to start moving towards a solution, not simply waiting because they're getting worse in my mind or i hope i'm wrong, but that impression. just quickly, general miller, will your recommendations touch upon some of these discussions we've had in terms of a bankruptcy like approach to settle these individual disputes between individual homeowners and banks, take the services out

if you will. we'll talk about some type of distribution or sharing of the losses, which professoprofesso r levitin suggested could be substantial. give an idea of where you're headed with your recommendations. not specifically, but what catalysts? >> you know, there could be some recommendations, but the core of what we're trying to do will be in agreement with the services, with the banks that are servicers. and you know, we're trying to figure out ways to change the paradigm with them staying in place. you know, they're not going to agree to the kinds of, you know, fundamental change that you've talked about. so our goal is to change the paradigm within the current system so that it functions. and ideally i think from our point of view, so it functions the way senator bennett, you

know, described that it should function. that is certainly our goal. and what we want to do is have some provisions of what we're talking about now, some provisions, some requirements that they have to live up to. only one contact person, deal with the dual tracks and other issues as well. and then i think there'd have to be some way that it be enforced. maybe a monetary something we've talked a little bit about. maybe some penalties if they don't comply. but where we're at right now is to change the paradigm within the current system of the bank services that you see in front of you and another large three. we talk about coming in now, and we struggle with sort of the dysfunction of the system. and you know, we haven't gotten to the point of the resolutions you've talked about. but it's a cyst done, you know,

that was designed, as i mentioned, to collect money and turn it over to investors. and now it's a much different this time that has some issues concerning, you know, reliance on fees to pay for some of the new resources they have to bring in the talked a little bit about earlier. the conflict of the second liens are involved there. but i guess, you know, what we are still to do is have enough change within the current players to resolve some of the issues so that we have a much better system, the best system that we can have, so that when a person comes before them and ask for a modification in the calculation is done quickly and fairly and accurately in the modification they are requesting produces more money for the investor than for closing, then