everybody else in the world. iran has been a facilitator. what is it that we can do, and why are we not sanctioning the central bank of iran? >> with respect to iran, for the first time, the u.n. security counsel actually expressed concern about the activities that the central bank of iran that previously had been something we were expressing concerns about in that we had seen it engaging in the source of deceptive conduct that other iranian banks were engaging in. with respect to the central bank, though, it is already in the united states a violation ever sanctions to do business with the central bank of iran. in fact, it's a crime for a u.s. person to engage knowingly in a transaction with the central

bank of iran. >> and to take it to the next level, other countries, our allies? >> i think having this in the security counsel resolution helps to bolster us when we do what we do all the time which is sharing information, express concerns, and try to raise awareness. ..

do you think she has. and that is a presumption that we had going in. and so, we tried to do is continue to expose that i would not only we make that more difficult for them, but we also come in the process, make the private sector or around the world even more weary of doing business with iran. so the central bank of iran is one concern we have in that regard, but it is not the only one. so our engagement on this issue is -- has a number of concerns that we would raise. >> okay again, i would encourage that. also, there is a reasonable of examples that have been brought forth the uae is one example where companies are getting around to -- [inaudible]

[inaudible] >> is my mic working? we've engaged very intensively with the uae. they take the implementation 1929 very seriously. they take very seriously their desire not to be abused by iranian alyssa condit. and so that series is a purpose has been reflected i think in recent months with their actions as well. >> can i just ask one more question it relates to the anticipation of what happens with sanctions online, were very indicative of a process. and we offer a varied strongly about that. we work with some of the members of the notion of layers of additional things that can come

down the road. we all know time is that the essence of what you continue to process. the extent ideas can continue to come forward with the experts were additional things we can and should be doing, even in the form that these are the next as we will continue to take him i think they will continue to build layers of enforcement and message that are very, very substantively important to getting the possibility of change of behavior. thank you. >> time for the gentleman has expired. the gentlelady, ambassador watson. >> thank you very much. [inaudible] [inaudible] >> we know you have --

>> as time goes short, in many ways, i want to get to the bottom line. we've talked about sanctions. we've worked with the e.u. and the surrounding countries of iran. this is really going to ambassador burns. ec ahmadinejad and i have been told by a panel of british parliamentarians who are able to go into the back door of iran, that the people in the streets don't necessarily go along with the ideology of ahmadinejad. do you think that we can converge on the current leadership of iran, to sit down and negotiate with us about the sanctions, about nuclear power in fallon. are we at that point? and is very separation of the

top leaders, the ones that are speaking in the common people in the street. i remember i ran, another decade and we had a very -- we had a very good working relationship with -- [inaudible] -- project in the very near future? [inaudible] [inaudible] >> two comments. first, in the summer of 2009, all the discontent he saw unfolding on the streets of iran was a real disconnect between

the thirst of many coming many iranians for connections to the outside world and for the individual rights that are so important to us in any society in the world. i think what the leadership has done since then is quite ruthlessly suppressed the green movement. but i don't think it's eliminated those concerns, that discontent, that thirst for connections to the rest of the world. second with regard to the prospects for negotiations, i mean, all i can tell you is that we will approach, we and our p5+1 partners will approach the next set of discussions with the iranians with real serious purpose and what will emphasize sincere is a choice available here. we are not taking issue with the right of iran or any other country to a peaceful nuclear program. what's at issue here is its responsibility, like any other country in the world, to demonstrate that it's going to conduct a purely peaceful

program. and because of ultimate stress that's been built up because of iranian behavior in recent years, it's going to take time and hard work to build some confidence. but we're going to approach this is the real seriousness and with a clear focus on that choice because there is a path whereby iran and its people can have access to peaceful nuclear power, just like any other country in the world. they just have to convince the international community of the seriousness of their willingness to live up to the responsibilities and that's really what's at issue here. >> just yesterday several members of this committee on the leadership of her great chair, met with turkey, the manager from turkey, the ambassador, et cetera. and the gist of it to me as they are at the nonstate go-between iran and the countries of the

west. and i felt a little differently after hearing them, mr. chairman, then what we thought before we went into that meeting. i think it was explained quite clearly that they wanted to continue trade with iran. they wanted to continue to address them in terms of being, shall i say, more cooperative, in terms of the sanctions, and looking at their nuclear development of uranium as something that cautions the rest of the world because we feel the irresponsibility of the leadership. i somewhat applaud the turks for playing that role for us. we're going to continue our discussions with, i'm hoping they will have an impact, and can you comment? >> i simply say that whatever technical differences with

turkey in the past, turkey is an important partner for the united states and many come in many areas. certainly turkey has made very clear that its interest argues very strongly against nuclear armed iran. turkey is as much state as anyone in that region and avoiding the ability and the risk that would come from a nuclear armed iran. so we are going to continue to work with the turks on these issues, not just that issue, but iraq, lebanon, many other areas were turks can continue to play a constructive role. >> thank you very much could lead to the gentlelady has expired. our last question is the gentlelady from texas, ms. sheila jackson lee. [inaudible]

>> it is my hope that this is the last hearing. [inaudible] [inaudible] [inaudible] -- they've been asked and answered, but i'd like to ask that question, particularly as it relates to human rights. do we know in particular that we've had a series of stoning deaths that have occurred, particularly mckinnie mohanty ash on t. i have a verdict of a debt i stoning. we know that there is

discrimination, religious discrimination. should miss, what do we in the united states expect to get out of sanctions? strong or not so strong? >> i think, ma'am, we are aiming for the strongest possible set of measures that produces changes in behavior. certainly with regard to the nuclear issue, so that iran chooses a path of demonstrating to the rest of the world that he wants to pursue a responsibility peaceful nuclear program, but also in issues like human rights. i think i'm human rights will try to take full attentions of the provisions he decided. i think identifying individuals as possible for abuses as a way to hold them accountable and demonstrate our commitment. i think the truth is the iranian leadership would like nothing better than to paint opposition movement as foreign agents and we need to be careful about because the green movement, for example, has made clear that it a homegrown movement and they can't afford to be seen as an

instrument of anybody outside the country. so we're very mindful of that. we don't support particular opposition groups or political factions, but what we do, what we are determined to do is stand up for universal human rights. and finally, i would say it's important for us to work to mobilize others in the international community to make the same point. >> as a result of sanctions, any direct changes in behavior as a result of sanctions. and i just -- of my time is up, let me clear the fact that i'd like to receive the same answers that congressman ted asked for and you might want to comment on whether any efforts that we have that we can't represent iraq, and the iran sanctions are having any positive impact. but if you would articulate any changes, let me just finish these can take up the rest of my time. and thank you. do we have any movement? a lot of my colleagues have asked about china, india and

others. do we have any ability to impact their behavior as they seek a very necessary resource that is the energy they are using for their growing economy? >> i think we have seen some movement, for example, on the part of india as i mentioned to you before, as the result is they look at not only resolution 1929, but what other countries in the world are doing. i think you see an interest in diversifying their sources of energy in the world. i think with regard to human rights, we have from time to time seen some movement and changes in behavior when you've had a strong international chorus of concern in particular cases in the third committee and the united nations a few weeks ago, there was by far the largest soviet of countries condemning iran for human rights abuses. so the more that other countries

speak out, i think the more impact it may have on concrete behavior. >> if you could speak directly to the iranian people. for example, they were listening. the world is frustrated by the inertia of the iranian government and certainly we are not to provoke opposition efforts to dismantle any nondemocratic manner. but there has to be some movement for this country to come into the world form of the 21st century meaning. democracy, trade and interaction with their other world country. i hope the iranian people are listening and will not accept the human rights abuses and began to demand that iraq, in particular iran, work with the world community. >> the gentlelady's time has expired and i'm going to just --

we won't get off quite that easy. ask one last question. in september come the treasury department sanctioned the iranian bank, eia chief corporate in germany for providing financial services to iranian wmd proliferators and facilitating transactions on behalf of other sanctioned banks. why has the german government refused to take action against the bank? what are we doing to convince the german government to close them down? and are we considering any sentience against any entities doing business with the eih? >> mr. chairman, you're right, we do take that action against eih in september. we consulted, in detail come with our german colleagues on that action that they are looking at the evidence were able to share and looking out at themselves.

we do, as you know, have authorities that go beyond what most other countries have an ability to take action on administrative record and relying the permission they don't have to make public. but the germans have been good partners on the thumbnail i cannot seriously. the answer to your final question though is answered by the effect of his father, that now we have designated the eih, with for those of you who are not familiar with it was a very big financial facilitator for iran and europe and one was one of the main ways in which they were accessing your transactions. now we have designated the eih for iran's proliferation program, any bank that does substantial business or engages in substantial transactions with eih, but they risk their access to the united states financial system and we will take that

provision very seriously and enforce that is appropriate. >> well, thank you both. thank you and thank you both for coming here. i know how busy you are and how much is coming up even on this subject in the near future. we appreciate you very much taking the time to come with us and also for what it's really -- i mean, so much of it is quiet. so much as government to government. and the time you're spending on this site think -- the one thing, the other aspect of wiki links as terrible and deployable as it was, it demonstrates this administration's commitment to this issue is intense, sincere, and during and hopefully at the end of the day successful. thank you. [inaudible conversations]

[inaudible conversations]

>> the senate banking housing and urban affairs committee held a hearing today on the mortgage crisis, focusing on questionable lending and foreclosure practices. witnesses included representatives from the treasury department, federal reserve board, fannie mae and freddie mac. this is three hours 20 minutes. >> the committee will come to order. i'm a thank you all for your presence here this morning and her colleagues and guests and witnesses who are being a part of this hearing this morning entitled the problems of mortgage servicing from modification to foreclosure. and this is the second of our two hearing. i thought it was a good idea to do this and senator shelby also

advocated it. you can make a case that maybe we should have had you first. but either way, i think it's going to be helpful to get the perspective of those of you at the table here today. some of you have nothing to do with this other than your observations, particularly sheila bair, fdic, this is your particular responsibility. the youth in traffic on these issues and they want to you to be a part of the discussion today. with that, i'm going to make a brief couple of opening comments not all turn to senator shelby and any other colleagues would like to be heard on some additional thoughts. we've got two panels, so we'll take a little time this morning to get through this, but i'm very grateful to all of you. before i begin, this is likely -- likely my last hearing as chairman of the banking committee, having taken over in january 2007 by pulsar babe, did a wonderful job as they told many of the stories for sending

in the the chair tim johnson in the fall of 06 after pollock announced that he was no longer running -- it gets in the spring of 06. he put his right arm around me at the share here. it was chaos in the committee room. people were screaming and yelling over something that up instead. police are coming in to remove people. as police were coming and he put his arm around the shoulder. he said just think about this, all this is yours. i had no idea what is predicting for me over the next four years. such my colleagues and staff, thank you for all the tremendous report and what a joy to spend to work with you over these past four years. and since rob was any -- i'm indeed forward began. as you recall i think were intersecting hearing -- the first week in february was on the foreclosure hearings. we do serious in no way. over those two years we couldn't

get anyone to pay attention within the administration. i do not how many times i heard bob fernandez coined the phrase there's a tsunami coming. i think i was in february or march of 07, almost four years ago talking about this. and between the two of us appear, 54 years, that's a long time, going back to the days of -- well, i'll miss you as well. and i want to thank all of you. and i particularly want to say 12 year, particularly shelby. i know the assumption is that obviously people to report about planes in flight as we say in this business. they'll be here but the planes that don't make it. but every single day, people appear work together and get things done. and pulsar bands of the relationship with dick shelby and i do as well. we're good friends and we spent a lot of time together on the confines of this committee will.

before that i'll be eternally grateful for this great friend from alabama. he's been a gentleman and always kept me informed as to where things were and how things are progressing. anyway, i want to welcome all the witnesses here today up for the testimony about the mortgage servicing. this is a continuation of the outset of the hearing held last month at which we heard the witnesses within the servicing industry and others. stay with you from some of the regulators responsible for overseeing the industry. for leslie explained what we mean by mortgage servicing. i think the audience in the squad will understand what were talking about by servicing. individual mortgages are often bundled into pools of similar mortgages and sold in the secondary market as a mortgage-backed security. heard a lot about that over the past four years. under the origination, all processing -- this is where servicing comes in. all processes related to the lotus managed by a mortgage servicing come any.

now the nation's four largest banks, jpmorgan chase, wells fargo, bank of america and city are also the largest mortgage services. how to love list of administrative responsibilities for collecting payments, maintaining detailed, accounting records and taxes and insurance premiums and distribute payments to the home mortgage security. for this first they received a servicing fee. that's a rather abbreviated description, but basically that's the purpose not to servicing the companies do. last hearing we learned that many of the services have not been doing their jobs. these services, including many the nation's biggest banks fail to maintain proper records, failed to properly administer the home affordable modification program, the hamp program, the robo signers submitted thousands of all possibly fraudulent affidavits, even some cases

foreclose unfairly and people who shot across their homes. as for last hearing have suggested the problem is a lot larger than we previously thought. i don't wish that to be the case, but evidence seems to be mildly may be the case. an employer bank of america testified in court that the bank's standard mortgage servicing the essays fail to meet basic loan documentation requirements, a failure that could call a huge number of ones into question. they're more revelations of this nature come the situation could alternately have ramifications of the safety and soundness of the financial system. investors in the mortgage securities market, including the new york fed reserve bank and freddie mac are pushing banks to repurchase loans that may not have been originated as represented. last month to congressional oversight panel estimated that these lawsuits and repurchases would ultimately cost banks about $52 billion.

