Homeowner Mortgage Assistance - Feb 26, 2009

Transcript Text

  • SEN. DODD

    At 00:00:25
    8 minutes

    The committee will come to order. And let me welcome
    our witness and congratulate you again, Secretary Donovan, for your
    confirmation and for your willingness to do this. Senator Schumer and
    others have raved about you and the tremendous work you've done in New
    York, and a lot of other folks I know have talked glowingly about your
    ability to get things done in that city on housing issues. And we're
    very excited about your stewardship.
    We're fortunate to have on our committee, of course, Mel
    Martinez, who knows exactly what it's like to sit in that chair,
    having run that agency himself, and has brought a wealth of knowledge
    and understanding of these issues to our committee over the years he
    has served with us. So we're particularly delighted to have you.
    I sort of feel like -- and what I'm going to do is make some
    quick opening comments myself, Senator Shelby, and then ask my
    colleagues for any opening comments they would like to make as well.
    You're our only witness today. We don't have a second panel. And so,
    when I can, I like to let members have a chance to express themselves
    before waiting. And I know this is particularly appealing to Senator
    Warner and Senator Bennett; I assume as well to Senator Hutchison and
    others, who are sort of at the end of the line. So this way you can
    get a chance to be heard a little bit before we actually get down to
    the question-and-answer period.
    But for those -- Senator Shelby will certainly appreciate this;
    Senator Martinez; Senator Reed; Senator Menendez.
    This is -- and I
    hate to use a Yankee expression from a Yankee, Yogi Berra, but it is
    deja vu all over again, in a sense. It was about this time two years
    ago that we had the beginning of a long series of hearings on
    foreclosures. And it was -- Senator Shelby will tell you, I don't
    know how many times we met and talked and gathered with people to try
    and get people --
    Right here.
    -- right here -- to get people to move, to work out,
    to get something done on this problem. This was early 2007. And I
    think back on it now, and maybe we didn't push hard enough -- I can't
    imagine how much harder you could have pushed -- and nothing happened.
    Nothing happened.
    And we are in large part where we are today because of that, not
    that that was the only reason. Obviously this problem began long
    before 2007. But had we and had the administration, the previous
    administration -- I say this respectfully -- (moved ?) on that issue
    at the time, we could have mitigated this problem substantially.
    As long as I live, I'll remember Bob Menendez's comments that day
    for our first hearing. I think you were the first person to call it a
    tsunami of foreclosures that were going to happen. Today you hear
    that expression over and over again because we're in the middle of it.
    But in 2007, in January and February, you were considered being
    hyperbolic if you used language like that. You were an alarmist. You
    were (flaming ?). It was just politics to talk like that. And, of
    course, we've now learned painfully that, in fact, if they were guilty
    of anything when they used those words, they were underestimating the
    problem when we gathered here to talk about it.
    So I'll share some opening comments and thoughts and then turn to
    my colleagues. And then, obviously, Secretary Donovan, we're very
    anxious and, I must say, enthused a bit about what we've heard over
    the last few days and a new administration and a willingness to make
    some of the president's comments on the subject matter.
    Today the committee is going to meet to discuss, obviously, the
    administration's Homeowner Affordability and Stability Plan outlined
    two weeks ago to address the root cause of our economic crisis, the
    foreclosure crisis. This plan represents, in my view, a sharp change
    in direction from the previous administration's approach. It draws
    upon funds expressly authorized by this committee to prevent
    foreclosures in the Troubled Asset Relief Program, which was created
    as part of the Emergency Economic Stabilization Act.
    It was passed in October, and it couldn't come at a more critical
    time. At the end of the day today, another 10,000 families in our
    country will have received a foreclosure notice. In my state of
    Connecticut -- and I know my colleagues, each of them here, some more
    dramatically than others, can point to their own statistics and
    numbers. But we could see in my state, the small state of
    Connecticut, nearly 60,000 foreclosures in the next four years. In
    all, across our nation, as many as 8 million families could lose their
    homes.
    Over the course of some 80 hearings and meetings in the 110th
    Congress, this committee has asked a very simple question, the same
    question that we get asked every time we go back to our respective
    states: How in the world could this have been allowed to happen?
    Certainly, as this committee has uncovered, the problem's origins
    lie in the scourge of the unchecked, abusive predatory lending
    practices. A little over two years ago, on February 7th, 2007, this
    committee heard from Delores King, who sat right at this table, right
    there -- (I'll say ?) exactly where she was sitting, right there to
    your right -- she had owned her home in Chicago for 36 years, was in
    danger of losing it due to an exotic mortgage she was duped into
    signing by a telemarketing mortgage broker.
    That day we also heard from a North Carolinian, Amy Womble, whose
    broker intentionally misrepresented her income in order to secure a
    loan that she could not afford. A mother with two children, she
    wanted to pay off the debts left by her husband after his untimely
    death. She was trying to act responsibly, and she ended up facing
    foreclosure.
    Last year we met Donna Pearce, a grandmother from Bridgeport,
    Connecticut, where there are now 5,000 families with subprime
    mortgages in danger of foreclosure. Donna was offered assurances by
    her lender that she would be able to refinance in six months, but he
    failed to mention the thousands of dollars in penalties that
    refinancing would cost her in the process.
    Mr. Secretary, I defy anyone to suggest that these cases were
    somehow the exception, that these were aberrational. The vast
    majority of people losing their homes today are decent, hard-working,
    good Americans -- grandparents on fixed incomes, working families
    who've lost a job or faced a health care crisis, many of whom were
    taken advantage of.
    To suggest, as one or several commentators have, that this
    problem was created, and I quote, "by deadbeats with an extra
    bathroom," end of quote, is not only insulting and infuriating, but to
    the families who are suffering right now, it's tremendously damaging.
    It effectively lets unscrupulous brokers, lenders, credit rating
    agencies and investment banks off the hook. It ignores the toll that
    these foreclosures are taking on home values, an 18 percent drop
    nationally and far more severe in certain areas of the country. And
    it makes our task up here getting credit flowing again to families and
    businesses that much more difficult.
    As one mortgage lender told this committee, this crisis was the
    consequence of "mortgage malpractice" -- his words when he appeared
    before this committee. We don't blame the patient when a doctor fails
    to tell them they might not survive the surgery. Why should we blame
    the homeowners in many ways?
    And so, Mr. Secretary, I appreciate the speed with which the
    administration has acted to address the issue. The plan, as I think
    most of us know, has three crucial elements. First, it offers 4
    (million) to 5 million homeowners who are current on their loans the
    opportunity to refinance into lower rates. This feature will open up
    the mortgage market to homeowners who've been locked out and unable to
    take advantage of the new lower mortgage rates currently available
    because their home values have dropped. This provision is aimed
    squarely at working and middle-class families.
    Second, the plan finally creates a program to modify the loans
    touched by troubled borrowers. This will help 3 (million) to 4
    million families keep their homes and finally start to put a bottom on
    the housing market.
    And finally, the plan calls for bankruptcy reform, allowing
    bankruptcy judges to lower mortgages on first homes, subject to
    carefully crafted repayment plans. Carefully, the industry -- or
    rather clearly the industry in the previous administration were late,
    as I've said over and over again, in acknowledging the problem and
    very timid in their responses. With this plan that I've just
    mentioned, and ones we'll talk about this morning, issued only a few
    weeks ago after taking office, the contrast could not be sharper.
    Over and over, as we've begun to grapple with the mountain of
    problems facing our country, from skyrocketing health care costs to
    energy, we've heard members on both sides of the aisle say the same
    thing over and over and over again. Quote: "We need to fix housing
    first." And I couldn't agree more. And that's not just the chairman
    of the Banking Committee talking. That's also the Republican leader
    from Kentucky, Senator Mitch McConnell. That is our colleague,
    Senator Kyl of Arizona, Senator Enzi of Wyoming, Senator Ensign of
    Nevada and Senator Coburn of Oklahoma. All of these individuals have
    said the same thing -- "Fix housing first."
    So you're not talking about some great political divide up here
    when it comes to this issue. We may debate about which nuanced
    approach works better than the other, but we're all ears and want to
    help in getting to the bottom of this. And so John McCain and Barack
    Obama, again, during the presidential campaign, echoed the same thing
    -- "Fix housing first." It's a bipartisan notion, as bipartisan a
    notion as I can say that anything I've heard in the Congress in the
    last number of years.
    So with that, let me turn to Senator Shelby and then my
    colleagues, and then we'll get to your comments and responses to
    questions. We thank you again for being with us.
    Senator Shelby.

  • SEN. RICHARD SHELBY (R-AL)

    At 00:09:24
    5 minutes

    Thank you, Senator Dodd.
    A little more than a week ago, President Obama proposed his
    Homeowner Affordability and Stability Plan. The proposal aims to
    stabilize our crumbling housing market and help struggling homeowners.
    Unfortunately, I believe the proposal is long on good intentions and
    short providing a credible solution for our ailing housing market.
    For example, the proposed Fannie Mae and Freddie Mac refinance
    program appears to focus its efforts on those households least in need
    of assistance. The program would be open to households that are
    neither behind on their mortgages nor struggling to make their
    payments.
    Consequentially, the program would waste, I believe, resources on
    lowering the interest rate for borrowers who presently can and are
    paying their mortgages. Mr. Secretary, I believe our immediate
    attention should be to help those most in need who can be helped and
    are willing to help themselves.
    One part of the president's proposal, the Homeownership Stability
    Initiative, is supposed to help the most troubled homeowners. I
    believe, however, that it does so at considerable cost to the
    taxpayer, and mainly serves as a further bailout to the very banks
    that helped us get into our current condition.
    The initiative, for example, will pay servicers $1,000 for each
    mortgage they modify, and servicers and mortgage-holders $500 and
    $1,500 respectively if they modify loans before a borrower falls
    behind. Mortgage-holders would also get partial insurance to cover
    losses on a modified mortgage if housing prices decline further.
    Adding up all these payments, lenders could receive at least $4,000
    per loan modification. This would be equal to almost five months of
    principal and interest on the typical mortgage.
    All of this, of course, would be paid for by the taxpayer. The
    proposal would potentially pay billions to lenders who have already
    received tens of billions under the TARP and other recovery programs.
    For instance, with its acquisition of Countrywide Bank, Bank of
    America now services almost 13 million loans. If only a fifth of
    those loans, Mr. Secretary, receive assistance under the president's
    proposal, Bank of America would receive an additional $10 billion in
    taxpayer assistance, on top of the already over $45 billion that we
    know of in taxpayer funds it's already received.
    Mr. Secretary, before the American public commits another $10
    billion or more to Bank of America, for example, to perform the same
    services it's already paid to do, we need to consider whether this is
    really the best way to help struggling homeowners.
    We should also consider whether this proposal is fair. If
    implemented, the American people may have to pay billions of dollars
    to banks and servicers simply to do the job they're supposed to do.
    In addition to the lender and servicer payments, the president's
    proposal also pays borrowers up to $5,000 through a reduction in their
    loan balance. That sounds good. In other words, they get paid to
    make their payments. I'm confident that the vast majority of American
    homeowners would welcome a $5,000 subsidy simply for doing what
    they're supposed to do, make their mortgage payments. I'm equally
    confident that the vast majority of Americans believe that it isn't
    their responsibility to pay for that subsidy to someone else.
    I spent last week traveling around my state of Alabama, and the
    public reaction to your plan was not good. At a town hall meeting I
    had in Boaz, Alabama, I spoke with a gentleman named Darren Lanta (ph)
    who, with his wife, Carol, is struggling to keep their dry cleaning
    business going. Mr. Lanta (ph) told me and everybody else there that
    despite his struggles, he would never ask anyone to pay his mortgage.
    In addition, he said, he resented Congress, us, taking his hard-earned
    money to make somebody else's house payment.
    Mr. Secretary, I believe he was not alone among my constituents
    or the American people. We all want to help struggling homeowners.
    The question is, how? It's crucial, however, that we do so in a
    manner that is carefully targeted and based on proven solutions, and
    especially if we're going to spend billions of dollars more of
    taxpayer's money that has to be borrowed.
    As President Obama said Tuesday night, and I quote, "With a plan
    of this scale comes an enormous responsibility to get it right." He's
    absolutely right. The American people should be able to have
    confidence that their tax dollars are being used effectively. And I
    believe they don't think so here.
    To build that confidence, the administration should be able to
    provide a reasonable estimate of how many foreclosures it believes its
    $75 billion proposal will prevent as well as its impact on the housing
    crisis. The administration, through you, should also be able to
    demonstrate that its proposal is based on verifiable data rather than
    ad hoc policy choices.
    Until we begin, Mr. Secretary, developing solutions based on
    facts and analysis, I do not believe we can hope to rebuild either our
    devastating housing market or our confidence in our ailing economy.
    Thank you.

  • SEN. DODD

    At 00:14:40
    5 seconds

    Thank you very, very much. And I will now ask my
    colleagues -- Senator Menendez, any opening comment?

  • SEN. ROBERT MENENDEZ (D-NJ)

    At 00:14:45
    4 minutes

    Thank you, Mr. Chairman. I want to
    thank you for holding what is an incredibly important hearing.
    And Mr. Secretary, while I have several questions, I certainly
    want to commend you and the administration for taking the housing
    crisis seriously and developing the proposal that I think lays the
    foundation for some real relief to American families.
    As a member of this committee, I feel as if we have been
    listening to a fire alarm wail for years as millions of Americans
    watched their dreams of homeownership go up in smoke. We shouted the
    statistics as long as we could, we held meetings to develop
    legislation, but for years the previous administration just covered
    its ears. And now finally, we have one that is willing to call in the
    fire department, so to speak. And the question is, how big a fire
    pumper do we need, and how do we turn on the water?
    At a hearing in March of 2007 that the chairman mentioned, I said
    then that we were going to have a tsunami of foreclosures, and the
    administration basically said I was an alarmist. Well, at that same
    hearing, I started to shed some real light on the crisis, shared a
    story of a woman from my home state of New Jersey, who was given an
    adjustable rate mortgage she could not afford and the promise of a new
    mortgage term in one year. It didn't take long for her to fall behind
    on her payments and a foreclosure notice to arrive. That was March of
    2007. Over 20 months later, these stories are flooding into my office
    as fast as they ever have.
    Sixty-six hundred foreclosures are starting every week in this
    country, one every 13 seconds. In New Jersey since the beginning of
    this year, there have been over 9,000 new foreclosures, and we expect
    there to be over 60,000 new foreclosures before the year ends. Just
    recently, my office received a phone call. I know that Senator Shelby
    talked about his constituent and that dry cleaning business. And I
    appreciate what he thought. But I'll tell you a different story.
    My office had a New Jersey resident who is a sergeant in the
    United States Army Reserves. He recently returned from a long tour of
    duty in Iraq. During deployment, he fell behind on his mortgage.
    When he came back, he took on not only one but two jobs. But in this
    tough economy, his income has greatly decreased, and he's having
    trouble making ends meet. He has three kids who are depending on him.
    And my office is working with him or going to his servicer to try to
    work out an arrangement, but nothing has worked out so far.
    Families like this Army sergeant are all over America, waiting
    for their lender or servicer to strike an agreement and -- (inaudible)
    -- padlock on their doors. And to top it off, he thinks it's unfair,
    and so do I, that lenders can take taxpayer money but don't have to
    help homeowners. That was not the intention in our original bill. In
    fact, it was quite the opposite, and we need to fix that as soon as
    possible.
    So the relief you're talking about isn't a moment too soon. And
    as much as I really commend you for these commitments on paper, none
    of us can be satisfied until we see them put into action. I look
    forward to hearing details of the administration's plan. I think the
    whole country is waiting to find out exactly how American families are
    going to receive assistance and how fast because in the end, this is
    about all of us. It is about declining values in the home next door
    that may not be in foreclosure, it's about declining values in
    neighborhoods that has real consequences, as a former mayor, has real
    consequences for a community. You either have to cut delivery of
    services because your ratable base is going down or you've got to
    raise taxes. Both options are pretty horrid in this economy.
    And at the end of the day, it's really about all of us as
    Americans because our collective economy, this is one of its major
    drivers. And when it's not driving, it's falling. And when it's
    falling, we all suffer. So at the end of the day, I look forward to
    seeing what the administration's full plan is and how fast we will get
    there.
    Thank you, Mr. Chairman.

  • SEN. DODD

    At 00:18:55
    3 seconds

    Thank you, Senator, very much.
    Former secretary of Housing and Urban Development.

