>> 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 not happen. and i don't think it does happen that often now. i think there are some fundamental problems. so you know, we are trying to do what i'm trying to say. we are struggling with how to do that, you know, in the committee and the committee staff have any suggestions, we'd love to hear from you. come back ..

the economy. and if the economy gets worse for reasons not directly related to this sovereign debt crisis etc. than the foreclosure problem we face today, the bottom keeps slipping down, down, down and this problem becomes. >> and we feel all that pressure, by the way. >> i know you do. and again, there won't be recommendations if there is agreement there will be agreement but we will go forward from there. >> let me ask mr. desoer and also mr. lowman, implicit in -- i don't want to put words in your mouth -- there could be significant losses here, and the

question really is our efforts being made to minimize losses which frankly if i was a business person that might be my first goal for the shareholders or effectively deal with these modifications to follow the guidelines, etc., and i suspect in reality there's probably a constant concept to that, but i just want to give you an opportunity to comment on this whole discussion we've had. >> thank you for the opportunity. there is not conflict in our company. in the dollar, in the resource, and the capability that is needed, our business has the support of that. there's nothing more important to the recovery of bank of america's brand to doing this right, listening to people like ms. thompson, understanding the senator's individual situations

dedicating people, training people to do it. we have moved people as a general miller indicated we have had to build a brand new capability. people process technology to deliver it. we have moved as many resources, experience the underwriters, others who have experience into the servicing space to build that. we've made progress but there is no question there is great inconsistency that we are dedicated to eliminating but it is not a constraint. it's not that someone is saying no that will mean a lack of profit for the company, the most important issue in the company and no constraint on dollars that we will but against it. >> mr. lowman. >> we've sustained billions of dollars of losses in this whole crisis as a banker, and i believe our interests are in fact aligned with other investors. the fact is the best outcome is

to keep a person in their home and to keep them paying, and we are all wet vintaged by doing that. we don't have anything to gain by having someone go into foreclosure. so i would just echo barbara's comments. our interests are aligned and we are doing everything we can. spanish is the final point this echoes one of the recommendations miss thompson has made on the legislation i had which is basically two require a hint the standing the full attempt to modify would be made prior to any foreclosure that would be enacted that might require negotiating your agreements with services and the trust. i don't know, but is that something you'd consider as a policy initiative in the banks when it is made of it believed -- immediately? >> that is as we described in

the hamp plan today. we have to offer a modification to the foreclosure process. so as time goes on, it will have to have happened before for closure. >> any comments? >> as i said earlier, first of all, senator reid, thank you for your work on supporting. we greatly appreciate it, and your bill is a very if enacted would be a very important step forward. as i said in response to mr. bennett's earlier, what mr. lowman just said is over time we will see that a mod will be offered, and the problem is over time means that there are going to be tens and hundreds and perhaps millions of foreclosure that occur until you get to that point where loan modification is offered before for closure, and over time if

you're waiting for over time you're going to see millions of dollars of fees piled on to homeowners accounts which makes the modification much more difficult. >> final word. the chairman has been very, very gracious but i think it's important just to remember that hamp -- the modification only place to hamp and only about one of six loans that is currently 60 plus days delinquent is hamp eligibles we have a problem of hamp being a program that has had to back narrow a focus and that really doesn't solve the problem. >> thanks, mr. chairman. >> attorney general miller, the outset of my opening comments i talked about the importance of getting this financial stability council that we've established in the financial reform bill to anticipate systemic risk and

collectively work as a body chaired by the secretary of the treasury along with the fdic, the occ, there are ten members of that, independent member and five others that are part of it. this seems a classics and we didn't anticipate and we drafted the legislation but exactly we are in crisis with this. we can argue it's not a systemic crisis that we saw an 08, but we are in the middle of the crisis. the idea of course was to minimize the crisis so we don't go into the larger systemic crisis. have you had any contact with secretary of the treasury is there any communication going on with the attorney general's and of the chairman, the treasury, the office to begin to talk about the will of the federal government might be in formulating an answer to all of this? >> we haven't had any contact with the council. we have the repeated contact with the department of treasury, with the assistant secretary, michael barr, and his staff.

we've developed a terrific ongoing relationship with them and talk about these issues and try and help and support each other on these issues. as we've had a lot of discussions with treasury but not that particular. >> it seems senator warner and others -- senator merkley has a similar thought. i'm going to use this and obviously a public setting to urge the secretary of the treasure and others to convene that council, to begin to work with you and others so that there is a role to examine this question in seeking broad solutions to this question so my hope is they will hear this request to pick up that obligation that we have laid out in that legislation. i want to ask if i can also as well both you, ms. desoer and mr. lowman, to respond, if you could, to the suggestions that ms. thompson made regarding the three raised and anyone else can jump in on this but i would like

to get your response and he argues the elimination of the to track system we just discussed and as pointed out, only one in six, and again having been involved in the crafting of him, we are trying to put together a bill in this committee that was awkward and trying to get a majority getting 60 votes and doing the best we can to have some answer to all of this at the time and if i could have written their loan to a difficult minefield politically here in the institution, but i want to get your response to the elimination of the two truck system. forget whether hamp requires it what is in your interest or would like to see happen in all of this regarding the homeowners are fully evaluated for the loan modification before the foreclosures. second, she proposes failure to offer loan modification was such a modification is net present positive another was the modification has a better return for investors than foreclosure allowed to be used as a defense

