in her book in america. >> drain the swamp as three words is incredibly provocative. you know what he's talking about. taking the horrible that live there and replacing it with better people. whether voters believed him or not or believed he could fill fill that or not, they were prepared to take a chance on it. next, a hearing held by the house veterans affairs subcommittee that examines a type of home loan refinance processing known as turning that targets veterans and service members.

>> subcommittee will come to order. good mompg and welcorning and w today's subcommittee. our oversight entitled home loan turning practices and how taxpayers could be affected. this is the second hearing. as many london with the department of veterans affairs discusses in his testimony, the v.a. is guaranteed over 2 million loans in excess of $2 trillion since the 1940s. that represents millions of veterans, service members and their families who may not have otherwise been able to achieve the american dream. while this program is one of the more well run programs at the

v.a. and i have some thoughts about why it is, mainly because they guarantee it but the lenders are involved and they underwrite it and more people involved in administering it in the private sector. they had concerns about certain activities being conducted by some lenders. potentially unscrupulous lenders which have the potential for harmful outcomes for veteran home buyers. we have seen reports of what may be deceptive practices that seem to be, in some cases, misleading veterans to refinance their homes with the idea they will have lower interest rates or be able to skip a mortgage payment or take cash out of their homes that will quote unquote save them money down the road.

we've heard stories of individual veterans receiving dozens, dozens of solicitations from certain lenders in the immediate week after closing on their homes leading some of them to believe they will pay less cash each month if they just refinance their homes with these lenders. due to the realities of hidden fees, adjustable interest rates and other products like that t veteran can end up paying much more than they ultimately can afford or even remove all their equity in the home such that they end up upside down on their mortgages. these practices are troubling. they don't seem to have the best interest of the veteran in mind. they can have a negative impact on financial institutions and the investors that support them. most disconcerting to me, they are depreciating the value of

the v.a. guaranteed loans and the integrity of the program and they are exposing taxpayers to greater risk. i understand many households experience instances where refinancing through a refinancing loan or an earl is necessary. we must ensure there are appropriate standards in place to prevent unfair and deceptive practices. number one, and number two these products are being offered consistent with safe and sound practices to protect the integrity of the home loan program. i look forward to discussing these solutions with our witnesses to ensure we're protecting the veteran consumers, the integrity of the program, the taxpayer who has agreed to make this investment and be a guarantor for this program. i thank the witnesses for being here this morning and i look forward to your testimony.

now i want to yields time to my friend the ranking member. >> thank you for helping to organize this meeting. looking forward to hearing from those who are here today to testify and answer our questions. you have done such an excellent job of describing the benefit of program that we seek to enhance some of the challenges that face that program right now and specifically the veterans for whom it's set up and administer and intended to benefit. as we have often done in this sub committee that distinguishes it from some of the other work in congress, i would love to see us, perhaps by tend of this meeting, suggest some common sense solutions that the v.a. can adopt administratively or that we will work on as literally and act of congress if necessary.

i think that's something we've been able to do. i want to hear what the expert vs to say and perhaps bewe can hopefully get on the same page that's not murder sm but protects veterans from frauds or duplicity or decisions they hay not be making in an informed way. looking forward to the conversation and grateful that you brought us all together on this important issue. with that i'll yield back. >> thank you ranking member. i share your sentiments and the desired outcome to find out where the problem lies and what tools the folks here, the stake holders need to solve the

problem. with that let's make introductions of those who are here to testify with us. we have mr. jeffrey london. he is accompanied by mr. john bell. finally mr. brock cooper. thanks everybody for being here. certainly look forward to hearing from you. let's start with mr. london. you have five minutes for your opening statement. >> good morning, chairman.

thank you for the opportunity to appear before you today to discuss the department of veterans affairs home loan guarantee program and the issue of serial refinancing and the impact it can have on veteran borrowers. making sure they provide veterans with a benefit and not future financial harm is a very important matter. no one has helped when a refinance loan ends in a foreclosure. it's also very important to ensure that v.a. loans facility healthy mortgaged back securities and continue investment in our nation's housing market. today i'm pleased to share our assessment of the situation, the activities to assist veterans that we have undertaken in collaboration with our colleagues thus far and the sensible, impactful approach we have crafted to ensure program success. i live to give a sense of the scope and nature of our program. the vast majority of refinance loans are providing veterans with benefits.

for example, one disabled veteran living on social security income and va disability was able to reduce the interest rate and change terms to save over $500 a month. another veteran who is a police officer with two children was able to reduce the interest rate and save over $400 a month. data from the last two fis value years show positive trends. the number of lernnders engagin also decline from approximately a dozen and fy '16 down to only handful in 2017. yes, there have been instans of users not using streamline program for its purpose.

one veteran being mislead or taken advantage of is one too many. we're prepared to act and make an impactful change. our program success is built on a long standing history of employing policy sactions that are appropriate for the situation. a regulation has been drafted with due care. it was to ensure our veteran borrowers receive a net tangible benefit. we examine long term costs borrower could face in obtaining them.

the va tell me focused a great amount of time and frequency of refinanced loans. we collaborated with the cfpb on a warning order which provided veterans with important consumer financial information to consider when deciding whether to refinance an existing mortgage. we have held a number of meetings with the bankers association to discuss program policy and data as they relate to the underwriting, origination and performance of v alones. as it mixes way to publication for comment. we have turned our eye to examining the impacts that recent market conditions may have on other session emegments business and more particularly the refinance program. we anticipate that in response to market conditions, lenders will shift their business models to more purchase loans or cash

out refinance loans. as a result, we will be keeping a close eye on trends in these programs to ensure they are being stringently underwritten to our established standards and the loans provide the intended benefit to our veteran borrowers. members, despite the concern that others may have expressed about the heading we had followed and the speed at which we had traveled and i am confident that the road we have engineer side a sensible one and that it will have a net positive impact for our veterans and for lenders and for the broader origination and secondary markets. thank you again for the opportunity to speak to you today and as always, i thank you for your unwavering commitment to serving our nation's veterans and service members. i look forward to entertain anything questions you may have. >> thank you, mr. london. now from jenny may, mr. michael bright. we yield five minutes for your introductory statement.