  • SEN. MEL MARTINEZ (R-FL)

    At 00:18:58
    5 minutes

    Thank you, Mr. Chairman, very much.
    I want to welcome Secretary Donovan and continue to wish you all
    the very best in your job and appreciate the -- (inaudible) -- comment
    on the current that it is important that -- (inaudible) -- the fact of
    the matter -- (inaudible) -- to some it may have seemed -- (inaudible)
    -- at the time that they would work. So I think it's entirely unfair
    to simply say the problem was ignored, people didn't care about poor
    people losing their homes. I just don't think that's accurate or the
    case.
    So I think as you look forward to implementation of this program,
    looking to HOPE for Homeowners and some of the issues that are raised
    in that program, that created problems in participation by private
    servicers are some of the very issues that I think we need to deal
    with in the plan that is being currently suggested.
    I was pleased with the president's initiative last week. I think
    it's very important that we begin to deal with this very, very serious
    problem that's afflicting so many Americans. And I believe we can
    help deserving families stay in their homes by curbing unnecessary
    foreclosures and, in doing so, help to preserve communities and put
    our housing market on a pathway to recovery.
    The president has laid out the groundwork for the plan which
    includes three main components -- a refinancing option for qualified
    homeowners as loans are currently owned or guaranteed by Fannie Mae
    and Freddie Mac, a 75 billion (dollars) interagency loan modification
    strategy and an additional 200 billion (dollars) in funding
    commitments to the housing GSEs. I applaud the administration for
    taking aggressive steps to tackle this crisis. And I also want to be
    sure that as we go forward, we get some answers to some of the
    details. I question whether it will be more effective than the
    current programs in preserving homeownership. And that's at the very
    core of why I say it isn't just enough to say the prior administration
    tried nothing. Some things were tried not successfully, and we need
    to learn those lessons rather than just simply ignore that the effort
    was made.
    One of the major stumbling blocks to the success of the current
    preservation programs has been the lack of participation by servicers
    of private mortgages. These mortgages which were originated without a
    guarantee from the government account for more than one half of the
    foreclosure starts despite the fact that they only are about 15
    percent of all outstanding mortgages. Servicers of these securitized
    mortgages make a critical decision of what to do when a mortgage
    becomes delinquent by choosing to pursue foreclosure or a modification
    of the mortgage. Existing research suggests that these servicers opt
    for foreclosure much more often than private lenders that service
    their own mortgages.
    While Fannie Mae and Freddie Mac and FHA and private lenders are
    actively and aggressively pursuing mortgage modifications, servicers
    of securitized loans are still lagging. Two primary factors are
    driving mortgage servicer's reluctance to modify loans when
    modifications would make economic sense. One is our servicers are not
    compensated for loan modifications. And secondly are the legal
    constraints and the potential for litigation that dissuade many
    servicers from pursuing modification.
    I was glad to see that President Obama's plan addresses one part
    of this problem by providing monetary compensation to the servicers.
    But (in the midst ?) of this, the legal constraints hindering the
    servicer's participation. Without this critical second element, I do
    not believe the private marketplace will be any more willing to pursue
    modification over foreclosures than they have in the past.
    Chairman and I co-sponsored an amendment to the stimulus bill
    which covered both of these items. And I recommend to you a look at
    that amendment which passed but ultimately was not part of the final
    bill, which I think would've dealt with both aspects of the problem,
    not just the compensation but also the legal safe harbor provided to
    the servicers.
    I have concerns about the federal government's becoming a
    guarantor of loan modifications enacted under this program. Although
    the housing market may be stabilizing in some areas there are still
    places around the country, including cities in Florida, where home
    prices are expected to decline further.
    According to the Obama administration's own projections, 40
    percent of loan modifications through this program are expected to re-
    default. We need to ensure the federal government is using taxpayer
    dollars wisely and that we're working to really solve problems, not
    just delay them.
    One major factor for accelerating defaults is that consumers are
    saddled with debt beyond their homes, including credit card debt, auto
    loans, medical bills. And, you know, the fact that continuing
    unemployment is a part of our daily landscape is something that cannot
    be ignored as an added element of what is happening here.
    In any event, I want to thank you for the job you've undertaken.
    I want to thank you for the initiative that I hope we can see all of
    the details of. And I want to work with you because this is a plan
    that America needs to succeed. We need for it to work. So I hope
    we'll continue to develop a plan in consultation with the Congress
    that can not only begin to stave off more foreclosures and declining
    values but also begin to really see a reemergence of the housing
    sector, which is a vital part of an economic recovery.
    I thank you, Secretary, and look forward to hearing your
    testimony.

  • SEN. DODD

    At 00:24:37
    54 seconds

    I thank you, very much Senator. And I'm glad the
    senator mentioned it, I realized I didn't so myself, but I want to
    thank him for him amendment that we worked on together during the
    stimulus vote. And I tried -- I tell my colleague that I got word at
    the last hour that negotiation, I guess, in conference what was going
    to happen. I called and I should say, to the credit of the
    leadership, they apologized, they raced back in to try and salvage the
    language. There was no cost to it. In fact, quite the opposite -- it
    was quite a benefit to it -- and weren't able to do so and they regret
    that. So it was unfortunate that it got dropped because it really
    would do exactly what the Senator had just described and played a very
    important role. We need to find a way to incorporate that in
    something we do here pretty quickly. So I thank the senator for it.
    Senator Brown.
    And there's a vote that started. I'm going to go
    vote and come right back. And we'll just keep the hearing going so we
    don't have any delay in this.

  • SEN. SHERROD BROWN (D-OH)

    At 00:25:31
    3 minutes

    Thank you, Mr. Chairman, for your
    leadership.
    And Mr. Secretary, thank you for your public service in New York
    and thank you for what you're doing today.
    You have inherited quite a mess, a mess born of get rich schemes
    for the very wealthy and the monetary middle-men who conceived of and
    carried out these schemes; mortgage schemes that paint an unaffordable
    as easily within reach; unregulated credit markets fueled by false
    promises and sustained by false hopes and government regulators who
    slept through all of it.
    Not only did the perpetrators of these schemes paralyze American
    families and the American economy, they tainted the American dream.
    We all hear disillusionment and despair and unbridled outrage in the
    voice of Americans, I hear them in the voice of Ohioans, as they watch
    their homes slip away, their property values plummet, their
    communities crumble. Their gut level feeling is that all of this is
    not only unjust but perhaps criminal.
    We owe it to Americans, the Americans we serve, to respond
    quickly and forcefully to the housing crisis. We owe it to them to
    stop prioritizing the demands of corporate moguls over the wellbeing
    of every day Americans.
    We all need, of course, to worry about the erosion of home
    values. Too many working families who pay their mortgages on time are
    facing home values -- or facing lower home values when their
    neighbors' homes are foreclosed. As we know, each foreclosed home
    reduces nearby property values by several percent. And it doesn't
    stop at home values. Police, fire, schools, other programs that are
    funded based on property values are also facing massive shortfalls.
    Other building blocks of the American dream are also under siege;
    a car in every driveway, a stable income upon retirement, a college
    education for every child. A quick internet search of just one
    website yields in the community of Pickerington, a city, a suburban, a
    suburb outside of Columbus, a generally affluent suburb yields 109
    foreclosures for sale in Pickerington. Pickerington has an estimated
    population of 16,000 people.
    Profiteers exploited the American dream pedaling subprime loans
    in the quest for more, more bonuses, more private jets, more European
    vacations. No one cared how much they spent, they always had the
    golden parachute to safely land them when the money dried up. That's
    the problem that you are left with that we are left with, cleaning up
    after a long, loud party.
    While I know the nuts and bolts of the administration's Homeowner
    Affordability and Stability Plan are to be released next week, the
    broad outline looks promising. I understand the plan the
    administration's proposing will help at least 9 million struggling
    families hold on to their homes, which is necessary if we care whether
    people get back on their feet or fall into poverty.
    It's also a smart move to help neighborhoods thrive rather than
    fragment and help communities on shaky ground to get on stabler
    ground.
    I'm heartened that after eight long years we finally have an
    administration that remembers that it reports to Main Street, not to
    Wall Street.
    Thank you for your service.
    Thank you, Mr. Chairman.

  • SEN. JACK REED (D-RI)

    At 00:28:32
    2 minutes

    Thank you, Senator Brown.
    Secretary Donovan, welcome. We are all delighted that you are in
    the leadership of the Department of Housing and Urban Development.
    You have extensive experience there. And in addition to that you have
    been doing a remarkable job in New York City and we thank you for that
    also.
    I share the sentiments of so many of my colleagues that action
    delayed over the last several months has worsened this crisis. And so
    the action plan that you proposed along with the president I think is
    vitally important at this moment.
    I think also the ability to react to the ups and downs of the
    market is going to be critical. You're going forward with a good plan
    but I think you're also, you're going to prepare to modify and adapt
    and respond to changes in the situation.
    One of the fundamental aspects, I think, of our recovery is
    stabilizing housing prices and then beginning to get people back to
    work. And once the American families feel that their housing prices
    is stable and hopefully begin to appreciate, once they're confident in
    their jobs the rest will be, I think, much -- not easy but the path
    ahead will be sure and more confident for families across the country.
    One thing I want to particularly thank you for is I heard today
    that in the president's proposal there'll be a $1 billion fund to
    launch the affordable housing trust fund, that's in the budget. I
    know Senator Shelby and I worked on that. I was a key element of the
    legislation a year ago, last August. And in this time when people are
    losing their homes, particularly low income Americans, the expanding
    affordable housing opportunities is more critical. And in addition
    too, I think it sends the signal that our housing policy can't rest
    simply on homeownership, that there are scores of American families
    whose best and most -- and wisest course of action is to be in
    affordable rental housing because of their family situation and
    because of their economic situation.
    And I think we were too, in a sense, beguiled by this notion that
    we could put everyone in a home. And I think we found out that some
    people, despite their best efforts, as it turns out today couldn't
    afford it or were given loans that were just not commensurate with
    their ability to pay and to sustain the homeownership.
    So for all of these reasons I want to commend you. I would note,
    I believe, Senator Shelby, you've already had your opening comments.
    We are waiting for the return of Senator Dodd. And I -- Senator
    Shelby, I think should be put it in recess for a moment?

  • SEN. SHELBY

    At 00:31:28

    I don't think so.

  • SEN. REED

    At 00:31:28

    You want to --

  • SEN. SHELBY

    At 00:31:28

    (inaudible)

  • SEN. REED

    At 00:31:28
    10 seconds

    Okay.
    See I'm relying on the wisdom and the counsel of the former
    chairman.
    So that shows at least --

  • SEN. SHELBY

    At 00:31:38

    You've got the gavel.

  • SEN. REED

    At 00:31:38
    12 seconds

    I get the gavel. But he's got the wisdom and the
    experience. So I will -- Mr. Secretary, will you give your statement
    please.

  • SEC. DONOVAN

    At 00:31:50
    9 minutes

    Thank you, Mr. Chairman. Senator Shelby,
    distinguished members of the committee, thank you for the opportunity
    to appear here before you today.
    Homeowners in communities throughout the country have been
    devastated by the economic crisis. Many responsible families, making
    their monthly payments, have experienced falling home values that
    disqualify them from opportunities to refinance with today's low
    interest rates. And millions of American workers have been laid off
    or forced to accept less work and are grasping at every resource
    possible to make their mortgage payments.
    In the absence of action, over six million families could face
    foreclosure in the next few years, with millions more struggling to
    stay above water.
    In the absence of action we would've seen an intensifying spiral
    of more lenders foreclosing, pushing nearby home prices even lower,
    and putting more families under water. In fact, when a family loses
    their home to foreclosure nearby homes drop in value by as much as
    nine percent, causing harm to every homeowner, even those who make
    every payment, when foreclosures is in their communities increase.
    On February 18th President Obama announced the Homeowner
    Affordability and Stability Plan, a plan to help make available to as
    many as seven to nine million homeowners who are fighting hard to make
    their payments and stay in their homes.
    The plan will not provide money to speculators. It will target
    support to the working homeowners who have made every possible effort
    to stay current on their mortgage payments.
    The Homeowner Affordability and Stability Plan is part of the
    president's comprehensive strategy to get the economy moving in the
    right direction.
    Just as the American Recovery and Reinvestment Act works to save
    or create several million new jobs and the Financial Stability Plan
    works to get credit flowing, the Homeowner Affordability and Stability
    Plan will support a recovery in the housing market and ensure that
    these workers can continue paying off their mortgages.
    The plan not only helps the responsible homeowners at risk of
    losing their homes, but prevents neighborhoods and communities from
    decay as defaults and foreclosures fuel falling home values, local
    business collapses, and further job loss.
    There are three parts to the plan: First, encourage
    homeownership by helping keep mortgage rates low; second, support for
    refinancing of up to four to five million responsible homeowners to
    make their mortgages more affordable; and third, to launch a $75
    billion homeowner stability initiative to reach up to three to four
    million at-risk homeowners.
    To help keep mortgage rates low and promote stability and
    liquidity in the marketplace, the Treasury Department will continue to
    purchase Fannie Mae and Freddie Mac mortgage-backed securities. In
    addition, the Treasury Department will increase its funding commitment
    to Fannie Mae and Freddie Mac to ensure the strength and security of
    the mortgage market and to help maintain mortgage affordability. This
    backing will bolster confidence in the mortgage market, allowing
    interest rates to remain at generational lows and to continue to
    provide mortgage affordability for responsible homeowners.
    As noted, mortgage rates are currently at historic low levels.
    But, under current rules, only families with conforming loans -- owned
    or guaranteed by Fannie Mae or Freddie Mac, who owe less than 80
    percent of the value of their homes, are eligible for refinancing to
    these low interest rates. Unfortunately, given the recent decline in
    home prices, millions of responsible homeowners who made down payments
    and timely mortgage payments are unable to access these lower rates.
    The president's plan will help as many as four to five million of
    these homeowners refinance to lower interest rates, through Fannie Mae
    and Freddie Mac, by opening eligibility to borrowers who owe on their
    mortgage 80 to 105 percent of the current value of their home.
    Finally, the president has announced an initiative to reach
    millions of responsible homeowners who are struggling to afford their
    mortgage payments. In the current economy, millions of hardworking
    families have seen their mortgage payments rise to 40 or even 50
    percent of their monthly income, particularly if they received
    subprime or exotic loans with exploding terms and hidden fees. The
    Homeowner Stability Initiative operates through a partnership of
    lenders, servicers, borrowers and the government to help responsible
    borrowers stay in their homes, providing families with security and
    neighborhoods with stability.
    Based on estimates of the effects of foreclosures on the value of
    nearby homes, the Homeowner Stability Initiative could protect the
    owner of an average-valued home in the U.S. from as much as a $6,000
    decline in home prices. Homeowners with high mortgage debt compared
    to income may be eligible for a loan modification as long as their
    home mortgage does not exceed the GSE conforming loan limits.
    Further, the increase in GSE conforming loan limits -- up to
    $729,750 in some high-cost areas, as enacted in the American Recovery
    and Reinvestment Act, will allow more borrowers to qualify.
    Significantly, this program will not require homeowners to be
    delinquent in their payments to qualify for eligibility. Loan
    modifications are more likely to succeed if they are made before a
    homeowner becomes delinquent, thus the plan will include households at
    risk of imminent default despite having not yet missed a mortgage
    payment.
    Borrowers with large, non-housing debts can qualify but only if
    they agree to enter HUD-certified counseling. Specifically,
    homeowners (who would ?) total "back-end" debt -- which includes not
    only housing debt but other debt, including car loans and credit card
    debt, equal to 55 percent or more of their income, will be required to
    agree to enter a counseling program as a condition for a modification.
    The Homeowner Stability Initiative could reach up to three to
    four million at-risk borrowers in all segments of the mortgage market,
    reducing foreclosures and helping to avoid further downward pressure
    on overall home prices. The Program has several key components:
    First, the government will partner with lenders to reduce the
    homeowner's monthly payment to affordable level. The lender is solely
    responsible for interest rate reductions and other changes necessary
    to lower the borrower's monthly payment to 38 percent of his or her
    income.
    From that point, the government will match, dollar for dollar,
    any additional reductions the lender makes to lower that ratio to 31
    percent. These adjustments could mean a monthly mortgage payment
    lowered by more than $400 for a borrower with a $220,000 mortgage.
    The lower interest rate arrived at must be kept in place for five
    years, at which point it can gradually be increased to the conforming
    loan rate at the time of the modification. Lenders will also have an
    option of decreasing monthly payments by reducing the principal owed
    on the mortgage, with the government sharing those costs.
    Second, servicers will receive $1,000 for each eligible
    modification meeting Initiative guidelines. They will also receive
    fees to reward them for continued success, awarded monthly as long as
    the borrow stays current on the loan, up to $1,000 each year for three
    years.
    Third, to encourage borrowers to stay current, the Initiative
    will provide a monthly principal balance reduction payment. As long
    as a borrow stays current on his or her loan, he or she can get up to
    $1,000 each year for five years.
    Fourth, because loan modifications are more likely to be
    successful if they are made before a borrow misses a payment, to keep
    lenders focused on reaching borrowers who are trying to stay current
    on their mortgages an incentive payment of $500 will be paid to
    servicers, and an incentive payment of $1,500 will be paid to mortgage
    holders if they modify at-risk loans before the borrow misses a
    payment.
    Finally, to encourage lenders to modify more mortgages and enable
    more families to keep their homes, the administration, together with
    the FDIC, has developed an innovative Home Price Decline Reserve
    Payment. The fund, which may be as large as $10 billion, will provide
    holders of mortgages modified under the Program with an additional
    payment in the event that the home price declines, and therefore the
    risk of loses in cases of default is higher than expected.
    As mentioned earlier, the Homeowner Affordability and Stability
    Plan is not a self-contained initiative but is intended to work in
    conjunction -- excuse me, with other efforts, such as the American
    Recovery and Reinvestment Act and the Financial Stability Plan to
    provide a comprehensive and multi-faceted response to the current
    economic troubles.
    As part of the American Recovery and Reinvestment Act signed by
    the president, the Department of Housing and Urban Development will
    award $2 billion in competitive Neighborhood Stabilization Program
    grants for innovative programs that mitigate the impact of
    foreclosures by supporting strategies to address the problem of vacant
    foreclosed properties.
    Additionally, the Act includes $1.5 billion to provide assistance
    to renters facing displacement, reducing homelessness and avoiding
    entry into shelters. HUD allocated that $1.5 billion of homelessness
    prevention funding to recipients yesterday, just one week after the
    bill was signed, as part of our successful allocation of three-
    quarters of Recovery Act funds for HUD programs yesterday.
    In addition to the already mentioned efforts, the president's
    overall economic recovery plan will seek careful changes to personal
    bankruptcy provisions. The administration will work with Congress to
    ensure that legislation works well in conjunction with our voluntary
    modification approach.
    Finally, the HOPE for Homeowners Program offers one avenue for
    struggling borrowers to refinance their mortgages. In order to ensure
    that more homeowners participate, we support changes to the program
    that will reduce fees paid by borrowers, increase flexibility for
    lenders to modify troubled loans, permit borrowers with higher debt
    loads to qualify, and allow payments to servicers of the existing
    loans.
    Thank you, and I look forward to your questions.

