On Wednesday, May 13, the House Financial Services Committee Subcommittee on Housing and Community Opportunity held a hearing examining counseling and the role it plays in preventing foreclosures. Representative Maxine Waters (D-CA) led the hearing, which was sparsely attended.
The hearing was long but not particularly contentious. Nevertheless, two themes emerged. First, was the issue of mortgage servicers and whether they are still acting as roadblocks to consumers obtaining workable loan modifications. The second issue was compensation and how it related to the Homeowner's HOPE Hotline and "Level I" counseling.
The hearing was divided into two panels. Panel One consisted of one witness, Ken Wade, Chief Executive Officer, NeighborWorks America. The second panel was comprised of five witnesses:
- Colleen Hernandez, President and Chief Executive Officer, Homeownership Preservation Foundation;
- Susan Keating, President and Chief Executive Officer, National Foundation for Credit Counseling;
- Lisa Hasegawa, Executive Director, National Coalition for Asian Pacific American Community Development;
- Cy Richardson, Vice President, Housing and Community Development, National Urban League; and
- Ms. Janis Bowdler, Associate Director, Wealth-Building Policy Project, National Council of LaRaza.
Copies of all of witness testimonies (as well as an archived Webcast of the hearing) are available at the following link: http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrh051309.shtml
Congresswoman Waters had a number of questions for Mr. Wade on the first panel and for a variety of the panelists on the second panel. Primarily, Ms. Waters is concerned about compensation and the proliferation of "Level I" counseling. Mr. Wade agreed that there are instances where counselors offer more Level I counseling than they had originally planned, but rejected the idea that counselors were "pushing" people into Level I counseling versus another type. Ms. Waters also wanted to know the "rules" regarding compensation and whether counselors were receiving $1,000 from servicers under the government programs. Mr. Wade assured the Congresswoman (several times) that this was not the case. Rather, counselors bill the servicers (assuming such an agreement exists) and then may receive reimbursement only in amounts necessary to cover costs. In any case, however, reimbursement amounts are far less than $1,000 per borrower. The second panel, however, brought to light the issue that borrowers who receive Level I counseling through the Hotline may later seek counseling from another counselor for Level II or Level III counseling; and, the counselor who provides the follow up counseling may not be able to recoup its full cost.
Representative Capito (R-WV) inquired as to funding for legal services in the budget, noting that of the $180 Million budgeted $30 Million was dedicated to legal services. Mr. Wade indicated that of that money, $5 Million was sent back and that none of the money was used to fund civil litigation, rather it was generally used to investigate fraud claims. Ms. Capito further inquired regarding difficulties in reaching servicers. Mr. Wade agreed that there had been issues in the past given capacity concerns; however, that was abating.
Representative Cleaver (D-MO) inquired regarding whether there was a difference in quality between counseling obtained via the telephone or counseling conducted face to face and, if so, if there is a difference in compensation. Mr. Wade replied that compensation is not based on the mode of counseling, but, rather on the type of counseling provided. Further, he added that they do not receive data on that issue. The second panel, nearly unanimously, rejected this assertion instead taking the position that face-to-face counseling provided greater benefits to the consumer.
Representative Green (D-TX) noted that he believes that there are still some mixed signals from servicers regarding loan modifications. Mr. Wade agreed, noting that, early on, borrowers were offered modifications that were simple repayment plans, but that were not sustainable. That has been changing and once the FDIC created the "Indy Mac" model, and real loan modifications became more widespread. Mr. Green also inquired about what effect the possibility of "cramdown" legislation had. Mr. Wade noted that he had no statistical analysis, but that, anecdotally he understood that the possibility of cramdown would have caused servicers to more aggressively seek loan modifications.
Ms. Waters concluded the hearing noting that she believes that there is a "problem" although the nature of the problem was not well-defined. Ms. Waters suspects that there are too many "Level I" counseling sessions being offered. She also suspects that there may be abuse in the compensation structure. It remains to be seen whether the Subcommittee will continue to examine this issue and, what, if any bills arise from such examination.