against foreclosure and third the principal reduction should be mandatory under hamp and i've been advocating that for almost four years principal reduction would really address this issue directly. but i would like to get -- mr. lowman i would like to add with you commenced of going first we will have you go first. give me your answer to these three. are you in favor of them or not and why? >> first with respect to the to track system, as i mentioned the hamp program already requires -- >> forget for a second. would you be willing to accept what is argued? >> i think we have to be careful with that and i just believe that we have now a process inside of our company wherever redefault's vara were gets linked up with a single person and a single accountability. >> how you what is the point he made earlier. if you're going for -- to have a foreclosure and all of these costs are mounting of it seems

you are working against yourself if you're trying to get a modification. wouldn't you be advised to get a modification? >> right, so that's currently -- >> but you are doing both at the same time to use the mcalister the modification process much sooner than the borrower is referred to foreclosure. ressa the modification process with the first talk -- >> so you reject that. tell me about number two. >> to make sure i understand number two can you repeat it? >> correctly if i misspoke, she points out that the modification is better in turn for investors in foreclosure to be allowed to use that as a defense against foreclosure. schenectady the way the process works is we run the net present fell you models to determine whether or not we should for --

foreclose and whether it is in the best interest to modify we offer a modification. >> if there is a net present dalia that makes it more valuable than foreclosure that proves not to be the result -- >> if we should modify the london and should be modified. >> what about the principal reduction, mandatory? >> principal reduction, first of all, we are participating in the hamp principal reduction that was recently rolled out. all of our analysis indicates that what is most important is that the borrowers have affordable mortgage payments and we've got lots of experience having done many modifications. and we do that by reducing the interest rate, by extending the term, and by deferring principles where necessary with no interest attached to that. we as a servicer have a duty to our investors to minimize office

and principal forgiveness potentially increased losses, it then lastly i think if we want to rebuild the u.s. mortgage market and continue to have investors and banks have confidence in the market, we need to ensure that the collateral values are there. >> and a stand that, but going back i recall four years ago making the case there was a study done in the square block of chicago. one study immediately caused the lowering the value of every other property on that block immediately by 5%. you end up with two or three foreclosures on a city block and to get a larger obviously impact. why wasn't it make more sense to go directly of the principal issue which makes it greater possibility that homeowners be able to afford that mortgage and then avoid the kind of cascading effect we see in the standards which is obviously you can't work to your interest. >> we are able to achieve affordability with the tools that we have today which includes the deferment of

principle. so you get to the same and state. >> i wish that were the case. ms. desoer, how about responding to those three points. >> as i discussed we are very open to discussing changes for the existing pipeline that is going through the track. i agree with mr. lowman that with everything we've done, hopefully nobody is eligible for a modification dates to the start of a foreclosure, but we can't -- we know we've got a pipeline to work through so we are minimal to that. on the -- on the second issue wow degree and then the third issue of the principal reduction we do have a proprietary program that we are executing with 40 states and the principal reduction program, and we are participating in the principal reduction program. we have the hardest hit states with government funding and those are the places where it is the largest issue. thank you. >> senator merkley, do you have any additional questions you would like to raise? i'm going to leave the record

open, but we believe this is awkward with caucuses around here and everything else to leave the record for a few days with other members to submit questions to the panel. >> thank you very much, mr. chair. i just want to clarify a couple points. i know that we sought to create a safe harbor for the servicers from the investors so that they were following the hamp program that they would be in the safe harbor with the safe harbor not provide enough protection to disconnect the foreclosure track from the modification track, and do we need to take action here to provide an expanded safe harbor? i guess i just i come because of the constituents streaming in the doors with the enormous stress connected with working on a modification and yet some other group of folks somewhere within the same servicer are

pursuing every step on foreclosure it it just seems like the two parts aren't talking to each other and they are enormously stressed and it seems like there's a good faith modification effort under way that the foreclosure process of to be shut down until it becomes clear the modification will work. event gears up again. but what do we need to do to help create the ability to read and ms. desoer, you refer to that you're working on this, what do we need to do -- 22 anything? what needs to be done to help create a legal framework that will allow you to take a step that would be a tremendous step forward for american families? >> first, the safe harbor has enabled us to get to some of the 700,000 permanent modifications that we've done is certainly the 85,000 that we've done under hamp because without that not all the investors would have

agreed to those modifications who do today so that has been beneficial. on the dual track as an investor which is about 23% of our servicing portfolio where bank of america is the investor on those mortgages, we have the ability to do something about that because we have the authority ourselves as investor as well as servicer, but for the rest of the investors it would take their approval to make a change, and that would include the government sponsored enterprises and other private investors as well. stomachs of it is a process directly pursuing, you are requesting those changes in the servicing contract? >> that is what we are in the early discussions of with the state attorneys general about seeing if we can use that forum to get investors to the table as well for consideration in that. >> i didn't hear you mention

anything that we need to do here to provide additional legal framework. mr. lowman company -- per your sense to you need additional legal authority to be able to set the foreclosure track aside while you are in good faith modification? >> i am not certain that we have the right safe harbor, but frankly, i'd like to follow-up. >> the would be -- the would be great. >> -- on that question. >> this is the last question i will last. everything we talked about this so complex. i have 100 questions, but i will stick with this one, and that is mr. lowman, you noted that your services -- your interests are aligned, and ms. desoer, that as a community bank you have a huge stake with the family bank and so forth, but is it different when you are contracted to be the servicer but you don't on the loan? you don't have a stake in the success of the loan if you will,

you have a stake only in the fees generated by the servicing unit. in that situation is it really the case as ms. thompson has been laying out that there's enormous financial incentive of this is servicer to pursue this foreclosure track that she has all these charts and information that she is analyzed and it is her testimony fair and if it's not, what is she missing? >> as a reference, we are not perfect. we inconsistencies as we've built our capabilities out, and there are customer issues. i don't deny that. we worked every day and have the staff to support all of our customers who have those issues while we get to the point we can eliminate the issues that we