  • SEN. REED

    At 00:41:27
    8 seconds

    Well, thank you very much, Mr. Secretary.
    I note we've been joined by Senator Johanns. And we've been
    asking if you have opening statements.

  • SEN. MIKE JOHANNS (R-NE)

    At 00:41:35

    (Off mike.)

  • SEN. REED

    At 00:41:35
    19 seconds

    Very good.
    In that case I will begin a quick round of questioning -- but,
    let me just do this, because we have to vote. I'll recognize Senator
    Johanns for questions, and by the time you finish Senator Dodd will be
    here and all will be well.

  • SEN. JOHANNS

    At 00:41:54

    (Off mike.)

  • SEN. REED

    At 00:41:54
    4 seconds

    Thank you, Senator Johanns.

  • SEN. JOHANNS

    At 00:41:58
    2 seconds

    Mr. Secretary, welcome.

  • SEC. DONOVAN

    At 00:42:00

    Thank you.

  • SEN. JOHANNS

    At 00:42:00
    1 minute

    It's unusual that we get this kind of opportunity,
    but I appreciate the opportunity.
    Let me, if I might, offer a thought, and then I'd like your
    reaction to a couple of questions. The thought is that one of the
    challenges we are finding in the marketplace, in terms of lending at
    the moment, is the market is looking for stability, predictability;
    they're looking for confidence in the ability of that borrow to repay,
    et cetera.
    So, I'm going to turn to just the last comment you made about the
    bankruptcy provisions. And I think what you're referring to is "cram-
    down," although you did not use that word. Talk to me about how that
    fits into what you are doing here. How would a cram-down approach fit
    with what you're proposing here today?

  • SEC. DONOVAN

    At 00:43:06
    1 minute

    It's a very important question, Senator. And let
    me first start by saying, as the president made clear in his
    announcement of the plan last week, that this is an issue of fairness
    -- to him and to the administration whether it's a second home or any
    other kind of debt, that currently can be modified in a bankruptcy.
    And we have been able to find ways to ensure that markets are stable
    for those types of loans as well, but we also agree that particularly
    in this time of difficulty in the market we don't want to disturb the
    markets any further.
    And so there are a couple provisions that we think are important,
    in terms of carefully tailoring this legislation. One of those is to
    make it available only for loans that are already in existence. In
    other words, new mortgage loans would not have this provision applied
    to them. And --
    (Cross talk)

  • SEN. JOHANNS

    At 00:44:12
    3 seconds

    If I might just interrupt. You lost me. Make
    what available?

  • SEC. DONOVAN

    At 00:44:15
    5 seconds

    The option to modify a loan in a bankruptcy
    proceeding --

  • SEN. JOHANNS

    At 00:44:20
    2 seconds

    The cram-down?

  • SEC. DONOVAN

    At 00:44:22
    3 seconds

    -- would be -- would apply only to loans that have
    already been originated. In other words --

  • SEN. JOHANNS

    At 00:44:25

    Okay.

  • SEC. DONOVAN

    At 00:44:25
    14 seconds

    -- the idea is not to have an impact on lenders
    that are out making mortgage loans today and to potentially impact
    interest rates as a result of that.

  • SEN. JOHANNS

    At 00:44:39
    2 seconds

    Okay. Let me stop you there --

  • SEC. DONOVAN

    At 00:44:41

    Yeah.

  • SEN. JOHANNS

    At 00:44:41
    33 seconds

    -- just so we're on the same wavelength. You've
    got I don't know how many dollars worth of loans out there today --
    billions and billions and billions -- they would all be subjected to
    this new bankruptcy authority is what you're saying. Now if you end
    up with a loan the day after, you don't benefit from that new
    bankruptcy authority. Am I -- are we together so far?

  • SEC. DONOVAN

    At 00:45:14
    15 seconds

    Right. The idea is that prospectively for new
    loans that will be originated this provision would not apply and
    therefore there is no risk of it affecting originations going --

  • SEN. JOHANNS

    At 00:45:29
    1 minute

    Okay. Now let me take another step with you,
    because I think I know where you're going. Let's say that we are
    going to continue to ask the taxpayer to bail these things out,
    because I think that's kind of what's going on here. And they're
    going to in some form or fashion -- whatever the idea is, they're
    going to in some form or fashion be the owner of these bad loans, or a
    certain portion of them.
    How can we assure the taxpayer that with this new bankruptcy
    authority as you refer to it, I call it cram down because it is; I'm a
    lawyer and that's what we'd call it. How can we assure them that
    there will be stability because all of the sudden we've forced into
    that basket of debt that the taxpayer's going to own a big
    uncertainty. We've got one judge somewhere who has been empowered to
    say that loan isn't worth what you think it is because I'm going to
    force something different. Isn't that the very uncertainty that we're
    trying to avoid in the marketplace?

  • SEC. DONOVAN

    At 00:46:55
    1 minute

    Again, I think with careful tailoring of this
    legislation, there are a number of ways to ensure that it doesn't
    introduce that kind of instability. One of them is this prospective.
    Another is to make sure that every effort is being made to modify
    loans, keep people in their homes, before they ever get to bankruptcy.
    So we would support a provision that would, if a lender has made a
    good faith effort to use this modification plan, that that would
    exempt them from the bankruptcy.
    So in other words, we want to be very clear, this is not a
    solution to the issues that homeowners have struggling with their
    payments as a primary response. It is only a last case resort. We
    want to make sure that we're getting to this problem of modifications
    and it's why we have our proposal as early on as possible to take away
    exactly the instability that you're talking about -- to ensure that
    mortgages are affordable and that people can make their payments. And
    that will help markets to stabilize because it's the foreclosures
    today that are happening and that instability it is driving so much of
    the problems in our mortgage market.
    Forty-five percent of all home sales in December were distressed
    sales. And so helping to make mortgages more affordable before you
    ever get to bankruptcy is incredibly important. So there are a number
    of ways to do that built into the bankruptcy provisions, we think.

  • SEN. JOHANNS

    At 00:48:31
    1 minute

    I am out of time and the chairman has arrived, so
    let me just wrap up with this. I hear what you're trying to say and I
    think you're trying to assure me that, Mike, it isn't going to be that
    bad. But if the only option is for these people who are in default or
    have missed payments, if the only option is bankruptcy, they'll
    probably take that option, I think you'll see bankruptcies sky rocket.
    And then like I said, because of the uncertainty that you've now
    introduced into the valuation of that mortgage debt, what is it worth
    if a judge holds that power. I think as this trails out, the people
    who are going to pick up the tab for that you know, is the taxpayer
    out there because I think in the end, they're going to own -- it looks
    to me like they're going to own a lot of those bad debts.

  • SEC. DONOVAN

    At 00:49:37
    51 seconds

    Yeah. If I could, Senator, there's one other
    provision that I haven't mentioned that I think is important as well.
    There has been this discussion about a limitation of any reduction of
    the debt in bankruptcy to at -- the maximum it could be reduced is to
    the market value of that home. And I think also that is quite
    important in terms of taking away some of the uncertainty that you're
    talking about.
    So again I think there are a number of ways to minimize that
    uncertainty and we clearly agree that bankruptcy is not the way to
    work out these mortgages. And we have taken action, that's exactly
    what the modification plan that we've introduced is, is to make sure
    that we avoid the problem of foreclosure and bankruptcy in the first
    place and help as many families as possible, responsible homeowners
    stay in their homes with the modification plan.

  • SEN. JOHANNS

    At 00:50:28

    Mr. Chairman, thank you.

  • SEN. DODD

    At 00:50:28
    8 seconds

    Thank you Senator very much.
    Senator Merkley, I know you didn't get the chance to make an
    opening comment at all so why don't you take the floor?

  • SEN. JEFF MERKLEY (D-OR)

    At 00:50:36
    30 seconds

    Thank you very much Mr. Chair and
    thank you for your testimony and I'll keep it very simple. This is an
    incredibly important plan for millions of American home owners,
    certainly important to the financial foundations for our families, but
    also for the health of our economy. And I look forward to hearing the
    exchanges of questions and thoughts and working with the
    administration to try to make sure that this program works both for
    our families and for our economy.
    Thank you.

  • SEN. DODD

    At 00:51:06
    1 minute

    I understand Mr. Secretary that Senator Merkeley has
    a -- we talked a little bit yesterday as well privately and has as all
    of us do -- but a very deep and abiding interest in this subject
    matter and spent a lot of time on his own, in fact meeting with people
    outside of Washington to talk about this issue as well. So he has
    some very strong ideas that I'm sure you'll listen to.
    Let me say about a couple of things. One is I don't need to tell
    you Mr. Secretary that the level of frustration of the country is
    beyond probably anything any of us have witnessed in a long, long time
    and the word frustration and anger and disappoint, the adjectives
    don't even begin to adequately describe what so many millions of our
    constituents are feeling, whether they're directly affected by a job
    loss or foreclosure, retirements being dissipated almost before their
    very eyes -- if they know people or they know that's what their
    children are going through.
    I don't know anybody not adversely affected by this at this
    moment. And obviously they're looking for answers and how this is all
    going to work. I presume the other offices are not unlike mine by
    getting a lot of calls coming in saying they're optimistic about this,
    now how does it work and how do I qualify and what do I do?
    Can you share with us any plans that the administration has as to
    how we can begin to communicate directly with the American people
    about this so they can understand this and determine whether or not,
    because obviously timing is important in all of this, where you are in
    that economic cycle can determine whether or not you're going to
    benefit from this or not. If you act too early you may not, if you're
    too late you may not.

  • SEC. DONOVAN

    At 00:52:36

    Yeah.

  • SEN. DODD

    At 00:52:36
    13 seconds

    So the windows are not terribly wide for people to
    step through. And I think it's critically important that the very
    people we're trying to help here understand what this is and how it
    works and what they need to do and can do.

  • SEC. DONOVAN

    At 00:52:49
    1 minute

    Mr. Chairman, incredibly important question. We
    have been spending a lot of time with my staff, staff on the National
    Economic Counsel, at Treasury, reaching out to organizations that are
    talking to home owners to servicers to make sure that we get as much
    information out as possible. You may have seen that Secretary
    Geithner and I hosted a meeting yesterday with the largest national
    groups that are involved in counseling and servicing to make sure that
    we do that.
    First of all, we have a lot of information available today, I
    think as you know next week on March 4th we're going to publish the
    detailed guidelines and there will be more detailed information
    available then. But we already know a lot about who is eligible for
    the program and we've already begun communicating with the servicers
    and the counselors about how to talk to borrowers to help them
    understand if they're eligible.
    And what I would suggest most specifically is that, whether it's
    your office or anyone interested in getting more information, you can
    go to HUD's website at www.hud.gov and get all of our question and
    answers, all of the detailed information that we have today, or pick
    up the phone and call the hope hotline which is 888-995-HOPE and we've
    been working very closely with them to make sure they have the very
    latest detailed information on who's eligible and how to get
    assistance.
    As you know the servicers have all agreed to stop foreclosures
    until the detailed guidance is out next week and we would expect them
    to begin modifying loans immediately after the guidelines are out
    based on that information. So we believe that this can happen very
    quickly and that there is the information available today to start to
    help homeowners make those decisions.

  • SEN. DODD

    At 00:54:44
    55 seconds

    Well I would hope in that regard -- obviously we're
    all of our offices are prepared to try and answer what we can and
    certainly yours would as well, but we're also very conscious it's a
    new administration, you're not exactly fully staffed, I presume yet as
    well. In addition to everything else you're doing, to go and then
    handle the volume and I raise this really merely as an idea and the
    thought and others may have some similar suggestions. I wonder if you
    might even be convening the major heads of some of our largest
    television radio outlets for them to as a public service to the
    country provide some basic information.
    Lending institutions themselves, particularly those receiving
    TARP funds here ought to be required in some way to do something in a
    proactive way so that people are going right to the source where they
    can.
    All of us getting a lot of calls coming in is -- certainly we
    welcome those calls, but we're going to be wanting to defer them and
    if we do it just to you, you end up with a set of problems. But if we
    could actually hook them up --

  • SEC. DONOVAN

    At 00:55:39

    Yes.

  • SEN. DODD

    At 00:55:39
    1 minute

    -- with the people who can then actually deliver or
    answer their questions very directly.
    And I think it's one of those moments where the kind of
    cooperation of some of our major media outlets could really be of help
    at a time like this to give those numbers out, to give numbers of
    where people can call or do something that would allow people who are
    more likely to get their information through that than watching --
    (inaudible) -- with all due respect to C-SPAN, who I love dearly. The
    idea they all watch this is unlikely. So I raise that with you. And
    there may be other thoughts and ideas we're going to talk about.
    Let me quickly get to one other question I have for you as well.
    And that is and a lot of us have heard the debates about whether or
    not we ought to have an affordable payment plan or have a principal
    reduction model. And I've received a number of e-mails and others
    from people who are very knowledgeable in the area of finance and have
    argued for the principal reduction model rather than the affordable
    payment plan. Could you share with us briefly why you decided to opt
    for the affordable payment plan rather than the principal reduction
    plan and what the pitfalls would be, as I presume you've drawn the
    conclusion, in the principal reduction proposal?

  • SEC. DONOVAN

    At 00:56:52
    1 minute

    Mr. Chairman, it's an outstanding question. I
    mean, in some ways, this gets to the very heart of the key to how we
    think this plan will be successful. And we've spent a lot of time,
    you can believe, with Larry Summers, with the president, with
    Secretary Geithner, thinking through these issues. And what we found
    looking at the evidence is that we believe very strongly that by
    getting payments to an affordable level, that's the single most
    important thing we can do to keep people in their home.
    The evidence from a series of studies, most recently a Boston Fed
    study, shows that a very small percentage of people who are underwater
    but can afford their mortgages actually walk away or default. Now, I
    will recognize with all humility that we are in an unusual time, that
    we may not be able to compare our current environment to what's
    happened historically. But there is very clear evidence, as this
    recent Boston Fed study said that for people who are underwater but
    can afford their payments, only in the range of 1 to 2 percent of
    those homeowners actually walk away and go through foreclosure.
    So we believe, based on the best evidence that we could gather,
    that the key to keeping people in their homes is getting them to an
    affordable payment rather than focusing on principal reduction. And
    frankly, it's also, we believe, a more cost-effective way to reach
    more people. There are a range of estimates, but it would have been
    hundreds of billions if not trillions of dollars to try to get to
    principal reduction across the whole portfolio of people who are at
    risk. So those are really the two primary considerations.