>> chairman hampton, ranking member rourke and members of the subcommittee. good morning and thank you for inviting me today. my name is michael bright and i'm the executive vice president and chief operating officer of the government mortgage association or jennie mae and i thank you for allowing me to testify on this issue. jennie mae is chartered by congress in 1968 responsible for providing liquidity to the market for mortgages in the veteran affairs and federal housing administration and the usda rural housing programs. we apply a full faith in credit government guarantee for loans that qualify for delivery into our security. qualifying loans are those guaranteed by the usda, va and fha under the respective program guides. they're pulled into the mortgage-backed securities or mbs. the jennie mae guarantee and the jennie mae brand is globally recognized and trusted. the strong value of our brand leads to investment in the u.s. housing market from large asset

managers, pension funds and central banks across the globe all of which makes lending to low income, first-time, rural and veteran borrowers possible. it would be very difficult for me to overstate the consequences for the u.s. housing market if jennie mae and our partnering federal agency, the usda, va and fha did not successfully police our programs. global capital is drawn to the market in part because of the strength of the united states and its credit worthiness, but if our program is abused or taken advantage of, this capital can and will find other investment vehicles. that would drive up interest rates and make mortgage credit less available for millions of americans. as such, it is imperative that we all work together, those of us here on this panel as well as congress to solve the issue we are here to discuss today. we believe we are seeing abusive practicis by some lenders in the va program, namely the rapid financing of borrowers multiple times without significant economic benefit. we believe and our data shows

that the practice is a result of a small percentage of lenders, but importantly, it has become endemic enough in the market that it threatens the health of our security and so action to curb this behavior is imperative. abusive lending practices in the va market are alarming on so many levels. first, as i mentioned before, if this behavior persists, we run the risk of losing the capital needed to fund critically important home ownership programs. second, to watch behavior that is borderline predatory in nature, return to the country is terrifying. much of this behavior is too reminiscent of the lending practicing prior to the 2008 financial crisis and finally, the fact that the buy hivior eh targeting veterans, it will not be tolerated. for gma's part we have announced we are putting in place the following new requirements. one, no loan can be refinanced and delivered into a security within six months of the first

payment due date of the original loan. two, no loan that is more than 150 basis points or 1.5 basis points that we define as par will be in a security and three, lenders who are clearly and demonstrably abusing the program will be put on notice. some pools will no longer enjoy the benefits of delivery into ouring thatship security and instead will be forced into what we call custom pools. this is a powerful tool that jennie mae can and will use. let me repeat, issuers who produce pools of loans that perform materially different than our average will need to find their own investors. this action will help prevent the bad actions of some issuers from filtering into poor security pricing for those who use our program in a responsible manner. i believe 2018 will be a critical year for this issue. if we cannot get a handle on this behavior, abuse of lending will continue to affect the market and our program. that can drive away important

sources of capital and may create an environment where veterans are viewed as suitable prey for aggressive lending. i would like to take a moment and also say to veterans that you have the right to make unwanted calls and slis takes stop. refinancing your loan multiple times leakly has consequences that you may not be aware of, and if you see terms on a loan that appear too good to be true, they probably are. veterans should feel free to contact me or any other official at jennie mae at any time if they feel they are being harmed. in conclusion, let me thank you all once again for bringing attention to this issue. at jennie mae we are here to work with all of you and do all that is needed to root out abusive behavior from the important loan program. thank you, and i am happy to answer any questions that you have. >> thank you, mr. bright. mr. motley, you now have five minutes. >> thank you. chairman harington, ranking member o rourke and members of the subcommittee.

i appreciate the opportunity to testify this morning on behalf of the mortgage bankers association. my name is dave motley and i am president of colonial savings, a privately held, thrift in fort worth, texas. for over 65 years we've been originating loans for veterans. in fact, our founder, a veteran himself saw the opportunity to serve veterans returning from world war i. today, much of 10% of the origination volume is to veterans and we service 6,000 loans to va borrowers. i am also chairman this year of the mba. i'm a certified mortgage banker and i previously served as a board member of the texas mba and a member of the community bank advisory council for the consumer financial protection bureau. i'd like to begin by applauding the subcommittee for its efforts to better understand problematic practicis with respect to several mortgage refinances and veterans of the u.s. military. the va's mortgage loan program plays an important role in increasing the availability for

mortgage credit for service members and veterans and surviving spouses. by guaranteeing a portion, it offers loans with more favorable terms such as no required down payment. those borrowers may apply and be evaluated by the lenders' full underwriting process. the va interest rate reduction refinance line, allows for a streamlined process that is often faster and entails lower costs. refinancing allows the borrower to lower the interest rate on the mortgage and in doing so, the borrower incurs fees from the lender which are either paid by the borougher in origination or rolled into the principal balance of the new loan. recently, a small number of lenders have undertaken aggressive and potentially misleading advertising campaigns to generate increased volumes and fees. in some cases this advertising targets va borrowers who recently engaged, convincing them to refinance yet again to lower their interest rate by a

modest amount while adding more fees to the principal balance on the loan. such serial refinancing or churning strips borrowers' equity and further, tends the time period it takes for the cost to be recouped through lower pages. some lenders use it to lore the rate, and only by moving the veteran from a 30-year fixed rate to a three-year adjustable rate mortgage. many borrowers may not comprehend the economic impact of the decision to refinance, leefri lee leaving them vulnerable while they add to the overall balance while achieving small reductions in their monthly payments. this is not what the program was intended to do and these practices should be put to an end. aggressive use of earls by some lenders threat tones weaken investor demand for jennie mae securities that are partially backed by v alones. this outcome increases costs and negatively impacts access to credit for a wide range of borrowers.