have. you have to remember the financial cost is one aspect of it, but the reputation cost to the bank of america brandt is a very powerful driver of why we are working as hard as we are to get this right and why we listen to customers, community groups certainly working with state attorneys general spirit our interests are aligned working to get this right which is for a homeowner who has the ability to pay and a desire to stay in their primary residence is in all of our best interests to get to a solution that enables them to do that by taking care of all of the programs and abilities and resources that artificial and that is what we are committed to. >> so from what i just heard your not contesting her analysis of the financial and incentives that certainly favor for closure but because repetition the bank

is at stake that balances that out. >> i have not looked all the analysis and would need to do that to confirm or deny that with you. >> yes, professor. >> i would like to point out many servicers are in a different situation than bank of america. bankamerica has a lending in its own name. there are plenty of services though our servicing units of a major bank but service under a completely different name, and the consumer isn't likely to make any connection between any misdeeds brought by the servicer and the lending unit. >> so professor, in that case of the financial incentives to pursue foreclosure by defense of the reputation of the banking institution. >> you couldn't even make such a claim. that's correct. >> mr. lowman committee want to share your thoughts on that? >> as a servicer, the calculation that's used to

determine whether to foreclose or to modify doesn't take into account our remuneration as a servicer. and i think it's important to noted that as i said earlier, we make money. we earn fees on performing loans. and when we modify a loan we get the servicing stream because we've made it a performing loan, and to the extent it is the hamp we get an income stream as a result of payment from the government for having successfully modified the loan. so i guess i don't agree that we are incentive to foreclose. we in fact our incentive to modify. >> well i just want to thank you all for addressing these complicated issues. i don't think we really got into the other big piece of this which the chair referred to which is a systemic risk that comes from the legal issues that are being raised and how we can really get our hands around that

which is important to both homeowners in terms of the right and economy and availability to credit, but certainly i've learned a lot and thank you very much. >> let me say that would hopefully be the subject matter in the next hearing on the subject matter because i think it is a critical point we have to address and i say this respectfully of others and i know the oversight panel made suggestions somehow this was much larger than a technical issue and i am not disagreeing that may be the conclusion but it's just as premature to make that conclusion it's a technical problem and so the case language like that can cause its own distortions and i get a little uneasy without knowing the implications of what we're doing making predictions among those lines in. i had a chance to talk with ms. desoer, and correct me if i'm wrong but i thought this was interesting. 30% of all foreclosures nationwide are in the judicial states, i think it's 23 of the

judicial states. 68% of the foreclosures are in the state of florida. is that correct? >> of the 23 judicial states in bank of america's portfolio of the foreclosures, over close to 60% are in florida. >> and 70% of the foreclosures nationwide are in the nonjudicial 27 states are nonjudicial states. and of course in the nonjudicial the burden is on the homeowner as opposed -- and simplify and this, looking at attorney general probably rolling his eyes to make the broad sweeping statement but as i read basically the burden shifts in a nonjudicial and judicial state, and correct me, tom, if i'm wrong but on the nonjudicial, the burden is on the homeowner to make the case they've not been able to make a payment and so forth where as the judicial the burden is more on the surface inside of the equation. am i supply and that?

is their anything i should draw from the statistics that 70% of the forclosures are on the nonjudicial? the there's something about that equation that places the burden on homeowners while we are seeing so much more of the foreclosure occurring in the nonjudicial state as opposed to the judicial state? am i just reading too much into these numbers? >> senator, i think it's more related to economic factors, like unemployment or housing price declines as to the states that are experiencing the greatest level of foreclosure. so i don't think florida is related to the fact that it's a judicial or nonjudicial state but to the state of the economy -- >> that would make sense. but otherwise when it is not the case as the judicial framework -- those that have been a strong implication in the outcome in terms of a modification versus a foreclosure? >> senator, one point is of

course california and nevada are nonjudicial foreclosure states, so that makes a big difference. there are some studies that show that being in a judicial for closure state increases slightly less likely to lead the modification so there is some evidence -- >> not the 37 numbers. >> i wouldn't think the numbers would be that high. >> i want to thank ms. desoer for sharing this information with me and again it's a separate subject matter but one that concerns me, and that is when you are getting the foreclosure homes were bought it wasn't 40%, 30% of the fer closures that are brought are brought with cash. >> for 30% of all of the u.s. home sales are cash purposes. of all u.s. homes sales 30% are purchased with cash, and i can

give you the study that produced monthly that shows that makes of how many new homes purchased are purchased for cash or financed with a conventional mortgage or financed with an fha mortgage as an example but 30% of the last month has been running about that for several months entire home purchases and cash purchases. >> further again, correct me if i am interpreting these numbers in too broad context, but that number brought with cash these are not owner occupied these are investment properties. >> the vast majority of those purchases are investors as opposed to primary homeowners, correct. >> and in the implications that means in terms of neighborhoods and so forth as having owner occupied verses rental properties. >> if it's concentrated in terms of the mix of investors coming into a community it could mean a

shift from primary homeownership to rental but the primary indication of a strong to say is there are investors with cash who think the price of the property is right off of which to earn a return as a rental property, and i think in certain communities where as we acquire the real estate for our own portfolio after a foreclosure sale those properties to feel relatively quickly. >> gallen a great advocate we need to increase rental stock in the country. one of the problems is we have such an emphasis on home ownership that we have a limitation of increasing rental stock and that's created its own set of problems. but is there any correlation between having less owner occupied properties and the value of other properties in that neighborhood? >> i don't know the answer to that you estimate this thompson? welcome thank you very much.

it's a long time, i'm sorry for starting lead but otherwise it would have been difficult to hold all of you here so let me thank -- but we thank all of you for your testimony. i will leave the record open so that members can provide additional questions but it's been helpful to hear what you have to say and i am grateful to all of you for coming and sharing your thoughts and tom miller, the attorney general, thank you for what you're doing and how hard you're working at this and i hope you might make that call to the treasury department and would like to hear what this systemic council is also, what their thoughts might be on this as well it. we will stand adjourned.d a hal.