  • SEN. DODD

    At 00:58:45
    24 seconds

    There would appear to be obvious benefits to the
    principal reduction in that it would allow people to start to
    accumulate equity back in their homes, the wealth-creation idea.
    That's obviously appealing from that perspective.
    There were also complaints, or not complaints, but questions
    raised, I guess complaints as well, about what would happen in the
    bond market and so forth in this area because of this choice over
    affordability over principal reduction. Can you respond to that?

  • SEC. DONOVAN

    At 00:59:09
    1 minute

    Yes. And I do think it's very important to make
    clear principal reduction is a good thing. And we have done
    everything we can in the plan to ensure that the owners of these loans
    can go ahead and reduce principal. And in fact, we will share -- if
    they choose to get the payments more affordable through principal
    reduction rather than interest rate reductions or principal deferral,
    we will match that dollar-for-dollar in the same way that we would an
    interest reduction.
    We also have this feature that for successful modifications over
    five years, borrowers can get up to a $5,000 payment to reduce the
    principal. So we have ways that we can help to start build equity
    again.
    Finally, I would say that we have other tools that get to
    principal reduction. HOPE for Homeowners is a good example. We've
    been talking with a number of the investors that you mentioned and
    want to make sure that our plan treats across the board principal
    reduction with the same sort of incentives that we've provided for
    affordability. We haven't gone to the point of actually paying for
    that principal reduction in a scale that we think could, you know,
    have a cost of hundreds of billions if not trillions of dollars.
    So we do allow it, we do encourage it. But we do think that the
    most important focus is on affordability.

  • SEN. DODD

    At 01:00:45
    37 seconds

    Okay, I'm going to come back. I wanted to ask you in
    the next round I have about the HOPE for Homeowners and what steps do
    you think -- Senator Shelby and I worked very hard on that last year
    to try and put a plan with Mel Martinez. And it was difficult because
    there were a lot of -- we weren't quite in the intense moment we are
    today in all of this, so there were a lot of issues being raised. And
    I think we sort of, with all the good intentions, created a process
    that was so intimidating and so full of hurdles that it discouraged
    both lenders and borrowers from being involved. And I'd love to know
    if you've given that some thought, how we might modify that so that
    that program could also work certainly far better than it has.
    But let me turn to Senator Shelby.

  • SEN. SHELBY

    At 01:01:22
    50 seconds

    Thank you, Senator Dodd.
    Mr. Secretary, Section 1517 of the Housing and Economic Recovery
    Act of 2008 requires HUD to undertake a study of the root causes of
    high foreclosure rates among residential mortgages. An interim report
    was due January the 31st of this year. And I know you haven't been
    there long, Mr. Secretary. I believe such a report could, however,
    provide a valuable foundation upon which to structure foreclosure
    assistance.
    Until we have a firm understanding, Mr. Secretary, of what is
    driving foreclosures, I believe assistance plans will continue to be
    ad hoc and uninformed, for the most part. When can the Banking,
    Housing and Urban Affairs Committee here expect to see HUD's
    foreclosure report that is required by law?

  • SEC. DONOVAN

    At 01:02:12
    57 seconds

    First of all, let me say, Senator, that -- and you
    made this comment in your opening statement -- I could not agree with
    you more that we need to take actions based on history, based on data,
    based on real information. And I'm happy to talk about a lot of the
    detail and assumptions underneath what we've done. I think we've
    tried to do that and to meet your standard which is absolutely the
    right standard.
    On the report, when we took office roughly a month ago, it seems
    like a little longer some days, we had a rough draft of that report
    presented to us. We have been reviewing that, not only within HUD but
    also at OMB and at the White House to make sure we understand, to ask
    for any more detailed information where we think it should be. And I
    can promise you we will have that report to you within the coming
    weeks, based on the review that we're undertaking right now.

  • SEN. SHELBY

    At 01:03:09
    2 seconds

    Do you believe that report is important?

  • SEC. DONOVAN

    At 01:03:11
    2 seconds

    I do believe it is.

  • SEN. SHELBY

    At 01:03:13
    32 seconds

    Okay. The targeting of assistance -- historically,
    the number one event resulting in mortgage delinquency has been job
    loss. When a family has lost the wage of its primary earner, it's
    unlikely that any reduction in their mortgage rate will keep them in
    their home, generally. Mr. Secretary, what does the president's
    foreclosure plan do to help families that are struggling to pay their
    mortgages due to job loss? What's there? I don't see it there for
    them.

  • SEC. DONOVAN

    At 01:03:45

    First of all --

  • SEN. SHELBY

    At 01:03:45
    2 seconds

    You understand what I'm asking, don't you.

  • SEC. DONOVAN

    At 01:03:47
    34 seconds

    Yes. First of all, I think the president made
    clear in his speech this week to Congress that we cannot think about
    the mortgage and the housing problem in isolation from the other parts
    of the recovery. We have to take action, and we have, to create or
    preserve 3.5 million jobs through the recovery act. We must get
    credit flowing again, and the financial stability plan will do that.
    And so I cannot tell you that the housing plan alone solves all the
    problems, job loss --

  • SEN. SHELBY

    At 01:04:21
    1 minute

    We know that.
    SEC. DONOVAN -- but, and you will see this in the detailed
    guidelines that we release next Wednesday, that we are looking at job
    loss, in particular, as a factor that we use in determining
    eligibility for the plan. For example, if a borrower is still current
    on their mortgage but has recently lost a job, that would be one
    indicator we would use to be able to say there's a reasonably
    foreseeable event of default -- is a sort of term of art in many of
    these pooling and servicing agreements -- that that could be one
    factor, for example, that would allow a servicer to say, well, they're
    current, but it's important that we go ahead and modify based on their
    new job information. You're absolutely right.
    If someone has no income, it's going to be very difficult to get
    a modification to work for them. But in many cases, what you have is
    people working two jobs, other wage earners in the family. And so
    with that attention to recent job loss, I think we will be able to
    make sure that the plan reaches as many of those, you know,
    unfortunate families who are suffering from job loss or reduction in
    wages.
    Mr. Secretary, I brought this up in my opening
    statement, and I'll just pose it as a question in a minute. A number
    of banks that have received assistance, including the TARP funds, have
    agreed to implement foreclosure mitigation plans as a condition of
    that assistance. Citibank, for one, has agreed to implement a
    foreclosure plan based upon FDIC's IndyMac model that you're familiar
    with. Mr. Secretary, will those financial institutions that have
    already agreed to implement foreclosure mitigation plans be eligible
    for subsidies under your new plan, the president's plan?

  • SEC. DONOVAN

    At 01:06:07
    1 minute

    That's a very important question. I'm glad you
    asked this, and this goes to Senator Martinez's point as well. We
    can't forget history here. We can't forget that there are things
    already happening in terms of modification plans. We don't think
    they've been as successful as they could be for a number of reasons.
    But we've had a lot of discussions with FDIC, with servicers.
    And what we're generally seeing in the current modification plans is
    that they get down, in the best cases, to 38 percent debt-to-income
    ratio. And so one of the reasons why we've structured our plan the
    way that we did is we want to build on the current efforts that are
    there, like the Citibank one, where we're requiring lenders 100
    percent at their own costs to bring the payments down to 38 percent
    debt-to-income ratio, and then we will share costs.
    So this actually builds on those current efforts. It doesn't
    mean that they're going to get paid for something they were already
    doing. What it means is we're going to bring what was a plan to bring
    somebody down to a 38 percent DTI through a shared payment with them
    further to 31 percent DTI, which we think is the right affordability
    standard, and will make sure that modifications are successful.

  • SEN. SHELBY

    At 01:07:28
    45 seconds

    Mr. Chairman, if I could ask one more question.
    Lender payments. Subprime mortgage servicers, it's my
    understanding, are paid about 20 basis points annually, or about $400
    a year, to service the typical subprime loan. The president's
    proposal would more than double the current per-loan servicing payment
    for modified loans. This appears to be a significant subsidy to pay
    servicers to perform the jobs they're already paid to do.
    Mr. Secretary, could you explain to the committee how the $1,000
    up front and the $1,000 annual lender subsidies in the president's
    plan were derived? In other words, what was that based on?

  • SEC. DONOVAN

    At 01:08:13
    5 seconds

    It's a very important question, Senator. I think
    hindsight is 20/20, as they say.

  • SEN. SHELBY

    At 01:08:18

    (Inaudible.)

  • SEC. DONOVAN

    At 01:08:18
    1 minute

    And if you look at these securitizations, the way
    that the pooling and servicing agreements were done, I think we all
    recognize today that there were a range of mistakes in the way the
    incentives were set up that frankly made sure that the people
    originating these mortgages didn't act like they should have acted,
    didn't have the right interest at heart. And I think we can fix that
    prospectively.
    On this issue of payments, one of the problems with these
    agreements that were put in place is that the way that servicers are
    paid gives them a bigger incentive to foreclose than to modify,
    because they can access additional payments.
    So what we're trying to do with these payments is to basically
    level the playing field for modifications, to make sure that a
    servicer, who today doesn't get any compensation for a modification
    but does get compensation for a foreclosure, that we can tip the
    scales to try to help make modifications move more quickly.
    On the reason for the $1,000 payment, you know, no number is
    perfect, but we did a fair amount of research, talked to servicers,
    talked to a range of others in the mortgage industry to try to get to
    what we think the rough costs of a modification is, and that's how we
    arrived at the $1,000 payment.

  • SEN. SHELBY

    At 01:09:41

    Thank you, Mr. Chairman.

  • SEN. DODD

    At 01:09:41
    9 seconds

    Thank you very much, Senator.
    Senator -- who came in first? Senator Menendez, I guess, was
    here before Senator (Bayh ?).

  • SEN. MENENDEZ

    At 01:09:50
    19 seconds

    Thank you, Mr. Chairman.
    Mr. Secretary, let me ask you -- I appreciate -- and I read
    through your testimony -- we hear this plan will only help, quote,
    "responsible" homeowners. Can you define that term for us? What
    exactly -- what universe does that include?

  • SEC. DONOVAN

    At 01:10:09
    17 seconds

    Yeah. First of all, let me just say how excited I
    am to work with you as the new chairman of the subcommittee. I will
    miss Senator Schumer as chairman, of course, as my home-state senator,
    but your intelligence around these issues, your commitment to housing,
    I'm very, very excited.

  • SEN. MENENDEZ

    At 01:10:26

    I look forward to working with you as well.

  • SEC. DONOVAN

    At 01:10:26
    2 minutes

    I think there are a couple of components of this
    issue of how do we target responsible homeowners. First of all, the
    plan -- we've talked a lot about the modification proposal. But to
    make clear, the refinancing initiative as well as the increase in the
    backstop to Fannie Mae and Freddie Mac are both targeted at making
    sure this plan benefits every American homeowner. By keeping interest
    rates low, obviously borrowers with good credit are the ones and who
    have made their payments are the ones who are going to be able to
    access the mortgage market today most easily for those low rates.
    The refinancing initiative to help 4 (million) to 5 million
    existing owners with loans through Fannie Mae and Freddie Mac that are
    under water is available only if you've made your payments on those.
    And then, finally, for the modification plan, a couple of things.
    We've targeted this to owner-occupants, not to investor-owners who may
    have bought a home as a speculation or in order to flip it quickly
    because of what was happening in the market. We've targeted this to
    reasonably priced homes by using the loan limits that I talked about
    in my testimony, up to $730,000 as of yesterday when we implemented
    those increased limits from the Recovery Act.
    And then, finally, I think we have to make sure that we don't
    fall into the traps that got us here in the first place. We will make
    sure that we verify income so that if a family who lies about their
    income try and get a modification, we'll ensure not only that the
    servicers are checking that but that we're auditing -- we're drafting
    the contracts right now to implement this program through auditing and
    a range of other features to make sure that we know people's incomes,
    we can verify them, and we don't have the kind of fraud either on
    lenders' parts or on families' parts that got us into this in the
    first place.

  • SEN. MENENDEZ

    At 01:12:36
    5 seconds

    On the income side, we're using the same ratios
    as we have in the past?

  • SEC. DONOVAN

    At 01:12:41
    41 seconds

    We are using the 31 percent debt-to-income ratio,
    if that's what your question is. As I mentioned earlier, one of the
    concerns we've had about existing modification programs is that
    they've gotten to, say, 38 percent debt-to-income ratio. And in fact,
    in many cases -- and this is why the redefault rates have been so high
    -- we see lots of modifications where payments actually increase
    rather than decrease.
    So we think the 31 percent debt-to-income standard is the right
    standard, widely accepted affordability standard in rental programs as
    well as home ownership. So we think it's the right standard to make
    sure that we have successful modification.

  • SEN. MENENDEZ

    At 01:13:22
    7 seconds

    So give me, as briefly as you can, what's your
    time line of the proposal? What will happen first? What will take
    the longest? When are we going to see the first modification as a
    result of this?

  • SEC. DONOVAN

    At 01:13:29
    52 seconds

    Yeah. So next Wednesday, March 4th, we will
    release the detailed guidance to servicers and others about how
    exactly the program is going to work in the implementation. And we
    would expect servicers to be able to begin modifying loans based on
    that almost immediately.
    As you know, a large number, the vast majority of servicing at
    this point, the servicers have held up on foreclosures, subject to
    getting that guidance next Wednesday. So we expect them -- they are
    very eager to see that guidance and are ready -- I've talked to Jamie
    Dimon and others myself directly. They are prepared to implement that
    guidance as quickly as possible after it's released next Wednesday.

  • SEN. MENENDEZ

    At 01:14:21
    34 seconds

    Let me ask you one other thing. One of the
    biggest lessons I've learned over this period of time is that some of
    these institutions simply won't police themselves, and lenders won't
    modify on their own in many cases. Voluntary efforts just don't work.
    Do you believe -- are you confident that there are sufficient
    carrots and sticks that you have provided here that will work,
    specifically the servicers? Are there too many carrots here and not
    enough consequences?

  • SEC. DONOVAN

    At 01:14:55
    1 minute

    Well, I think there are a couple of pieces to
    that. This is a very important question; first of all, a requirement
    that any new funding from TARP to any financial institution requires
    that they participate in this plan. And we will be looking to see
    that they are auditing very carefully, that they are applying this
    correctly, that they're using the guidance on every loan in their
    portfolio to figure out which can qualify and not.
    I think it's also important to remember that we have the
    servicers themselves as well as the investors. And one of the reasons
    why the servicers hadn't acted -- and this goes to Senator Martinez's
    point earlier -- is concern that the investors will not allow them to
    act or will bring suits against them. The guidance that we're
    releasing next week is critical in being able to set a standard, a
    standard for what is a reasonably foreseeable default which allows
    them to move ahead and modify those loans, and what is a reasonable
    modification.
    Those standards, issued by Treasury, applying to every financial
    institution, we believe, will go a very, very long way to allowing the
    servicers to move beyond this concern around the investors, because
    we've got an industry standard that has the force of guidance from
    Treasury to allow them to move forward. So we think we have the
    sticks. We also think we have the protection that's needed to allow
    these modifications to go forward.

  • SEN. MENENDEZ

    At 01:16:30
    4 seconds

    Thank you, Mr. Chairman.

  • SEN. SHELBY

    At 01:16:34
    3 seconds

    Senator Dodd asked me to recognize -- (inaudible)
    -- have no power.

  • SEN. MARTINEZ

    At 01:16:37
    32 seconds

    Well, I appreciate you recognizing me with (or
    without ?) power. I appreciate that very much.
    Secretary, let me follow up on that very issue of -- I'll call it
    a safe harbor; I think others have as well. And I know you met with
    the servicers yesterday and the industry folks. And my understanding
    is that there continues to be concern about the lack of a legal safe
    harbor.
    What is your thought on that? What are your plans? Do you think
    you need such authority to have a legal safe harbor? Or will the
    servicers be satisfied not to have the legal protections that I'm led
    to believe they insist upon?

  • SEC. DONOVAN

    At 01:17:09
    9 seconds

    Yeah. Well, let me say up front, Senator, there's
    more legal wisdom on that side of the room than here. I'm not a
    lawyer. I'm not a --

  • SEN. MARTINEZ

    At 01:17:18
    2 seconds

    I'll never admit it. (Laughs.)

