1970 also consists today. the single most important fact is that the consumers, the homeowners, are not the clients. the clients for the credit reporting agencies are the companies that pay for the credit reports. the lenders and employers. the clients for the mortgage servicers are the companies that pay the services and those are the investors in mortgages. mortgage services owe their legal duties and loyalties to the investors, not the homeowners. now, in saying this i'm talking about when mortgage servicing rights are sold and that appears not to be the model that mr. hopkins' bank follows where they keep the servicing in house close to the market. but the harsh majority of mortgaging servicing rights today are sold into the market to new buyers of servicing, often the biggest bank. so the structure of the market that we have today leads to problems, consumers have no market or legal checks on the servicer. the homeowners doesn't choose the servicer. that choice is made by the company usually who originates the loan. if the homeowner has a bad experience with the servicer as so many people have, the

homeowner can't even quit. even if the homeowner refinances a loan to get away from the servicer, the servicing market is so concentrated that the homeowner gets the same servicer all over again the next time. homeowners not only lack market choice but they lack legal remedies if the servicer performs badly. that is why national standards are so important. where there are no market forces to protect consumersering something else should fill the gap and effective set of consumers rights can be embodied in standards and host: that will help. now i'll turn to my washington mutual arm. i've brought along and reviewed and provided to the committee files from my 21-month dispute with washington mutual in 2006 and 2007, before the crisis, about flood insurance that they incorrectly placed on my family's home. and that dispute was the subject of the "los angeles times" article. our family was a target of what people have called forced place insurance that the committee has

heard about before. in early 2006, they asked for proof of flood insurance coverage. my state farm agent immediately faxed me the information. turns out that wamu had a cute trick that i discovered. they didn't even process the coverage unless it contained wambings mu servicing account number. so wamu received the state farm certification and simply ignored it and didn't tell us until i figured it out several months later and that was how they could bill my family for the duplicate flood insurance. the next cute trick was to pile up late fees on our monthly mortgage payments. we had automatic payment the first week of every month and even they admitted we never missed a payment. their practice, though, was to charge for the flood insurance with each monthly payment. that meant they considered our payment too small each month by the amount of that insurance premium. so then it declared our entirely monthly payment late and charged a late fee of over $170 a month. i provided the committee staff with detailed and documentation of these and numerous other

problems with our servicer. eventually after 21 months and over 50 calls to customer service, they finally agreed in late 2007 to withdraw the flood insurance and cancel the fees. in conclusion, i feel fortunate that i was able to get and cancel over $4,000 in erroneous fees they wanted to charge me. most homeowners, however, are not banking law professors. all of those hours sitting on hold, waiting for customer service gave me plenty of time to think about the flaws in our mortgage servicing system. my experience in government have taught me there are numerous hardworking and talented individuals in the mortgage servicing industry, i work the -- admire the work of many. the incentives however do not work for consumers. the response of senator corker's opening statement about getting private capital back into the market, a goal i share and the administration has shared, fixing servicing which is getting the money -- [inaudible] from the homeowners to the investor -- [inaudible] so i

agree that working on national mortgage standards should be seen as part of getting the investor part of the thing to work as well. in short, in the absence of market discipline on servicers, an effective set of standards is essential. there's that other way to have consumers protected. i thank the committee for its attention to these matters and i welcome any questions you may have. >> thank you, professor swire. mr. hopkins, small servicers like your bank haven't been caught up in the problems that large servicers have. is that just due to your size or do you believe that there are other factors? >> i think it starts up front. i think we had strict underwriting standards and we always held strict underwriting standards. we weren't offering a lot of the exotic products, that are creating the problems with the foreclosures now. we didn't believe in the products, therefore we didn't

offer the products. so because servicing is a very low margin business we felt it was important to have a good quality portfolio. so we were always conscious about underwriting our loans very strict up front. i think it starts right with the underwriting. we keep our loans in house, therefore we're concerned about what we put in our portfolio. >> mr. hopkins, like mortgage original nation, there has been a significant consolidation -- or -- original nation, there has been a consolidation in the industry and large banks now service the majority of the loans in the country. have borrowers and communities benefited from this consolidation? >> absolutely not. i think that is part of the problem that professor swire was dealing with a little earlier. an article i saw in 2010 showed

the four largester isers control 70% of the market. so they don't have the customer contact that we do. i think that if it was a more diverse market on the servicing side that the customers would have a better experience. >> professor swire, in your testimony you recommend a fair credit reporting act equivalent for mortgage servicers. can you expand on what should include -- what that should include and how it could prevent some of the problems we are currently seeing? >> thank you, senator. there's many people working on the details of what the standards should look like. i think the point with the fcra is if there's a mistake being made about the customer we can go fix it these days. and when we had mistakes with the servicers we didn't have those same kinds of legal rights and that's sort of part of what i'm pointing out. i think -- [inaudible] sing something clearly a step in the right direction.