>> it's a particular pleasure for me to invite you to this very special event because we are welcoming back an old friend at the atlantic council, who came here two days after you had your credentials making her first public appearance as ambassador of pakistan to the united states. and i know you'll come back to some of the issues you raised then. but also, an old friend of mine. we met first in 1985 when i was a reporter for "the wall street journal" in pakistan and going behind soviet lines with mujahedin. and ambassador haqqani was my teacher, my instructor and i've been stealing his ideas ever since. i must say even in the garb of that day, the idea of the garb

was to make it look as though i was one of the mujahedin. if you look at me it was not the most convincing outfit. pakistan must be among the most resilient of nations on earth and also among the luckiest. in the middle of a serious insurgency movement inside its western borders, it was inundated by the worst flood in 80 years. but brilliant at it. and i think we always underestimate pakistan's resilient. in areas the size of the eastern seaboard of the united states in some 20 million people were affected by the floods. more than half of them were children. an economy beset by the effects of the global slowdown was rendered, even more problematic in the face of these challenges. and then a coalition government led by the pakistan people's party. struggles while attempting to meet the needs of its people.

to give it credit, the government has attempted to make some attempt at bold reforms, introducing a nation wide reform tax and value-added tax, reordering the fiscal relationship between the center and the provinces and now a promise by prime minister gillani to cut the cabinet size by devolving responsibilities to the provinces. surreal things are happening that really aren't reported enough here. but old-style machine politics and newly empowered and bring that news media activist judiciary body muscles powerful military. we were just talking about before ambassador haqqani came out. it's a complex society. it's a complex country. and they'll put pressure, all these items put pressure on a fledgling democracy and civilian government. the u.s.-pakistan relationship is then put on a higher plane through strategic dialogue with

the u.s. is that three major meetings involving senior participants, including secretary of state, the pakistan foreign minister, the army chief. ambassador haqqani has been at the center of all these arrangements. some might call them as much as pakistan's ambassador to washington as washington's ambassador to pakistan, a difficult job of building trust in a period of time in building trust isn't always that easy. his own government's trust in him has been shown by the extension of his tenure in the study and as the recent bob woodward book on obama's bors indicates, he has been a go to guy for the u.s. government in building relations with pakistan a journalist and a former life when he was my first teacher on pakistan in the region. a scholar and now a constant diplomat. we are happy to invite back ambassador haqqani to her south

asia center. he also gave me good advice in the beginning as we were setting up. as he knows well from his previous visits we are proud of the role the center is played in less than two years we believe it's become a crucial form in the city for these sort of processions. the director of her south asia center's will moderate the discussion. >> thank you very much for that very kind introduction. as i recall in 1985, the reason why it couldn't look just like the mujahedin is because you weren't reading to grow that one. that was necessary. so we got to the turban, we got the dress, but we couldn't tear a man not been able to pass off as one of the mujahedin in 1985. and that of course brings me to my usual team in addressing

american advances. americans do many things very well. and so, patience is essential to understand how change is going to be affect it. two years ago when i came here, i spoke about for critical transformation that pakistan needed. the first was the transformation from a country that has had an intimate and politics and weak civilian government to a stable democracy. a democracy that is consistent. a democracy that has the consensus it leaves behind a pair the trend entre second transformation i spoke a list from militancy that hasn't taken root in society to a culture of entrepreneurship and willingness to be part of globalization and be part of the contemporary word. at the current transformation i spoke about at that time was from being a country that sees

it both at the crossroads of several regional conflicts to a country that sees itself as being at the crossroads of opportunities and therefore an economic transformation and economic transformation that would help us realize the full potential of our nation and our region and of course the fourth transformation that i broken about at that time was in terms of pakistan becoming a nation that is not looked upon by the rest of the world as a problem, but a nation that is part of the solution of the problems of south and central asia and it has a good peaceful relationship with all its neighbors and that helped bring stability to afghanistan and has a stable relationship with their eastern neighbor, india. so i would like to begin my remarks today by giving a kind

of shocked progress report on those reforms, of course. i think the pakistani democracy is moving forward. i like all democracies and we found out on the fourth of november even in this country can people change their minds in a democracy. they elect leaders and sometimes they start rethinking. the critical challenge in pakistani democracy is to ensure a connection between the political -- elect to pull local leaders and pakistan's professional middle-class. because one of the reasons why we find so much criticism of pakistani democracy in my humble opinion is because the pakistani middle class doesn't have the critical numbers. as the major political parties do not pay attention to them. they have had a major role, larger-than-life role during the period of dictatorship because after all all dictators need civilian partners and the civilian partners usually other

people who have come from a military background is good nonprofessionals. and so, you have very many pakistani professionals and that applies to pakistani professionals who are in the city. pakistani professionals were visible on pakistani 24/7 television news in pakistan by the way has 40 channels right now who each have 24/7 news. so try and build an american democracy, take a 21864 example and try and have a democracy -- have a democratic government or democratic administration of 48 fox news channel's or republican administration with 48 msnbc's. and you'll understand the difficulty we have. so basically the government is not performing as poorly as some people claim it is. it is the nature of the politics that the people who are the commentaries, the people who actually comment will be the

professionals. they are going to be the educated people. they're going to be the lawyers. they are going to be the colonists. they actually see they are not necessarily part of the elective process as much because the political parties go to the working class. they go to the farmers. they go to the water. so that is the challenge i think it's remaining there. but other than that cometh them of the press is good, even though it does not always work to the benefit of the government. the good news is the government has done nothing, nothing whatsoever to interfere with the freedom of the press. the president takes criticism. the prime minister takes criticism with a smile. and the strongest that they've taken so far as to announce a boycott of the media group that is most stringently opposed to them instead of trying to do anything to curtail the freedom of our expression of our media.

