Lawmakers Seek Foreclosure Delays

August 8, 2008

House Financial Services Committee members Maxine Waters, Mel Watt, Brad Miller and the Committee’s chairman, Barney Frank, today strongly urged the mortgage industry to hold off on foreclosures for potentially qualified homeowners for the next several months while a new FHA rescue program gets under way. In July, Congress passed and President Bush signed legislation designed to help at least 400,000 borrowers who have fallen behind in their payments due to a combination of unaffordable mortgages and falling home prices. The rescue provisions, which will refinance qualified individuals through the FHA program, will take effect on October 1. In addition, the Chairman also plans a follow-up hearing to gauge compliance on September 17, 2008 at 10:00 a.m.

Below is the text of the letter:

August 5, 2008


Given the recent enactment of major housing reform legislation – most importantly, the October 1 start date for the FHA “Hope for Homeowners” refinance program, we are calling upon servicers to forbear foreclosures for potentially eligible homeowners over the next few months, review their loan documents and prepare to refinance eligible borrowers by October 1. Many mortgage servicers and others in the servicing industry have told us about the progress they are making (and expect to make) to address the foreclosure crisis through, among other things, a greater willingness to engage in meaningful loan modifications that materially alter a borrower’s ability to repay the loan; and new hiring of servicing professionals to more quickly address the backlog. Unfortunately, individuals facing foreclosure, consumer advocates and others have painted a very different picture: one that involves long waits and few, if any, meaningful loan modifications. To clear up the matter, could you please provide additional information on your mortgage servicing practices, in particular:

* Will you be using the next few months to review loan documents, contact borrowers and forbear foreclosure for those that may qualify? Although the program will not be fully up and running until October 1, several servicers have pledged to use this time to review their loan files and work with borrowers likely to qualify come October 1. * Do you anticipate making the principal reductions necessary to qualify for refinancing at-risk borrowers into the Hope for Homeowners Program? A number of servicers have informed us that – although they have generally avoided significant principal write downs to date – they expect to substantially increase these write downs to take advantage of the Hope for Homeowners Program. The general view has been that principal write downs have been a “last option” for servicers because they represent an immediate loss for investors but (even if meaningful) leave investors and servicers with ongoing credit risk. Given falling housing prices, servicers and investors have heretofore preferred to take their losses now – foreclosing on the property – rather than a principal loss now and potentially greater loss later (if the borrower redefaults). This, of course, facilitates more foreclosures, puts more houses on the market, and risks a vicious cycle. The Hope for Homeowners Program eliminates this collective action problem by permitting servicers and investors to take a single large loss now (through a principal reduction) – but eliminates the risk of future loss. This keeps more people in their homes – slows the decline in housing prices – and avoids the enormous losses associated with foreclosure. * Do your servicing practices provide that a previous loan modification would not disqualify a borrower from the principal modifications required by the Hope Program? In our conversations with servicers, they have informed us that a previous loan modification would not disqualify a borrower from the principal reductions required to participate in the Hope Program. However, a number of housing counselors have informed us that some borrowers are not currently receiving a second modification even if the first modification was clearly too small to meaningfully affect their ability to repay the loan. Please confirm that these previous modifications will not limit willingness to work with qualified borrowers under the Hope Program?

The Financial Services Committee will be holding a follow-up hearing on servicing practices in September. To facilitate that hearing, we would appreciate your response by August 31.


The letter was sent to the following:

1. Mr. Steve Bartlett, President and Chief Executive Officer, Financial Services Roundtable

2. Mr. Joe Belew, President, Consumer Bankers Association

3. Mr. Niall S.K. Booker, Chief Executive Officer, HSBC Finance Corporation

4. Mr. James Dimon, Chief Executive Officer, JPMorgan Chase & Co.

5. Mr. Bob Dubrish, Chief Executive Officer, Option One

6. Mr. William C. Erbey, Chief Executive Officer, Ocwen Financial Corp.

7. Mr. Camden R. Fine, President and Chief Executive Officer, The Independent Community Bankers of America

8. Mr. Jonathan Kempner, President and Chief Executive Officer, Mortgage Bankers Association

9. Mr. Kerry K. Killinger, Chief Executive Officer, Washington Mutual, Inc.

10. Mr. Kenneth D. Lewis, Chairman, Chief Executive Officer and President, Bank of America

11. Mr. Martin Lifshutz, Chief Executive Officer, Ameriquest

12. Mr. Larry Litton, President, Litton Loan Servicing

13. Mr. Thomas Marano, Chairman and Chief Executive Officer, Residential Capital, LLC

14. Mr. George Miller, Executive Director, American Securitization Forum

15. Mr. Daniel H. Mudd, President and Chief Executive Officer, Fannie Mae

16. Mr. Vikram Pandit, Chief Executive Officer, Citigroup

17. Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo & Company

18. Mr. Richard F. Syron, Chairman and Chief Executive Officer, Freddie Mac

19. Mr. Edward Yingling, President and Chief Executive Officer, American Bankers Association

Contact ALTA at 202-296-3671 or

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