having issues around dual tracks that with people are getting something fixed, they don't have the house yanked out of them, that's part of it. having disclosures and avoiding conflicts of interest to make sure that the servicers' doing what's right for the investor and customer and not other parts of its portfolio, that's the main category of things you'd like to see in the standards. >> with a number of different standards being put forth, would a national mortgaging servicing standard help provide clarity for servicers, homeowners and investors? >> senator, yes, we do believe there is a strong need for some coordination and alignment on what's going on today with the regulatory efforts and others on servicing standards. i would caution the senator to let this fall out to find out what finally is happening with the standards through the a.g.

discussions and the o.c.c. consent orders as we see how it works through the system before there is another effort to make new standards without testing how these are coming through. >> mr. couch, in your testimony, you argued that homeowners have not been harmed by the problems in mortgage servicing. do you disagree with the assessments and subsequent required changes imposed by the federal banking regulators and by fhfa? >> in my testimony i said that in the event that there -- that a borrower has been damaged, he or she should be entitled to be made whole for those damages. in terms of harm, it's important to keep in mind that in the case of foreclosures in this foreclosure process, as i

mentioned before, the length of time during that 400-plus-days, depending on what state you're in, while the process is working, that borrower is not monday tailor damaged, in fact, that borrower is living rent-free so to speak during that period of time. now, there are in place in all 50 states mechanisms for making, if there are damages, making borrower whole and i'm suggesting that in every case that should take place. but i think it's important for the committee to look at who is actually being damaged in this process. >> my time has expired. >> go ahead. >> i'll proceed to the second round if need be. senator corker.

>> for the witnesses, again, thanks for your testimony. one of the folks in our office, as we were getting ready for this hearing, was talking about the fact that, you know, a year or so ago they had a decision to make as to, you know, who they would borrow money from because they obviously being a staffer hadn't had experience with what happens with mortgage servicing. looked at, you know, borrowing money from a community bank where they would know the person on the other end of the line and on the other hand looked at some of the larger institutions where the rates were actually cheaper but they knew they might be put through a meat grinder if something happened, and so i use that example to say, you know, the customers do have a choice. i mean, they can choose to go to a smaller institution and maybe pay a higher fee but have that personalized service or go to one of these larger institutions

where, you know, your file might be in a warehouse in kansas someplace. so there is a difference there and i know it's a difference that when i used to borrow money for commercial loans i paid attention to and i'm just wondering what your response would be to that. i mean, do have a choice -- i mean, people do have a choice. >> sure, senator corker, they do have a choice and i would say the evolution of a $3 trillion market, there was a lot of buying and selling of mortgages, small lenders and large ones. today most of the mortgage market is controlled through the investor guidelines, through fannie mae and freddie mac and f.h.a. of which many lenders participate and those guidelines really govern how they're serviced. but to your point, there are choices to be local with your community bank or go in and see how your payment was applied versus online or 800 numbers to find out how it's being process with larger organizations. there's always a choice. but they have the right to buy and sell those loans today and

some do. >> that's a good point. so, you know, as we -- a lot of the things that we do around here, i mean, we look at some of the regulatory practices that were put in place with dodd frank, there's concern that that just creates greater consolidation over time is there any concern by any of the witnesses that if we had, you know, if we put in place uniform standards by law that there will be consolidation and maybe it gets even more difficult than it is. >> if i could follow up on that, i believe you can have standards and have appropriate protections in place for smaller servicers or banks that have too much cost and burden with that, but you can have standards that are fair to customers and protect them. >> how will that work, exactly? we just went through that with debit and interchange and none of the community bankers felt like that worked too well, even though they were protected. they know over time the market is going to migrate away from

them if they're charging a higher fee than the large institutions. so that's a nice thing to say, but tell me how that would actually work and anybody else who wants to chime in will be helpful. >> i have an idea. >> go ahead. >> ok. i didn't want to step on faith. so, one of the basic distinctions for mortgage servicing rights is whether the bank are retains the service and keeps it there in the community banks or whether they get sold to somebody else for one of the nationals. and you can write rules to say if it's retained the customer chose that bank, it's being serviced by that banking organization, could you also have a dollar limit if you want to so that applies up to some amount. so that the smaller banks that retain servicing are more likely to hold customer relation, but once it's sold out to the market that's where the standards apply. >> first, if i may step in. one, i think that you've already defined in here what a small or