so good, i would say, good progress on the building of democracy. major challenge remaining, inclusion of the middle class and professional class each of the democratic process, bringing them on board, convincing them that they have to play a role to the democratic process by aligning with the political parties that can get the war and not think of it needs a zero-sum game in which they will be able to contribute professionally under educator ship of democracy is the function for the riffraff. on the question of the militant, pakistan in the last two years has fought the militants far more effectively than in the preceding nine years under general musharraf, although i believe he was here a few days ago and probably have a slightly different take. the fact -- the fact remains that in the last two years we have cleared large tracts of

territory that had militant influence. swatch was cleared. out of the seven tribal agencies, success in military action, senior militant action. and it has a significant pakistani military presence. now of course, just as economists always disagree, we'll know the generals also disagree about what might or might not be the best strategy. so it's not always that everyone agrees in the united states military must be pakistan's right strategy. the fact remains that pakistan's own general said the best suited to define pakistan's military tactics and strategy even though we like to listen to our allies, but certainly we know what our situation is, how stretch our armed forces are, how then to go after whom men. and that is something that we expect our friends around the world to understand has been something that is our way.

we have so far demonstrated our ability to fight the militants within the country and for all those who still point out the lack of conviction on the part of pakistan in fighting militancy. i would just like to point out that in 2009, we had an average of 10 pakistani soldiers killed every day. ten pakistani soldiers killed every day for each day of 2009 in fighting the militants. and there have been more than 31,000 casualties killed in india of which took place in 2009 alone. pakistan has deployed 80% of its army aviation to fighting in militant v. there are nine infantry divisions. 483 artillery pieces and 142 tanks committed to this effort. sometimes people don't understand the nature.

they want to say, well you started fighting that without the results. well, the results are coming. they will, further down the road. and just as the united states has taken several years in iraq and in afghanistan, we will have to take some time as well and competing what we are trying to do. we have started it and it's not going back. and the taliban and the militants and extremists understand that because in the last two years there have been several attacks on pakistan's intelligence personnel and we have lost more intelligence personnel than any other country in the war against terrorism during the last two years. so the fact that the taliban and the militants are attacking isi shows as far as they're concerned, they're already cleared that the isi is an enemy because it aids terrorism, but it is an organization that is committing to fighting terrorism

and that pakistan understands that the terrorists and their success is not in any way going to be beneficial to pakistan. the era in which people made arguments about certain taliban being pakistan's allies and strategic partners, that is gone. pakistan makes no distinction between various militant groups based on their ideology. we just do the terrorists on the basis of their actions. the reason why we are not able to accomplish certain things is because of the capacity. we cannot fight him off friends at the same time. and public opinion in a democracy matters. and in pakistan, there is public opinion now in favor of fighting militants and taliban. but there are still a lot of people who are confused about what pakistan's priority should be. we are doing our best under the circumstances and hopefully we

will tackle all terrorist groups, all terrorist groups to respect as of whether their prank target is local, regional or international. and we intend to fulfill that obligation. the third is the economic transformation that i talked about. there has been some progress, but of course the floods have set us back. we embarked upon an imf supported programs for economic reform. people have felt for a long time that pakistan has already a narrow tax base. pakistan does not pay taxes. the government has introduced or is in the process of introducing the reform tax situation which is inequitable way of collecting tax. at the same time, there's an effort to introduce a runoff tax on properties of which is specially larger residential

properties, which will enable us to raise revenue without necessarily burdening the poor. we must understand certain facts. one third of pakistanis live below the poverty line of a household living on less than 1 dollar a day. another third live on less than $2 a day. a number of people who live on less than $2 a day is two thirds of the population. so what we are talking about is the rest of the country that can. among them also, even those living on three or $4 a day are not necessarily the best and the most likely source of added revenue for the government. the tax reform has to be very methodically introduced, very scientifically done and done in a way in which the burden is not put on the poorest segments of the population, but is a process that has been undertaken. we are moving in that direction. corruption remains a concern, but even the corruption of the concerned, we think, that the

elimination of corruption is best achieved by strengthening rule of law. so if we have a strong parliament, a strong media, a strong judiciary. and then, we have stronger prostitution methods and our civilian law enforcement becomes better than it has in the past. but surely, everybody will agree that these are things that can only be accomplished on a multiyear basis and cannot happen overnight or quickly. the fourth is the question of relationships internationally. and how we relate to everyone. and that's where u.s.-pakistan relations are also critical. when the process of transforming relations with all her critical partners and our neighbors. in the case of india, with a setback as a result of the mumbai attacks. friends and neighbors in india have been rather with the 10 to move forward. but as far as the concerned, were very clear. pakistan and india are neighbors. our future is intertwined.