it's worth noting that earl churning is not a wide-spread problem among the mortgage lending community and rather an activity confined to a small subset of lends are. mba improves the policing of the market as well as new rules to remove the ability or incentive for any lenders to engage in churning. we applaud jennie mae for taking important steps to both study and address this issue. however, the problem of loan churning cannot be solved by jennie mae alone. fortunately, many practical options fall within the existing authority of va to implement. for example, instituting a maximum recoupment period would inhibit lenders from charging substantial fees in exchange for minor reductions in mortgage interest rates. similarly, requiring a net tangible benefit test which is already required for fha streamlined finances can more effectively ensure that the terms of the refinance produce real benefits for borrowers. limits on the amounts that can

be added to the principal balance would reduce equity stripping and targeted consumer financial education about churning can better inform borrowers about the potential for abuse. it's important to focus on options that target churning while not impeding the ability of service members and veterans to obtain a beneficial refinancing. we recognize that the va program is a unique program and an entitlement program for veterans who have served our country. as such, while we support quick action to limit abuses, it needs to be done thoughtfully to ensure that low cost refinancing options for veterans are retained. mba is committed to the best practices and standards that jen eight a healthy and responsible mortgage market and we stand ready to implementing solutions to the problems we have discussed today. thank you again for the opportunity to testify, and i welcome your questions. >> thank you, mr. motley. i yield five minutes now to mr. cooper to his opening remarks.

>> good morning. chairman arrington, ranking member o rourke and other members of the committee. my name is brock cooper and i'm general counsel of veterans united home loans and i would like to thank the rest of the members of the panel here for being here today to address this issue. thank you for allowing me the opportunity to come here before you today to discuss lending practices that impact our nation's service members and veterans. i've worked for veterans united for ten years and have headed the legal department for that entire time. i'm a veteran myself and have used the v alone several times including an earl. i have a va loan and i've seen the refinance practices employed by some in the industry. veterans united is a full-service lender and we make loans in all 50 states and the district of columbia. our primary mission is helping

veterans, service members and their families achieve the american dream of home ownership. we've been the nation's number one va purchase lender in the past two years closing more than 37,000 purchase loans in 2017. veterans united now represents approximately one out of every seven va purchase loans made in the country. if i can impress one thing upon you today is that the va loan is not like other mortgages. it differs from fha loans and all other programs because it's an earned service benefit to our veterans and active duty personnel and surviving spouses. it's part of a deep bond between those who serve and the nation these veterans pledge to defend. as we work to find solutions to the issues discussed here today, i implore the committee to examine whether or not particular solutions may result in fewer earned benefits for veterans.

the va loan program stands out as a true success story. before the mortgage crisis the va loan was a little-used puck, but due to unique underwriting, va loans were the only shining light through the mortgage crisis performing better than any other program. today vshg a loans represent 10% of the mortgage market. the program features the lowest interest rates for more than three years among with the lowest foreclosure rates for about ten years. in particular, the earl program has helped hundreds of thousands of veterans save money in the monthly mortgage payments. unfortunately, as members of the panel have stated before, some earls fail to live up to the spirit and intent of this program. the idea behind the earl is to put veterans in a better financial position today than they were yesterday. we are here today to discuss improvements to this program that will ensure that spirit is carried out in every erl. from first-hand experience i can

tell you that as soon as a loan is made, serial companies are aggressively contacting veterans and their families with misleading offers. many of the companies don't care if it will take the veteran a decade or more to recoup loan costs or fees that swell their loan balances. we have seen many, many veterans harmed by this activity and in many situations the veteran is left so far under water they may have difficulty selling their home in the future. still others are left with adjustable-rate loans that they don't understand and could result in higher payments down the road and others have costs that could never be recouped. we commend the va and jennie mae for their active engagement on this issue and we salute their commitment to protecting veterans. we are here to talk about next steps. going forward, the va is in the best position to solve this issue without compromising va benefits. they are moving forward to solutions due to administrative

requirements that are part of the va program. unlike va, other agencies such as jennie mae, freddie mac and fha can make changes quickly. we support legislation that would empower to make changes in a similarly expeditious manner, with seasoning and recoupment periods for earls. >> additionally, policymakers should ensure that noncost-saving reasons should consider through the process of our deserving veterans. thank you again, mr. chairman and ranking member and the committee for allowing you to come before you today and i look forward to questions. >> thank you, mr. cooper. i now recognize and yield myself five minutes. i may have to yield early and i would rather yield to my colleague, but in the event i have to leave i want to put my thoughts out there and ask you guys question. i've spent four years as a regulator in washington during the bush administration, george w., at the fdic, and my

philosophical view of regulation is that the best way to regulate in a private market is to have full transparency and robust competition so that people know what they're getting and they have choices. because presumably if people are buying things and if they are choosing to enter into these transactions, there must be a need. there's no market if there's no need, and i think that mr. motley would understand that being in the industry, but this isn't a private market. this is a government market. explain that to me more, mr. bright. explain the difference between the sort of light touch, limited intervention with this sort of transparent, robust competition that free marketeers like me believe in and rely on as the

best way. now we have a government and what's different about it? what is skewed in that dynamic? >> yes. it is true that in the mortgage finance space in particular with usda lending the term market we use a little bit loosely because you have originators originating a loan and purchasing government insurance on that loan, in this case, in terms of the va and they're purchasing another form of government insurance to wrap mortgage-backed securities. so you have actually two taxpayer layers of involvement to ensure there's no credit risk of the end product. >> so the full faith and credit of the united states government is now brought to bear this? >> absolutely. >> we created this market with the full faith and credit of the taxpayer backing up not just once with the guarantee --? yes. >> with the guarantee program, but with jennie mae.