a large investor is and the fan iny may guidelines is defines 65,000 loans as being a small market investor or small servicer. as far as for the cost, what we're looking at, we do some servicing for some other banks, primarily for the south dakota housing development authority loans because there's only six servicers in the state. so i caution that anything, you know, we do some servicing for other banks, so we do buy some servicing but the vast, vast majority, 90%-some, probably 98% is our own originated product. if we are doing our own product, we're looking not to increase the standards that are so prescriptive, they're looking at things that would almost force us to have a call center implemented in order to make it do that, in order to track all our contacts with the customers. and to your point earlier when you were talking about the cost of a mortgage at a community

bank versus a large bank, i don't think with the way the markets the way they offer today is a difference in cost. particularly with the new incentive rules. so i think the pricing is virtually identical between a large and a small servicer. we advertise that we service localy. that's one of our key advertising points and we're proud of that and that brings us in business. >> but i think you still don't want national standards that are the same for you as they might be for j.p. morgan or somebody like that. >> no, we don't. we do not want the standards that are very previptive. we've been successful -- prescriptive. we've been successful. we've been very successful in servicing. so i'm cautious that we haved ises -- standards that are requiring us to contact people on nights and weekends when we don't have those type of issues. our biggest issues is whether they pick up the phone. we've gone to the point of using cell phones to they don't identify the number when they're collecting. and we change the number monthly. >> thank you.

i notice i'm over my time. >> ms. schwartz has a commebts to make. >> i would just say i think there are ways to create standards where the regulatory oversight body can work with the smaller community banks or others to say, are you satisfying single point of contact, do you have a customer service or abandonment rate that's very low, that you're really taking care of your customers. of course they just testified they do. but larger companies may have different processes in place because there are higher volumes and therefore they need some different structural concepts. in all cases, though, there are ways to be flexible with standards, to accommodate customer protections as well as the banks and investors' needs. >> senator menendez. >> thank you, mr. chairman. i ask unanimous consent that my statement be included in the record at the beginning. >> it will be. >> thank you. mr. chairman, thank you for holding the hearing and i appreciate the testimony that

i've read of the witnesses. i have a few questions and i'm hoping that you can all help me here. so, let me start off with, i know some of you talk about single point of contact and dual track but if you had to name a few specific national mortgaging service standards that you would believe would be helpful, what would those be and how would they be helpful? for anyone on the panel. >> i'm happy to offer a few. clearly the single point of contact has become a dominant discussion in the regulatory environment, the legislative environment, the advocacy environment because customers aren't happy. and to turn that into something where they understand what's happening around them and to them and through the options that are made available, a single point of contact is something that makes them get through the process in an easier

way. i testified earlier to say, it does not mean the outcome will differ if they're not able to make an affordable payment or if they're unemployed and there are very few tools that will help them get through a loan process. so single point of contact, dual track processing is the other very significant issue out there. it is confusing to homeowners to get help on the left side of the house, to get a modification of which i've spent four years working with the industry in nonprofits to do. at the same time the laws create process and standards for foreclosure to occur so to explain that very complicated process has to be done in a much better way for the consumer. >> now, mr. hopkins, in your testimony you suggested community banks shouldn't be subject to a national servicing standard and i realize your arguments about consolidation and the industry are concern, but to what extent does that depend on what servicing standards are we talking about?

>> we're already subject to some standards and i think we've been able to follow those standards very carefuly. you know, we're dealing with fannie mae and freddie mac or south dakota housing in our case they all have their standards of when they expect us to make contact with customers, etc. we're concerned about is a cost that they're looking at to document that we're doing what we're doing. that we are having the contact with the customer. but i think, again, our results show that we're there. so what we're looking for is that anything you're doing doesn't add cost and burden to us and we have a carveout if we're meeting certain standards. >> so -- go ahead, finish. >> our delinquency rate would prove at 1.7%, where we're 1/3 of the national average, that we're doing the jobs we're supposed to be doing. we've only had a handful of forkse -- forks -- foreclosures

over the past few years and i'm talking 23 last year. i mean, that is not -- out of 5,000 loans, that's not an excessive number of foreclosures. those are typically life-event type things. a divorce, loss of job, etc. that are causing those issues. >> all right. let me ask for maybe some of the council here, does the panel acknowledge that it is a conflict of interest for mortgage servicers to have an ownership interest in a company that performs services associated with that own mortgage service's foreclosures? property maintenance, inspection, forced place insurance. doesn't that give the servicers an incentive to force home owns -- force homeowners to add on things?