subsequent to that report, barron's magazine use data from a research firm called comcast point and estimated the losses to banks could be as high as 164 billion. other estimates are even higher still. noted for wall street that's a lot of money to be talking about. it's important also to remember that while services will cause this problem, its borrowers who are of course paying the price. confusion over sloppy and incomplete documentation close the modification process for countless berbers speared conflicts of interest and industry may be incentivizing third-party services to actively seek to block modifications that would prevent foreclosures, but cut into their pockets. these may result in problems of borrowers who otherwise may have been able to pay their mortgages on pushing trouble bursty foreclosure who otherwise may have been able to save their homes and reasonable modification occurs. this is a problem of services should have seen coming in my view.

it punny of warnings. congress, sheila baird was with us today, the fdic, also provided they also mentioned bob menendez as others of the committee going back a long time. in fact, jim bunning and jack reid were talking about it in 2006 in hearings that they held. so we're getting near five years that we've been talking about this issue. and yet here we are still watching a problem associated with all of that, getting worse is possibly the case. whether it's out of greed or ignorance or the failure to recognize the disaster on the horizon, we are now left to pick up the pieces and try and help homeowners caught up in forces beyond their control and do everything in our power to fix the system and prevent these problems again in the future. so today we're going to hear from regulators about what they did and didn't do in i.t. as you have and i appreciate all of you being here. not only regulators prefer the

academic who follow these questions. would you recommend we do, congress too done by treasury, done by regulators. we have a lot of fingerprinting finger-pointing going on. the question is what we do about it? is my last hearing in all this, but my committee will have to pick up the subject matter and work on it. and we'd like to know what we can do to be a part of that solution. i suspect all of us will agree with that conclusion. today appreciated and your participation. then they turned to senator shelby. [inaudible] >> anybody else want to be heard? >> mr. chairman, first to the, i don't know if this is or is not your last hearing, but and the eventuality that it is, i want to just say that i think history will record that you presided over some of the most tumultuous

times in our financial system and that the response to that day when chairman bernanke came before members of this committee and members of leadership and described in 2008 the challenges and the consequences of the potential collapse of a series of financial institutions and what they would admit to this country in terms of systemic risk to the entire nation's economy. and i'll never forget asking the question, we must have enough tools at the federal reserve? and is answered was if you don't act in the next to three weeks on the global financial meltdown. that's what you chaired over. and i think history will record that the way in which we lead in the period of time really hoped to save our nation from what would've been a near depression. and i appreciate your service very deeply.

in just a moment, on an issue that i have been pursuing for some time, your rights, it was in march in 2007 it into a secretary paulson who's sitting here and i said, i think we're going to have a snobby foreclosures in her room spot but that's an exaggeration. i wish he had been right tonight right tonight and run. the reality is we ended up with we haven't even seen fully the crest of the tsunami even yet. and when i am concerned about is not just for all of those families who clearly, under a life-changing set of circumstances, whether home will be taken away from them, but even for the greater risk to everyone in the community that faces the consequences of multiple foreclosures in their neighborhood, loss of property values, loss of readable as and all consequences that flow from that. and so i appreciate that 18 of my colleagues signed with me a letter to the treasury secretary. one is about the whole issue, discusses about the rubber

science, rubberstamping, foreclosures by banks that exercise lack of oversight. it's not certainly only shocking, but it's one example of how banks have mishandled both foreclosures and mortgage modification requests. and if the robo sign in is directly attributable to banks not doing proper due diligence, which is inexcusable when dealing with a matter as monumental as taking someone's home away, i think the more important point may be banks and servers and i.t. in the given basic for closer procedures correctly and they're also not correctly evaluating homeowners from mortgage modifications. and i have serious concerns about the process. i have listened to constituents time and time again or talked about the horror still today, even after this committee has raised these issues time and time again of the process that they have gone through. i'm concerned that despite the best effort of the hamp program,

which estimated that 79 families could restructure or refinance their homes, but we've only had since january 2010 and about 495,000, doesn't seem to be working in a way that we wanted to. and finally, you know, countless constituents have told us stories of being stonewalled by banks for very long periods of time of not being told the reasons for their rejection of their modification request a significant delays caused by banks losing their paperwork and trial modifications canceled with no rationale. and that just can't continue to have been, mr. chairman, so i appreciate your having this committee. he might thank you, senator. >> just very quick if i may. first of all, i want to express my appropriation to your comments on the floor yesterday. i thought they were spot on. thank you for your leadership.

he will be missed. thank you for being here. the folks on the panel appreciate you taking time. i think these are an important set of hearings. it has been established -- will establish that these are not isolated cases. my office has experienced a number of complaints, a significant number of complaints my constituents have at their place of foreclosed on and have not been treated fairly. and so i think it's important that -- it's important we pay attention to this issue because i don't think there is inadequate attention paid paid to this issue. mortgage servicers have a trust placed in them, but there's not a lot of verification. what they're doing is -- well, it's not a lot of requirements for verification. so hopefully these investigations will result in changes that will ensure it is the homeowners are treated with honesty and respect.

but we can really get down to the root of what the magnitude of these problems really are. i know that last week miniview, as part of the financial stability oversight council looked at the concerned recognize the potential risk to our system by this processing problem. my hope is that through your investigations, will finally be able to understand the full size and scope and potential impact of the financial market and then we can move forward in a sensible way from there. so thank you all. >> thank you, senator tester very, very much. and russert to go with the witnesses. let me introduce as i can very briefly to you. first of all, phyllis caldwell. take time, phyllis is the chief of the homeownership preservation office at treasury and leave the administration's efforts to assist with the homeland conversion process, joins the treasury in december of nine.

we thank you thank you very much for being with us today. sheila bair could almost fit on the site she's been here so often, chairman of the fdic and we all acknowledge she has tremendous participation of the last four years that i've been grappling with this, as the committee has and we appreciate you being here today in a sense for your thoughts and observations on this as well. dan tarullo is well known, used to sit on the side. but senator kennedy going back years ago i made a good friend over the years. obviously a lot of the six board of governors, the federal reserve served in that capacity since january of 09 was professor of law at georgetown university we thank you for observations. john walsh again, frequent participant in our discussions of the comptroller of the currency overseas, that office took charge of federally commercial banks and about 500

of the agencies of foreign banks in the united states, send in the oc season sophia. we thank you for your service as well. add demarco is the acting director of federal housing finance agency and has been doing a good job in my view regulating fannie in friday in the 12 home on banks within the united states. prior to this capacity was chief operating officer of fhfa. let me just say by the way a lot of the criticism going on, a lot of good news coming out of the management as well on this process to put in place a number of years ago. so we thank you for your work as well. what bad i want to ask consent that all the opening statements and comments of her colleagues be included in the record. as well, all of your statements and any supporting documents and information you think would be valuable for the committee. but that, ms. caldwell, will

begin with you. keep your statements or comments down to five minutes or less for the commute to the data flow. >> german died, thank you for the opportunity to testify with you for issues surrounding mortgage servicing and performance in the making home affordable program. a foreclosure problems that have recently come to light underscore the continued critical importance that do make it home affordable program launched by treasury of which hamp us apart. preventing avoidable foreclosures to modification another home retention opportunities continues to be a critical priority. foreclosures dislocate families, disrupt the community and destabilize local housing markets. over the last 20 months, we've developed rules and procedures to facilitate meaningful modifications. we've are servicers to increase staffing and improve customer service. we have developed specific guidelines and certifications on how one went homeowners must be

evaluated for hamp and other home retention options. hamp a strong compliance mechanisms in place to ensure that services follow program guidelines. treasury has the procedural safeguards and appropriate communication standards and the hamp to minimize those instances where borrowers are to attract, where they are being evaluated for hamp and things have been put through foreclosure process. specifically, hamp or grant guidelines require participating servicers of non-agency wants to evaluate homeowners for hamp modifications before referring those homeowners to foreclosure. is that many foreclosure proceedings against homeowners to applied for hamp modifications where they are pending. evaluate homeowners do not qualify for hemp were i've fallen out of hamp qualify for private modification programs. evaluate whether homeowners they qualify for short sale or deed

in lieu of foreclosure and provide a written explanation to any homeowner not eligible for hamp into delay in a foreclosure sales for at least 30 days afterwards to get the homeowner time to appeal. servicers may not proceed to foreclosure sale must they've tried these alternatives. servicers must first issue a written certification to their foreclosure attorney or trustee, stating that quote, all available loss mitigation alternatives have been exhausted in a non-foreclosure auction could not be reached, end quote. on october 6, treasury clearly remind the services of the existing hamp role. we've instructed our compliance team to review the tao marjah services, processes and procedures for complying with that guideline. if we finance event of noncompliance, treasury will direct the servicers to take corrective action, which may include suspending foreclosure proceedings and reevaluating the affected homeowners for hamp. in terms of compliance, it is important to remember that

although treasury administers the making home affordable program in hamp, it does so through voluntary contract with the service servers is regulatory or enforcement agency authority. that come our compliance efforts are focused on ensuring servicers are following contractual requirements of the service participation agreement. we are looking to ensure that borrowers are being properly evaluated for hamp. compliance remedies have included reevaluating loans for hamp eligibility, free soliciting borrowers, enhancing servicer processes and providing additional training to servicer staff. to date, almost 1.4 million homeowners have started trial modifications and over 520,000 have started permanent modifications. these homeowners have experienced a 36% median reduction in their mortgage payments are more than $500 a month. consider that in the first quarter of 2009, more than half the modifications increased

borrowers monthly payments were less than unchanged. radke second quarter of 2010, 90% of mortgage modification lowered payments for the borrower. homeowners today have access to more sustainable foreclosure prevention. hamp uses taxpayer resources efficiently. it's pay for success design supports pirates who are committed to staying in their homes by paying no servicer, bar were an centers over five years and the investors, not the taxpayer retains the risk of borrower payment. in conclusion, we believe that these foreclosure problems underscore the continued need for servicers to focus on evaluating borrowers for all retention options starting with hamp. we appreciate efforts about members of this committee and partners in the housing committee and holding servicers accountable and improving the hamp's design and performance. i look forward to taking your questions.

>> ms. bair. >> shelby, thank you. members of the committee, thank you for requesting use of the deposit corp. on mortgage servicing an impact on the financial system. is unfortunate the problems of mortgage servicing a foreclosure prevention continues to require the scrutiny of this committee. the robust funding issue is systematic and persistent shortcomings in the efforts of our nation's largest mortgage servicers. while the ftse is not the primary supervisor for this company as we a significant that the insurers throwback of examination authority are examiners have been working on site as part of an interagency review team at 12 of the 14 mortgage servicers. the weaknesses that have been identified and mortgage servicing practices during the mortgage crisis are a byproduct of rapid growth in the number of problem loans and a compensation structure novel designed to

support loss mitigation measures such as on modification. the traditional structure of the third-party mortgage of these put in place before the crisis is based on a flat fee that is tied to the outstanding mortgage balance and does not provide additional compensation for the proper management of distressed loans. the flaws in the structure were not -- large servicers aggressively automated systems to maximize short-term returns. over the mortgage defaults in recent years have driven that service cost structures, just in time they needed do for more individualized attention to the management of problem loans. the problems we are seeing go beyond robust finding and other technical documentation to include questions regarding change of title and poppell securitization trust are the implications are potentially serious and damaging to the nation's housing recovery and do some of our largest institutions.