we need to find a solution to our outstanding problems and we need to give comfort to each other instead of being a source of problems for one another. so pakistan remains committed to dialogue with india. we will continue to remain to dialogue and we understand the aftermath of them are by attacks, but we still think the indian leadership should overcome those political concerns and try and build the bridge that we hope we will eventually be able to build between our two countries. afghanistan and pakistan have improved their relations confab. i don't know how many people recall a time when president karzai and general musharraf refused to shake each other's hands on a lot of the white house were president karzai and president zardari talked to each of the regulars. president was the only form

guess that president zardari's inauguration. president zardari and president karzai have met more than -- i've met several times and we have also initiated a trilateral process, even at the summit level, which had been the case before. president obama, president zardari and karzai that for trilateral cooperation. in pakistan and that in the center in the process of overcoming the misgivings that have built up over the years. but, this is not about saying where the blame lies. there's enough blame for everybody to share. the u.s. involvement and then sort of, you know, precipitate redraws from afghanistan and pakistan after the withdrawal of the soviets in afghanistan contributed to the problems of that region. afghanistan has been a country where for many, many years. but we understand that what we have not been able to convince afghanistan theaters is that pakistan could be great desire

is to see a stable afghanistan. a stable afghanistan that has led to iran's and which is not a center for any extreme ideology for those who think. and their people in pakistan who thought that demonstrators people even now who think that. but they are not the people who are running the government. they are people who thought the taliban might provide some strategic advantage to pakistan. that is something of the past. everybody in pakistan government understands that the television is getting control of any part of aftermath and would threaten pakistan's and pakistan's way of life. we do not want the future for our children in which girls cannot go to school. we do not want to be isolated from the rest of the world. we want to be a progressive, modern democratic state and that is not possible by having taliban in charge next-door or in any part of our own country. and that is something on which there is much more clarity than

there was in the past. i'm sure in questions and answers people asked me then why hasn't that story come out quite well guess what. there are many things happening in the world that have yet to make it to the front page of "the new york times." u.s.-pakistan relations. until recently, u.s.-pakistan relations were always the dems have a transactional approach on both sides. so pakistan with finale of united states due to the cold war and then against the soviets. pakistan provided america an opportunity to reach out to china. pakistanis felt that we were all refused and drought. the americans say the pakistanis never held up their end of the bargain on some of these transactions. we continue to have a debate on that and there were scholars in this audience who actually written on this and are better qualified to give a more object to the account of that. all i would say is that we've

decided to move past the transaction. and moving past the transaction primarily means of course all these transactions in a relationship, but moving past transaction basically means we have to create a level of predictability in the relationship. in the strategic dialogue, which is the mechanism for doing that is essentially an attempt to try and create that predict ability and that brett relationship. the secretary of state, heller clinton has called the u.s. strategic dialogue is the most extensive engagement the unit dates have been a country at the present moment. there were three ways of the strategic dialogue at ministerial levels, within 2010. the religions being the one that was concluded in october. on the one hand, there is a higher level of contact. cabinet people interacted with one another. then there is a regular meeting at the level of principles to try and work out the sort of

things and then follow -- work out what needs to be done or what is being done and then following it up inaction subsequently. there are 13 sector working groups from agriculture communications and public diplomacy, defense and security. education, energy, health, market access, law enforcement and counterterrorism. science and technology. strategic stability and non-proliferation. women's empowerment. so 13 areas clearly identified for long-term cooperation. and the u.s. has made, for its part, made the effort to reassure pakistanis through that kerry luker berman at a continued partnership. five years of economic assistance have been promised and the possibility of another five years of that assistance, that basically reassures pakistan this time around the u.s. is not going to walk away

and in a perceptive manner as they did soon after the imposition of the sanction after the soviet withdrawal from afghanistan. there are some other initiatives that i currently have in the congress. one is the r. is the legislation, reconstruction opportunities on legislation that has been stuck for a while because primarily for medical and political considerations, not two effects related to afghanistan or pakistan. debates within the major political groupings, within this country between the major political group he is within this country on the question of labor standards that should be applied to american businesses investing -- which we hope that the new congress will be able to overcome. because right now in afghanistan and the poorer areas of afghanistan and pakistan, every child that is created for a

young person is likely to diminish the possibility of that young person being recruited by the talented or al qaeda as a foot soldier. then there is the pakistan enterprise fund, which is likely to bring the edge printers of all the countries to come closer and will pave the way for the economic transformation in which pakistan will become a nation of entrepreneurs taking advantage of the strategic location and an economic sense, rather than just being a country that is focused on military and strategic dimensions in a narrow sense. now what do we mean when we say we are looking down the strategic dialogue? well, the first of course is two and a transactional relationship. the second is the more mature and level sorting of this relationship. both sides understanding we are partners. we are partners for the long haul. partners mean you will disagree sometimes. that will not be 100% concurrence of use or interest.

but at the same time, we are committed to the fact that we are america's allies and the americans are our allies. and we have to understand each other's concerns. we will sometimes disagree on what we want in the retail concept. pakistan? had a lot of problems from a regional news. and our frame of reference is shaped by our history. it is shaped by our circumstances. the american view is more global and the american view being global is not going to be the same as ours for the simple reason our frame of reference is shaped by our history. the american frame of reference is shaped by american history and the american political structure. with that said, i think the commitment between the two to forge a relationship that is longer-term and is a genuine partnership and in which pakistan looks upon it felt as the major non-nato allies have united states.

the united states can count on pakistan as a major non-nato ally and something we are looking towards beyond the strategic dialogue. and the last point i would make is that is pakistan a democracy evolves and in the eyes of some models, pakistan and the united states have something more fundamental that binds them. and that fundamental thing is the shared values of democracy and freedom. so pakistan's commitment to democracy will help pakistan win more friends and the united states, based on the conviction the united states and pakistan shared democratic values, which was not always the case. if you remember the historic on the u.s. side always has been that can we trust a pakistan that is not democratic? well now, things have changed. pakistan is a democracy. it tends to remain a democracy

on military and civilian leaders are both committed to making the democratic process for. and that makes us partners as democracies in bringing civil liberties to what is essentially a very difficult and complex region of the world. i'm going to stop my remarks there. i'm sure there will be plenty of questions that i have to answer subsequently. thank you all very much. [applause] [inaudible conversations] >> ambassador haqqani, thank you

very much for coming back to the atlantic center. i don't know how many of our audience are aware that today is also the it allow hot and so this is not only a religious festival that is important for you and for me, but also a day of rest for you. but i guess being ambassador to the united states means that there is no day of rest. ..