>> senator, i think that certainly you raise a good point. that there are all sorts of different interests in place that have to be balanced. i would maintain that there's not necessarily a conflict of interest for in fact it may make it easier for the consumer to have services that are provided in house versus going outside the house. now, i think that most of the standards that are proposed would require those services to be offered at fair market rates and not be marketed up and we've had expensive debate throughout about what's required under respa in that regard. you raise a very good point. but i think it's a case by case -- >> how about forced place insurance? and the effect on borrowers?

>> keep in mind what forced place insurance is designed to do. if you lend me money and i give you a security interest in my house to secure that money, part of the deal is that i keep insurance in place so that your security interest in my house is protected and if i don't go out and get private casualty insurance to keep your security interest secured, i think you as an investor would like there to be a provision, a contractual provision, that allows that coverage to be put in place so that your security interest is secure. >> but we have found many cases in which that forced place insurance has been well overpriced. and so again, how do you maintain this? the same thing, and i see professor, you're trying to get in here so after i ask this next question i'll have you maybe answer both of them. second thing, mr. chairman, thank you for your patience,

second, lean conflict of interest at mortgage insurers. you know, suppose it's a conflict of interest for the company servicing the primary lean to also own the second lean and that industry alone is not willing to do anything to stop the conflict since it might be in the financial self-interest of at least some private sector parties for that conflict to continue. isn't that the kind of situation where there is a legitimate role for the government to step in? >> are you directing that to me? >> yes. >> well, again, keep in mind that in most of the cases that we're talking about, i mean, we can go back and talk about where the piggyback loan, which is many times this has come about through the piggyback loans, why those evolved the way they did. keep in mind that the relationship between the first and the second is established by a state law, well, it's established by the investors that bought the first or the lender that has the first and

the lender who has the second and any competing interest there are governed by state law and also by the contracts that govern the servicing of the letter. >> the privilege rights of whatever the first lender is and what the second lender is in terms of their status and how they'll be compensated. my concern is, the second, you know, the second lean being also the servicing entity and in that context are they working in a way to satisfy their interests as a second lean home or are they working in the interest of the homeowner and the resolution of the process in a way that best ensures that they can keep the person in their home? >> well, the primary party affected by that is the owner of the first lean and the first lean holder, if he has concern

about the way the second lean is going to be serviced, would have to raise that concern at the point that he purchased the loan because those are the rights that are most directly affected. now, i recognize that there have been suggestions that that second -- that the servicer of the second lean may put the interests of the second lean in front of the first, particularly if there's a loan modification that's been proposed and i can easily envision the conflict that could arise, but the beef if you will is the investor in that first mortgage. >> professor swire, and then i'll stop there. >> thank you, senator. just a couple quick points. on forced place insurance, the logic of having the insurance to protect the investor is strong, but my experience found out with the national servicer had a practice of ignoring proofs of insurance and buying insurance

anyway. so the fact that there's a reason for something doesn't mean it's been implemented correctly. on the conflict of interest, often a first step is disclosure of the conflict if people can see it and i think with forced place insuranceworks fees of various sorts, disclosures about that are one way to start to address the problem. and the last point is on second leans, i know from my time in the administration there was very great concern that the second -- decisions about second to major banks were driving how first got handled and that a lot of time second came first made it much harder to make modifications that worked for the homeowners and the first lean holders and that was a big problem. >> thank you. >> thank you, mr. chairman. and i thank all of you for being here today and on skipe. when i'm in north carolina, i've traveled across the state and i hold conversations with kay and it's an opportunity for squints throughout north carolina to

come to these events and actually bring their -- we talk about the issues of the day, but also to bring their concerns to me and we have constituent staffers that there that can help immediately start looking on issues. and without a doubt there are always concerns about foreclosures. always concerns about mortgages that have questions and in just about every situation they discuss how documents have been requested, they send them in, they get lost. they send them in again, they get lost. they send them in again. it is a repetitive comment that i hear each and every time. so, my question is, and ms. schwartz, i think you mentioned this in your opening talk about how a single point of contact might help solve problems like this and any of you if could you care to comment. >> yes, senator. good morning. you know, earlier i also

referenced we created a web portal for just that reason. so that consumers, counselors and servicers would no long have that back and forth but a rigorous way to track documentation and process and time and date stamp every communication so that there no longer would be an issue. that exists today through hope loan port and we created a neutral nonprofit entity for just that reason. secondly, that's a fair concern. it is nothing more frustrating than losing documents and having 20 phone calls with someone who says, and on the receiver end doesn't have it. because of a fax or a fedex. so at the end of the day this is not complex. there are ways to address it through documenting and making sure there's a safe and secure system of communicating among all the stakeholders so that does not happen anymore. it's -- it already exists today. we need to as an industry and government keep working toward those solutions.