one implication is the risk of a distraction to the foreclosure process. a transparent foreclosure process so painful is necessary to our economy. another implication is mortgage documentations catch a cloud of uncertainty under the ownership's right of investors. moreover, there are government entities and their significant claims against firm central to the mortgage markets. but we cannot see immediate systemic risk in the clear potential is there. the financial stability oversight council was under the the.frank act. it is in a unique position to provide clarity to the market by interpretations of what standard should be applied to establish and mortgage loans and recognize the true sale of mortgage funds and establishing private securitization trust. when i read stamey goes into more detail, their principles i believe you should be part of any broad agreement among the stakeholders to this issue. one, establish a single point of contact for struggling

homeowners. this will go a long way towards women in the conflict and miscommunication between the modifications and foreclosures in today's dual track system that will provide borrowers as turns for their application for modification is being considered in good faith. two, simplify loan modification efforts to reduce the number of foreclosures. the modification process has become far to come to canada giving the shortage of resources, the modification process needs to be dramatically streamlined. ossification seem to be put in place an early stage of delinquency and should provide for a significant reduction in the borrowers monthly payment payment. our experience at indie mac shows these are the two fact is that determine long-term success of modification. in exchange, they should be safe harbor to assure them their claims will be recognized foreclosure becomes unavailable. three, invest appropriate resources to maintain adequate numbers of well-trained staff in strength and quality control processes inadequate staffing, lack of standards of care unfair

to follow legal requirements cannot be tolerated. servicers need to strengthen practices and regulators must ensure that services adhere to the highest standards. for, tackle the second main issue head-on. services should be required to convene up a write-down of any cycling at the first mortgage loan is modified or proved or short sale. all stakeholders must be went to compromise where to find solutions to the foreclosure problem and lay the foundation for recovery in our housing market. thank you for the opportunity to testify and i look forward to your questions. >> thank you. mr. tarullo. >> thank you, senator, senator shall be members of the committee. money told him what sheila house said to have a few introductory comments. first come on extent of the problem, which is the question senator shelby said was that the last series. i want to first cautions that the four actually agencies represented here are all still in middle of investigating the

firms themselves, whether the gst is a for the banking institutions. so we need to be provisional in any observations are made. with respect to the documentation issue, it's already apparent, but there's considerate quality-control and compliance training and oversight of third-party providers such as law firms. at the extent of the problem, appears to vary across firms, but my suspicion is when all is said and done, we're going to find some problems at all servicers, large, medium and long. the problem will be particularly acute in some servicers, where the difficulties in the shortcomings have been the greatest. when we look at those problems in the context of all the different things associated with or modifications that senator menendez referred to earlier, seems to me that we do need to

have some structural changes in how services are organized, monitored and regulated. i also want to say what about the the back exposure. this is something not directly related to the foreclosure documentation problem. the documentation problems of those drawn attention to the issue and may be motivated some investors to pursue some additional arguments for why sponsor should take mortgages back. the exposure here results from the interplay of default on the underlying mortgages, which motivate the put back after of the securities. and the legal liability securities or her originator, this liability could be quite significant for some firms, although particularly with private-label securitization losses may well be spread over a considerable period of time as litigation ensues. with respect to put back liability, right now, we have

already started a process of requiring each of the major holding companies to produce to us their comprehensive capital plan, which was supposed to get in early january. that was an exercise for the foreclosure problems. but it's part of that exercise, we have asked for an assessment of the firms of the put back liability that they may be facing. turning out of supervisory responses, i know in my testimony, the enforcement tools available to a freethinking agency here. i expect that many or all of these tools will be used as appropriate with respect to specific institutions. so i just know it from a particular supervisory position of the federal reserve that our management, rating of management at the holding company level will be influenced by the extent that these problems, even if the problems occurred in the banking

subsidiary. as to how these problems have shaped the thinking about supervision more generally, i was taken from my perspective, two points are already apparent. first, we need to use to its fullest the additional authority given the federal reserve in.frank, descender examiners into nonbank affiliates of large holding companies. and second, they think we all need to find ways to leverage control process audits of some function in person to improve it to control processes across the firm because were never going to be able to audit every single control process and all these institutions. before closing, i just want to say a few words on the loan modification issue, but for more of a macroeconomic perspective. because i think there is a close relationship as many of you have suggested already between the foreclosure difficulties and relatively sluggish pace of modifications. the race that recommit occurs

between the modification of a particular mortgage and foreclosure proceedings has more often than not been won by the foreclosure process. and of course, we now know that the race was not often been fairly won the first place. but even if it is, there's a larger macroeconomic point to be made here. foreclosures are counseling not only for the parties involved, but for the housing market in the economy as a whole. while there's no single simple method for gaining more of a balance between foreclosures and modifications, a wholeheartedly agree with sheila's perspective that it's incumbent on people and industry in all levels of government to renew pretension to numbers that can fill sele take sensible modifications across the country and verified to help create conditions for a housing recovery, which will be interned import into supporting renewed stronger growth in our own economy. thank you very much.

>> commissioner walsh. >> thank you, senator, ranking member shall be, members of the committee. i appreciate the opportunity to discuss improprieties in the foreclosure process and steps being taken by officer controlling the currency to address them. when i appear before the committee in september, i described early steps to address the foreclosure problem at eight of the largest mortgage servicers, the occ supervisors. i can report today we've greatly expanded its efforts to address the critical problem working with other government agencies. let me state clearly that the shopping practices that have come to light including a properly executed documents and added stations are absolutely unacceptable. they raise questions about integrity of the foreclosure process and concerns about whether some homes may have been improperly taken from their owners. the occ is moving progressively to hold them accountable and fix the problem. in recent years come as problem was surged, the occ's primary focus was on efforts to prevent avoidable foreclosures by increasing the volume and sustainability of what

modifications. when we saw using mobile data from our mortgage metrics product, inordinate number of modifications initiated the 2008 will be defaulting. we directed national bank services to take corrective action. since then we've seen a sharp increase in modifications the lowered month they fault. while we are are presented from foreclosures, many families are still struggling face prospect of losing their home. we are these homeowners are best efforts to ensure they receive every protection provided under the law. questions have arisen about the practice of continuing foreclosure proceedings and even when a modification has been negotiated and is enforced. we agree that the dual track is unnecessarily confusing for distressed homeowners and the occ is directing national bank servicers to suspend foreclosure proceedings for successfully performing modifications, where they had the legal ability and are not already doing so.

it is important to remember, however, that the gse is an private investors dictate the terms for nonfat my modifications so this option may not always be available to servicers. it is also the case that foreclosures are governed by state laws and requirements varied considerably across jurisdictions. as a result, most nationwide servicers, higher local firms familiar with those requirements both fannie mae and freddie mac require services choose law firms they preapproved for a given locality. the occ reviews the banks for kosher governments processed to determine if it is appropriate policies or procedures and internal controls necessary to ensure the accuracy of information relied upon in the foreclosure process in compliance with federal and state law. we expect banks to test these processes through periodic internal audit and their ongoing quality control function. examiners generally do not directly test standard business

processes or practices such as the wikipedia sign contracts with the processes used to notarized documents. absent red flags estimate systemic flaws in this business practices. unfortunately, neither internal quality control task, internal audit or data from our consumer call-center suggested foreclosure document processing important area of systemic concern. when problems were identified at allied bank the largest servicers could review the operations and take corrective operations. we began our present on-site examinations at the servicers which are now well underway with more than 100 national bank examiners assigned to the task. in concert with other regulatory agencies, the examiners are reviewing whether foreclosed borrowers were appropriately considered for long modifications about whether fees charged for appropriate, documents are accurate and

appropriately reviewed a proper signatures were obtained. we are reviewing whether servicers complied with state laws and whether they had possession and control over documents necessary to support illegal foreclosure proceeding. the occ is also having an on-site interagency examination of the mortgage electronic registration system for mars inc. ordination of the federal reserve, the fdic, federal housing finance agency and we are dissipating an examination led by the federal reserve uplander processing services which provides third-party foreclosure services to banks. where we find errors or deficiencies, we are directing banks to take immediate corrective action will not hesitate to take enforcement action for impossible penalty monies, terminal referrals if warranted. we expect to complete her examinations by mid-to-late december determined by the end of january by the enforcement actions are needed. thank you again for the opportunity to appear in all be happy to answer questions.

>> thank you, mr. chairman. mr. demarco, welcome. >> good morning chairman dodd, senator shelby and members of the committee. identified handling of the legal documents to carry a foreclosures are unacceptable. those deficiencies undoubtedly reflect strains on a system that is operating beyond capacity. but they also represent a breakdown of corporate and internal controls and management oversight. fhfa's goldsmiths that are twofold. to ensure the foreclosure processing is done in accordance with the service or contract applicable draws and to protect taxpayers from further losses on defaulting mortgages. of course before any foreclosures completed, we expect servicers to exhaust a large database. by prepared statement reviews the action that fhfa has taken to date as well as those underway and provide the context of understanding the problems that have arisen, including consideration of the role of

services and a description and a diverse range of foreclosure processing requirements. as i reported previously to the committee, the enterprise, fannie mae and freddie mac minimize losses on the length of mortgages by offering distressed borrowers loan modifications, payment plans or forbearance. this loss mitigation tools reduce the enterprises losses on the language of mortgages and help homeowners retain their homes. the servicers to enterprise mortgages know that these tools are the first response to a homeowner who falls behind on their mortgage payment. ..

verify that the foreclosure process is working properly. second, remediate any deficiencies identified in foreclosure process us. third, fraudulent activity and forth avoid delay in processing foreclosures in the absence of identified problems. pursuant to that guidance, the enterprise has continued to gather information on the full nature and extent of service or problems. only a small number of servicers have reported back to the enterprise is having some problem with their foreclosure process thing that needs to be addressed. still, these firms represent a sizable portion of the enterprises combined books of business.

the enterprises are currently working directly with their servicers to ensure all loans are handled properly and corrections in refiling the paperwork are completed where necessary and appropriate. to be clear, fhfa does not regulate mortgage servicers and the enterprises relationship with them is a contractural one. as conservators of the enterprises, fhfa expects all company servicing enterprise mortgages to fulfill their contractual responsibilities which includes compliance with both the enterprises seller services guide and applicable law. also fhfa remains committed to ensuring borrowers are presented with foreclosure alternatives. still it is important to remember that fhfa has a legal obligation as conservators to preserve and conserve the enterprises aspects. this means minimizing losses on the link would mortgages. clearly, foreclosure alternatives including low modifications can reduce losses

relative to foreclosure but when these alternatives do not work, timely and accurate foreclosure processing is critical for minimizing taxpayer losses. to conclude regulatory agencies including fhfa are carrying out important examination of goodies that will better inform the issue. bus identification of further actions or regulatory responses should await the results of these examinations and a valuation of information deemed deemed -- being developed. thank you. >> thank you very much mr. demarco and i will ask the clerk for six minutes and the clients to stick without. again we have a large panel here in the second panel to get to so try to keep it that time. six minutes of questions. for you and me and everyone else it is six minutes. [laughter] let me begin dan with you if i

can. i thought your testimony was down to a market downstairs but i read the testimony last evening so the committee described the banking agencies in view of the mortgage crisis and state preliminary findings suggest weaknesses in risk management quality control, audit compliance practices, shortcomings in staff training coordination loan modification enclosure steffen management and oversight and third-party providers including legal services. cybermathur weren't too many problems. according to experts including mr. eggert who will be testifying on the next panel these problems have been documented for years and i think he claims fence 2003. actions taken by the ftc for example so there is some real background to all of this. i would like to ask you whether not the other agencies that are at the table with you agree with

you that governor tarullo's conclusions in his testimony whether or not you feel as though what he said is an accurate description of the description and gi the apparent severity of the problems i want to ask you as well by the various agencies that do have regulatory authority have not taken action earlier. the obvious question. again this is not some new information we are getting. why haven't the agency's been more aggressive about this earlier on? >> thank you for the question. i will talk from the perspective of the hamp program and i think it is important again just to say that hamp is a voluntary program and we have contractural relationships with the largest servicers to participate in the mortgage modification program. we are in those largest servicers every month. certainly our observations have been bad they were ineffective

in soliciting homeowners for hamp. there was delay processing of ham. there was improper use of the treasury net present value model and as a result of that, actions we have taken have included sending the servers is back to risa listed certain pools of borrowers where we identified they warn solis of it. we have been rerun the net present value model and in january of this year we instituted a temporary review period where we said server sears could not decline a homeowner from hamp until they had reviewed and verified the status of their documentation, their payment, notified the homeowner of what their records showed and gave the homeowner an opportunity to review. so again, we agree that there has not been sufficient capacity in servicing shops relative to the magnitude of this problem. >> john this is again not new information. why happened we been or

aggressive as regulators? >> certainly it is not new information that there have been capacity constraints going back to 2008 and as i mentioned in my testimony we have them both gathering more information but also conducting horizontal exams in the major servicers focused on the modification problems that were occurring and clearly we had seen a rise in the number of complaints through our own system that had indicated problems with mortgage modifications. we were in the exam process seeing that there were clear deficiencies that were otherwise being reported, and we were consistently pushing the servicers to higher, to train, to adopt the succession of procedures that were coming forward from hamp to develop their own proprietary modification programs, but the push that was being made was

also -- always trying to get them to ramp up as his been described, a very large surge of problem loans coming into the system. they were clearly not ready for it. they have made substantial efforts to improve processing and deal with the problems that are there but they clearly have not caught up with the modification piece of it. we have now seen a surge of cases move through to foreclosure. there was somewhat of a pause going back six to nine months as hamp and other programs in fact did ramp up and we saw increased modification activity, but the foreclosures that were coming were an inevitable piece of this as i mentioned in my testimony be relied upon internal audit quality assurance and the other things that are often relied upon to look at these large volume activities but clearly the institutions bailed in their

oversight. for example third party agents, law firms and others. they didn't ensure quality insurance both in their own activities in their use of third parties and i mean, clearly in hindsight we should have seen that problem was going to appear successfully in each link in the chain. but, and so now that is where we are focused. >> dan, do you want to folk? >> is the same question of our people that you just asked of us, and you know everybody has got their own supervisors and so everybody has a specific story for the specific supervisor but i guess i came away with a few observations. one is, as john has already said i think there were a lot of supervisory resources focused on servicing and servicers but they were dominantly focused on the modification or the slow pace of