>> a approximately see decisipo that we as a country that we make sure, in this case, veteran, and low-income americas have access to terms that they otherwise would not have and in order for that to be being isful we have to police our program and we've created, as you say a double-layer government market. >> in the absence of robust market forces, we have to play a greater role to protect those stakeholders, but -- but namely the veteran and the taxpayer as the backstop here. what is the -- so i'm curious, is this an issue of safety and soundness for the program, for the taxpayer ultimately or is this an issue of consumer protection or what we might refer to as an unfair and deceptive practice? >> yeah. >> so i -- let me ask mr. cooper, what's -- are they

disclosing these folks that we're talking about as churners? are they disclosing their churning? are they disclosing everything that they're going to do or are they being deceptive and unfair in your opinion? [ inaudible ] >> if these things are deceptive initially, but i can tell you that we see disclosures that come through that don't put the veteran in a better financial position. so they may be disclosing it, but we feel like they're being pressured to make these loans in certain situations. >> here's my problem with that, and i mean, i just feel like our veterans are some of the toughest, mentally strong, mentally competent, mature, wise. these folks have borne

tremendous responsibility and now all of a sudden if somebody is disclosing things to them, i have a hard time believing that they're being necessarily taken advantage of. they may, but i struggle with that. now, if they're being deceived and folks are putting out, holding out to do one thing and then they're doing another, that's a problem, and if you can't stop that at the va and jennie mae, let's figure out how we can have an act of congress to do that, but to suggest that they can't fend for themselves when reading about what they're getting into i struggle with that. my last question and i'm going to yield with my colleagues and that's on the consumer protection side and if there's not the disclosure and if there's not transparency, we need to know that, and if you don't have the tools to deal with that. the other issue is the safety and soundness. so whether they're disclosed fully and they're completely transparent or not and know what they're getting into or not, if it puts greater risk to jennie

mae and to the va and the taxpayer, that is a real problem for me regardless and would the panel opine on that and i would ask mr. london and mr. bright to have comments and then i'll yield to the ranking member for his remarks and thanks for being a little generous here on my time. >>s where, mr. chairman, thank you for the opportunity to respond to your question. >> by the way, if you want to also comment on what i said about the veteran reading and understanding versus deceptive. i think there's a real difference there so feel free to opine on any of what i said. >> sure. you spent four years at the fdic and four or five times with va in oversight and compliance and i share your sentiments about making sure that the safety and soundness in the program is built in my dna, and if you look at the outcomes that the program has, the numbers do not lie. the va program is a sound program. mr. cooper mentioned that for

the last ten years we've had the lowest foreclosure rate and that's an indicator of the safety and soundness of our program and as i mentioned in my opening statement, the actions that we have taken over the years to ensure that we continue to have those type of performances is exactly what we need to do for the issues that are brought out today. i do believe that the va has a statutory authority to address the issues and i agree with the education and the veterans can make sound decisions of their own and it's our job that we give them the tools to make those decisions. >> i agree. i would add, it is entirely true that the va loan program has low delinquencies and the best testament to the va, and i think that's a testament to the deal that officers and enlisted folks make with themselves when they apply for the program. there say strong sense that this is an earned benefit, but we need to continue to earn this benefit by performing on the loan and that's a great pact. the problem is we have some

lenders who don't seem to be living up to that pact, as well. absolutely, this type of behavior puts taxpayers at risk in a couple of very concrete ways. the first that at jennie mae we wrap the mortgage-backed security. our recourse meaning if a lender has to remit principle and interest on time, we have to make that program for them. if a lender fails to make it on time we have to make it for them, that's what the guarantee is. the asset that we have recourse to and you as former chief of staff of the fdic you go out and pull out an asset in the case that it fails to live up to the obligations, the mortgage servicing rate. when we have prepayment speeds that are inexplicable by any economic measure whatsoever, what that does is he drives down the value of the mortgage service rate or msr which means the collateral that the taxpayer has has access and recourse to the event that the counterparty

fails to live up to the obligations that asset is lowering in val awe because we have the entire book turned over in six months and it's a technical issue and i don't mean to get too wit owe it and absolutely 100%, and what jennie mae falls into is because of this behavior and if you have lenders who are solely in the refi business, and that goes away those lenders face insolvency and that's when jenny mae's wrap goes in and we have to take the book and the asset has fallen in value. this is a full ecosystem degeneration thing that we have going that is separate and apart from the veterans who are doing an admirable job of paying their loans on time. >> i yield five minutes and as much time as you may need to ask any questions and make any comments ranking member o rourke. >> i thank the chairman and take

his point about ensuring that there's transparency and adequate information for the consumer, in this case and the veteran to make an informed decision as someone who purchased a home with my wife and i'm not a veteran, nor is she and we refinanced our home, i do have to say you are battling a mountain of transparency and information and i would be lying to you if i told you i read every page i signed. i didn't. we trusted those who facilitated the sale of the mortgage. so when you pit the veteran against those who would practice churning through serial refinancing and abusive lending and they've got their marketing teams. they've got the folks in the call rooms who are calling these veterans within days and hours after they have already refinanced a loan, i think we

need to do more than just ensuring that they have information, and i wonder if there is a way to prioritize this information and if you don't mind i'll disclose that you and i were talking about this yesterday and talking about whether there's just one page with four bullets on it in 16-point type that says this is your principle right now. this will be your principle with the refinancing costs that you will incur if you move forward in this process. this is the consequence. no more than those four, and not in nine-point type and not in addition of anything else especially if this this is your second, third or fourth refinancing and then if you want to make that bluntly informed position to prosee, so be it, you have assumed the risk with the taxpayer backing that up expect so i wonder for that might make it a little bit more of a fairer engagement between the veteran borrower and the

originator of the mortgage. mr. motley, you said the net economic impact which is what i'm trying to get at may not be understood by the borrower, and you said perhaps some more targeted consumer information. are we getting at the same thing in terms of this prioritizing like, look, this is what you're about to take on. i want to make sure you're good with it because it may not be clear from what the person trying to sell you on this originally told you. >> thank you, congressman. i think we are moving in the right, in the same direction there, and i believe that some sort of a net tangible benefit test that is shown to the veteran is the way to go because it's going show him what the actual cost associated with that new refinance is going to be against the timeframe it would take to recoup those costs through lower payments. >> and so with that time horizon is outside of his time horz an.

>> it's a decision that he can make or she can make. there is no need to establish a net tangible stress to address to the borrower that the refeepancing is in police, and if you don't abide by it you th lender are subject to sanctions or gway from the program and he's been able to make his decision himself, based on his circumstances and his expected turn of living in that house. >> mr. motley is talking about consequences to bad actors in the system. mr. london, can you talk a little bit about that and how we hold people accountable for churning and taking advantage of veterans who may not be told in the clearest or necessary terms just what they are taking on?