>> thank you. >> senator grassley from my experience, first of all, the portal that faith just described is something that i've experienced and is getting better. what i saw in my own experience because i kept date and time stamps for a lot of documents was at that point they would receive the documents and then it didn't fit their system, it didn't have their loan number on it and so they ignored the document even though they had my insurance agent's phone number and fax, my phone number and fax, they had a proof of insurance they ignored it because it didn't check a box they had and then they went and bought the insurance in a forced place way. that's in the file that i provided to staff and there was a practice by one of the major servicers in the country in 2007. >> thank you. >> some have suggested that one way to improve servicing is to create performance thresholds that servicers must meet at the m.b.s. level and if they failed to reach those, the servicing

rights would be sold and the servicer replaced. mr. couch, and ms. schwartz, could you talk if you believe such an approach would be effective and then mr. hopkins, could performing thresholds get servicers to perform better on behalf of investors and borrowers? and at the same time avoid placing undue loan by loan regulatory burden on community banks that service loans? >> sure. so, there are already in a sense performance thresholds. fannie mae and freddie mac today have time lines required of foreclosure processes, they measure them against state law and other efforts, how long it takes to foreclosure on a loan and there are incentives in place for servicers to perform under their guidelines. certainly there are really great things being done by the small and special services out there, many who are members of hope now, who all they do is high

high tough and feel and help borrowsers who are in stress. the larger stops -- shops of both performing and nonperforming aspects to their departments and have a lot of performing loans they deal with versus just a focused effort. a threshold and ability to move servicing by investors is probably something to be considered because we have been locked up in the system with the inability to move loans and out of pools and buckets and it has caused some stress in the system. >> i guess from our standpoint, you know, particularly when we're talking about performance standards, we in the south dakota housing market do have some penalties if we don't hit certain delinquency rates. our fees are actually reduced as the delinquency rate goes up. so we are insented to have early, often contact with our

customer and it works. under some of the new proposals you're looking at is taking and cutting the servicing fees for your performing loans because they say you don't need to deal with them. that will drive me out of the business because it's a break-even business as it is. and they're looking at, in my opinion, rewarding the bad players by paying them more to service and to modify those loans. well, i think that's kind of a perverse relationship and it will drive bad behavior. in my opinion you shouldn't be rewarded for making bad loans and paying people more to service bad loans. so we would be in favor of some servicing standards that would drive that. >> thank you, mr. chairman. >> mr. hopkins, and ms. schwartz, as we've heard from professor swire's testimony, results of serviceers' mistakes

takes time and diligence. to help correct mistakes sooner, can borrowers access their servicing records and mortgage files to ensure that payments and fees are being applied appropriately? mr. hopkins. >> yes, they call into our servicing department, we will happily supply them with a -- their payment record and any other records that they would like on their mortgage, we will email it, fax it to them, whatever they would like or if we come in and talk to us. if they find a discrepancy, we're happy to work with them to try to resolve the discrepancy because obviously we are what we call a high touch, high feel type bank and we rely on our servicing and our expertise in the servicing and our reputation as a high touch servicer. >> well, what i've seen from some of the largest shops is that they have very impressive web-based access systems where

they indeed can go in and look and have a read-only review in a private, secure setting. to see where they are. and i think the industry has made great strides in that area. i'm not familiar enough to know across the industry the consistency of that opportunity. >> mr. swire, what do you have to say to that? >> two observations. one is that washington mutual did in fact provide me detailed records eventually on that issue. they showed a lot of fees that i didn't think i owed but they showed them accurately. the second thing is this issue of access to records was an issue in the area i used to work in where there's no providing of access in general to your medical records and that's something that i think in practice usually the banks comply with but there's not the same legal right that we have to our financial records that we have to our medical records.

>> thanks, again, for -- to all our witnesses for being here with us today. as more coasts within the servicing -- developments within the servicing industry continue to surface, the committee will continue to exercise oversight of this important issue. the record will remain open for seven days for additional statements and questions. this hear something adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]