modification. i actually asked our folks to pull the records of consumer complaints that we collect through the community and consumer affairs division of the board, and dominantly the complaints about foreclosure are complaints from people being foreclosed when they think they are eligible for a modification and so that is where a lot of the attention was directed. to say that the second thing is that, the control process audit that i mentioned a moment ago is one that i guess i have now concluded needs to be rethought because what you essentially do with this is you pick out a particular function of an institution where you say okay, there may be some problems here. we have heard of some problems here. let's dig in and you dig in and once you have finished digging and you find difficulties or don't, but usually do and then you take some site -- type of

supervisory action. you know you can't audit the full -- so in the absence of specific complaints about specific processes, the question is how do you use those to try to identify or rectify problems elsewhere. i don't want to push this point too far because i think it is pretty provisional in our own thinking. i think we do have some sense that in institutions where for example on the modification problems, we had been doing a controlled process audit and asking for some changes that we still see an incident of problems on the strict documentation foreclosure side that they don't seem to be quite as pervasive so what we are trying to figure out and will try to figure out going forward is whether there is some sort of relationship there between having done one kind of control

audit on the one hand and on the other, getting the firm to pay more attention to what it does or frankly, it may just be that it was a coincidence. but that is sort of my observation at this point. >> i have a lot more questions of my time has expired. >> governor of the bike to follow but something you talked about earlier and that is risk management and quality control. you alluded to the fact that there are obviously weaknesses here. when did you or the fed or did the fed realized there were problems in this documentation process dealing with mortgage is? >> so, for me personally, it was really not very long at all, maybe a day or so before the public -- because one of the institutions -- well one institution that we were the primary supervisor four, allied,

did come in and tell the supervisors of the holding company that they had self identified these problems. >> what do you believe is the fundamental problem here that needs to be resolved? for example, for years and years we had state property laws and loans. you buy a home and you execute a note for the mortgage. the mortgages sold to say fannie mae or somebody and historically they use to record the signings. every time the mortgage was sold is this electronic system we talk about, is that part of the problem? where are we because we are trying to solve this problem. for example, if somebody is not paying their mortgage, my gosh, you know, i believe that you have got to foreclose. unless you have agreed to modify or something like that.

now, to foreclose you have got to own that mortgage in a sense. that is the laws. so where are we and what do you think needs to be done? >> so, i can only give a provisional answer to that, senator. but i have to say in looking at, getting briefed on the extent of the problem, the complexities of national servicers doing not just foreclosures that servicing in every state in many counties within particular states, the differences in requirements and the continued requirement for physical recording obviously is for them a substantial, substantially constantly undertaken. >> but those are state property laws. >> that's right and certainly we the regulators can't do anything

about them. i suppose you could if he decided it was important to have a national. >> state owned property recording? >> exactly. that is why i did not propose that in my testimony. what i proposed was thinking about national standards for servicers. >> let's go back a few years. let's say 10 years ago, 2001, or will be. did we have those problems then? for years we didn't have those problems. people executed the mortgage. they sold the mortgage. they recorded the assignment, you know, they did the documentation, risk management, quality control. did they get too risky, too sloppy? to shoddy and what they were doing although they were dealing in hundreds of thousands of dollars worth of mortgages? billions of dollars, and does

that pertain to the securities in a sense that you sell? >> well. >> you securitize the mortgage. >> one, and i'll honesty we don't know what the situation actually wasn't 2001, at least i certainly don't. we don't know with an examination at the dawn of servicers in 2001 where some of these issues may have been found but because there was an -- foreclosures were pretty contained, you didn't have the opportunity for a potential problem and documentation to show up at the courthouse doors. i don't think there is any doubt but that the enormous increase in the servicing operation. >> so the volume of the mortgage. >> huge volume of the mortgage absolutely and more concentration in the servicers. >> where do we go them here today, december 1, 2010?

we have still got this problem. senator dodd has had a number of years. are we close to solving this problem? >> from my perspective senator i wouldn't say we are close to solving the problem for several reasons. one, as i said earlier, i think it is related to the relative balance between foreclosures and modifications. two, i think that, until you get a more or less integrated approach to. >> what do you mean by integrated approach? >> i think you need a set of standards that apply to servicers whether they are in a national bank, an affiliate of the bank or and this could be increasingly the case in the future, and non-bank institution. >> what kind of standards are you talking about? are you talking about recording and showing ownership? we have had that, haven't we,

for years? >> i don't know if we have had clearly articulated standards as opposed to requiring firms to have their own processes to be assured that they abide by the law so i think what this has shown us is we do need more standards and particularly during a period in which there is as i said this rates between foreclosure and literally a race between foreclosure and modification within particular servicers. i think some sense of how that rate is supposed to be conducted needs to be set forth on a standardized bassist. >> okay. thank you mr. chairman. >> thank you very much senator sheldon. senator reid. >> chairman bair the ham program as mentioned is voluntary, covers my guess about 25% of the loans and as a result the vast majority of loans for banks and services to offer modifications

to most anything. should we mandate the 100% of loans to be offered to evaluate for modification? >> well, i think that is a very important observation. what we have suggested is to try to have some type of local settlement where we could leverage efficiencies and finding procedural hurdles that are appearing to foreclosure because of lack of documentation and not following fully the state and local laws that pertain to foreclosure that if they provide some type of streamlined mod and give it a period of time, they need to do that first. is alone can't be rehabilitated they could receive to foreclosure and borrowers so i think trying to take a lemon and make lemonade, that this may provide additional leverage to

get a more streamlined government modification. legislation would be another option. i guess i'm looking for things that we could perhaps implement immediately. >> again -- is slow. you are envisioning a regulatory solution initially, which would use whatever authority you have which are substantial. to deal with the host of issues. one is aching sure everyone is offered or at least evaluated for modification, not a small fraction, not voluntary but everybody, dealing with with issues of title and standing etc. which may require legislation but at least you can pursue it at the regulatory position. the other sort of sets of issues with the the capacity of the

institutions to do -- but there is another issue here which is the individualized evaluations and foreclosure process of the status of the person and you are probably aware i am sure that at least in some districts of bankruptcy trustees become very active without requiring the paperwork to be correct. is that something that you would like to see brought in because it appears to be within the existing power of bankruptcy? >> it is not just bankruptcy trustees. it is the course as well, the local courts as well increasingly becoming much more stringent and exacting in terms of requiring proof of the title, challenging the process so i think this is a real issue and again, as dan said we are still collecting the facts but it is not clear to me depending on how

the caseload goes that all these procedural problems can't actually be cured and if that is the case it seems to me we need to think about some type of safe harbor provision using that as leverage to try to get low modifications early in the process, it give them a chance and let them see if it will work and if not permit proceedings of foreclosure. but i think this is getting back to senator shelby's question how did we use used to do it? the community banks are still doing it the way they used to do it and when you are servicing them yourselves, you have every economic incentive to mitigate your losses when you separate the ownership from the loan, securitization process the same economic incentives are not there. yet this high volume of troubled compensation system that was based on benign terms with very few troubled loan so i think going forward, you know. >> essentially what you are saying is the model that worked

before doesn't work any longer. >> it does not. >> we are pursuing this model in the same old-fashioned just do a little bit more and do a little this or that is not going to work. time is of the essence. there are huge sets of issues here with respect to the legal liabilities of large financial institutions, securities laws violations tax law violations ephedra and the sooner there is i think a coming together of the financial community and the regulators with the coherent program that addresses these issues the better off we will all be but what i am concerned about is the people who will be left out are the mortgage holders struggling to stay in their homes, not the flippers, not those folks that people who have seen one spouse lose a job or tuition increase, struggling and until they are part of the solution we are not going to get a total solution that goes to

the bankruptcy issue, the power and bankruptcy trustees to be much more proactive. let me just turn quickly to mr. tarullo. what you have pointed out i think in characterized as the severe managerial failure in many of these companies. would that be a conclusion? in terms of the way they are operating, in terms of how they accumulate these mortgages? >> as i said earlier i would want to withhold a final characterization but as i also said we have already seen a lot of problems and when he see a lot of problems there is some degree of management failure and i would suspect some institutions a rather substantial degree of management failure. >> i would have to second that. clearly when banks are self reporting that they have had major problems, they have had major problems. >> what steps are you taking in terms of ensuring resources are available? the emphasis from the top of the institution of all the way down

and maybe in terms of the compensation arrangements which are doled out. this critical national goal of stabilizing the mortgage markets, fixing this issue of securitization model and that no longer works. what have you done? >> as i had mentioned earlier we have certainly leaned and hard on the modification part of this and done a series of exams and have been focused since 2008 on shortcomings in staffing and process and the rest and the banks have improved. they have not improved enough. they have not improved fast enough and now the problem has migrated onto the foreclosure process where they have begun -- medbee and been caught short so there are deficiencies there but i think we have to be clear that the deficiencies that were laid bare by the surge of problems

are ones that should these problems pass through and the system returns to normal, it may sort of look like its old self that these problems will now have been exposed and the question is how do we deal with them over time. >> thank you. my time has expired. thank you mr. chairman. >> senator senator corker. >> thank you mr. chairman. in keeping with opening comments i want to thank you for your leadership on this committee. i had been on the committee three of your four years as chairman. i asked about 10 senators when i have the option of coming on this committee and nine out of 10 said whatever you do don't go on the banking committee. is the most boring committee in the senate. it has been anything but that. i thank you very much for the way that you have handled this committee. i thought your comments yesterday on the floor were just outstanding and for a person who

sometimes scratches his head and asks is this really worth a grown man's time because of some of the issues we get involved in, i want to say that i thought it was inspiring and i hope that we live up to those aspirational comments that were made yesterday. so i thank you for that and i hope you will get me another minute in my questioning. >> you take as long as you would like. [laughter] the prerogative of the chair. >> seriously there were numbers of very difficult issues and i think the way committee members have interacted with each other has been a reflection of your outstanding leadership and i thank you for that irk us be my colleagues know the tremendous job on the site but i would be remiss if i didn't point out and i've said this in so many venues and so many places particularly on the financial reform package, the work of senator bob corker

and working with bob warner, working with so many people on the this side of rehear mayday ager contribution to the effort and while the didn't all come to agreement on it the effort i think made a far better product than would have otherwise been the case so i will return to a guy from tennessee named bob corker. >> i plan to attend a latin america hearing today having traveled with you to central america and seeing you could run for president of any of those countries i plan on attending that as well but with that i will turn to our wonderful witnesses. i know bunning is about to get nauseous with all of these comments. [laughter] by thank all of you for coming today. i wonder as it relates to just the macroprudential issue of the institutions, the servicers that are involved we haven't really talked much about that. we have talked about some of the issues. all of us have offices that are

being with flooded with phonecalls over problems with this. candidly you have all been very help to us as we try to navigate that is as it relates to the macroprudential issues, the strength of these organizations what may happen over time to them financially, i would love for chairman bair and mr. tarullo and mr. wallace to just respond as to how they see this impacting our financial system in general. >> as i said in my testimony we do not see -- but i think the potential is there and we need proactive action to get ahead of us to make sure it doesn't spin into something that we don't want to see. i think there are two key issues. one is what this does to the housing market which could impact a lot of institutions. we td'd need a functioning foreclosure process. i think getting this situation cleared up so that are worse on the front and are given a fair

chance of a rehabilitative loan but if that doesn't work out and foreclosure is unavoidable that there is a process that has terms of ownership and legal rights i think is important. there also a lot of litigation exposures here and law enforcement official potential for law enforcement actions and i don't think we have a good handle on that yet. i think we have asked the institutions to do their own financial risk assessments but i think we are continuing to collect information and just don't have a good handle on it yet. >> i am aware of the number of those issues and do you have any sense of the order of magnitude bill, i don't -- know you don't know exactly but is this something we should be concerned about as it relates to especially the large servicers and bear organizations? is the magnitude of large or is this something that doesn't really matter and we should move on? >> i think it could be very

significant. it could appear over number of years but could be quite significant. a lot of it relates to open legal issues and how they are resolved and i think the put back risk is something in particular taking the lead in analyzing. i'm sorry we don't have all the facts get in a lot of it would be determined by how courts might resolve these open legal issues which is why we provide the interpretations now are we have appropriate authorities would be helpful. >> as you are answering mr. tarullo in these harvesting contracts, is there typically records back to servicers? is there a significant recourse back to them? >> so we echo what sheila said on the issue of the housing market and just add to that something i noted in my written testimony which is, until we get

a handle on an and reduction in the overhang of the foreclosed inventory in the housing market and until we have a process that is moving smoothly i hope both modifications and foreclosures there is going to continue to be, there are going to continue to be problems in the housing market and obviously the rest of the economy. with respect to put back risks, that is really a function of several things. one is the default rate that one anticipates because security holders only want to put back securities when there aren't are enough defaults that they are not paying well. that we can at least modeled based on certain macroassumptions. second is the legal set of issues. those are harder to pull apart right now at least. i think mr. demarco can probably give you a pretty straightforward answer about the back liabilities with respect to