  • SEC. DONOVAN

    At 01:17:20
    1 minute

    I'm not a tax lawyer. I'm not an expert on some
    of the tax issues that surround these contracts. But it's a difficult
    issue, because certainly some of the proposals for safe harbor go far
    enough that they are effectively -- would be modifying existing
    contracts, which my understanding there can be constitutional issues
    with.
    There are also provisions around changing tax laws that would be
    retroactive that there are significant certainly policy concerns if
    not legal concerns around. So I know that we're engaged in
    discussions about this right now with a number of folks on the Hill to
    try to figure out what the best way to do this is.
    But let me be clear. We looked at this. Our sense is that for
    80 (percent) to 90 percent of the pooling and servicing agreements,
    with the guidance that we're going to issue next week. We feel very
    comfortable that provides servicers with the comfort that they need to
    go ahead and start modifying the loans without significant fear about
    lawsuits.
    There remain roughly 10 (percent) to 20 percent of these pooling
    servicing agreements that have more restrictive language, which
    potentially will still be problematic, and that's where I think we
    need to try to focus our effort and to see if there are other --
    whether it's legislative solutions. We think we're going as far as we
    can go under our existing power with these guidelines, which do have
    the force of guidelines from Treasury that apply to every financial
    institution that we can solve a large piece of this problem through
    that.

  • SEN. MARTINEZ

    At 01:19:08
    46 seconds

    I hope so. My sense is that -- well, maybe the
    problem is not with all private servicers. I believe that anyone who
    is, you know, concerned of private investors' reactions to a
    modification might have a problem. But anyway, I'd like to know your
    thoughts on bankruptcy -- crime now essentially as it's called -- and
    you mentioned the constitutional issues with renegotiating contracts.
    Obviously, in the legal context of a bankruptcy perhaps those problems
    would be avoided. But I know we're going to be confronting that
    issue.
    Do you think that is a necessary element to have in the arsenal
    available to be able to stave off continued foreclosures and the --
    you know, the detrimental effect that has on the housing market?

  • SEC. DONOVAN

    At 01:19:54
    2 minutes

    Yes, the president believes and I believe that
    carefully tailored bankruptcy reform is a piece of the solution.
    Clearly, making sure -- and this is absolutely why we took action in
    the way that we did -- we have to make sure that well before we ever
    get to a bankruptcy court or to foreclosure -- and in fact, even
    before borrowers get to 90 days delinquent, it's critical that we
    start to modify these loans in significant numbers. That avoids
    bankruptcy court; it avoids foreclosure; it avoids the terrible
    effects on the families themselves but also their neighbors and the
    community.
    So we do not see bankruptcy court as the place to work out
    mortgages. We think that would be a terrible result, frankly, of what
    could be happening. But we do see that carefully tailored reform that
    includes the kind of things that I mentioned earlier -- for example,
    having it be retrospective rather than prospective applying only to
    existing loans rather than new loans; a limit on the size of loans.
    We've discussed as well too, for example, the conforming loan
    limit so that we don't have, you know, millionaire homes that end up
    in bankruptcy court; provisions that would ensure that if a servicer
    has made good faith efforts to modify the loan along the lines of our
    program that they're protected; as well as making sure that there are
    provisions in the code that would allow us to protect against an
    example where it was coming through foreclosure and would be modified
    down to a level that was well below the market value of the home.
    We don't want, you know, arbitrariness or the unpredictability of
    a bankruptcy judge modifying, you know, to a level that was well below
    the value of the home because we don't think that that is fair as
    well. So those types of careful tailoring of it we think can make
    sure that it's done in the right way and not introduce instability
    into the process.

  • SEN. MARTINEZ

    At 01:22:16
    2 seconds

    My time is up. Thank you very much, Secretary.

  • SEN. DODD

    At 01:22:18
    4 seconds

    Thank you very much. Senator Merkley, and then I'll
    come back to you.

  • SEN. MERKLEY

    At 01:22:22
    34 seconds

    Thank you very much Mr. Chair and Mr.
    Secretary.
    I want to follow up -- there's a little bit of new
    information there that I hadn't heard before regarding your points
    about the tailored nature of bankruptcy. Can you just expand a little
    bit on the good faith provisions? If I caught you correctly, that if
    a servicer proceeds to work with the administration's program that --
    and does so in good faith -- that then in that case modification and
    bankruptcy would not be on the table. Is that correct?

  • SEC. DONOVAN

    At 01:22:56
    43 seconds

    Well, let's be clear. Bankruptcy reform is
    something obviously that Congress is going to make a decision about.
    There are discussions ongoing about ideas like this so there's nothing
    in our modification plan that sets the detailed limits or lays out
    these ideas about bankruptcy reform. That's really going to be part
    of a discussion with all of you and those discussions are ongoing. So
    what I'm laying out are potential ideas for ways to target bankruptcy
    for them in a way that we think would be most effective.

  • SEN. MERKLEY

    At 01:23:39
    1 minute

    Thank you. And I will say that as I went through
    the details of the loan modification program, I think that your team
    and the Treasury team and Larry Summers' team are to be saluted for
    really wrestling with a lot of nitty-gritty details in trying to lay
    out a road map to how to make modifications work. So I do compliment
    you all on that.
    I remain a bit of a skeptic about how easy this is going to be
    because of the enormous thicket of challenges -- the issue of second
    mortgages; the issues of legal liability; the fact that the servicers
    have conflicting language over the range of their authority.
    Certainly, we have seen in the past that there's been great reluctance
    to wade into those issues. I think you've done everything possible to
    lay out this plan to overcome that.
    But is there a plan B? If, in fact, all of these incentives and
    in addition the carrots and the sticks, these things do not result in
    a significant number of loan modifications due to the problems we all
    have worked to overcome -- your teams worked to overcome -- is there a
    plan B on how to take on using, if you will, the refinance strategy in
    addition to the loan modification strategy?

  • SEC. DONOVAN

    At 01:25:09
    2 minutes

    First of all, let me say you are absolutely right
    that this is a complicated problem -- that we find ourselves in a very
    difficult situation. The complexity of these loans and the securities
    behind this, it is not simple and we have done an enormous amount of
    work with our team to try to get through a lot of those issues. And I
    appreciate your recognizing that.
    What I would say is that we have through this plan tried to
    provide a range of options: the refinancing proposal that will move
    forward with the GSEs for underwater borrowers; fixes to Hope for
    Homeowners to make sure there is an option that includes principal
    reduction; and getting folks into long term fixed rate FHA loans. So
    we do have a couple of pieces to this that I think complement well the
    modification effort.
    And obviously, to go to Senator Reed's comment, we will be
    watching this very closely, watching the results. If there are tweaks
    that we need to make to the program we will do that. But I want to
    make very clear that we expect servicers to move quickly and not --
    one of the problems that we've had, I think, over the past year or so
    is a shifting target and a shifting set of programs. We want to send
    a very clear message that this is a comprehensive full solution that
    we want to focus on today and make it work.
    We are working with the servicers. With the guidelines out next
    week we expect to see large numbers of modifications happen very
    quickly, and I don't want to engage in too much discussion about Plan
    C or Plan D because, frankly, we think this is the right program and
    we think that it can be effective and that it will be effective with
    the set of options that we've provided.

  • SEN. MERKLEY

    At 01:27:14
    1 minute

    Thank you for laying that out. I held a
    conference in my state last week over the foreclosure mitigation
    issues -- a wide range of participants. What came out of that meeting
    was -- the single core message was how difficult, how extraordinarily
    difficult it is, for homeowners to reach anyone with whom they can
    actually negotiate. You can imagine the situation of going through
    the phone tree and finally getting somebody on the line after you've
    been waiting an hour or so and the person says, well, I can't address
    loan modifications. I'm -- you know, I can tell you what your balance
    is on your loan or when your last payment was or whatever. And so
    they try to get through to somebody with authority, and after they've
    spent multiple hours, several days they give up.
    Anything that can be done -- and my time is up so I'll just --
    anything that can be done, whether it's a national hotline, whether
    it's the support you're considering providing to servicers to enable
    them to expand their training and their staff, their negotiation team,
    if there is not a channel of communication that ordinary people can
    get through to someone it will greatly hinder the success of this.
    And I'd just encourage -- I bring you a message from frustrated
    homeowners in Oregon. They need help getting through to people that
    they can actually talk to.
    And it certainly is much less of an issue when loans are held in
    portfolio but when they have a servicer connected to a trust and the
    trust has split up the cash flows and sold them as derivatives, that
    it just seems like in that situation when there's not a personal
    relationship with a local institution, it's very, very difficult.

  • SEC. DONOVAN

    At 01:29:00
    1 minute

    I couldn't agree more, Senator; I think it's a
    very, very important point.
    Both to make sure that we have outreach from the servicers and
    the compensation you talked about is an important part of them being
    able to staff up and really provide the service that we need.
    We also need counselors out there and as part of Housing And
    Economic Recovery Act a significant amount of funding that you
    provided through Neighborworks, we've been meeting with Neighborworks
    and making sure that all of this information is available, that
    they're reaching out and that that money is available as quickly as
    possible to help counselors.
    And also Chairman Dodd had a terrific idea earlier about
    advertising, using campaigns, that's something that I think we will
    try to see if there are ways that we can get out there and inform
    people. And as I said earlier 888-995-HOPE is the national hotline
    that's been setup that is available for borrowers who have questions
    about the plan, want to see if they're eligible, or go to our website
    at www.hud.gov. So thank you very much.

  • SEN. DODD

    At 01:30:08
    8 seconds

    Thank you very much, Senator, and I apologize to
    Senator Bayh and the other senators.
    I'm trying to do this in the
    order that people arrive.
    Senator Reed.

  • SEN. REED

    At 01:30:16
    1 minute

    Thank you -- Evan, do you need to -- (off
    mike). Okay. Secretary Donovan, I've been arriving and leaving
    constantly so I thank you for keeping track. But Secretary Donovan,
    again congratulations and we're extremely delighted and very confident
    of your role going forward.
    The plan rests upon the effective actions of the GSEs -- FHA,
    Veteran's Administration, Fannie, Freddie -- and there's an issue of
    capacity, do they have the resources, the computer resources, the
    personnel. This is a program that has to work not only to help
    families but also to be financially sound and well managed, and I
    wonder if you have any specifics relating to program improvements or
    additional resources you need. And I say this, the context is last
    year Senator Shelby and Senator Dodd were very kind because we
    included an FHA modernization language in the legislation. They have
    that but you have to go beyond the language and make sure they have
    the resources. So any comments I'd appreciate.

  • SEC. DONOVAN

    At 01:31:20
    1 minute

    Well very important both that the GSE's and the
    FHA have adequate resources, president releasing our initial budget
    today and I think you'll see that does focus extensively on building
    FHA capacity. You all have been very I think forward looking in terms
    of recognizing the need to enhance staffing, systems at FHA to handle
    the increase in volume. And that includes the modification efforts
    that we'll undertake at FHA. There is legislation that we hope would
    be part of the package that both has some improvements to help for
    home owners but also allows partial claims to happen at FHA so that
    FHA can participate in this modification program in a very consistent
    way with the plan that we've laid out.
    And then on the GSE side, you know, at the broadest level the
    announcement as part of this plan that we would as authorized by
    Congress increase the keepwell by $200 billion ensures that Fannie and
    Freddie will have the resources to be able to implement this plan and
    continue to guarantee mortgages but we are rest assured, I was talking
    to somebody this morning who was in meetings until 12:30 in the
    morning with the team that's implementing this. We are making very,
    very sure that there is adequate reporting, oversight, that the
    systems are there to be able to implement this plan. We're doing it
    very quickly and I can't promise that we won't make some mistakes,
    that we won't have to learn as we're going, but we are very focused on
    the implementation and making sure the GSE's have the resources and
    are doing what they need to do.

  • SEN. REED

    At 01:33:06
    1 minute

    Thank you very much. There's another issue and this
    is part of the not directly related to housing but part of the current
    crisis. There are many not for profit organizations, hospitals are
    just one example, who have been sort of squeezed out of the credit
    markets. Some hospitals participated in these auction rate bond
    mechanisms, that auction rate bond mechanism has essentially closed
    down and they are looking at serious financial issues. And since 1978
    my understanding HUD has the ability to allow hospitals without
    existing capital projects to refinance their debt into lower interest
    rate loans. I would ask you to look at this issue and not just
    yourself but share it with your colleagues in the economic team
    because I have a feeling that one of the repercussions of this crisis
    is there's going to be some not for profit or hospitals across the
    country who are going to be in difficult shape when their existing
    financing which sometimes was as low as 3.5 percent is now kicked up
    to 12 and 13 percent just unaffordable.
    So you know I think some authority and I wish you would look into
    that if you would.

  • SEC. DONOVAN

    At 01:34:19
    41 seconds

    Absolutely. I think we both need to do things to
    strengthen the bond markets in general and that was part of what the
    president announced last week was strengthening for FHA's, state FHA's
    who can be a real part of this solution with refinancing using the 10
    (billion dollars), 11 billion (dollars) in tax exempt bonds that was
    part of your Housing and Economic Recovery Act, but also the hospital
    program is key and despite being from New York, it used to be that the
    portfolio in the hospital program was about 80 percent New York City
    hospitals and New York state hospitals. One of the great things about
    the program it's now expanded significantly where it's providing
    financing for hospitals across the country and is very, very
    important.

  • SEN. REED

    At 01:35:00
    54 seconds

    Thank you.
    One final point because I have a few minutes and the Chairman has
    pointed out and my colleagues have echoed a need to communicate with
    the public in these details, but I think there's another message that
    has to be continually communicated not just by yourself but by the
    president is that for those people who are paying their mortgages that
    are, and feel the sense of some kind of, well, they're torn because
    they want to help their neighbor but they've made their
    responsibilities. The fact that if we don't move aggressively with
    respect to these foreclosures, the market will deteriorate so that
    people a year ago or today who are making it won't be making it.
    They will be in the next wave of these foreclosures. And I think that
    message has to be communicated as well as the details of how one gets
    into this, qualifies for this plan.

  • SEC. DONOVAN

    At 01:35:54
    29 seconds

    Very important point. Our models based on the
    plan show that simply by modifying mortgages that we're proposing, the
    $75 billion dedicated to that, we will help to avert a loss of $6,000
    in value for the average home owner. Not the average home owner in
    foreclosure, for the average home owner that's making their payments
    across this country. So it does have a very tangible, concrete
    benefit to everyone.

  • SEN. REED

    At 01:36:23
    11 seconds

    I think the point has to be made over and over again
    because frankly people, you know, they're struggling and they're doing
    their best and they've got to know that they're getting a benefit,
    too.

  • SEC. DONOVAN

    At 01:36:34
    2 seconds

    Yep.

  • SEN. REED

    At 01:36:36

    Thank you.

  • SEN. DODD

    At 01:36:36
    4 seconds

    Thank you, Senator.
    Senator Bayh.

  • SEN. BAYH

    At 01:36:40
    3 seconds

    Thank you Mr. Chairman. Secretary thank you for your
    service.

  • SEC. DONOVAN

    At 01:36:43

    Thank you.

  • SEN. BAYH

    At 01:36:43
    53 seconds

    I think your energy and your confidence will bring a
    breath of fresh air to the Department at a time when the country needs
    it, So thank you for that.
    Two very brief questions about things in particular just to my
    state that are tangentially related to the topic at hand today. Last
    June 30th, President Bush signed into law an act that Representative
    Donnelly from my state worked with me on. It was called the FHA
    Manufactured Housing Loan Modification Act. If you have staff here, I
    hope they'll make a note of that. It's particularly important to
    North Central Indiana, particularly Elkhart County where the president
    made his first trip outside of Washington as president of the United
    States. The unemployment rate there is 15.1 percent. The changes
    called for in the act, although signed into law more than half a year
    ago now have not been made. Can I report from your staff about when
    the department intends to make those changes?

  • SEC. DONOVAN

    At 01:37:36
    2 seconds

    Yep. Can I give you a report myself right here?

  • SEN. BAYH

    At 01:37:38
    2 seconds

    I'm highly impressed.

  • SEC. DONOVAN

    At 01:37:40
    3 seconds

    So --

  • SEN. BAYH

    At 01:37:43

    You have a well-paid secretary Mr. Chairman.

  • SEC. DONOVAN

    At 01:37:43
    1 minute

    When we came into office about a month ago, there
    was a lot of concern on your part, Senator Corker, Representative
    Donnelly and others, Chairman Frank reached out to me about this, that
    there had been potentially a determination within the department that
    implementing this law needed full rule making, which would have
    delayed the implementation of it another months frankly. And that
    were critically changes that needed to move quickly. We've gone back
    with our legal team, we've made sure that we can go ahead and get this
    law into effect just with the mortgagee letter rather than going
    through the entire rule making process. That letter is being drafted
    as we speak and I can't tell you exactly what day it's going to be
    done, but I think within 30 to 60 days, we will have that out and the
    law will be implemented.

