For Immediate Release Contact: Aaron Rottenstein, JEC, (202) 228-6512
July 29, 2009
FOLLOWING TREASURY AND HUD MEETING WITH LOAN SERVICERS
REP. MALONEY URGES ADDITIONAL TRANSPARENCY, FASTER ACTION
Washington D.C. –Today, Congresswoman Carolyn B. Maloney, Chair of the Joint Economic Committee (JEC) sent a letter to Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan urging faster action and greater transparency from loan modification companies as they work within recently enacted programs to help borrowers stay in their homes. Chair Maloney urges the Administration to implement reporting requirements to ensure that loan servicers do not manipulate the modification process for their own gain. For example, servicers should be required to report information about the success of the loan modification process as well as their own overall performance. The letter, sent today, comes on the heels of a JEC hearing at which the Government Accountability Office discussed the findings of a new report, requested by Chair Maloney, detailing the epidemic of nonprime foreclosures in localities nationwide. Testimony of expert witnesses on the ways in which government can help cut rising foreclosure rates, opening statements, and a recorded webcast can be found here. And the new GAO report can be accessed here.
A copy of the letter appears below:
July 29, 2009
The Honorable Timothy F. Geithner
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
The Honorable Shaun Donovan
Department of Housing and Urban Development
451 7th Street, SW
Washington, D.C. 20410
Dear Secretary Geithner and Secretary Donovan:
Yesterday the Joint Economic Committee held a hearing entitled “Current Trends in Foreclosures and What More Can be Done to Prevent Them.” The Committee heard testimony that should be of interest to you in your efforts to stem the tide of foreclosures across the country. The report and witness testimony are available at www.jec.senate.gov.
A study I requested from the Government Accountability Office, entitled "Characteristics and Performance of Nonprime Mortgages" found that almost one-quarter of active non-prime loans were seriously delinquent (in the foreclosure process or more than 90 days delinquent) as of March 31, 2009. The GAO study also includes an appendix which reports the serious delinquency rates by state and Congressional district.
This previously undisclosed loan-level data that GAO obtained and analyzed at my request provides a sobering snapshot of the foreclosure crisis inherited by the Obama administration. Key measures for addressing this problem include incentives to servicers to modify loans in the administration’s Home Affordable Modification Program and an expansion of eligibility to receive low cost FHA loans in Hope for Homeowners.
I applaud the efforts by Treasury and HUD officials who met with mortgage servicers yesterday to encourage them to speed the pace of modifications, which are not happening quickly enough. The pledge by mortgage company executives to reach 500,000 loan modifications by November 1 is a step in the right direction. But our hearing brought to light that questions remain about how prepared servicers are to take up the challenge to act more swiftly and more transparently.
First, the servicers who are modifying loans are the parties who originated the bad loans in the first place, so we must receive assurances that the servicers will not repeat the mistakes of the past.
Second, this crisis was precipitated by and continues in an unabated fashion because of the asymmetries in information in this market, so Treasury must insist that actions taken by servicers are more transparent to both investors and regulators. As Dr. Joseph Mason testified yesterday, current industry reporting does not capture even the most basic manipulations by servicers. Servicers have incentives to implement unsustainable repayment plans to depress or defer the recognition of losses in the loan pool. For this reason, servicers should be required to report information about the success of the loan modification process as well as their own overall performance. I would welcome additional details from the Administration regarding implementation of reporting requirements on servicers in order to add transparency to this market.
Finally, in response to my question about whether loan modifications face an uphill battle if foreclosures are in the best interest of the servicers, Dr. Susan Wachter testified that while it is in each servicer’s interest to foreclose quickly on delinquent properties, the collective foreclosures are driving prices down and leading to even more foreclosures. I hope you will be successful in impressing this point upon the servicers. Dr. Wachter also added that while unemployment is a factor in delinquencies, the downward spiral of home prices is contributing significantly to foreclosures.
I applaud your efforts regarding loan modifications and urge you to continue your work to encourage servicers to modify loans rather than foreclose on individuals who could stay in their homes if their payments were reduced.
I look forward to your response.
Sincerely,
Carolyn B. Maloney
Chair, Joint Economic Committee
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The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.
www.jec.senate.gov