things that gses are involved in but when you get to private-label securities though agreements very, so even if there is litigation over one that may not tell you what the liabilities and others may be. the third factor is the particular configuration of the default and the legal exposure at a particular institution so you could have an institution that securitized big-budget marketers are not doing very well but had a set of representation of warranties which were either buried week or which they met so it is just going to take time to disentangle that because as i said we are going to take the first doubt step is getting the firms himself stood in the capital plan but that may not the final. in terms of the order of magnitude senator i don't want to give you a number. senator dodd noted the order of magnitude in public or non-governmental assessments

differs by a factor of three or four. we don't have a better number than that, but i do think as i said in my testimony that with respect to some institutions this could be a significant exposure. >> and therefore mr. walton my time is going to expire so if you could maybe all of you even respond to whether pricing, the servicing pricing seems to be obviously it was priced for no problems and there are lots. what length of time is an appropriate length of time for foreclosure? i know in judicial states it is one length of time and both of which are incredibly long but how long should a foreclosure process take? is it 90 days? 100 days? it is probably not 492. leslie, the issue, know we have been talking more about the mechanisms of servicers and i

know we had an amendment on the floor. we were unsuccessful and passing it over the last year and a half but to me there is a built-in conflict with servicers who end up having home equity loans and others. that to me is a huge issue that we do need to do with because the fact is i think in many cases they are putting their interests ahead of the first mortgage holder although it can greatly change property rights so with that i will stop mr. chairman and thank you for the latitude and hopefully there will be a little bit of response. >> do you want to quickly respond to senator corker's point? >> i would just say on the systemic peace there is a systemic risk here but unlike the sort of market crisis in 2008 or nine it is something that appears to be something that will be drawn out as we sort through the problems that are there as governor tarullo mentioned. on the length of the foreclosure process attended to average eight or nine months. now it is averaging 15 to 18

months. it takes a long time but it takes a long time by design. does not it is not listed easy to take somebody's house away from them but it has now become quite drawn out in the question is you know, do we need to streamline that in some way? >> and if and if i could mr. chairman and senator i completely agree with your observation on the first and second liens and i think what that is one of the many reasons why we do need to have a more consolidated set of standards applicable to servicers because there is an inherent conflict there and when you observe, when you observe a second lien doing quite well well and a first lien moving towards default youtube raise your eyebrows with this. >> i just wanted to note, we do our own securitization says part of mortgages and we have tried to implement servicing. there is third-party servers or oversight. we also included servicing

reform as part of our safe harbor and engage with fellow regulars as part of the dodd-frank implementation whether servicing should be addressed and i think at the top of our list is a the second main problem so that if they service or is going to service a first lien and on the second lien to securitization documents have to fill out in advance what is going to happen if the first lane gets into trouble so we don't get into this in the future. that is a good suggestion. senator menendez. >> thank you mr. chairman. you know ms. caldwell, i mentioned in my opening statement that 17 of my colleagues joined with me in a letter to the secretary and it is our concern about hamp and i will get to that in a minute but we are also concerned about hamp which is richard originally projected it take care of seven to nine homeowners. it has fallen far short with

about 700 -- 495,000 permanent occupations in january of 09. at the same time in 2010 we are estimating there is going to be about 3.5 million homeowners who will receive foreclosure notices and less than 2% of the funds allocated for hamp has been expended. something is wrong with that. and we sent a letter that outlines a series of actions that can be done not with congressional approval that simply administratively by the secretary, including the process of holding server shares accountable. treasury offers incentives for their participation but no disincentives or no consequences for mistakes. the issue of the office of homeowner advocate, the issue of automatic conversions who had a successful trial modification.

the issue of revised eligibility requirements, the documenting of investor-based modification denials, the release of net present value analysis. why can't we get that done by treasury? >> i heard a lot of suggestions there. let me just first talk in general about the program. i think it is important that when we started the program 18 months ago folks at server sows will never sign up. it went from zero to 100 services who signed up. we set a goal of getting 500,000 homeowners by november. we get that. then we reach the conversion challenge and at the beginning of 2010, we had a belt 31,000 permanent modifications and a

backlog of close to 700,000 and folks said they won't convert. we have gone from 31,000 modifications to over 500,000. what we do know about those modifications is that they are affordable for the homeowner and based on the occ, otf metrics they perform better than historical modifications so we certainly haven't hit the numbers we want and continue to focus on outreach efforts to homeowners, there are call centers. what we do know is that those homeowners that are in hamp have and sustainable modifications that it views -- use taxpayer resources. >> i appreciate your defense of the program. i don't quite see it the way you see it. i don't think many members see it the way you see it in terms of what our goals are and what the accomplishments are.

and so i hope that we will get a response from treasury towards the six or seven items that can be done internally administratively and many of us including many of us on this committee think that in fact would transform that into a much better more successful program so we would like to get a response from treasury on it. mr. cirillo, couple of weeks ago your colleague on the federal reserve towards said that the numerous procedural flaws that have been unearthed are quote part of the deeper systemic problem and that as long as the business incentives for bank and loan servicers run counter to the interests of homeowners there is a need, this is her words, a need for close regulatory scrutiny of these issues and for appropriate enforcement action that addresses them. now, to me that make a lot of

sense. and as long as the servicers are incentivize to pick we push foreclosures through they will ignore i think very often the ordinary homeowners a comp in a dead weight. how do we get those somehow realigned? what steps should banks and regulators such as the fed take if any? >> well, i think, just so this gets back senator to my point about the need for a combined order generally applicable set of standards, which are going to apply to services -- server serves whether or not they are an insured depository institution or are completely independent. i mean, i do think that with respect to fair treatment of homeowners, with respect to the relations, the way in which a service or deals with complex that it may have between one and

lien holder and another, with respect to the relationship to train the servicer and the investors in the securitized mortgage, the system as it is now was simply not developed with the prospect of a large number of foreclosures and troubled loans in mind. so, i think that what you see problems across the board, you generally think you are going to need more of an across-the-board approach and that is why i said in my testimony and will repeat here think we do need more of a national effort to impose standards on everybody. we can do things, i mean, with respect to one of our institutions where even partway through the examination we just see a lot of problems. we are pushing them to change now. we don't need to wait for the end of the examination but that kind of step i step ross as one institution by one institution specific issues here i don't

think it's to the larger point that u.n. senator corker and others have been raising. >> mr. demarco, both freddie and fannie are participants in the second loan modification program, which helps a lot of homeowners who are struggling with multiple mortgages and servicers are supposed to implement this program by january of this coming year. but given the stories we have heard from homeowners and consumer advocates about servicers reluctance to engage in second loan modifications let alone the first loan modifications i am concerned about how the implementation of this program is going. what rules are in place for ensuring that servicers are knowledgeable about the second lien modification program that they actually participate and how your agency plans to oversee this program to ensure its servicers are in compliance?

>> senator, first, the second lien program you are talking about is part of the hamp program so that is administered by the treasury department and the treasury program but to the general point, and this goes back to comments that were made a few minutes ago in response to a question by senator corker the existence of second liens has been a very problematic for us in overseeing the enterprises and their loss mitigation activities with respect to first liens and it is really quite turning things upside down to find situations and this is rather common, where borrowers are continuing to pay on their second mortgage and they are not paying on their first mortgage. the property rights here actually run first to the first lien holder and this has been a true conundrum in this whole loan modification and loss mitigation effort that we have all been engaged in is to figure

out you know the way this ought to work is that the second lien holder ought to be taking the first credit loss here and get we are continuing to do loan modifications on first liens that basically provide protection to the second lien so i would share the comments of my colleagues that as we think about our housing finance system going forward i think this is an area that clearly needs addressing. but as we go along right now with the second lien, with loan modifications yes, very much our expectation is a conservator of fannie and freddie that the second lien holder is the participant in providing relief to a troubled homeowner. the first mortgage holder is going to provide relief through a reduced payment and affordable payment. we certainly think the second lien holder ought to be sharing in that.

>> thank you senator very much. senator bunning. >> thank you mr. chairman. i am going to say something that you all won't like but 2006, we had a huge housing crisis in this country. and even before that, the mortgage crisis showed its face in 2001 and 2002 and everything. all you people here have not come up with a solution to solve it. all your brains and you have got a lot of them, have not,. i have sat on this committee for 12 years and listen to the same absolute gobbledygook from everyone who has come up here. you have not had an answer to

any of the questions. all you do is deal in hyperbole. you don't deal in fact. how do you solve the problem? how do you get out the first mortgage holder and a second mortgage holder? how do you get them out? i cannot believe that with all the brains that are sitting at that table that there is not one of you that can come up with an answer to solve this crisis. which is about to go the wrong way again. if you saw the numbers in 2010 or october, you saw them minus 2% in housing. now i am telling you, if it goes badly in november and december

because we have all the programs that we had in place are no longer in place. i mean, the supplement in the mortgage market and the housing market and until we get the housing market straightened out and the loan market straightened out, we aren't going to get the economy straightened out. chairman bair, i know you have heard this before but it is too important not to repeat to you again today. i continue to hear from well over 40 kentucky community banks about the heavy hand of your examiners and their supervisors. i talked to you about this before. these banks are not the ones that cause the housing mess. but your examiners are blocking them from making good loans and and forcing them to treat good loans like bad ones.

your regional supervisors or even adding more requirements on banks beyond what the examiners think are necessary, and the biggest complaint is your agency is being inconsistent and applying the regulations state today and bank to bank. when are you going to do something about getting this, getting it off the backs of our community bankers? >> well, senator whenever this issue comes up and we have discussed it before if you can give me specific names of banks that have had problems we can review that and make sure that whatever our examiners are doing in the field are consistent with the policies in washington. we wanted bounces approach. we want bankers making good loans and community bankers are doing better than the large institutions so the fact that the loan balances have been

maintaining steady throughout this crisis there are some community banks that have a lot of trouble with commercial real estate loans and if that is the case there'll be capital constraints and will need to maintain losses from the travel commercial real estate loans. >> but i am talking about people that have 30% down on a home and can go out -- 30% down. >> they have a 30% down payment and having come for the mortgage they should be approved for the mortgage. >> they are not being. speaketh me an example of. >> i will be more than happy to give you 40 names of 40 bankers. >> we will take a look at all of them. mr. trujillocirillo, mr. demarco, and she let you can also get in this. what kind of losses do you expect the fed and the gses to take on their holdings of mortgage and mortgage-backed securities as a result of mortgage servicing problems?

>> i can say from our point of view senator, the mortgage-backed securities which we purchased as part of the large-scale asset purchase program last year are only those that are guaranteed by fannie and freddie, so we don't have an independent issue there. we have the guarantee. >> ok'd then they will pick it up with freddie and fannie. >> it is something that enterprises are totaling up and is servicers specific issue and it goes to the losses that result from delays in foreclosure processing because this individual service or has a problem. >> 4 trillion? where are we? >> knows there it is nowhere near that amount. there is a law already coming on the mortgage because it is seriously delinquent and in foreclosure has been reserved for. what we are looking for in the foreclosure process and the

incremental cost of delay and possible litigation that results from that so no i don't think. >> how many foreclosures are we stilling gauged and? >> i can get that number for you senator. reported up here on a monthly basis to the committee but i would say --. >> this committee staff have that number? >> we will certainly provide it again. just so you understand. >> center reported. >> we report monthly what is called the manager's report in which we report for each enterprise updated data on mortgage delinquencies as well as a whole range of loss mitigation activities taking place. >> i have got another question and you are were talking me through it. are the fed and the gses going to aggressively pursue pullback

of mortgages to the originators and investment banks to reduce taxpayer loans? >> we are very much in the process of doing that. at fhfa we have been quite public about that so four months the instruction to the enterprises and the mortgage servicers is that we will wear their is representation and we are having enterprises put those loans that in my prepared written statement provided data on how much was done last year and this year and i would say further senator to your question about private-label mortgage-backed security in july the fhfa issued 64 subpoenas to a range of institutions to gather data on mortgages and private-label mortgage-backed securities that the enterprises hold. this is to gather information to be able to assess whether there have been representation warranty violations in the

securities. this is going to be a long process but fhfa has been committed to it as a necessary part of india conservator and having the responsibility to protect the tax payer. >> let me ask landwise you haven't heard from most bankers. they are afraid to put their names forward to figure that the fdic will jump down their throats, because they are in total and complete control of who and how they can lend money, so that is their reluctance you to come forward. >> you have have my personal assurance that would not happen. you have my personal insurance it will not. i can't respond those two generalized issues. >> it is a big deal. i will get the names from the head of the kentucky bankers association. >> that would be fine. >> thank you.

>> senator berkley. >> thank you very much. and thank you for your leadership on this committee over the last few years that i have been on it. it has been extraordinary exploration of the process by which we aggregate capital, dispersed capital and the many many challenges that have arisen in the course of mortgage practices, the retail level and at this securitization level, and these issues are going to continue to reverberate for a long time. we are addressing one little slice of it today but thank you for your leadership on dodd-frank, a huge effort to try to stabilize our financial sector and have it serve our nation well in the decades ahead and it has been a pleasure to be part of your team.