  • SEN. BAYH

    At 01:38:44
    18 seconds

    Thank you. I'm very impressed. If you would let us
    know as soon as the letter's complete, I'm sure the people of Elkhart
    would be very gratified to know the administration has moved this
    quickly in the face of previous inactions so thank you for that.
    Second thing that comes as no surprise to you either, you had
    mentioned at some time before your confirmation the situation in Gary,
    Indiana.

  • SEC. DONOVAN

    At 01:39:02

    Absolutely.

  • SEN. BAYH

    At 01:39:02
    46 seconds

    You know, they are very desirous, as are people
    outside of Gary in that part of our state, they have hundreds of
    derelict homes, it's keeping private capital from coming in, they've
    become sites for the, you know illegal activities and that sort of
    thing, they'd like to have an aggressive program of you know, tearing
    down those homes, rehabilitating the land, preparing them for you know
    private home construction, that sort of thing. I was pleased to see
    that the administration is putting together something called the
    Affordable Housing Trust Fund, which might be eligible for this or you
    already have in place the Neighborhood Stabilization Fund, if I could
    just get a report at some point Mr. Secretary about what could be
    done through those avenues or others to help facilitate this process
    in Gary. Because until we take care of those homes frankly it's going
    to be very hard to generate much positive activity on the upside.

  • SEC. DONOVAN

    At 01:39:48
    1 minute

    Absolutely and you know when we talked about this
    one of the points you made which I think is right.
    I've been hearing this from smaller counties in California and
    Florida as well, where the original formula for the $4 billion in
    neighborhood stabilization funding, a large share of it went to
    states, it didn't necessarily reach, at least directly, lots of the
    locations, particularly smaller areas, smaller towns that weren't
    eligible directly to be able to deal with the problems of foreclosed
    homes, vacant homes.
    I'm very happy that, as part of the recovery deal, there's an
    additional $2 billion in neighborhood stabilization funding.
    Yesterday the vice president announced we were releasing allocations
    for 75 percent of all the HUD funding that was in the bill, over $10
    billion. We're now going to move to implementing the competitive
    aspects of it. And we should have those (compositions ?) written
    within the next 30 days or so, and that includes this neighborhood
    stabilization funding. It's competitive, and we want to really target
    the areas that have comprehensive strategies, that are working already
    well with neighborhood stabilization or didn't get access to it.
    But I think, in particular, in Gary where, for instance, in the
    Chicago metropolitan area there's been a very good, strong,
    coordinated effort around this issue, that we ought to be looking at
    innovative things like that.

  • SEN. BAYH

    At 01:41:16
    19 seconds

    Well, it's such a concentrated problem that it really
    would pay huge dividends. So I thank you for your cooperation on
    that. I've got 22 seconds. Let me ask you this, my final question.
    I hear from -- do you know what percentage of mortgages in the country
    are current, being paid on time? It's got to be 90 percent, something
    like that.

  • SEC. DONOVAN

    At 01:41:35
    2 seconds

    Roughly 90 percent are --

  • SEN. BAYH

    At 01:41:37
    49 seconds

    Here's my question. I hear from people all the time
    who say, look, I did the write thing, I've lived my life prudently,
    I've saved my money. I didn't buy a house that was too big for me. I
    didn't take on a loan that I couldn't afford. And now I see my tax
    dollars are being used to help those who made different decisions.
    How is that just? How is that fair to people who, you know, live
    within their means? And so my question to you would be, on behalf of
    the 90 percent of people who are current with their payments, how are
    we not, in essence, enabling, you know, unfortunate behavior through
    our activities? Now, I'm playing a little bit of a devil's advocate
    here, as you can imagine, but that question is out there. People are
    angry. I think it needs to be addressed head on. What would you say,
    Mr. Secretary?

  • SEC. DONOVAN

    At 01:42:26
    2 minutes

    It's a very important question. There's a lot of
    things that are happening in this country that are unfortunate, that
    are happening to families. And I think it's very important, first of
    all, that we recognize the most significant part of our plan, in many
    ways, is to take the actions we need to take to keep interest rates at
    what are really generational lows. That benefits every single
    American family that owns a home or wants to buy a home, $1,200 to
    $1,600 a year, on average. We think just the actions we took to keep
    Fannie Mae and Freddie Mac interest rates low will have that benefit.
    So that reaches every homeowner in the country.
    Refinancing where a family has made every payment, they're
    current on their mortgage and simply because housing values have
    dropped around them in their community, they may have a 7 or an 8
    percent mortgage rate, they can't take advantage of the refinancing to
    today's low rates. We're going to change that through our initiative
    in the plan, 4 (million) to 5 million homeowners who can benefit an
    average of about $2,600 a year for those families to benefit.
    All of those -- good credit, paid their bills, done everything
    right, haven't made mistakes -- they're all benefiting.
    But I think the final thing that's perhaps most important for
    those concerned about are we providing money to people who
    overstretched, who shouldn't have gotten into homes that were too
    expensive to begin with, we're doing everything we can in that plan to
    target it to people who are paying their bills, that are working hard.
    But we have to recognize, first of all, there's a lot of job loss in
    this country. There is a number of people because they have a medical
    emergency and they can't pay a bill.
    We have to, I think, as Americans rise to the occasion and say,
    yes, we're going to do everything we can in this program. We're not
    going to allow speculators to participate. We're going to check
    incomes carefully. We're going to make sure we don't have fraud.
    We've got to help folks. And by the way, it's helping ourselves
    because 45 percent of all home sales in December were distressed
    sales. That drives everybody's home price down. Just through the
    modifications that we're doing, we think we can save the average
    homeowner in America, the ones who have played by the rules, and make
    them almost $6,000 on their home value.
    So we've got to make sure that, I think, Americans understand
    that this crisis we're facing, the foreclosure crisis is hurting
    everyone. And we've got to stop it so that everybody benefits as
    well.

  • SEN. BAYH

    At 01:45:04

    Thank you, Mr. Chairman.

  • SEN. DODD

    At 01:45:04
    46 seconds

    Those are excellent, excellent points. And I'd just
    point out the same point in my home state. I don't know if this true
    of all states. But my community bankers -- and I think one of the
    things we've got to be careful of is the language we use describing
    bankers. A lot of our bankers at the local level have been prudent
    lenders over the years. In Connecticut, they tell me, my community
    bankers, that the best month they've had on mortgage origination was
    the month of December. And the next best month for them was August of
    last year. And I don't know what the January numbers look like.
    But at a certain level, and obviously, it's not everywhere, but
    there is good lending going on out there. And there is activity. In
    fact, in credit markets, I think, what is it, a 5 percent, 30-year,
    fixed-rate mortgage is available today, which is a pretty good
    indication that, at least in that credit market, there's some level of
    activity that ought to be encouraging to people.

  • SEC. DONOVAN

    At 01:45:50
    8 seconds

    And we need to get back to basics in the lending
    the way a lot of community bankers did the right thing. And those
    mortgages are performing well.

  • SEN. DODD

    At 01:45:58
    33 seconds

    But your $6,000 figure is a very important piece of
    information that I think needs to be transmitted, as Senator Reed
    said, over and over and over again to people, that they understand
    that even though they are not in that category, they are a beneficiary
    by getting this back on its feet.
    Senator Schumer, before you were in and out, I was saying that a
    lot of us got to know about Shaun Donovan because of you.
    And your best cheerleader up here in terms of your tremendous
    work in the city of New York was certainly trumpeted by Senator
    Schumer over and over again. So you've got a great ally and friend
    here in the senator from New York.

  • SEN. CHARLES SCHUMER (D-NY)

    At 01:46:31
    3 minutes

    Thank you, Mr. Chairman. Thank
    you. And I think, as you know, because you're so on top of all these
    issues, as America gets to know Shaun Donovan the way New York has
    gotten to know him, they're going to realize we're going to have one
    of the best Housing secretaries that we've ever had.
    And so welcome, Shaun. I'm glad to see you here.
    First, just a point of reiteration. Senator Jack Reed mentioned
    putting hospitals, seeing if they can be eligible for FHA. You know,
    the problem of people getting financing is just everywhere. And
    sometimes I worry that we're not even as knowledgeable of it as we had
    -- well, hospitals. I've heard many hospitals have the money, have
    the resources, have the ability to build and can't get any financing.
    So looking at FHA that way in terms of job creation without cost us
    much, please look at it.
    But here's my main point. You know, I think the housing plan
    that you and Tim Geithner and, of course, the president put together
    is really a home run. The Bush administration said, when it came to
    foreclosures, you know, watched all the fast balls go by -- they are
    fast balls, they're hard to hit -- and refused to even swing. You've
    stepped up to the plate, you're swinging, and I think you've knocked
    it out of the park.
    And I don't think there's enough understanding of this. And so
    I'd like to just reiterate. Senator Menendez sort of touched on it.
    I'd like to just elaborate on what he talked about. Sorry I couldn't
    be here while you were being asked all these questions.
    The real block, in my opinion, has been the servicers and the
    bondholders. It hasn't been the homeowner, even the homeowner who
    could afford to pay back. It's been the servicers and the
    bondholders. Now, the bondholders have their own economic interests
    sprayed all over the lot because very few home mortgages are held, and
    the riskiest tranche holder has a different interest than the safest.
    And the riskiest says, I'm not doing this because, you know I lose all
    my money if the house is 98 percent of its value. Well, you know, you
    got the higher interest rate for that.
    But the servicers are the ones who could do something. And
    unfortunately, the previous administration didn't really focus on the
    servicers. They said, go do it and we'll protect you, but it was sort
    of vague.
    What you've done in your plan is laid out specific guidance that
    every regulator agrees to and that most legal experts say will protect
    the servicer as the servicer endeavors to refinance the mortgage so
    that it can be at a lower rate. And the plan also, very intelligently
    -- I mean, I know Evan asked the question, well, what about people who
    really got underwater way over their heads? They're not going to be
    helped by this. But people who may have lost the job, who had always
    paid and, you know, maybe they're paying 50 percent of their income as
    mortgage -- not 80 (percent), but 50 (percent), not 200 (percent) --
    will really be helped by this. And they're the right group to help.
    But I think the most important thing is something you told me,
    and I'd like to get that out here. And that is that many, many
    servicers have agreed to start refinancing the mortgages. And they
    feel they are protected by the guidance that you've issued. That's a
    key because if a large percent of the servicers say they're going to
    step up to the plate, you're going to see a lot of refinancing and a
    lot of homes that might have gone into foreclosure taken off that list
    in the next three, four months. So could you elaborate a little on
    that? I think that's really important for the public to know.

  • SEC. DONOVAN

    At 01:50:12
    11 seconds

    Thank you. And as I said earlier while you were
    out of the room, I'm very excited that Senator Menendez will chair the
    Housing Subcommittee. But I will miss you as its chair there.

  • SEN. SCHUMER

    At 01:50:23
    8 seconds

    Very excited that he's the chair of the DSCC.
    (Laughter.)

  • SEC. DONOVAN

    At 01:50:31
    54 seconds

    So that is very important. And we have tried to
    work very closely with servicers. We believe, as you said, that we've
    tried to make sure we're covering all the issues around their
    compensation, their incentives, around these legal issues with the
    investors.
    But the proof of the pudding is that they are -- first of all,
    they've suspended foreclosures, pending the plan, which clearly
    signals, I think, there's something in the plan that really helped
    them move forward on the modifications.
    And I've already had commitments. Jamie Dimon himself said a
    million loans they think they can do through this just at JP Morgan
    Chase. We had a meeting yesterday with the servicers, with the
    president of Wells and he said this will allow them to move forward
    and to do a very large number of loans.

  • SEN. SCHUMER

    At 01:51:25
    9 seconds

    I think the public has this view that the
    servicers are little entrepreneurs all over the lot. What percentage
    of the servicers come from the large banks who, say, have accepted
    significant money from the TARP?

  • SEC. DONOVAN

    At 01:51:34
    2 seconds

    The largest banks cover about two thirds of the
    servicing.

  • SEN. SCHUMER

    At 01:51:36
    2 seconds

    And you have a little leverage over them, I would
    say.

  • SEC. DONOVAN

    At 01:51:38
    8 seconds

    And, in fact, we've made it explicit that any
    funding from TARP requires participation -- any new funding from TARP
    requires participation.

  • SEN. SCHUMER

    At 01:51:46
    11 seconds

    So this means that right now two thirds of the
    servicers are likely to go along with this plan for those mortgages
    that meet the guidelines and the guidance that you've put out. Is
    that right?

  • SEC. DONOVAN

    At 01:51:57
    2 seconds

    We hope it goes well beyond those biggest.

  • SEN. SCHUMER

    At 01:51:59
    18 seconds

    But if it goes to two thirds shouldn't that be a
    real change in the housing markets and rates of foreclosure? And
    even, shouldn't it help us find a floor, couldn't the markets, the
    housing markets then say, hey, so many of these are being refinanced
    we're going to -- we know now that there's going to be some floor to
    housing?

  • SEN. DODD

    At 01:52:17
    10 seconds

    Yeah, let me ask. How about the previous recipients
    of TARP as well, doing exactly what we discussed? How many more would
    you include if we added previous recipients of taxpayer money?

  • SEC. DONOVAN

    At 01:52:27
    8 seconds

    I, to be honest, I don't know. I don't have the
    details, I don't know the numbers of going forward versus the
    previous.

  • SEN. DODD

    At 01:52:35
    2 seconds

    But it'd still be higher.
    (Cross talk.)

  • SEN. SCHUMER

    At 01:52:37
    10 seconds

    Yeah, and Mr. Chairman, I think most of the big
    banks that have already received TARP money, who are servicers have
    agreed to be part of this. Isn't that right?

  • SEC. DONOVAN

    At 01:52:47

    Absolutely.

  • SEN. SCHUMER

    At 01:52:47
    32 seconds

    Yeah. So you've got them. I mean, the
    Citigroups, and the JP Morgans and the Wells', and all of them. And
    they are the servicers. That's the amazing thing. I didn't really
    know that until you told me.
    And so, I really would say that your program is going to have a
    significant and deep effect on housing markets, improving them. And
    that can reverberate throughout the whole economy. You know, I'm sort
    of surprised it hasn't gotten more focus and more attention. I don't
    know why. But --

  • SEC. DONOVAN

    At 01:53:19
    7 seconds

    I think when we can show results and we will very
    clearly be focused on auditing and making sure that we're getting the
    results that we --

  • SEN. SCHUMER

    At 01:53:26
    7 seconds

    One final question, when should we start seeing
    the results that this guidance will -- the effect it will have on the
    servicers?

  • SEC. DONOVAN

    At 01:53:33
    45 seconds

    Well, next Wednesday, March 4th, we're going to
    release the guidance. We, based on our discussions with servicers
    believe that servicers will be able to almost immediately begin
    modifying loans under the guidance. It may take some of them a little
    bit of time to, you know, get the systems and all of that going but
    we're working on it with them already.
    So I would hope that in March but certainly in April we start to
    see a significant decline in foreclosures.
    Again, 45 percent of all home sales in December were distressed
    home sales. So there's no question that if we can lower the number of
    distressed sales, of foreclosures, that we can begin to stabilize the
    market and help it return to balance.

  • SEN. SCHUMER

    At 01:54:18
    29 seconds

    And that's going to mean some real stuff to the
    stability of the banks and of the whole financial markets because
    they're still holding this paper, they don't know what the bottom is.
    So this is dramatic and significant. And I would just commend to
    my colleagues, the public, everybody, pay a little attention to this
    because it's one of the first early bits of good news, I think, that
    I've heard about this.
    And I congratulate you, Secretary Geithner, and the president for
    coming up with it.

  • SEC. DONOVAN

    At 01:54:47

    Thank you.

  • SEN. DODD

    At 01:54:47
    3 seconds

    Senator Warner.