>> sure. before i answer that question specifically i do want to touch base on what you are talking about the disclosure and share some good news with you. >> great. >> today in our program we have a requirement that lenders do exactly what you describe. we call that the earl worksheet where on the company's letterhead they have to disclose the terms of the loan to include the recoupment of that new transaction. so we do that today. unfortunately, what happens is the veteran gets that at the closing table like you described with a mountain of paperwork that they don't read. >> right. >> so the decision that i have already made is to ensure that that disclosure is provided up front to the veteran. va will also get a copy at the same time the veteran gets a copy so that we can be the partner with the veteran if he or she has questions about those terms that we can advise him or her and they can make their own informed decision. that's something they can do today administratively. >> when does that start?

>> we have to make some system changes and put out guidance to lenders on what information we need to make that happen. my goal is to have that happen this year, this calendar year. >> it seems leak you know this far better than i do. it seems like a relatively easy fix to make. first of all, thank you for doing and it wouldn't require this to get that done. first and foremost, thank you. secondly, the sooner the better. >> absolutely. >> obviously, right? and we'd love to be kept a pried of your progress on that, and maybe just to the staff, if we could have something that triggers a request to see what the progress made on this is within the next few months i think that would be helpful and then lastly, again, and sorry to be so specific on this, but the larger that information is made and the less surrounding information of which it is buried the better chance that the consumer will understand

exactly what those consequences are, but i love the idea that you will move this up to the front of the process, and i think to the chairman's point, you will have a much more informed, much more transparent transaction. so that's good news. >> i'm going to yield back to the cherm an, we get to help from mr. cooper, but thank you. a great line of questions and we'll yield mr. banks for any questions. yes? >> thank you, mr. chairman. >> my wife's and i's loans have been tremendous, and we appreciate the service that we've had and the opportunity for us as a family, but i wonder can you tell us what levels of attention have been raised to the higher levels of your organization's leadership as secretary shullk has been

briefed? is he aware of the issues and is he in tune with your strategies? >> the secretary has spoken to the secretary about this very issue. so he is personally aware. also our deputy secretary is well versed on this issue and in fact a couple of weeks ago met with mr. bright and others to discuss this issue. so this issue has the attention at the highest levels of va and they are extremely supportive of what we are doing. >> very good. i appreciate the secretary's leadership more and more every day and that testament of his interest and issues like these is a great compliment more so of his leadership. >> mr. cooper, i wonder if you can talk about your company's ethics and how you arrived at a place to be an ethical company not to take -- not to take advantage of some of these predatory examples that we've heard about in the testimony. >> sure. thank you, mr. banks. that's a great question.

we as a company are based on a set of values that we worked really hard on as a group, as all of our employees to set how we wanted to act as a company and we carry that out every day and it's something that we believe strongly in and so we came up with a mission, as well, and we want to help get veterans into homes, and we are very focussed on that. we offer earl refinances and we offer traditional cashout refinances, but our marking practices don't focus on bringing those people right after closing to churn through them and that's just something we felt is always in the best interest of we're looking out for the best interest of the veteran in what we're doing we feel like, we want to educate veterans on the v alone and how

they can best make use of the program. >> have you seen a decline during your time in the industry? >> imdn't say we' wouldn't say decline. there are a few actors out there and this is not really new and it becomes prevalent when certain market factors change and interest rates tick up slightly or tick up down and it is very interest rate dependent. >> what would be your advice? how do we model those ethics and values that your company has taken so serious in your business in hopes that other companies will adopt those values, as well? >> i mean, i think that in and of itself is very difficult to, you know, from a congressional standpoint to model. i like what the chairman has said about, you know, the veteran being able to make

decisions for themselves. i like the idea of disclosures and being as transparent as we can be. there's always room for improvement in that area, and i really like what mr. london was saying about the va being able to step in and they've been very successful with that kind of process on the early intervention for servicing and so if they implement a similar process there, i think that could be very helpful to kind of rein this activity in. >> thank you. you give me great hope that other companies will emulate the same values and principles that your company does, as well and at the very least our hearing today will publicize that and give a public hearing to those thoughts and hopefully some of your competitors will erase that threshold, as well. thank you very much, mr. chairman, i yield back. >> thank you, mr. banks. now i yield five minutes to the gentleman from california, mr. takano. >> thank you, chairman arrington. i want to express my gratitude

for this hearing. i'm impressed that you're focusing on an area of consumer protection and that you've made this distinction between an absolute free marketplace and a government marketplace, and that the government marketplace is defined by money that's backed by the taxpayers or subsidized by the taxpayers and therefore the question of the veteran being able to make a decision all by himself is a bit modified here because that veteran is not making a decision that only solely affects hisser her assets and it's only the assets of the taxpayer that are at stake. so we have a duty to make sure that the program is set up properly and that there isn't, and i'm forgetting the term whether there is a moral liability and there is a lack of -- a moral hazard. there is a moral hazard here, and the risk has been reduced

greatly on the person benefiting from the decision. i hope, mr. chairman, we can hold some hearings into another area where the government distinction applies to the educational benefits and i'm disturbed that in another committee forum there is a proposal to do completely away from 90/10 and allow -- allow educational institutions to take 100%, and 100% of the revenue from the federal government including the federally backed student loans and i hope we can delve into that area, and i want to ask this question of -- i can't see the name back there, but the guy at the end. mr. cooper. as we approach, i want to be careful that we -- that any action we take does not have any unforeseen consequences and one proposal that has been discuss

side capping lender fees and tying the cap to the benefit of the loan for the veteran so that the lender would not be able to collect fees in excess of what the veteran saves over a period of time. now would such a proposal or others like it to cap origination fees somehow help this problem of loan churning or do you think that as long as there were any fees permitted lenders would still seek to turn? >> thank you for the question. i believe personally there are restrictions in place in the amount of fees that can be charged. the difficulty comes when you are buying down the interest rate and for a discount points and that can then be rolled into the loan, and those things become another disclosure issue and how far down did your rate go when you purchased these points, so to speak and so i

think it does fall in line with the other pieces that we've talked about already is that there may be other ways to handle it. i don't -- i don't know the specifics of what the caps might look like in addition to what's already there, but it could be one solution. >> mr. london, have there been financial service organizations that have been fined by the va for predatory behavior? is there an ability to do that and have they been fined at all? >> we do have some ability. we have civil penalties that we can apply, but that is in reference to lenders who actually try to defraud the veteran, and to mislead the government through forgery. so it is very specific. >> very specific. >> yes. >> but does jennie mae being

able to have this capacity in an analogous circumstance? >> we do have a decent amount of policing in jennie mae in terms of security and that's authority we have been using and will continue in the next weeks to expand. >> can you tell me whether or not you have actually fined companies for this? >> we have fined companies for a violation of the program in the space. >> do you publish the names of those companies that you have fined? >> no. >> why not? >> i don't know, but i will find out, and i'm happy to speak with you offline with the specific information. >> mr. london, would -- would this sort of authority be useful to the va if we were able to provide that authority? >> we would provide technical assistance for any type of legislation that you think will be helpful in this regard. we are ready to assist you.