>> thank you senator and you have made a wonderful contribution to the efforts and i want to public we thank you. as a new member of the committee you have been very active and played a very active role in the process and i thank you. >> thank you mr. chair. i wanted to start mr. cirillo by asking you about the put back risk, the numbers you layout in your testimony or that freddie and fannie between them have 13.3 billion outstanding repurchase requests of the four largest banks have reserves of less than $10 billion so the reserves are not expected to grow and get the repurchase requests are going to grow substantially and not just fannie and freddie and not other investors that are in the situation in terms of its systemic risk down the road. i believe that the federal reserve is conducting detailed examination of this risk. when do you anticipate that will be a point you will have a report and a systemic council

also undertaking this issue? >> so senator, we have requested that the comprehensive capital plans from the largest bank holding companies whether or not they are mortgage servicers i should say is an independent exercise but for those that are big servicers obviously put back a significant risk. we have requested those plans by the first part of january, which will be the occasion for us digging into each of them for each of the institutions with respect to specific issues and where there are issues that may call for supervisory guidance or action we would take those. i would not anticipate that we would release fund specific information about that, but obviously we will be happy to continue to communicate on our general evaluation of the level of put back risk with respect to

the institutions as a whole. >> on a scale of one to 10 how big of an issue to you anticipate it is going to be? >> so instead of being evasive let me say i'm going to be evasive and i don't want to give you a number on that because we really are in the middle of the process right now but i will tell you if i had to guess, i would guess that for a few institutions that number would be reasonably high and for many it will actually be reasonably low even if the dollar amount is significant just because these are such big institutions. >> thank you very much. i think it is important we continue to pay attention to it and a congressional oversight fashion. ms. caldwell i wanted to turn to your comments about the dual-track and i am not sure if i have this word for word but i think you said you have done procedural safeguards to minimize dual-track.

that is, to make sure that the foreclosure process doesn't move ahead simultaneously with a loan modification process. did i roughly capture your comment? >> yes, you did and also want to acknowledge the work senator of your staff and providing input into the ham program and some of those borrower protections that were announced in january that did clarification around minimizing the dual-track program. >> so, thank you and we will continue to work with you all but i must say we are much more worried about this than i think perhaps treasury is based on your testimony. we had recently to major banks here, chase and bank of america, which said very clearly it is their policy to pursue both tracks simultaneously, that the only factor that is a caveat to that is that they did not go through with this sale in the

modification process still underway. but that process of the foreclosure process going forward simultaneously in which the homeowners receiving notice factor in notice, i read a letter of bout a homeowner and oregon is enormously confusing and stressful to our families. ..

servicers may not start the foreclosure process until it's been a value-added for hamp or until a certain measure of outreach efforts have been tried and exhausted. >> my time is now. can i pursue this for a second click thank you, mr. chair. the situation is that often revokes the commodification, they're told that the service or you need to be delinquent before you start that. one, two or three months delinquent. agreements to link with her 90 days, that is kind of the official start of a foreclosure process. now the foreclosure process is underway and the modification has been initiated, the banks do not suspend the foreclosure process. and so, essentially -- i guess what i'm saying is technically you're making a correct point, is no proposal process has begun it cannot begin to modification.

but so often, the interaction results in the family the 90 days behind in triggering the foreclosure process and in the foreclosure process is not suspended. that's the reality on the ground that all of us are seen with their constituents. and so, we need a much stronger position in regard to the situation. >> you know, we completely agree with you that the dual track process is confusing for homeowners. but i just want to make sure to clarify that within the hamp program, we issued guidance that effective at june of this year, servicers had to stop the process in place and evaluate that homeowner for hamp. in the last hearing that this committee had, the two large servicers did testify that for those loans in their hamp a company do in fact stop that process, but for those loans that are subject to other investor guidelines, where they

are not permitted to do so, they cannot. so hamp does not have the authority to override existing investor contract, but that is a specific hamp guidance was issued in january 2010, affect it in june and was done in response to the older woman complained to her during 2009 about confusion among homeowners the process. how does conclude with this end, because of those existing agreement, which were describing has little to go fight because beanie and freddie are telling those services to continue with the foreclosure process, not the final sale, but the foreclosure process, the intermediate steps to get there. and so, we have a real problem on the ground that needs to be addressed. >> senator, if i may, to the extent the concerns of the gse love, fannie mae and freddie mac loans, i would like to say that is under our authority.

while it is running in tandem with and is meant to be in alignment with the hamp program, those are not hamp once per say. and i would be glad to speak to the concern you have about dual track with respect to what he said about the enterprises because i think that this is a matter of confusion, not just for home buyers or homeowners, but confusion in a lot of other places as well. i think the responsibility here in the way this is wrong for enterprise loans, which is in harmony with what is done in the hamp program that is in his barber start dismissing payments or reaches out and conducts a mortgage service there, but they have a difficulty with their mortgage. there's a single chart. a menace to work minister from the loss mitigation option that is tailored to the particular circumstances of the parlor could foreclosure does not begin to melt so we should be working

on. but at some point, foreclosure does need to begin. do not typically about four months and as has been reported in the testimonies for several of us and it's been discussed at this hearing, the foreclosure process is extraordinarily long. and so, i think we've got to be a little bit careful about terms here. to have a dual track, if you got a foreclosure process that's going to take a year or more, means that where going to the foreclosure process the remains an opportunity for the homeowner to procure that loan or to qualify for some other kind of last-minute vacation activity. i fully understand the concern about confusion for the part where senate think we all have a responsibility, you know, to be working on greater clarity for the borrowers. at some point, with the foreclosure process starts, i'm looking at having certain aspects of these on behalf of the taxpayer and i do think i've got a responsibility as conservator for the lending

foreclosure process to be moving along if we are not making, you know, in any meaningful milestone with respect to loss mitigation alternatives that are offered in these offers are numerous. so i would just like to sort of leave it at we absolutely want to servicers that fannie mae and freddie mac loans to be doing everything possible to come up with an appropriate foreclosure alternative, starting with one modification. at the start months before the foreclosure processing would start. and if there is meaningful in milestones meant on the phone modification activities, foreclosure will not start. but once the foreclosure process does start, i do think that there's a responsibility to be moving them along. and when a successful trial mind is initiated, consistent with the terms of the hamp program, and we will seize the

foreclosure proceedings. i hope that that helped clarify. this is a very difficult issue and it's one we all share, you know, the concerns for both the homeowner and the taxpayer. >> i'm clearly dissatisfied. we'll continue to conversation. i apologize to my colleagues -- >> it's an important question. senator bunning asked mr. demarco for numbers and to put these on the record between january and is this august -- end of august, there were 278,409 completed foreclosures. and since january today, the ones that are now in process of foreclosure, 761,611. so those are the two numbers and i'll put this whole graph in the record as well. i just noticed in this chart, maybe i too inquired the top five reasons for delinquency and

interestingly the overwhelming number is 50% liquid seas or curtailment of income. >> you know it's confusing. once is curtailing of income. there is an unemployment statistic that not only accounts for about 80%. a memo to difference between curtailment of income and employment is. i don't want to take up the time of senator bennett, but someone off to maybe answer that question. >> curtailment of income could be that there's a dual income households one-person. >> more than likely it's lots of income -- loss of employment. senator bennett. >> thank you, mr. chairman. and thank you for your leadership of this committee for allowing me to participate in for excellent, excellent speech yesterday. i hope we hear about more like that when going forward. i wanted to go back to the

observation mr. tarullo made at the very outset of this with the economic complications of what we're talking about here. i think they are potentially devastating. we have this housing bubble. we have this crash. we had a lot of people try to figure out how to preserve these home values, which we know is like holding back the ocean. but now i'm very concerned that we're moving in exactly the opposite direction, that because of all of the issues that have been raised here we find ourselves in a place where the width and the investor's economic interest for a lot of these blogs to be modified rather than foreclosed, houses foreclosed upon. it's in the homeowners interest to get modifications not to be foreclosed upon. and because it is in the broader economic interest of this entire country, that we don't drive housing prices down because we're foreclosing in neighborhoods unnecessarily.

somehow we still find ourselves incapable of streamlining this process. and i think the dual track is a lot to do with it. i think the observations of servicers made when they were here was that because the cne and friday, they said they can't get out of this dual track. they can't find a way to modify and house the loans the way they want to. and i guess the question i have, sorry for the long windup, is this really an issue about standards, which is what she said is a national standard, or is it a broken system of incentives and we don't understand the incentives in the marketplace here. or is it some kind of combination of those two things? you know, for us, at least from my point of view, this has been like watching a slow-moving train wreck for 22 months.

and for the homeowners in my state, you know, there've been devastating consequences as a result of this. and i'm the first to say you can't hold values up when the market drops. it's impossible. but i'm worried about is we're engaged in a process of value destruction and therefore creating a horrible potential economic consequence to the country. so i don't know if you want to respond to that. >> i'm sure i'll have something to say on that. first of all obviously a crew with your point about the macro economic consequences here. secondly, in response to your specific question, i think it is about standards, but the standards themselves can be about incentives. the first lane, sakhalin issue is a good example of that pure but also the standards will need to be about resources because you heard a number of us mention the inadequacy of resources to deal with foreclosure, with

modifications and perhaps even with the ongoing servicing of non-foreclosed mortgages. so the reason why, the standards is not because roles are going to be the end-all and be-all, but i think it will be indication for a consolidated group, whether it's in the stock or somewhere else, to think about all these things interact and to try to get a more or less uniform set of standards and expectations for how this is to proceed. but i don't want to take up more time. >> well, we don't fix the market going forward unless we deal with economic incentives, the driver of this mess we have come without having serviced on appropriately on these loans. i guess that's number one. number two, geocities to have a big role to play in setting standards in the short-term, but i think as members of the apps.can play a broader role in this process.

on the question of dual track specifically as, one of the reasons we have suggested that all services be required for a single point of contact for the borrower is to acknowledge that in some circumstances it may be a required dual track. there is a huge backlog. there might be a valid reason to start the process. it may be a legally required in some jurisdiction. but there needs to be somebody talking to borrowers, saying we're going to mod you if we can get this to go through, you will not be foreclosed. we're explaining it to you. don't be scared by it. if they get confused because of this process. and i think this to be operational challenging for the services, but i think they should do it because boroughs are viewed as thomas gary. the thing happening now is people in good faith want to keep a number mortgage company to reduce payment. they're getting caught in this confusing trap and the people want to game the system and just

play it out for as long as they can without paying anything or banning setting it completely upside down. and the short-term that would be our solution with a single point of contact. >> just to add to that, i think the two actually go together, the number of institutions that talked about instituting a single point of contact to eliminate confusion and not form. but we do agree and the conversations we are now all too frequently having a servicers, they share the can learn that the dual track is confusing. if you have entered into a modification, if you're performing under a comedy of a new range of the place, you should be getting eggs in your mailbox and things that come the door of your house and finding and adding a paper about the home you live in. so where the servicers have the flexibility to do so, we are directing them to halt the foreclosure process when there is a mortgage modification in place. but the fact is that it is a space that is dominated by contractual obligations because

of the servicing arrangements. and so, in many cases what happens is either through private label arrangement for the gse is, there are protect the rules that apply and i think we need to get some attention to sorting that out and try to produce and uniformity. >> thank you, mr. chairman. >> thank you very much. let me ask you something. i'm sitting here at another by name, as usual and a very forthright badger, expressed his frustration that others of us have tried to express them must direct terms. and i thank my colleague for his directness sometimes, gets to the point very quickly. every person represented on this table is a member of the financial services oversight commission, the one we established in the dodd-frank legislation, one of the major points of this though to try and anticipate systemic problems chaired by the treasury. and i realize that the secretary of the treasury, but nonetheless

you're here. my priest is several times here, but the question of why we haven't been able to come up with some answers, given your regulatory authority we have and maybe contractual issues that limit even regulators capacity to be able to implement some of these very ideas that you seem to agree on what makes some sense. single point of contact, various other distractions that have been made. it's a lot delay now. are you people meeting? it seems to me this is a classic case with -- we didn't anticipate this one, but here we have by all of your admitting, we have a systemically -- potentially it's a systemically risky problem that could put our economy once again in a tailspin. and the issue is, why aren't you meeting on this? why isn't this -- why am i not reading about this commission that we formed specifically for a purpose like this, getting together and doing anything about this? what is going on? >> i would just say -- and in our last meeting read a

discussion of the private section of the foreclosure issue and then there was a presentation by assistant secretary barr and the public session on the state of play. and we have a number of efforts underway. so it is certainly something that has been taken up to the council. but i think with the thought that we need to complete the work is underway, which is due to be completed within the next month in the institutions and brought back to the council at its january meeting. so it is certainly something that has been -- >> sheila bair made some recommendations. with a start about in this meeting? are we hearing them for the first time today? >> well, i don't think that we are hearing ideas for the first time, but i think i would characterize the discussions of being at a more general systemic

level in the first discussion that we hope once we have details of the nature of the problems, i think we'll move on to solution. >> i apologize coming to my colleagues have questions. i just realized by the 10 members are sitting at this table. then again i raise this in the past the hearings. if i could've conjured up -- and it is the best quite quickly when a law was signed two weeks ago that i'd sitting here with a bunch of witnesses talking about a systemic problem. and yet i don't hear much out of this very entity who created a spell to provide the answers jim bunning has raised. adam expect miracles other. just because you will meet doesn't mean you have an answer to a complex problem. but the gore tie at something coming out of this operation other than what presently is the case. but better case could you have to demonstrate the value of having a commission like this? >> thank you, mr. chairman.