  • SEN. MARK WARNER (D-VA)

    At 01:54:50
    1 minute

    Thank you, Mr. Chairman. Let me thank
    you and colleagues who've been here long before me for continuing to
    raise this issue, particularly in terms of the importance of finding
    relief for the housing sector and the fact that you've been a constant
    advocate both sides of -- if we're going to spend TARP money make sure
    some of its directed here in the housing area.
    Mr. Secretary, good to see you again. I got a couple of lines of
    questions and I'll try to be brief. One, I know some of my colleagues
    when I was not here pressed somewhat on how we make sure that folks
    around the country understand this, these new programs and how they
    get access to it.
    One point that I'm not sure you fully address though is that --
    I'm getting folks calling our office and Lord knows it's going to
    exponentially increase on the 4th, and they're saying they're calling
    their servicers and some of their servicers and actually not telling
    them who owns their loan at this point. And there seems to be some
    ambiguity in the law whether a servicer is actually required to
    disclose who the owner of the loan is. And we've had this on a number
    of occasions and it sure as heck seems that, you know, we need to make
    sure that there's clarity on that, whether there needs to be
    regulatory change or at least guidance. I can see these servicers
    getting flooded with calls on March 4th and if there's still this
    ambiguity, some folks coming back even more confused if they don't get
    the fact that they can't even find out who actually owns the loan at
    this point. Have you heard --

  • SEC. DONOVAN

    At 01:56:30
    6 seconds

    I appreciate you mentioning that and we'll --
    we're working in depth on the guidance now and we'll ensure that
    that's an issue we look at.

  • SEN. WARNER

    At 01:56:36
    34 seconds

    Please look into that.
    And I'm a bit of a broken record. Senator Bennett and I are on
    this issue and Senator Menendez and Senator Schumer has raised it in
    terms of hospitals. But I do think anything we can continue to do for
    this whole municipal bond market that -- and a piece of that,
    obviously, are our housing agencies that I think can play an important
    role. And have you given any more thought to how our state and local
    housing agencies will play a whole role in this real estate recovery?

  • SEC. DONOVAN

    At 01:57:10
    1 minute

    Very glad you asked that. Virginia in particular
    has one of the strongest housing finance agencies in the country and
    have done great work.
    President actually mentioned in his speech last week that as part
    of this plan we are going to provide some assistance to housing
    finance agencies who can really be part of the solution here. There
    was $11 billion in new tax exempt bond authority that was part of the
    Housing Economic Recovery Act last summer.
    But because of the issues in the bond market, that you rightly
    point to, they have not been able to fully utilize that funding to be
    able to take advantage of the refinancing they could provide and other
    benefits they could provide.
    So, we really have two lines that we've been working on with
    Treasury on this front. One is there are existing bonds that because
    of the lack of liquidity out in the marketplace -- and many of these
    are weekly resats (sp) or bonds in particular that have struggled.
    Auction rate securities, in my experience in New York, the market just
    dropped out on those.
    So, making sure that there's adequate liquidity available for
    existing bonds that are out there so that we don't have, you know,
    real problems for the housing finance agencies on the loans that
    they're already holding.
    And then, in addition, for new bonds that they're going to issue,
    looking at whether we can -- what we can do to insure that there's an
    adequate market out there.
    Obviously, this goes well beyond just HFA bonds, municipal bonds,
    there are lots of different issues in the market and Treasury is
    looking at that issue more broadly. But we want to make sure, on the
    housing front, that there is an adequate market for these bonds going
    forward.

  • SEN. WARNER

    At 01:58:58
    50 seconds

    Well Chairman Dodd has been very supportive and
    helpful to those of us who have raised this issue. And all I can make
    a request is when we've had Secretary Geithner and when we've had
    Chairman Bernanke in we've not heard a lot of specificity.
    In fact, I
    believe, Secretary Geithner said he had not seen any good ideas around
    how we can restart the annuity markets. And I would hope that you
    would be the inside the administration advocate that this is directly
    helpful, not only to the housing market, these are oftentimes shovel-
    ready projects. I know Senator Bennett has got a great interest in a
    number of school bonds, there are highway bonds, there are a whole
    host of municipal bonds out there that if we can jumpstart that these
    are truly projects that are ready to move forward and that would be
    very valuable.

  • SEC. DONOVAN

    At 01:59:48
    25 seconds

    On the good news front as well, just to make sure
    you know, yesterday we released $10 billion over about 75 percent of
    all HUD's funding from the recovery act, that included $2 billion,
    over $2 billion for housing finance agencies to help jumpstart tax
    credit deals that are stalled.
    So, very hopeful that by getting it out so quickly we can make
    sure those projects move forward.

  • SEN. WARNER

    At 02:00:13
    6 seconds

    Mr. Chairman, can I ask one more question? I know
    my time's expired.

  • SEN. DODD

    At 02:00:19
    5 seconds

    Because you missed your opening statement and so take
    a little more time, yeah.

  • SEN. WARNER

    At 02:00:24
    4 seconds

    A (Schumer?) two minutes or -- (Laughter)

  • SEN. DODD

    At 02:00:28
    5 seconds

    Don't press your luck. (Laughter)

  • SEN. WARNER

    At 02:00:33
    1 minute

    I think you've laid out a framework of a good
    program. I am anxious to see more of the details. But a piece, and I
    know the chairman has been supportive of this as well, and I've had my
    thinking change on it, if we are going to look at bankruptcy reform
    that would allow principle readjustment or so called cram down, my
    hope is that it does become the hammer of last resort. And it seems
    what has been missing, and I can understand perhaps timing-wise now
    why you didn't include it in this initiative.
    But for those homeowners that are truly under water, if we
    provide that bankruptcy reform I would hope the administration would
    give some thought to, you know, what initiative or what program could
    be out there as the step before you have to take the -- we should use
    that, we should reserve that bankruptcy process as the ultimate last
    resort hammer. And I hope there will be some interim prerequisite of
    good-faith acted by the homeowner to make sure they've really tried
    and that the servicer and the lender have really made a real effort
    and that we only push folks into using this tool and bankruptcy as the
    ultimate last resort.
    And that has been kind of missing from the -- (inaudible).
    I know you've received some comments that the program does not
    address those folks that are more than 105 percent below their loan-
    to-current-value ratio, those folks who are really deeply underwater.
    At some point they're going to have to be part of the equation as well
    or they're all just going to move into the bankruptcy provision if the
    reform is made.

  • SEC. DONOVAN

    At 02:02:22
    2 minutes

    A couple of comments (that I think are ?) very
    important. We completely agree that bankruptcy court should not be
    the place where millions of loans are worked out. But if that
    happens, that's a problem for everyone, and we want to do everything
    we can to avoid that.
    And I do think there are other options in this program. The
    president did say, as part of his speech, obviously it's dependent on
    legislation in Congress, that we do support tailored, targeted
    bankruptcy reform. But we do have options as well -- making sure Hope
    for Homeowners is a viable alternative which allows a mortgage to be
    re-underwritten at a reasonable level with principal write-down; make
    sure that program is effective.
    As Chairman Dodd said earlier, none of us knew maybe where we
    would end up and that what was designed in Hope for Homeowners was
    based on what was happening at the time, and we're at a different
    place now, so we need to adjust the program to make sure that that
    works. I think that's an important component.
    The other thing I would say, and there hasn't been much attention
    on this, but it's important as well, we've added incentives for things
    like short sales or deed in lieu of foreclosure. If you lost your job
    but you find a job at a new town, you've got to sell your home but
    it's underwater, you've got a problem, right, because your only
    alternative, really, is bankruptcy or to go through a foreclosure,
    wreck your credit. And frankly, the bank is not going to recover --
    if you're really underwater, they're not going to recover any more
    either.
    So the best solution there is often a short sale, which is where
    a bank takes less than the face value of the mortgage to satisfy the
    debt, and you can then move and leave your home. It doesn't restore
    all your equity, but it at least allows you to get on with your life.
    We have incentives for those kind of alternatives so that you don't
    end up in bankruptcy. So there are a number of provisions we've tried

  • SEN. WARNER

    At 02:04:22
    3 seconds

    And making clear that's what those bevy of options
    would be --

  • SEC. DONOVAN

    At 02:04:25

    Yeah.

  • SEN. WARNER

    At 02:04:25
    58 seconds

    -- before bankruptcy. Last point I'll make, just
    as a comment, that I sure as heck agree with the chairman and Senator
    Martinez that one piece on the servicers is to make sure we get them
    the right incentives to act. But the other piece, I continue to
    believe -- and Senator Schumer made a comment about this -- since we
    have sliced and diced these loans into so many tranches and because
    there will be an unwillingness of those folks who are at that top 5,
    10 percent, the discussion we had earlier, that are most exposed, and
    we've got all of the side bets in the credit default swaps that were
    made, on that last tranche, the more we can clear out some of the
    legal hurdles and the more we can do some hold-harmless or what the
    chairman put forward in his amendment, it's got to be a piece of this
    mix or all these good intentions could still be -- (inaudible) -- in
    court.

  • SEC. DONOVAN

    At 02:05:23

    Yeah.

  • SEN. WARNER

    At 02:05:23
    2 seconds

    Thank you.
    Thank you, Mr. Chairman.

  • SEN. DODD

    At 02:05:25
    41 seconds

    Thank you.
    Before I turn to Senator Bennet and Senator Akaka, can I raise
    just -- (inaudible) -- take advantage of Senator Warner's question?
    This is about the safe harbor bankruptcy, the lenders that offer
    borrowers a loan consistent with your program, the second lien-
    holders.
    There's an issue here that we're going to confront, and I don't
    know whether we address it or not. There are some concerns that under
    the administration's proposal in the safe harbor -- and this is a very
    important question -- are we adequately covering the second -- are we
    going to be able to deal with the second lien-holders? So many of
    these were piggy-back loans, and whether or not they're going to be
    accommodated for that in these --

  • SEC. DONOVAN

    At 02:06:06
    2 seconds

    Yeah. So I think it's --

  • SEN. DODD

    At 02:06:08
    5 seconds

    Are we giving the lender, in effect, veto power over
    all of that? That's, I guess, the --

  • SEC. DONOVAN

    At 02:06:13
    1 minute

    I think it's important to make clear that there
    are two very different situations for second lien-holders -- a
    modification versus a refinancing. In a modification, you're keeping
    the existing first loan in place and changing the terms of it. A
    second lien-holder has no ability to stop a modification or to -- so
    for the modification program, the second liens really -- and we've
    heard this consistently from servicers -- they're not a significant
    problem.
    We're still looking at whether there are some enhancements to the
    program as part of the final guidance that we might, you know, want to
    deal with secondly, even in that case, to make sure that they stay
    silent and they're not an issue.
    But I think the real issue is around where you have refinancings,
    where you're extinguishing the first lien. And then would you have to
    get explicit permission to resubordinate the second? What do you do
    with those? And that's where we're looking at in more detail exactly
    what should be done and as part of the guidance. I think you'll see
    next week that we have some ideas around that. But really, I want to
    make clear, on the modifications, everything we're hearing is that
    they're not a significant issue because the first remains --

  • SEN. DODD

    At 02:07:29
    8 seconds

    I appreciate that. And obviously a lot of members on
    this side of the dais are very interested in how this moves forward,
    so we'd love to stay in very close contact with you.

  • SEC. DONOVAN

    At 02:07:37
    3 seconds

    Mr. Chairman, if I could just take one moment -- I
    realize --

  • SEN. DODD

    At 02:07:40

    No, that's fine.

  • SEC. DONOVAN

    At 02:07:40
    25 seconds

    Senator Warner made a point that I want to make
    sure is absolutely clear, because there's been some real confusion
    about this. The 105 percent loan-to-value restriction is only on the
    Fannie Mae and Freddie Mac refinancing initiative. For modifications,
    borrowers that are much more significantly underwater, up to typically
    about 150 percent loan to value, can participate in the modification.

  • SEN. WARNER

    At 02:08:05
    8 seconds

    But that's in your first -- the homeowner stability
    program, I thought, was the one that had the cap of the 105.

  • SEC. DONOVAN

    At 02:08:13
    40 seconds

    There is a portion of this which is a refinancing,
    4 (million) to 5 million homeowners, existing Fannie Mae or Freddie
    Mac loans that are current on their mortgages, that are paying, and
    cannot refinance to today's low rates because they're at 80 percent to
    105 percent loan to value. Those are the folks we're going to allow
    to refinance, but they're current.
    Where somebody is more significantly underwater, having trouble
    paying their mortgage, you can be more deeply underwater to be able to
    participate in the modification. There's been a lot of confusion
    about this in the press and otherwise, and I'm happy you raised it,
    because I want to make sure that that's clear.

  • SEN. WARNER

    At 02:08:53
    2 seconds

    So those folks can be at 150 --

  • SEC. DONOVAN

    At 02:08:55
    12 seconds

    More deeply underwater. We think generally 150
    percent loan to value is as far as we can go, because for
    modifications to be successful, you can't be so deeply underwater --

  • SEN. WARNER

    At 02:09:07
    2 seconds

    And that is the program where we're going to try to

  • SEC. DONOVAN

    At 02:09:09

    Modify their --

  • SEN. WARNER

    At 02:09:09
    3 seconds

    -- (inaudible) -- and modify and buy down to 31
    percent of income.

  • SEC. DONOVAN

    At 02:09:12

    Exactly.

  • SEN. DODD

    At 02:09:12
    2 seconds

    Mr. Secretary --

  • SEN. WARNER

    At 02:09:14
    2 seconds

    Making that clear would, I think -- I think there
    has been --

  • SEC. DONOVAN

    At 02:09:16

    Yes, there has been --

  • SEN. WARNER

    At 02:09:16
    2 seconds

    The press has really --

  • SEC. DONOVAN

    At 02:09:18

    Has been confused.

  • SEN. WARNER

    At 02:09:18
    2 seconds

    -- has not understood that.

  • SEN. DODD

    At 02:09:20
    4 seconds

    Senator Shelby has -- it's the same question. I
    apologize to my colleagues --

  • SEN. SHELBY

    At 02:09:24
    1 minute

    Along these lines, it's my understanding of the
    legal -- (inaudible) -- you've got a first mortgage, then you've got a
    second mortgage. Of course, we know the first mortgage has priority
    over everything. But if you supersede that first mortgage with
    another mortgage -- in other words, pay it off and modify it, lower
    the terms -- couldn't you get into a dicy situation? Because the
    second mortgage -- you know, you're the secretary and I'm sure you've
    got lawyers everywhere.
    (Laughs.)
    But the second mortgage then becomes the first
    mortgage in an ordinary situation. And you've got -- I guess that's
    what some of us -- Senator Warner is kind of alluding to this. That's
    kind of dicy. I hope you're doing it right. I guess you could -- I
    don't know this; it depends on -- you could modify something, modify
    the note. But you start fooling with the mortgage, you know,
    especially if you pay off the mortgage and supersede it, that mortgage
    is gone. You know, and then you're in line behind the second
    mortgage, which comes to the front.

  • SEC. DONOVAN

    At 02:10:36

    That's exactly why --

  • SEN. SHELBY

    At 02:10:36

    Does that make sense?

  • SEC. DONOVAN

    At 02:10:36
    9 seconds

    No, you're exactly right. And that's exactly why,
    in a refinancing, where the first mortgage is actually extinguished --

  • SEN. SHELBY

    At 02:10:45

    Absolutely.

  • SEC. DONOVAN

    At 02:10:45
    4 seconds

    -- that's where the second lien becomes an issue.
    And that's what we're focused on dealing with.

  • SEN. SHELBY

    At 02:10:49

    (Inaudible) -- wouldn't it?

  • SEC. DONOVAN

    At 02:10:49
    11 seconds

    Right, whereas a modification, the first stays in
    place and it doesn't -- the second has no right to supersede the first
    in that (situation ?).

  • SEN. SHELBY

    At 02:11:00

    And it has to be done right, though.

  • SEC. DONOVAN

    At 02:11:00
    3 seconds

    Yes.

  • SEN. SHELBY

    At 02:11:03
    4 seconds

    You'll have some lawsuits. I think Senator Warner
    was alluding to that.

  • SEN. WARNER

    At 02:11:07
    3 seconds

    Right. And if we're going to do this, we've got
    to --

  • SEN. SHELBY

    At 02:11:10

    Oh, yeah.

  • SEN. WARNER

    At 02:11:10

    -- not just create this whole new --

  • SEN. SHELBY

    At 02:11:10

    Oh, no.

  • SEN. WARNER

    At 02:11:10
    26 seconds

    -- legal pile of trouble. And I also think you've
    got the issue, even on the first mortgage, if it has been securitized
    and chopped up so much, the challenge of those most at risk, first 5
    or 10 percent -- it's a different issue, but it's got issues too since
    you've got all the -- that's where a lot of the side bets were placed

  • SEN. DODD

    At 02:11:36
    2 seconds

    That's where the safe harbor, I think, is critical --

  • SEN. WARNER

    At 02:11:38

    Right, which is --

  • SEN. DODD

    At 02:11:38
    18 seconds

    -- whereas on this one, the modification goes to the
    refinancing. I think it's pretty clear. If you're modifying, the
    safe harbor is really, I don't think, as necessary as the first
    situation we talked about. If you're refinancing, as Senator Shelby
    points out, then you've crossed over a line and then clearly you've
    got a problem with the --

  • SEC. DONOVAN

    At 02:11:56
    32 seconds

    Even with the modifications, there have been
    concerns on the part of the investors. That's why this guidance that
    we're going to do next week, which, from Treasury, applies to all
    financial institutions, is critical. The pooling and servicing
    agreements say the servicer has a responsibility to act on behalf of
    the whole trust, but we think this guidance will provide them very
    clear specific support for their being able to modify, except in the
    most extreme cases where pooling and servicing agreements had unusual
    language; only about 10 percent or so.