>> i would be interested in meeting with both of you offline and to discuss this matter further. >> thank you mr. takano and yet another gentleman from california, mr. correa, we yield five minutes. >> thank you, mr. chairman for having this most important hearing. i want to thank the folks here, as well. just a little bit about my background. i'm a licensed realer and a former loan broker, and gentlemen, as you know, this can be one of the dirtiest businesses that there is out there. real estate and real estate loan, and mr. cooper, have you ever had to fire anybody? >> i've not personally had to fire anybody, no. >> that's impressive because most of the time there are a lot of bad apples out there and you end up firing folks out there because sometimes it doesn't matter what your mission statement is, the interest of making a buck sometimes outweighs the interest of following your mission

statement. in reference to what my colleague, mr. takano brought up which is do you put this online? the state of california, if you have a doctor that is civilly fined that goes online. the bureau of automotive repairs, any violations go online. so you as a consumer have any issues, you immediately go online, see who the heck it is that you're dealing with and that information is disclosed to the world. it's not rocket science, folks. we can do this very easy and it is very hard also to try to second guess the economic motives and the financial motives for a veteran to refinance and buydowns and interest loans, fees and points and as you know, sir. sometimes what these folks do is they'll give you a discount on the points and they'll jack you up on the fees and at the end of the day you get hit one way or

the other. it would be interesting if you come up with not rocket science, but an application and an app somewhere so a veteran consumer can punch in a couple of numbers and come up with whether this is good or bad and another question now to have mr. london is, do you keep records of the folks, the loan originators and how many loans that they're originating so that you can detect whether there is a pattern there of churning or not? >> we do keep a record of every loan that is originated, but i'm glad that you asked that question so thank you for asking because one of the things that mr. cooper mentioned was that we have on the back end, if you will, for servicing of loans when a veteran goes into default is we have a comprehensive system when every single defaulted loan we have tremendous amounts of data so we can see exactly what the servicer is doing and we can intervene on the veterans behalf. unfortunately, we don't have a system like that on the front

end. however, we have recently led a contract where we are building the capability on the front end to get information on every single loan origination to have the same type of intervention and train in servicing the loan and we are very close to having that. >> i am glad to hear that and i am hoping to put as much information online and you direct our veterans to that website so that they can be a better educated consumer and good faith estimates and don't we still have those out there that when you originate a loan you get people something that says what that loan will cost and do we still have that? >> the borrower will get a loan estimate with that type of information. and again, i hope that you keep some kind of a database work on it up front so that if any of these folks are out there originating loans and you begin to see a pattern that every two or three months they're churning a loan and if you can look at

it, then whether they're doing it for their own benefit or the consumer actually benefits. >> absolutely. >> a lot of neat stuff we can do here to protect our veterans. >> mr. chair, i yield. >> thank you, mr. correa. i yield myself another five minutes. this has proved to be a productive discussion, and i think we should continue it. most of my thoughts and comments and questions were philosophical. i just truly believe that choice for the consumer and disclosure is generally the best way to regulate, and mr. particular akano articulated better than i could and the market is skewed because the government has intervened and without government or the taxpayer there wouldn't be this market presumably, because if there weren't we shouldn't do it. so now comes the question -- and

we should regulate and engage more readily on behalf of the taxpayer? and certainly, if there are ways to have better disclosure, and a simpler, easier way to digest what product and transaction that they're to engage in, by all mean, i'm hoping you guys are reviewing that and constantly thinking of ways to do that. although oftentimes more regulation to protect the consumer ends up with more paperwork for the consumer, and i think it makes it more difficult and burdensome, but i would like to see that new disclosure product that you guys are working on and as the ranking member suggested, if you all could submit that it would be good for us all to look at it. but trying to regulate in this space away those products that

we deem bad for the veteran, and because they're churning and because of some definition that we agree is bad versus and doing that without diminishing the opportunity for products that they may need. real products that are good, safe, sound and useful to the veteran, so that they can maybe lower their payments and maybe they need to lower their pages and maybe they know exactly what they're doing and they need that. help me, mr. motley and mr. cooper, tell me where the line is where it's a good product and it's useful and it's safe, it's sound. i mean, there's always a transaction cost for the institution and if there's more risk then the institution has to charge commensurate with the risk. we see that in payday loans all of the time and i know folks without a payday loan they couldn't fix their car because a bank won't finance them.

so, anyway, what are your thoughts about the line between the appropriate and sound versus the not so sound churning, where is that in define that for me. >> well, it's really not that easy to define because every situation is different. as mr. cooper said earlier, we try to look at all of our borrowers in terms of what's best for them and what's the best outcome for them for their particular situation and you have to take a lot of things into account and so i think that you want to have guardrails put in place on any program to avoid abuse and you want to have transparency so your point about a proper disclosure is a good one and having it done up front is also a very good one, but i think that we have to balance additional regulation with the benefit of that and the onerousness and the extra cost of providing additional

disclosures, but i think that the main point is that if we are sure that the veteran is benefiting from the refinance transaction and we can do that by doing what the costs are, and what the payment reductions are, how long will it take him to break even on that transaction and if that makes sense in his situation then we should have satisfied the net tangible benefit test and satisfy the va that we've done the right thing for that veteran. >> so let's assume that we can define a reasonable, useful sound product or transaction that allows the veteran to benefit, and the costs are commensurate and they're built in and the fees are commensurate with transaction costs and say we can define that. do you all, va and jennie mae have the authority, legal authority to define that and to

regulate in this space in that regard? do you have the legal authority? and cite for me the legal authority because here's my thing. i want you to appropriately, because of the taxpayer and i think it is sometimes necessary and appropriate, but i don't want you to make it up. i don't want you to just create it out of the ether and stuff. we as congress do need to act to give you that legal authority and that's the way this -- this thing works, as you know. so do you have the legal authority and cite the legal authority for me, please. >> yes, sir. thank you for the question. as i mentioned, we have a draft regulation that we believe is a measured approach to address this issue and the specific statutory authority that we used, there are several. 38 usc 3710 is one, specifically subsection e. you also have 3703c and 38 usc