like every other member -- [inaudible] >> all be mercifully brief. you're very kind. first chairman, will be thank you as others have for your service. i couldn't help but note that with your changing circumstances, mine and senator bennett, the caucus of those of us who followed our fathers into the center will be somewhat diminished. so we'll have to count on senator pryor. [inaudible] good idea when i was talking about senator ben about his father's long commitment. it's been a pleasure serving with you. and although our time here will come to conclusion, our friendship would not. so thank you. thanks for two of you for your service. any sacrifice in many ways personally and i just want to, particularly during the last couple years now we've been

through, i'm sure you've been putting in humans are thought to team back in your family fermina challenges that face america. i just had two or three quick questions. mr. tarullo, they could start with you. let me just give you some introductory comments. we avoided the worst possible outcome with the downturn. the fed is now engaged in some other extraordinary efforts, which i support you prevent a lapse back into a more sluggish economy. i'm referring to quantitative easing. yet we have other drugs in the economy. we have lack of consumer confidence. there retrenching. businesses are sitting on a couple trying dollars because of lack of clarity about future final demand. we have some problems of sovereign debt problems in europe that may cause more sluggish growth there. china may be worried about increased inflation so they may be recent or interest. there's a variety of things that

serve as a drag upon the economy. where i'm going with this' real estate has been a huge drag on the economy. we've been hoping the clearing process would take days, that we would get sitting under real estate sector and i could not be a drag, perhaps contribute to economic growth going forward. the dragging out of this whole process runs the risk of now. you have from a macroeconomic standpoint, to have what could have risked this presents to the whole economy, that this'll be a slower process than the clearing will take more time and therefore be less certain in the real estate market? >> senator, at this juncture, our internal forecast for housing prices being stable to maybe slightly declining depending on which forecast you talked to over the next year. but obviously is not providing an impetus to growth. and as senator bennett was suggested earlier, he didn't use this term, but i will. there are multiple ways in which

the housing market can clear. some with greater cause in more neighbor hood problems, more lost values, lower valued homes because of deterioration and the like. somewhat fewer costs. they are going to be cuts in any case. ishida said were not going to avoid all foreclosures by a long shot, but i do think that if we are to get housing to be a net addition to gdp growth, we are going to need to deal with the overhead for foreclosed homes, which are undoubtedly having. >> home prices can start rising again. people can be confident. >> right now, senator, if you look objectively based on past experience, conditions, finance and other conditions for home buying, pricing credit are actually quite good. but homebuying is obviously not nearly what people hope it will

be. why is that? it for a couple of reasons. one, people may be uncertain about their economic situations. two, they made in housing prices will decline samora. and so, until we strengthen the economy to help you with number one and clear the market to deal with number two, were not going to get that. >> the more protected the foreclosure problem the more it delays -- >> additional source of uncertainty. >> with regards to put that album, he mentioned for a couple institutions, this may be a material issue. you said there was a variation of the estimates of a factor of three or four, which is a huge swing. for a couple of them, which i assume must be among the bigger ones, this may be a problem for them. if they become significantly affected by this, does that present a systemic risk of some kind? >> so first i want to again under store the tentativeness is certainly everything i'm saying

that examinations are put back analysis. secondly, i would say this is why we are trying to get out of the issue, so that to the degree -- and do it in the context of an overall capital plan. to the degree than in the institution needs be reserving more companies to be doing capital preservation, that we are able to get that kind of evidence in a timely fashion. >> they have to focus on preservation and they're not wanted and that's another drag upon the recovery, isn't it? >> sure. i mean, at this juncture -- at this juncture, i wish that capital required with were the principal drag upon landing. it ought to be seen to be the demand factors seem to be planned a greater role. >> my last question has to do with you think with what many people are asking themselves and they pick up the paper and they see there's an understandable sense of outrage as someone who has not -- has been undeservedly

foreclosed upon. if the underlying mayor can people say how can this possibly happen? at the same time you read the articles it would appear a fair amount of those are just technical paper problems that ultimately will be resolved. and so, my question is coming to any of you have any sense about the percentage of these cases that are of his characters of justice, for lack of a better term, and how many of them are purely technical in nature and postponing the day of reckoning that will surely come? >> well, again, we keep mentioning the fact that we're still in the middle of these exams, but the indications -- >> aced upon which you seem today. >> indications coming and by that there are not -- we're not seeing many cases where the wrong person has been identified. they were current on a mortgage or kind of working under a

modification under which they were performing in that sort of thing. these are kind of long dated foreclosure processes taking place, where the problems are more technical. the fact of the matter is there are laws that require certain things to be done. if there's a violation of law, and that is unacceptable and you have to cure that problem and remedy that situation. so we went up the problems are more kind of technical in that sense, they are legal deficiencies. you have to be fixed. they're not legal foreclosures. >> is required with there for reason. there's a reason for my two questions that alternate over to senator kohl is been very patient. we're paying a macroeconomic price for the delay in resolving this issue. as much as those of us on the side of the outlook for a pain-free resolution, that the politicians usually do. economists remind us that is not possible at the end of the day. so the more efficiently we can resolve this while still -- you

know, even if one person has been foreclosed on, how do you keep that on happening, but he got the most efficient way possible so we can allow the process to take days to do with the overall drag to the economy that causes every american to suffer. i guess that's the underlying purpose of may 2 questions. and a final comment in german, thank you again. i really encourage you to look at the misalignment. if are going to avoid a repetition, there's a wonderful scene and law school for many years ago. if a problem susceptible of repetition and yet evading review. we don't want that here. it is susceptible if we don't appropriately align incentives. that's the best way to getting into this arrest again, so it encourager focus on that. again, thank you for your service or thank you for your patience. and chairman, it's been a

pleasure. >> thank you very much. you've been a great asset over the last few years. we are grateful to you for that. let me say by the way of my last monologue about the financial services oversight commission, this is a question for the secretary of the treasury as the chairman of this commission. and so, while i sort of raise the issue to all of you at the table, the question goes back to the secretary. i'd appreciate if you'd carry back to them. i'd like to know what's going on right here. i don't expect turcotte answers because you can be meetings, but seems to me the idea of giving collective wisdom of people around this table is in front of us as well as others could really help. so please convey that message. >> thank you very much, mr. chairman. but everybody else on this committee of a too well for my praise to you. it's been a pleasure and honor to serve it to you. and in my judgment, you are one of the very best senators that the united states above her

head. so thank you for everything you've done. chairman bair, that to talk to you. in addition to the earth home foreclosure crisis, i'm also concerned about whether crises in commercial real estate lending. according to the fdic, farmers are falling behind on their loans at a 17 year high, oftentimes collateral for farm operating modes is the farthest south. and so if a farmer defaults on an operating mode, not only are they a risk of losing their livelihood, but also their home. because of the economy and because some farm loans are indeed in trouble, several banks are telling us that regulators are seeing farm loans a suspect and discouraging community banks from carrying farm loans. this attitude is hurting rural america without making a big consist of any safer. what is the fdic doing to work

with banks to make sure farmers have adequate access to credit? would fdic consider issuing guidance for farm loans similar to the commercial real estate guidance that was issued last year quite >> well, senator, thank you for the question. i think the senator is quite strong, but particularly the geary industry has been having some trouble and we appreciate that. we do have a guidance encouraging prudent lending and loan restructuring activities applied to small business generally in commercial loans generally, i'd be very open to doing something pacific to add cleansing. i think that the point well taken and there are parts of it that are troubled and i think provide some clarification about our expectations is something we be reopened to. >> so i heard you say that -- >> yes, absolutely. >> that's great to hear.

thank you. >> ms. bair, because of the decrease in real estate prices come in many commercial boroughs will appeal to refinance or possibly causing mass foreclosures and ernie banks nationwide. community banks are not covert real estate portfolios of politically bit hard hardest. community bankers are not certain how regulators will treat commercial loans that they have on their books in this day makes it very hard for them to lend to small businesses. last year fdic and other regulators came up with guidelines for when a bank can modify a commercial real estate loan. these guidelines of the lenders would not be penalized by examiners for pursuing prudent workout efforts with their borrowers. i've heard from bankers that the regulatory examiners are not always following these guidelines. what can be done to bridge the gulf between what is written here in washington and what is actually happening at the local

level? is the fdic serious about giving banks of borrowers a chance to work out these loans without freezing the bank's ability to make other loans? >> yes, we do have very specific ideas that we issued with the other regulators, encouraging purdah for workouts. of residential loans as well. i think, you know, if the collateral has gone down, that does not immediately mean that it needs to be criticized. if the current and they keep making payments kummer told her examiners they shouldn't criticize the load. obviously that is to be disclosed. if there is some loss, taken on restructuring the need to be recognized, even if we wanted to not have it be the case, it would need to be the case under accounting rules. we try to exercise a lot of flexibility and provide guidance in this area. it's certainly difficult right now. parts of the country, commercial

real estate, still has some trouble. the good news is balance sheet for getting cleaned up reconstruction and development development modes in particular have been coming down. and the credit quality, delinquencies in charge are improving. some were emerging from this cover some dates in particular that have concentrations, they need to maintain heavily against expected losses and that can constrain the ballot capacity to lend. and that's driven by the fact they have troubled loans, not by the fact there's a supervisory process. we have tried to be very flexible and prudent and continue to convey excellence. as i indicated earlier, community banks fund balances have remained constant for a billion and a half loan balances have kept increasing during this crisis so community banks have been lending. they're the strongest group in

terms of size about the money to this crisis and that should be acknowledged and appreciated for what they been doing. so again, all make the same offer i gave to senator bunning if there's specific institutions , we be happy to take a look at those. we welcome mat. we are equipped to do just that. it's not a bad thing. we encourage that. want to make sure policies are properly applied. i want to raise expectations. there's a lot of troubled commercial real estate loans and it's going to take a lot. >> thank you very much. thank you, mr. chairman. >> thank you senator very, very much. i'll even make the record open for additional questions, but we do have a second panel and want to give them a chance to be heard. just quickly, dance tarullo, governor tarullo raised the issue to try and move that along, but i like the idea. i want to give a quick acknowledgment or recognition at first blush.

i expect too much for details. to the rest of you, is that an idea that the treasury down to subway. he liked that idea? is that somebody might agree with? i'm just curious. recommendations to governor tarullo. >> it is something we support him retried as you know, when hamp was set up to set standards. >> sheila any thoughts about that? >> very much so. would like to be apprised with the processes going on right now. >> certainly given all that we've seen, we need to give serious thought to the model here is whether we can improve -- there's discussion of incentives. are there perverse incentives that are operating? can they be better learned? it certainly is a good time to give that a look. >> mr. chairman, this committee takes up to finance reform next

month, i hope that part of that is absolutely standard to not go on servicing standards and suggests there are range of things and the mortgage industry for which issuing where and how standards are established, overseen and therefore should be part of that discussion. >> tim johnson will be chairing the committee come january as really to go to the conference call. all make a request of all of you here to submit more than just the kind of suggested idea the testimony. and obviously, we'd like to get may be some very specific ideas. maybe this is something the federal service -- financial service oversight commission might submit to us, some legislative ideas in language that could be a part of this committee's consideration over the next month or so being very, very helpful. i'll make the request of all of you. again for the treasury, suggest that maybe the oversight commission might not be a bad

place to put these ideas to make a single presentation of a number of ideas that allows us to make it more efficient in a single point of content. sheila, you race number ideas that are terrific as well. i think all of you. let me echo senator buys, as well. very grateful to all of you. i've worked with the board of governors in occ and i want to commend again, someone has done a wonderful job. people don't realize the conservatorship you're taking on and really without you there and without the housing financing system, we'd be in a lot deeper problem. i think most people are knowledge of the issues recognize that. i would take this opportunity to thank you for the work you and your staff are doing. i was a committee will look forward to working with you and bring up the whole issue of housing finance reforms. so i'd thank you all very, very much. >> thank you, mr. chairman and congratulations. >> kerry edwards is the

executive vice president of the credit portfolio management for fannie mae in his capacity as directly responsible for fannie mae's foreclosure prevention, loss mitigation activities, single-family home. his duties also include executing making him affordable program for fannie mae. everything can. donald bisenius -- today correct that correctly? e. is the vice president of single-family credit karen t., business as freddie mac. in his position, he oversees the sourcing pricing, securitization of new businesses follow strategic as this process and technology redesign for single-family credit guarantees. then with freddie mac since 1992 as a member of freddie mac's management committee. tom deutsch is the director for the american interrogation program. asf is a program that works to develop a consensus, a frame,