after three attempts and various working groups they are prepared to have announced budget results particularly in key areas pakistan continues to raise with the united states. he mentioned one of them which is market access for pakistani goods. the of is, again, an area that you mentioned which does seem to be moving off center and finally, the area which is critical for pakistan giving developments in the u.s. indian relationship the recognition that pakistan is in the same

category as india, as a country that went openly nuclear. so can you explain why these issues get postponed each time? >> i don't think anything is being postponed. we are trying to work in 13 different areas simultaneously so there will be some areas progress is much easier for example agriculture. pakistan is working towards american systems and modernizing making the assistance available. it's easier for the united states to do. the american commerce discussed find means and resources in which are already authorized under the bill. similarly the area of water and energy the u.s. is partnering to start and pakistan has tremendous potential in the non-traditional sources of energy for the first big project is going on line soon, not on line that is going to be

implemented soon and there are other areas faster. education, health care, these are areas progress is easier to accomplish in the sense that pakistan asks america to give the ability to match. there are political problems on either side. for the exit poll, if there are people in the united states that expect pakistan to act in a certain manner on specific aspects of the effort against terrorists, there are pakistani concerns similarly there are issues to what many pakistanis began understand the politics of it. they do not have standards the

house version of the bill had and not willing to resent the way were standards and the liberals in the house were not willing to present labor standards in terms of giving up on them so they had no relevance to pakistan or the institution. it was an american political argument to which our request became a victim but that said we had tremendous expectation that the united states will understand providing pakistan better market access and that essentially means putting certain textile products and a category. the folks with the european union and it's interesting the investor went to brussels and approached several foreign ministers of the european union as countries and we were able to get confessions from the european union as a lobby but it's far more difficult for them

sometimes to what the american congress because of the way the map is and we as a fledgling democracy understand the compassion that doesn't mean we are going to give up on it. that is something we continue to ask for. i am optimistic about our administration being the first to go through the congress and the whole market access issue is something we have to continue to work upon. the nuclear question is more complex and has more complexity for the reason what has been publicly played in the united states and a very strong constituency in the united states of nonproliferation who think is easier to stop proliferation around the world because they can't do much about america's own nuclear weapons so therefore they keep pressure on countries like us and our view has been we acquire nuclear weapons capability because certain regions and we would like our nuclear program to be seen in the context of that of our neighbor. now that india has received a

nuclear deal, there is a case of pakistan to receive the civil nuclear arrangement as well. this is something that requires a lot of negotiation. it's not something that is going to happen very quickly but we realize it will be whatever comes of of the negotiations and other subjects and of the stronger and closer our relationship is, the more likely it is that we will get their if not tomorrow or the day after tomorrow. >> you spoke about the question people in pakistan are often seen as trying to model for the situation. there was a critical tone to the view. the real the underground in pakistan as that the economic situation is dying and the floods have exacerbated. there are many decisions that need to be made within the

country so it's not a question of what pakistan asked, it's what pakistan can do for itself. my question for you is who is making the decision and pakistan today? is the president? is the prime minister, the army in chief? who can stay the book stops here? i will make the decisions with its agriculture tax, with its position of the general services tax, whether it's in government and so on who is making those decisions? >> that's a very interesting question because those of us from pakistan who have actually struggled against dictatorship, we struggled against dictatorship because we didn't like the idea of one man having too much power some of that we have a democracy we have for friends in washington say who makes the decisions because a lot of other phone number they can call to get everything resolved. it's not going to be that way.

pakistan has a parliamentary constitution. the parliament to elect the prime minister who is the chief executive of the country. the president is the head of state in this particular situation for greater political stability the president is the person who's also the chief of the largest party in the country so he has influence and power more than with the constitution lays down by virtue of his leadership of the political party. we have a coalition government in parliament in people miss out because no single party has the clear majority so we have a space process of decision making as well as the army chief is concerned he's been very clear he has no intention of getting involved in politics. he's not involved in political decision making that does not stop those who have benefited from the military intervention

in politics from continuing to try to say he should be more involved in political decision making. the army has a legitimate role in terms of making and puts on the national security like anywhere else in the world. it would take a few more years before pakistanis and pakistan strengths take a deep breath and say pakistan is just like any of the other complex democratic countries where decision making is not concentrated. i would turn around and ask who do you think is the principal decision making in any of the coalition governments in a country like any of the countries of western europe? it's not a single person for the reason the process in which people act and interact and make decisions. the president zardari and the nerve the political party will always have the respect of most people in parliament in terms of

and the authority to give guidance. but eventually it will be a process of give-and-take. for example the senate of pakistan doesn't have a simple majority party say you have political parties that have to negotiate and very frankly, i know that people get very irritable with that in this town because they like the idea of who can we get a decision out of tomorrow with the fact of the matter is that from pakistan point of view, we would have multiple powers so that a greater understanding and of the pluralism of pakistan, pakistan as a multi-ethnic religious country. we do not want to be, and we are not a dictatorship with any point on history. it might be difficult for journalists. they may need to talk to more sources and some of them don't and it the story's wrong. i can count five times publications have predicted the