501 are the three specific statutory references that we believe gives us the authority to regulate this issue? summarize for me, if you would, what -- what that legal authority is if you can. i can go back and look it up and everybody here can, but give me one of the three, the best nexus to that authority from which you would promulgate a rule to define this net tangible benefit. >> sure. i would be happy to provide you more detail for the ridiculous, but t record, but the one that i choose is 38 usc 501 and that specific reference gives the secretary the authority to regulate va programs across the board and the other two references that i gave you were specific to the loan guarantee program. again, i would be happy to provide you those details. >> i've taken too much time already. thank you for the answer. mr. ranking member, five minutes. >> i think mr. motley made a really good point about ensuring that we do the right thing for

the consumer, without overburdening the lender and i've heard from many lenders in el paso about how really well-intended legislation to rein in the two big to fail institutions hurt the smaller, independent originators and they make a good, compelling case that we know the community best, but when you make it more expensive and harder for us to originate than those who don't know the community are left with those choices and you see less capital coming into the community and your point is very well taken. i will say just in the example that we discussed, and that mr. london has committed to in terms of prioritizing the net economic impact disclosure at the outset and the o rourke addendum to that that would be in 16-point type so it is really easy to see and you know what you're getting into. it doesn't seem incredibly burdensome or onerous. it seems fair and very workable.

again, from my perspective and not knowing your business as well as you do, so i hope that you could agree with that or that the industry would see that, as well, but your point's well taken that we want to make sure that we don't in any way undermine the ability to get the loans made or these refinancing transactions completed for those who would benefit from them. one of the last things i think, mr. chairman, that we need to do is make sure that we're hearing from veterans on these proposals, and the veterans service organizations who advocate from them. i want to make sure that there are no additional suggestions or ideas or proposals that have gone unheard or unimplemented because in texas alone, we see just last year, 60,000 total home loans. 21,000 of those were refinances and we want to make sure that we are advocating and protecting those veterans who have done

everything we've asked them to do and have earned this and that we're able to follow through on it. and lastly, i want to say this, mr. london, you really are a breath of fresh air. i just left the gao high-risk list roundtable about vha being able to implement corrections that will improve access to care, and some of the responses we got, we'll have a conference call on this and we'll see something later this year and in some cases we've seen no progress on any of these so the fact that you came to this meeting with action already undertaken and specific proposals about what you're going to change, for example, moving up this information to the outset of the transaction instead of the moment when you sign and you're under all that pressure and very refreshing and i hope that you'll follow up on that by keeping us informed of your progress on implementing this. i think we all agree sooner better than later and we'd love

to hear back from the industry and most importantly veterans on the efficacy of those, forts. so thank you all for what you're doing and your testimony today and i yield back to the chair. >> mr. takano, five minutes. >> doctor -- mr. london, and who is the guy from the jennie mae? i can't remember your name. mr. bright? mr. bright, when we say that jennie mae is able to find companies in this space. does that space include the va? i understand that jennie mae and

i understand that the va and jennie mae operate in partnership together to operate this program independent so jennie mae has the authority to issue rules that pertain to lenders' ability to access our security. and so we have broad rules to access the security, and as we need to protect that. so if you look at jennie mae's charter of the top five mandates, the first four make sure that there is liquidity in the mortgage market to maintain liquidity in the mortgage market. once we issue rules to the lending community and say here are the rules that we have a 100-page issue or guide we can issue penalties. our rule making ability is pretty much restricted to the ability to access the jennie mae security and under what terms.

we really can't issue civil money penalties for violation of the va program itself. that would be the va. nor can we issue civil money penalties for consumer protection laws and that will be the sec. so what we've been doing in those cases is where we have instances that it's possible that some of those laws are being violated and we're making referrals to those relative agencies. so our cmps are, they pertain to violations of the rules that we put in place for access to our security. >> mr. cooper, you said earlier that during the financial crisis that overall, the va home loans held up the best. to what do you attribute -- to what do you attribute that? >> thank you for the question. we attribute that to the underwriting that was in place from the va from well before the crisis and specifically, the way

the va looks at it is not just at how much -- what's their payment and what's their dti, and they're also looking at the back end of how much money do you have left over? the residual income? and so that's a really essential part of the program. residual income and it protects the person from at the end of the day, they still have money to live their daily life, and hopefully they've still able to make their mortgage pages and that has been a really big part of the va program and it's different from any other program that's out there and no one else requires that. >> mr. london, again, as we look -- do you have any other thoughts on -- on appropriate regulation or appropriate

authority that you might need to police the bad actors that we're talking about today more effectively? >> sure. as i mentioned in my testimony, we have a draft that we believe will take into account the very recommendations that you've heard from other panelists today. we evaluated things like a net tangible benefit seasoning requirements and recruitment requirements and many other actions to see what will best handle the issue, but i definitely have to get one point on the table. and all the panelists agree that we're talking about a relatively small number -- >> very small. >> lenders who are involved in this. and the fact that we have drafted a rule very carefully that's going to not only impact those small -- those small number of actors, it's also going to impact every single veteran's potentially their access to his or her own