  • SEN. DODD

    At 02:12:28
    6 seconds

    Let me thank Senator Warner and Senator Shelby for
    raising this point. We've taken a little time on it, but it's very
    worthwhile to have this exchange.

  • SEC. DONOVAN

    At 02:12:34

    Very helpful, yes.

  • SEN. DODD

    At 02:12:34
    2 seconds

    Senator Bennett, welcome.

  • SEN. MICHAEL BENNET (D-CO)

    At 02:12:36
    5 seconds

    Thank you, Mr. Chairman. I
    appreciate it. And I apologize for coming in on the tail end, so I
    will be --

  • SEN. DODD

    At 02:12:41

    Well, Senator Akaka is here too, and --

  • SEN. BENNET

    At 02:12:41
    1 minute

    Well, I'll be very brief.
    I first wanted to come because I always like to see a local
    government guy make good. (Laughter.) So congratulations, Mr.
    Secretary, on your confirmation, and I look forward to working with
    you.
    I know there's been some discussion this morning about
    proactively communicating with our citizens on this and I just want to
    underscore, from my point of view, how important that is. We in
    Colorado are fifth, we think, in foreclosures in the country, by some
    measures -- which is nothing to write home about, but we used to be
    first, and we've started to see these foreclosures decrease.
    The state, a couple of years ago, (with the) cooperation of
    state, private enterprise and non-profits, put together a hotline, I
    think, along the lines of the one you're talking about. And what
    we've discovered is that four out of five of those calls resulted in
    something other than a foreclosure for the people that were calling,
    and we think we roughly saved 4,200 homes by doing that. So, I
    encourage you.
    And I know, based on my travels during the recess, that there's a
    profound lack of clarity out there about what it is we're trying to
    do. I want to congratulate the administration on your efforts here;
    and the reminder in the president's speech this week about how
    comprehensive these issues are, that it's not just one thing, there's
    not one silver bullet to deal with it.
    I also know you testified that as things -- as this proceeds,
    you'll continue to reevaluate whether the program is being effective
    or not. And I'd love it if you could tell us a little more about what
    kinds of triggers you're going to look at to assess progress with this
    plan, and what sorts of metrics we should be thinking about as we
    evaluate your success.

  • SEC. DONOVAN

    At 02:14:28
    2 minutes

    Well, look, obviously, the long-term metric on
    this is what happens to the housing market, and can we help it to turn
    around. So, that's -- clearly what this is aimed at is improving the
    housing market for everybody, not just those homeowners that are most
    at risk but recognizing the terrible impact that foreclosures are
    having on everybody's home value in the country. So, that's the long-
    term metric.
    I think, in the shorter term we're going to be looking very
    carefully -- with the data we get back from the servicers, and the
    auditing and other things that we're going to be doing -- first of
    all, what do we see in terms of modifications increasing? Hopefully
    -- and we certainly expect that that would lead to fewer foreclosures,
    so looking at the rate of foreclosures, and what's going to happen
    there.
    It's also going to be the quality of the modifications and how
    long they last; making sure that people have verified income, that
    we're getting to the 31 percent debt-to-income ratio. We've seen lots
    of modifications, frankly, where payments are required to go up rather
    than down. And so it's not just a modification, it's the right kind
    of modification, and the Program sets very strong standards on that.
    We'll be measuring to make sure that servicers are meeting that,
    they're checking income adequately.
    And then also to see how long those modifications last, that
    they're successful. One of the things that we think we've -- we
    certainly tried to do, and we hope we've got right, is to pay for
    success rather than failure. So, instead of guaranteeing any loss,
    which only happens with a redefault, we've structured our payments so
    that if it only lasts six months -- the modification, well, you only
    get the payment for those six months. If it lasts five years, you get
    a much more significant contribution.
    So, we think we're -- we've structured it to pay for success, and
    we want to make sure that we see the redefault rates come down, and
    that we have as many homeowners who can succeed with these
    modifications as possible. So, I think those are the key metrics
    we'll be looking at.

  • SEN. BENNET

    At 02:16:36

    Thank you, Mr. Chairman.

  • SEN. DODD

    At 02:16:36
    2 seconds

    Thank you very much, Senator.
    Senator Akaka.

  • SEN. DANIEL AKAKA (D-HI)

    At 02:16:38
    29 seconds

    Thank you very much, Mr. Chairman.
    Let me add my welcome to Secretary Donovan to this committee
    again. I remember your lovely family when you were here earlier.
    But, I want to let you know that I really appreciate your efforts in
    helping the struggling families in trying to remain in their homes.
    And I'm impressed with your responses --

  • SEC. DONOVAN

    At 02:17:07

    Thank you.

  • SEN. AKAKA

    At 02:17:07
    41 seconds

    -- and look forward to continuing to work with you.
    Let me be more focused on my concern in my question, and that is
    implementing housing policy in Native American communities and on
    trust land, which often requires unique and innovative approaches.
    And, Secretary Donovan, my question to you is, what will be done to
    assist homeowners in Native American, Native Hawaiian, Alaska Native
    communities?

  • SEC. DONOVAN

    At 02:17:48
    1 minute

    Well, first of all -- and I think we started
    talking about this a little bit before, outreach and education on this
    issue is absolutely key. National number -- I'll say it again, at the
    risk of repeating myself, 888-995-HOPE. Anyone, anywhere in the
    country, can call and get information; go on HUD's website, hud.gov,
    and get information about what's available, the options that are
    available.
    We had a very good discussion yesterday with lots of counseling
    agencies, and others, who have made it very clear, ensuring broad
    geographic outreach, different languages, a whole range of things that
    we need to do to make sure that we're getting the word out as
    comprehensively as possible.
    And then beyond that, what I would say, in particular, there are
    a range of things we need to do for Native Americans, for Native
    Hawaiians. One of the things about the Recovery bill that I think was
    so important is it recognized that. And, in fact, just yesterday we
    announced allocations of $255 million for Native American block grant
    funding, and I believe it's $10 million for Native Hawaiian funding.
    So, we got that out within a week after the president signed the
    bill. And so those communities will know what they have available.
    They can come on in and start to sign the contracts to actually
    obligate that money in the next 30 days. So, those are some things I
    would say about dealing with specifically with the issues in those
    communities.

  • SEN. AKAKA

    At 02:19:22
    1 minute

    Well, thank you for that, Secretary. I appreciated
    your comments on that.
    Let me then point to some loans on VA. In addition to sitting on
    this committee, I am chairman of the Veterans Affairs Committee. The
    Department of Veterans Affairs administers the successful Home Loan
    Guaranty Program. Lenders have expressed concern, however, about the
    possibility that the "cram down" proposal may negatively impact VA's
    Home Loan Guaranty Program.
    So, my question to you is, what will be done to mitigate any
    potential negative consequences that the proposal may have on the VA
    Home Loan Guaranty Program?

  • SEC. DONOVAN

    At 02:20:22
    57 seconds

    Excellent question, Senator. I'm very glad you
    brought that up because it's something I hadn't mentioned before, but
    it's a critical issue.
    Because of the way FHA insurance, VA insurance have been
    structured -- whether it's in bankruptcy or even in a loan
    modification, there isn't current authority to be able to pay partial
    claims in those situations. And so, in addition to the changes for
    HOPE for Homeowners, we've been working on language with the
    committees here that would allow FHA and VA to pay partial claims in
    modifications -- as well as in bankruptcy, that would ensure that
    lenders that, when they made a loan, relied on the full faith and
    credit of the U.S. government, can actually -- can rely on that in
    those situations. So, that is an important part of the legislative
    language that we've been working on with the committees.

  • SEN. AKAKA

    At 02:21:19
    1 minute

    Well, I appreciated your thoughtful comments again
    about this.
    And during your nomination hearing, the need to incorporate
    education through the home loan process, we talked about this. And I
    know that the Homeowner Affordability and Stability Plan focuses on
    keeping mortgage rates low, supporting refinancing efforts and
    assisting at-risk homeowners. As we work to develop longer-term
    policies to better educate and empower prospective homeowners, my
    question to you is, how should education be incorporated into the home
    buying process?
    You mentioned outreach. You even gave the 889-HOPE. Are there
    other matters that we can think of in helping in the home buying
    process?

  • SEC. DONOVAN

    At 02:22:30
    1 minute

    Very important question. And we do -- we do have
    to remind ourselves, I think, in the midst of this crisis, that we
    need to look forward and, as I said earlier, get back to the basics,
    in terms of lending.
    In New York we had a program to create and preserve
    homeownership, where we helped over 17,000 families. And we only had
    five foreclosures in that program, and the reason for that is because
    we did the education, we made sure it was affordable, we made sure the
    loan terms were acceptable -- you know, really the basics. And
    education is an important part of that.
    I think you'll see -- the president is releasing the first
    information about our budget proposal for 2010 today, and I think
    you'll see that counseling is an important part of efforts, going
    forward. HUD-approved counselors around the country are a critical
    resource, not just for helping work out foreclosures but also for
    first-time home buyers or home buyers getting into a home, to make
    sure that they're getting the right mortgage product, that they're
    prepared for homeownership. And I think that that's -- it's a key
    thing we've got to focus on, going forward, as well.

  • SEN. AKAKA

    At 02:23:38
    3 seconds

    Thank you. Thank you very much for your excellent
    responses.
    Mr. Chairman, thank you.

  • SEN. DODD

    At 02:23:41
    57 seconds

    Senator Akaka, thank you very much.
    And as you'll discover, if you haven't already, Mr. Secretary,
    that Senator Akaka has -- as long as he's been on this committee, and
    I suspect even predating that, he's had a deep interest in financial
    literacy issues.
    And we've talked about it extensively here and it's something we
    really need to focus on.
    And I often wish that even at public elementary schools they'd
    begin just teaching at the earliest grades -- math and so forth -- by
    utilizing examples of just balancing checkbooks and things like that
    could be helpful.
    I've often said as well too -- and I say this respectfully to all
    of us here -- that a little financial literacy might even begin here.
    And I say that respectfully to my colleagues, but I think we all
    appreciate that we do the best we can, but these are subject matters
    that all of us as lay people -- most of us lay people -- try to get
    our arms around and understand as well as we should. So I thank
    Senator Akaka for his deep interest in that subject.
    Senator Merkley has some additional questions.

  • SEN. MERKLEY

    At 02:24:38
    13 seconds

    Thank you very much, Mr. Chair.
    And Secretary Donovan, thank you so much for your testimony.
    Your thorough knowledge of the topic and the details is refreshing and
    gives us a lot of -- (inaudible) -- the work that you're going to be
    doing.

  • SEC. DONOVAN

    At 02:24:51

    Thank you.

  • SEN. MERKLEY

    At 02:24:51
    49 seconds

    I wanted to put in one request with you, as you go
    forward, and that is in regard to the hotline that is being set up or
    has been set up, if it's possible to expand it beyond simply a
    description of the existing programs, if you will.
    When folks call, if they are able to be able to talk to a real
    person, if they are able to say, "I have a loan that is serviced by
    so-and-so, how can I get through to somebody ready to talk about
    renegotiations?" so that they can get through to a real person on the
    servicer end and bypass what will be numerous days, numerous hours of
    frustration? If there's any way to utilize that hotline in a way to
    really help connect people to the servicers and to action, it would be
    a huge -- just a monumental service to the homeowners of America.

  • SEC. DONOVAN

    At 02:25:40
    18 seconds

    I couldn't agree more. And in the discussions
    that we've been having, trying to make sure that that centralized
    hotline can connect folks up to the servicers, as well as counseling
    agencies in their neighborhoods, that can help them stay in their
    homes and get the assistance they need -- that's absolutely right.

  • SEN. MERKLEY

    At 02:25:58

    Thank you so much.

  • SEN. DODD

    At 02:25:58
    3 seconds

    Senator Shelby, any closing thoughts?

  • SEN. SHELBY

    At 02:26:01
    20 seconds

    I just want to tell the secretary again we welcome
    you here. We look forward to working with you. We know you have great
    challenges, but we think you have the energy and you've got a great
    background. And I think you'll be before this committee a lot and we
    will always welcome you back.

  • SEC. DONOVAN

    At 02:26:21

    I'm looking forward to it. Thank you.

  • SEN. DODD

    At 02:26:21
    1 minute

    Let me echo those words as well, Secretary Donovan.
    It's been very impressive this morning.
    And on the Hope for Homeowners, I know you're doing this, but
    I'll just publicly -- we need to get as much information, because to
    the extent we can go back and make some fixes to that so it can work
    as well as we'd all like it to would be very, very helpful.
    Senator Shelby and I would like to get that as early as we can to
    the extent we can bring our members together, get around some of these
    ideas and then go to our respective leaders -- assuming we can reach
    that kind of understanding, which I believe we can -- so that we can
    go forward and bring some of these matters up for the consideration of
    our colleagues on the floor of the Senate, it would be very helpful.
    And there is a sense of urgency, obviously, of getting this stuff in
    place. So we'd ask you to do that.
    And secondly, we've got other issues we need to talk about with
    you as well as, obviously, foreclosure issues. There's a lot of issues
    dealing with housing and related matters of transit.
    This committee has jurisdiction over urban mass transit issues
    and the surface transportation bill is going to come up this year.
    And so that's going to be a matter which I'm going to want to engage
    you in -- along with the secretary of Energy, the secretary of
    Transportation, the secretary of even Health to some degrees -- to
    talk about how we might do a better job of coordinating these
    questions when it comes to service transportation issues where
    housing, energy, obviously transport and environmental questions -- I
    said health -- and environmental issues can really come together. And
    we'll get a working group on this so we think about it more
    holistically than just transit questions, but rather how they
    interrelate with each other.
    And I know you've done a lot of work on that. I was very
    impressed in our conversation about your full understanding of that
    holistic approach to this question. So I'm going to really draw upon
    those years of experience you've brought to this subject matter
    already.
    Senator Shelby had a comment.

  • SEN. SHELBY

    At 02:28:06
    11 seconds

    Just along the same lines, the secretary I'm knows
    very well, we have about -- on transit-related stuff -- about 20
    percent of the highway budget, I believe --

  • SEN. DODD

    At 02:28:17

    Mm hmm.

  • SEN. SHELBY

    At 02:28:17
    6 seconds

    -- the whole thing, so we will need to engage you,
    because this committee's going to be very active there.

  • SEN. DODD

    At 02:28:23
    9 seconds

    And a lot of interest in the subject matter today.
    This is no longer just an east coast-west coast thing. But now, you
    know, places like Utah and Nevada and Idaho and --

  • SEN. SHELBY

    At 02:28:32

    And Alabama.

  • SEN. DODD

    At 02:28:32
    35 seconds

    And Alabama. But the concentrations in urban areas
    -- a great trivia question is: which is the most urbanized state in
    America? And people are inclined to maybe say New York or Connecticut
    or Illinois or something, but the most urbanized state in the country
    is Nevada with the largest concentration of population in one county.
    And so we have a tendency to think of the West as not in need of
    transit issues in the past. But clearly, the whole country needs to
    focus on this.
    So I didn't mean to digress from the subject matter this morning,
    but I wanted to tell you how much I appreciate your service and look
    forward to working with you.

  • SEC. DONOVAN

    At 02:29:07
    39 seconds

    Thank you.
    And we've been doing some thinking around the budget -- you know,
    based on our conversation and others -- about how we can begin to do
    that.
    I would also just say, we've been working with your staff on --
    we've announced the intent to nominate Ron Sims as deputy for HUD and
    I think you'll find -- I hope you'll find in the hearing that he is
    very knowledgeable on these issues. He has been a real leader around
    bringing transit together in King County in Washington State with
    housing and a whole range of issues. And I think he could be a
    terrific resource on doing this. So I hope you'll find the same when
    he comes before the committee.

  • SEN. DODD

    At 02:29:46
    2 seconds

    We've got to move on that.
    Thanks very much for being with us.

  • SEC. DONOVAN

    At 02:29:48

    Thank you.

  • SEN. DODD

    At 02:29:48
    30 seconds

    The committee will stand will adjourned.