thought, regulatory accounting and legislative activities with the securitization industry. represents the servicers and investors as an interesting juggling a. i point out rather interesting to hear his comments. and lastly, professor carjacker, his expertise is in mortgage in predatory lending and consumer protection and securitization. before becoming law professor, mr. eggert chair the subcommittee on consumer credit. so again, i really am grateful to all of you for sitting through the last couple of hours. i hope it was somewhat helpful and i'll say to you what a sight glass panel. were prepared statements will be part of the record. a virtue, if you could, to at least try and paraphrase your testimony for us here today and then we'll get to some questions for you. but i'm very grateful to all of

you for your willingness to participate in the second hearing on this very important and complicated subject matter that they think we are all acknowledging here. we all like things to be efficient, move quickly, give a solution for people, clarity for people. we can work something out for you or we can't, so we deal with all the issues that senator berkley and senator adam and i have raised as a result of this ongoing and growing seems temporarily. so we'll begin in the order i've introduced you. mr. edwards, thank you for being with us. [inaudible] >> thank you for the opportunity to testify today. and kerry edwards in an executive president for credit for a triple volume management. this includes foreclosure prevention inserts an oversight, which we spent a lot of time on today. fannie mae is focused on resolving the mortgage crisis facing our country. every day, our people come to work with clear objectives, to keep mortgage funds flowing, do everything possible to help

families avoid foreclosure, lobbying responsible stewards of taxpayer money. the good news is these goals are aligned, keeping people in their homes saves taxpayers money as does working with people to exit the home without the peanut foreclosure via short sale or do or foreclosure. since the third 2009, we have helped more than 600,000 struggling fannie mae families avoid foreclosure. this number includes 162,079 months and 250,000 proprietary fannie mae month. but the current foreclosure crisis has been difficult and unprecedented and we are far from done. u.s. housing finance system is not setup to handle this tidal wave of mortgage defaults. in most servicers, with the front-line responsibility to work with borrowers who need help have acknowledged they are struggling to keep up. so fannie mae has been taking aggressive actions to ensure borrowers get the help they need. although servicers are the

primary contact with borrowers, we have worked to expand our borrower outreach and education efforts for the homeowners who are in trouble know how to seek help, understand their options, work with her servicers and avoid skimmers. these efforts include launching a know your options.com website in mortgage health centers and partnerships with housing counselors in hard-hit communities across the community. we develop a security workout options were servicers to help struggling families keep their homes. all of these are good options now does tale with ham, being a service or have collected documentation required for hamp and the buyer was not eligible for hamp, more than likely they are eligible for a fannie mae bod. upon retention is not possible, we offer incentives to help as short sales and reduce the burden on borrowers and taxpayers. her servicers do not get any incentives for foreclosures. we are working every day were

servicers to help them improve performance and to enforce -- and we enforce our contract with them when they fall short. our teams meet with senior service and leadership under infrequently says to discuss the strengths and weaknesses of their operations, best practices were aware of, but we think and hope, challenges they are facing, plus get his ideas, plus we asked them for ideas for fannie mae can make jobs easier so they can serve homeowners. if submitted written testimony for the record to provide a fuller description of foreclosure prevention efforts today, but i would like to touch on two recent issues here. the first involves service or completion of foreclosure affidavits. fannie mae's guidelines require the servicers comply with all applicable laws and regulations in the foreclosure process. in the wake of reports of some servicers did not follow procedures, we've instructed our services to review policies and procedures regarding affidavits, verifications and other legal documents in connection with the

foreclosure process. we're also according to the regulator, fhfa. as services that in recent hearings, they are working hard to fix the issue. the second issue has been called dual tracking florida power receives a foreclosure notice during the low modification process. to clarify, during the critical early stages of the stages of delinquency, fannie mae has a one track process. a servicers have three months and sometimes longer to process the loan modification before starting the foreclosure process. in addition, our research shows that borrowers are more like you to succeed that they modification process begins early. so we expect our servicers to put forth the maximum level of effort to communicate with the borrower during the first 90 days of delinquency. this means staffing up in implementing the single point of contact to have her servicers talk about. we are encouraged because phentermine for sorcerers, they say that they are on board and

committed to adding staff to put the single point of contact in place. in closing, the housing crisis cannot be solved overnight that we are all frustrated with the time it is taken to get a smooth operating process in place for families facing very difficult circumstances. fannie mae is committed to doing everything we can to support the market ensure services to the job in struggling borrowers. i look forward to discussing work with the committee. thank you. >> thank you. mr.. [inaudible] >> i am don bisenius, how do freddie mac's service. the overseas securitization and performance of single-family mortgages repurchase. today's hearing raises important issues about the integrity as the mortgage origination, securitization and servicing practices. as detailed in my written testimony, and like to highlight following points.

first, let me start by saying freddie mac expects servicers of our loans to treat borrowers fairly, with respect and in full compliance with all applicable laws, regulations and freddie mac policy. no homeowner with a mortgage on her guaranteed by freddie mac should ever worry about losing his or her home to an unnecessary or wrongful foreclosure. freddie mac currently owns a guarantee of approximately 12.4 million single-family mortgages. about the opposition an ongoing services of the phones, freddie mac relies on sellers in servicers. we don't directly originate loans and we don't directly service loans. rather, freddie mac provides guidelines for the origination and servicing of our loans and contracts with sellers and services to carry out these operations. companies conducting these activities represent and warrant to us that they are following our contractual requirements. freddie mac has ongoing monitoring programs in place to test compliance with these

requirements. failure to fulfill obligations creates a liability for the originator or the service or, including the possibility that they will be required to repurchase the loan. second, freddie mac has long had policies and initiatives in place to help financially troubled borrowers avoid foreclosures. in response to the unprecedented mortgage of a crisis, we have created additional service or incentives and home retention option. in addition to the $5 billion that freddie mac paid servicers each year for managing servicing processes, we offer additional financial incentives were servicers to help borrowers keep their homes. third, while freddie mac currently owns almost 25% of all single-family mortgages have ended in this country, we own fewer than 500,000 serious delanco mortgages compared to the approximate height millions seriously delinquent mortgages nationwide. our ability to assist troubled borrowers is limited to this 10% share of the delinquent borrower

population. having said that, i want to be very clear. we redoubled our efforts to keep borrowers in their homes. since beginning of 2009, we have helped nearly 270,000 families avoid foreclosure. through the first nine months of 2010 alone, nearly 211,000 delanco borrowers with freddie mac mortgages avoid a foreclosure. that's really twice the 114,000 were foreclosed upon. finally, the length of time for the average foreclosure of a freddie mac loans indicates that borrowers are not being rushed to the foreclosure process. we require our servicers to seek to resolve borrower delinquencies are a variety of foreclosure alternatives, including forbearance, repayment plans, loan modification and short sales. at the borrowers a language he cannot be cured by these methods, servicers must therefore be foreclosure to minimize further financial loss and risk to the taxpayer.

currently, the nationwide average for completion of foreclosures on the delinquent mortgage on her guaranteed by freddie mac is 449 days. i'm borrowers whose properties are foreclosed upon her behind in their mortgage payments well over a year. our guide does give servicers the authority to stop or suspend a foreclosure action whenever there's an opportunity for a viable work out. we are aware that the existing processes are confusing to some borrowers. we are working with industry to find ways to improve communications and minimize any fireworks fusion. as my testimony make spare, freddie mac has been in place policies, procedures, financial incentives, to help borrowers avoid foreclosures. we continue to work with our servitor and servicers to enhance this effort improve their execution. i'll be happy to answer any questions. >> thank you very much, mr.. chairman dodd, ranking member shall be, my name is tom

deutsch. i appreciate the opportunity to participate with you today on behalf of the 330 asf member institutions including those who have the collateral restrictions of transactions, service trustees, trade the bonds, service loans and invest the capital on the preponderance of mortgage in asset-backed securities in the united states. in my prepared statement, i will highlight some of the key aspects of securitization of cells is critical importance of the u.s. and global economy. importantly for this hearing, there nearly 55 million firstly mortgages in america today to total approximately $9.75 trillion of outstanding mortgage debt. approximately three quarters of baghdad were about $7 trillion besides the mortgage securitization trust and are beneficially owned by institutional investors in the united states and around the world, such as pension funds, mutual funds and insurance companies. in my remarks today, i seek to

address the concerns raised by a few commentators have securitization trust me not actually owned the $7 trillion of mortgages that are contained within the stress. for example, a recent congressional oversight panel report has even suggested that these issues could create systemic risk to the banking sector loans were assigned to securitization trust. but the concerns that have been raised have not been supported by substantiation that there are in fact signs of systemic sales in the process of assignment. indeed, the origins of these concerns is not clear. they are not the result of a series of new court cases supporting legal arguments advanced, but instead appear to be largely the result of academic theories. in fact, even congressional oversight panel report suggests that quote, the panel takes no position on whether any of these arguments are valid or likely to succeed, end quote. so while the consequences that flow directly and solely from a single mistake or premise, that

is that the trust and ultimately investors don't generally on the seven trillions of dollars of loans in the trust. as discussed in great detail in my prepared remarks, this whole premise is incorrect and therefore the dire consequences of the faulty premise will not follow. just two weeks ago, the asf issued a white paper on the subject that is part of her written testimony, that puts to rest many of the questions that have been previously raised about the ownership of the mortgage loans. and that white paper, deicide exhaustively studied legal principles and processes, including the uniform commercial code and substantial case history throughout every one of the 50 united states and the district of columbia and from traditional legal principles and processes are fully consistent with today's complex holding, assignment and transfer but that's for mortgage loans. in fact, 13 major u.s. law firms listed in exhibita today is that the white paper reviewed it and believe the executive summary contained therein represents a

fair summary of the legal principles presented. although the asf white papers shared many of the concerns that had previously been presented, some new concerns have been raised since the white paper was published. for example, one commentator has proposed that a security service have not met the contractual requirements for a complete or unbroken chain of endorsement and are written testimony -- we were about this academic theory in great detail with analysis of the key contractual provision, intent of the contracting parties, industry custom, independent third-party trustee acceptance, as well as the relevant case law and ucc applicable in the. in particular, this argument overlooks the key fact that each separate step in the chain of transfers of ownership by each party from the originator to the securitization trust is fully documented by a separate contract. the proposition itself though, securitization legal professionals have uniformly adopted and opted out of the use

of applicable laws such as the ucc to set up an even higher bar for transfers, but then subsequently and systematically ignore that higher bar, appear in the face to the illogical assertion. in fact the legal analysis in her testimony demonstrates are patently false. from time to time though, mistakes and processors that do occur, particularly in a market where 55 million mortgages are transferred and our service to the worst housing market since the great depression. and that is one reason why a particular typical language of the governing contracts provides the opportunity to cure these mistakes to prove ownership. the uss greatly anticipated the opportunity to share her views. i look forward to answering any questions committee members may have. >> thank you very much. >> thank you, chairman dodd. i appreciate the opportunity to testify today. as a professor i feel a little

overwhelmed by the luminaries around me, but i'll try to do my best to shed some light on what i think is a serious problem. in the first panel, except waiting to hear one of the regulators say, here's what we have done to sanction servicer misbehavior. we saw it and went out did and we did this. and i didn't hear that. if i didn't hear that, police said here that say, well, here are the kinds of sanctions that we can do is servicers misbehave. i didn't hear that either. what i heard was we're investigating, we are on it, we hope to know more in a month or so and then we're going to do something. my concern is, this is not a new problem. i wrote an article on servicer views in 2004. and if i wanted to outdated at

this point, what i would need to do is change the name of the servicers and add a zero to most of the statistics. and otherwise, everything i talked about in 2004 still happening. we have had this problem for a long time. it's not just the result of the foreclosure crisis. it's not just the result of the added number of defaults. it's a systemic problem in the way the servicers are organized and regulated. and we have to fix it. we didn't fix it in 2002. we didn't fix it in 2003. we haven't fixed it yet. and it's time to do it. i say it's a systemic problem. i know that in the last version of this panel, there was questions about whether these were just anecdotal evidence of this years or whether there was proof that it was a larger

problem. i would like to note that economists have been looking at this, have been looking to see, due servicers foreclose more if their third-party servicers, rather than if they are servicing staff that they owned. in other words, our borrowers more likely to get foreclosed if servicers are servicing on behalf of investors were themselves? and what the economists have concluded -- there's some disagreement on it, but it seems like the trend of the investigation is that there is a foreclosure buyers by third-party services, that they are more likely to foreclosed for investors than they are for themselves. that's an important fact. christopher maier, an important economists of the empirical evidence is compelling on this point. the next thing i'd like to note is that they're getting worse. the servicing regulation industry has long been kind of unregulated. i think the federal regulators

at a certain point are trying to say, who's got the ball on this one? how much of this is mine? how much can i regulate? and they haven't come up with a good answer for that. hamp i think is a very well-intentioned program. but as we've heard, it's a voluntary program and it's a program that's based on all carrots and no state. in fact, baby carrots at that. so it addresses only a small part of loans that are being serviced. and i haven't heard of a single servicer who has been sanctioned by the hand program for misbehaving. maybe that is happening, but it hasn't been proudly broadcast. so hamp is not doing it in the regulators are doing it, but he had to say