benefit. it's going to have an impact potentially on every single lender and servicer that participates in the program. as mr. bright and others have said, it's going to have a downstream effect on morning investors. there is not just one answer on things that can be done. we looked at it wholistically. as i stated to the chairman, we believe we have the statutory authority to regulate in those areas. >> you haven't published it yet because it's draft. so is there a kind of a comment period from the public that has to be undergone before it's implemented? >> as the rules currently drafted as a proposed rule and there will be an opportunity for public comment. >> and you don't have any idea -- you've been taking input from the industry in crafting the rule? >> absolutely. the good news is in analyzing and thinking about the rule, we met, as i mentioned in my testimony, we met with the mortgage bankers association and their members and many with straer

stakeholders as we were contemplating what policy direction we needed to take under this. we welcome additional comments that anyone has to offer once the rule is published. >> when do you anticipate the rule being published? >> unfortunately, i don't have a specific timeline for you today, but i am happy to report that the rule is, as i say, in final draft. that's a good indication that we're very close to having it publicized in a relatively short timeframe but i don't have a specific timeframe for you today. >> all right. thank you very much. i yield back, mr. chairman. >> no closing comments? mr. takano, i'll give you more time if you have any follow-up questions or comments. >> mr. chairman, i thank you very much for the spirit of this hearing. i congratulate you on that. i hope we can continue the work in this vein. i respect your free market views. i entertain the idea that some of these products could be useful to some veterans and we don't want to be overly

aggressive in regulation. but, again, we're talking about taxpayer resources that we have to protect. >> that's right. that's right. and, you know, it's good that we can agree like this. let's somebody get a picture. is somebody recording this? no, it's true. this is a space where we need to engage on behalf of the taxpayer because of the full faith and credit and we need to strike that balance. that's why i asked the question of defining it, you know, how do you define this? because if somebody was charged any fee, they may say, hey, i shouldn't be charged for this, but there is a cost for the institution for that transaction. so, you know, what is that threshold that is unreasonable and abusive and not a tangible benefit? well, i feel like i've heard enough to know that the stakeholders, including the industry, can strike that and, in fact, have, and i give you credit and join the ranking

member in his praising you and your team for the way you've conducted your business. it's best that a regulator engages the stakeholders prior to public comment. i mean, you're going to have agreement here, it seems like. we're talking about a few potentially bad actors, potentially. and maybe not bad actors. maybe they're just playing with the rules that exist. we just need to tighten them up so that we raise the bar of what we expect for safe and sound practices and the protection, if you will, and minimal standards for fair practices. in this space, i'm curious because the ftc should be able to regulate unfair and deceptive practices. have there been any cases referred to the ftc where there has been unfair and deceptive? i understand there are lots of

things going on here. there is -- they could disclose better, so let's do that. there is safety and soundness for the taxpayer and the program. but then there is real deception and unscrupulousness by offering one thing and it be really another thing. have those been referred to the ftc and have they acted upon those? mr. london? >> i am not personally aware of any referrals that have been made. >> mr. bright? >> yeah, we were -- what we've been doing is collecting solicitation materials that are generally from actually brokers, not lenders themselves. they originate these loans and sell them to a lender. and what i'd love to do is, you know, we've got a pile of them, so i've asked all the veterans at ginnie mae to collect these solicitation materials they get. i'll share them with you. they're not lies.

they're just -- you'll -- we'll sit down and talk to them. >> i'm trying to be real careful in this hearing to not say predatory and deceptive because the ftc ought to pursue that and bring the full force of the law against people that are doing that. then where we need to tighten it up, where there is some fastness and looseness, that's what you guys can do and then, again, for me ultimately, the safety and soundness of the program, this is offered because the taxpayers allow this to happen, because they love their veterans and they want them to have this benefit, but they want it done in a safe and sound and a fiscally responsible way. >> mr. chairman, if i may, can i amend my comment that i made? >> please. >> your comment was specific to the ftc. >> yes. >> we have been working very closely with the cfpb on veteran complaints that we have received about the solicitations that they receive and we have made those referrals.

i want to make that distinction, that we have provided information to the cfpb but not specifically to the ftc. >> okay. thank you. thank you, colleagues. great discussion. let's -- you know, continue in the -- in your efforts as you described to tighten up in this space. and let us see whatever draft documents just for our information at the ranking member requested, if you would. and continue to notify us if you need the authority where you don't, and don't regulate where you don't have the authority. that's not your job. that's the united states congress' job, article i, but i feel good about what i've heard today and so good hearing. this now concludes our hearing and i ask unanimous consent that all members have five legislative days in which to

revise and extend their marks and include any extraneous material on today's hearing. without objection, so ordered. thank you all again for being here today. great hearing. god bless. >> the president of the united states. [ cheers and applause ] tuesday night, president donald trump gives his first state of the union address to congress and the nation. join c-span for a preview of the evening starting at 8:00 eastern, and then the state of the union speech live at 9:p.m. and following the speech, the democratic response. we'll also hear your reaction and comments from members of congress. president trump's state of the union address, tuesday night live on c-span. listen live with the free c-span radio app and available live on ondemand on your desktop, phone or tablet at c-span.org. sunday night on "after

words," republican national committee spokesperson caylee mcenany on her new book. interviewed by "daily beast" senior columnist matt lewis. >> i've had conservatives say to me, why do you use this word, i'm not a pop list and liberals expression aversion to that word, but to me it sums up what this book is about and it's the people. i really wanted to honestly profile the people on the left and on the right. and most of the voters i profiled were trump voters, but i did profile some who were not. so to me it was capturing the sentiment that drove an electorate to deliver one of the most astonishing electoral defeats we've seen certainly in my lifetime and certainly in modern history. it was a profile of the american people on given issues from terrorism to poisoned water in flint, michigan. >> wafer "after words" sunday night at 9:00 eastern on c-span

2's "book tv." c-span, where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies. and it's brought to you today by your cable or satellite provider. tonight on "american history tv" on c-span 3, a look at how society remembers, honors and memorializes veterans. then from the smithsonian, a discussion on cure rating and archiving food history. next, three historians on ways american veterans have been remembered, honored and memorialized since world war ii. panelists look at the experiences of iraq and afghanistan veterans on college campuses, how new mexico has memorialized the baton death march and the evolving efforts to recognize women air force