downfall of the government within the next few days. hasn't happened. so, it makes it more difficult for them and also makes life more difficult for americans to pakistan they have to meet our people during the visit than they would otherwise but i think it might actually be good for pakistan in terms of helping us forge national unity in a better manner. >> as pakistan have the time to try and mosul threw away the there will be these internal acts and conflicts, and on the flood i would like to get your view. there was a few recall an estimate from the primm mr. that the floods that created damage was about $43 billion the world bank and the asian development bank came up with roughly $10 billion that's been figured. the government hasn't challenged that but even that amount of money is not available whether

in the recent pakistan development forum for others where pakistan has sought the assistance. so how bad is the situation on the ground now, as a result of the floods, and what of the international aid doesn't come through? what is the mechanism available? >> let me say this such a mission pakistan was definitely the biggest humanitarian challenge that we have seen in the history of the united nations and the general said that much. however, let me say one thing. the worst predictions have not been fulfilled. the fact there were fewer casualties should have been cause for people to say somebody did something right and evacuated large populations it is a free areas but that credit was not going because after all we all understand and you're sort of here at the council but has a wonderful center in this town somebody who has worked in

the think tank businesses as there are careers made and that sort of bad news and careers made in sort of predicting the worst, there's careers made in the sea and the rhythm was falling apart. so far pakistan has defied those predictions more than once. the under flood themselves. let's go first to the specific question. he said it was the emotional loss in terms of infrastructure lost crops and the potential for future crops lost, potential for development etc., etc. a. the world bank figured is for actual infrastructure sort of material, tangible things being lost and that is a 10 billion-dollar figure. and for that, funds are being mobilized. pakistan is mobilizing its internal resources as well in greater taxation to believe but

it has been closely on a fair. a flexible ten days after the flood, the amount that has been raised for pakistan stands at something like $3.20 per person, whereas in case of the pakistan earthquake of 2005 it was $70 per person in off the coast of myanmar and in the case of the haiti your quick it was $495 per person, and it seems that natural disasters fallen to two categories, the cover life on television by anderson cooper and natural disasters not covered live on television by anderson cooper, and since pakistan is heading to the second category we didn't get the same kind of attention we should have.

i have actually prepared -- have had a study done which shows there were only 700 new stories and pakistani floods within a month of the flood taking place in the american media. and of the 700 stories, the overwhelming number of stories related to the political consequences will pakistan survived the flood, will american pakistani relationship survived the flood? are the militants taking advantage of the flood that there had been a flood and 20 million people were at risk wasn't a story that was covered by most people. and even then, it has been excluded now by several studies in putting our very good research piece by christina and another by the guard which shows similar stories were run after the earthquake of 2005. it's the easiest, cheapest of the simplest street journalists have that first quick story, and

that was the jihadis are coming. but the fact of the matter is five years later they went and actually interviewed people in the earthquake affected area and 70% of them had received support and assistance from either foreign ngos or the government of pakistan, the pakistani armed forces which are part of the government of pakistan, so i think the way this has been presented things have been exaggerated but pakistan does mean greater international support to get back on its feet in the aftermath of the floods. we've lost 70 million acres of farmland. 20 million people have been rendered homeless or affected which is the largest number of people affected by any natural disaster. 150,000 square kilometers came under water which is one-fifth of pakistan's's land area and the area the size of the near

eastern seaboard of the united states all the way to florida. and basically we have had infrastructure damage that this calculated to be a billion dollars, so we do need international systems. the united states are the first and they have come especially through the united states government secretary of state clinton has taken tremendous interest the affect only yesterday the united states announced one-third of the funds will be available for rehabilitation and the other 500 million on top of the 493 million that have already been made available earlier. president obama has taken an interest in the matter, ambassador holbrooke has been to pakistan more than once and senator john kerry and has interacted with the flood survivors that said private giving in america has been much

less than it could have been and i'm hoping in the next few days pakistan the americans and those americans support of and sympathetic to pakistan and we must also that knowledge when the floods came our neighbor provided $25 million of assistance to the united nations so it's not like the international community has risen to the location it's just the magnitude of the tragedy requires a far greater dressed in has been possible given the circumstances of how the world sees these days is not just our problem is but half the problem is seen is equally important and i hope discussions like this will educate people more on the needs of pakistan and the aftermath. >> my question still remains of the international aid is the way it is it's not coming in droves.

what steps can the government take or planning to take to transform the economy in a way that it can better look after its own needs rather than rely -- >> the international assistance would make it easier to get through the crisis but at the end of it, we draw our own food and will continue to do so. we will have to -- we have a very young population, half of pakistan passed's population, its 19 billion, very young. they can be a source of great strength for the country. we hopefully will be able to attract our attitude toward investment and get more investment and the fact remains even at this moment many significant american companies are expanding investment. stories that are not told. coca-cola, procter and gamble, boeing and several others. there are people increasing

their commitment to pakistan because after all pakistan is a market of 180 million people, and then the boom that is in the region is something despite the global economic downturn that we can hopefully to get into just a the government of pakistan is not depending on international assistance. it is looking forward to it. >> thank you, ambassador. i should monopolize your time and go to the audience and when i recognize you please let for the microphone hidden. >> mr. ambassador, and i supposed to identify -- >> please do if you would pave >> former ambassador to the osce in the united states. your mastery of message leaves me almost breathless.

and i think the picture you have drawn of pakistan so far is quite solid and remarkable, but there is one part of what you just went through that leads me and perhaps somebody else in the room puzzled, and it has to do with your description of who makes the decisions in your government because -- and i may have misunderstood completely what you were saying, but what i understood plus there is no accountability in your government if there is no one party or person responsible for making the decision or at the other end of the telephone. now in our country there is one person in the other end of the