Yesterday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Helping Homeowners Avoid Foreclosure”. Testifying before the Committee were the following witnesses:
- Honorable Shaun Donovan, Secretary, U.S. Department of Housing and Urban Development
- Honorable Anne Milgram, Attorney General of New Jersey
- Ms. Marge Della Vecchia, Executive Director, New Jersey Housing and Mortgage Finance Agency
- Ms. Phyllis Salowe-Kaye, Executive Director, New Jersey Citizen Action Board
- Mr. Mario Vargas, Executive Director, New Jersey Puerto Rican Action Board
- Mr. Edward Heaton, Homeowner from Springfield, New Jersey
- Mr. Bryan Bolton, Senior Vice President, Loss Mitigation, CitiMortgage
Mr. Donovan began the hearing by discussing the progress the Obama Administration has made through the Making Home Affordable program (MHA) and the U.S. Department of Housing and Urban Development’s (HUD) central role in preventing foreclosures and stabilizing neighborhoods. Mr. Donovan discussed the MHA, which includes the following two key components:
- The Home Affordable Refinance Program (HARP), which expands access to refinancing for families whose homes have lost value and whose mortgage payments can be reduced at today’s interest rates.
- The Home Affordable Modification Program (HAMP), which provides up to $75 billion dollars, including $50 billion of funds from the Troubled Assets Relief Program (TARP), to encourage loan modifications that will provide sustainable, affordable mortgage payments for borrowers.
He further noted that the MHA has seen success since the launch of the program in March, with 56 servicers (representing 85% of the market) having signed contracts with the Obama Administration and more than 2.7 million home loans refinanced. Despite this progress, Mr. Donovan noted that additional initiatives were necessary to improve the responsiveness and accountability of services participating in the MHA, and noted the three steps which would improve the program’s performance: “(1) public reports of servicer-specific performance, (2) working with servicers to set more exacting operational metrics to measure performance, and (3) development of a ‘second look’ process to minimize the likelihood that applications are overlooked or that applicants are inadvertently denied a modification.”
Mr. Donovan then addressed the HUD’s central role in preventing foreclosures and stabilizing neighborhoods. Under the Established FHA Loss Mitigation Efforts, servicers of FHA-insured loans must notify delinquent homeowners about their available options before initiating a foreclosure proceeding. The FHA Home-Affordable Modification Program allows the FHA to provide qualified FHA-insured borrowers assistance under terms that are comparable to borrowers in other segments of the market and will allow HUD to permanently reduce a monthly mortgage payment to an affordable level. In addition, HUD’s network of counselors are providing assistance to homeowners at-risk of foreclosure, and the Hope for Homeowners Program gives distressed homeowners a mechanism for refinancing into FHA-insured loans. Finally, under the Neighborhood Stabilization Program, HUD has allocated $1.93 billion to states, local governments and non-profit organizations to stabilize communities suffering from high levels of foreclosure and abandonment.
Ms. Milgram testified on the New Jersey mandatory mortgage mediation program, which was launched by Governor Corzine in January. This state-wide program, which was the first of its kind, pays for HUD-certified housing counselors, trained mediators and experienced lawyers to assist eligible homeowners facing foreclosure. As of the end of August, 49.5% of cases were settled through mediation or pre-mediation negotiations. Ms. Milgram also addressed the civil and criminal charges brought against more than 100 defendants who defrauded homeowners of both money and equity from their homes.
Ms. Marge Vecchia focused her testimony on responsible lending practices by housing finance agencies. She noted that the low delinquency rates of state Housing Finance Agencies is due to the attention paid to a homeowner’s ability to afford the mortgage payments over the life of the loan. In addition, servicers remain in constant contact with borrowers who miss a payment, and foreclosures do not occur without the agency first attempting to work out the loan with the borrower. Ms. Vecchia suggested that the success of the borrowers was due to several features, including the high quality of the loans, which are manually underwritten for credit and income eligibility, the open communication between borrower and servicer and the required pre-purchase homebuyer counseling for borrowers. To address one of the biggest obstacles facing homeowners today, the New Jersey Housing and Mortgage Finance Agency (HMFA) will provide homeowners with up to $20,000 in “catch-up funding” to avoid foreclosure and transition into a more stable mortgage. Further, the New Jersey Judiciary Foreclosure Mediation Program provides homeowners facing foreclosure with the option of mediation and also provides a housing counselor and attorney, when appropriate. Although New Jersey has created a Mortgage Stabilization Program, whereby the homeowner’s mortgage will be written down to the value of the property and to make the monthly payments more affordable, the HMFA’s experience is that this voluntary modification process has not worked on a scale broad enough to slow the housing crisis. Ms. Vecchia recommended that the federal government provide housing finance agencies with access to low interest federal funds so that these agencies can resume lending and reactivate the housing market.
Ms. Phyllis Salowe-Kaye testified on behalf of New Jersey Citizen Action which has joined the Americans for Financial Reform (AFR), a national coalition spearheading a campaign for reform in the banking and financial systems. According to Ms. Salowe-Kaye, the AFR’s four priorities are to: (1) renegotiate mortgages to prevent foreclosures; (2) support a Consumer Financial Protection Agency that will scrutinize the banking industry; (3) regulate “shadow markets,” where financial transactions occur without oversight; and (4) democratize the Federal Reserve. Ms. Salowe-Kaye argued that “offering financial products that are in the best interest of the consumer will promote safety and soundness in consumer investing and is an important first step in creating regulatory reform that will restore integrity and accountability to credit markets and ensure recovery of the economy.” Although New Jersey Citizen Action has attempted to educate homeowners on predatory lending and risky financial activities, Ms. Salowe-Kaye argued that financial reform would aid the effort for both homeowners and their respective communities.
Mr. Mario Vargas, executive director of the Puerto Rican Action Board (PRAB), noted the PRAB’s surge in the number of individuals seeking assistance in home foreclosures. He testified as to the practical problems faced by homeowners using foreclosure prevention programs, including: (1) the time delay in processing cases; (2) the lack of coordination within the lender’s departments; (3) the lender’s delay in implementing government intervention programs; (4) trial modifications at a higher monthly payment; and (5) fraudulent practices by private groups. Mr. Vargas concluded his testimony by making the following recommendations (1) the lenders participating in the foreclosure prevention programs have standardized training for staff; (2) the Government Sponsored Enterprises (namely Fannie Mae & Freddie Mac) re-impose a 6-month moratorium on foreclosures; (3) the prohibition of modifications which would raise monthly payments in the next three years; and (4) the prohibition of up-front fees for counseling services.
Mr. Edward Heaton testified as to his experience with seeking a loan modification and qualifying for the MHA program, following the loss of his employment.
Mr. Bryan Bolton testified about CitiMortgage’s efforts in assisting homeowners facing foreclosure. Since the beginning of 2007, CitiMortgage’s loss mitigation program has allowed over 625,000 keep their homes. On April 13, 2009, CitiMortgage was among the first HAMP mortgage servicers to sign-up for the program, and has committed significant resources to support the program.