Agency’s Own Data Show Principal Reduction Would Save Taxpayers Billions of Dollars Former Fannie Mae Employee Calls into Question DeMarco’s Response to Congress

Washington, DC (Feb. 8, 2012) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and Committee Member John F. Tierney sent a letter to Edward DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), raising serious questions about his recent response to Congress arguing that principal reduction programs do not serve the interests of American taxpayers.

After months of withholding data and analysis, and in the face of a subpoena request, DeMarco finally sent a response letter to Cummings and Tierney on January 20, 2012, outlining his justification for refusing to approve any principal reduction programs for loans backed by Fannie Mae and Freddie Mac.

“The single most significant revelation in your letter to Congress,” wrote Cummings and Tierney, “is that, even based on your own questionable assumptions and data, principal reduction programs serve the taxpayer interests even when compared to your preferred alternative of forbearance.”

This revelation directly contradicts DeMarco’s testimony before the Oversight Committee on November 16, in which he stated that principal reduction “is not going to be the least-cost approach for the taxpayer.”

In addition, Cummings and Tierney revealed that a former Fannie Mae employee has now provided new information about a pilot program for principal reductions that was tentatively approved in 2010, but cancelled by Fannie Mae officials several months before the November elections in which Republicans took control of the House of Representatives. According the former employee, the officials were “philosophically opposed” to the concept of reducing principal, notwithstanding the potential economic benefits.

“We have now become aware of new information,” wrote Cummings and Tierney, “that calls into serious question the accuracy and completeness of your response, as well as your motivation for continuing to oppose principal reduction programs even when they have the potential to save American taxpayers billions of dollars.”

DeMarco’s letter to Congress did not mention this pilot program, and instead repeated his claim that he lacks the statutory authority to proceed with principal reduction programs.

In their letter, Cummings and Tierney also highlighted new reports that DeMarco is now blocking efforts to allow Fannie Mae and Freddie Mac to participate in principal reduction programs agreed to as part of the multi-state settlement under which the nation’s five largest mortgage servicers will provide billions of dollars in compensation for their abuses and illegal actions against homeowners.

“It appears that your refusal to follow Congress’ direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers,” they wrote.

“Unlike almost any other official in the entire government,” they added, “you have an historic opportunity to improve our nation’s fragile economy, to provide real assistance to millions of struggling homeowners, and to save American taxpayers billions of dollars in the process. It is time for you either to seize this opportunity or to step aside.”

Below is the full letter:

February 8, 2012

Mr. Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street NW
Washington, D.C.  20551

Dear Acting Director DeMarco:

We are writing in response to your January 20, 2012, letter which discussed your refusal to authorize principal reduction programs for underwater mortgages owned or guaranteed by Fannie Mae and Freddie Mac, and which provided some of the analyses on which you claim to base your refusal.

The single most significant revelation in your letter is that—even based on your own questionable assumptions and data—your most up-to-date analysis demonstrates that principal reduction programs would serve taxpayer interests more effectively than any other alternative, including your preferred alternative of forbearance, particularly with respect to mortgages backed by Fannie Mae.  This revelation directly contradicts your testimony before the Oversight Committee on November 16, in which you stated that principal reduction “is not going to be the least-cost approach for the taxpayer.”

In addition, although we appreciate the information you provided, we have now become aware of new information that calls into serious question the accuracy and completeness of your response, as well as your motivation for continuing to oppose principal reduction programs even when they have the potential to save American taxpayers billions of dollars.

After reviewing the data and legal explanations set forth in your letter, a former employee of Fannie Mae has come forward with detailed information about a pilot program that was designed to offer principal reductions to borrowers with loans backed by Fannie Mae.  The program was tentatively approved in 2010, but cancelled several months before the November elections in which Republicans took control of the House of Representatives.

According to this former employee, the pilot program had obtained appropriate internal legal and accounting approvals, as well as the participation of a prominent mortgage servicing company, but the program was terminated by senior officials at Fannie Mae who were “philosophically opposed” to the concept of reducing principal.  The former employee also indicated that significant research had been conducted prior to initiating this pilot program, and that personnel from your office were directly involved in reviewing the program.

Your letter did not mention anything about this pilot program.  Instead, you repeated the unfounded claim that you lack the statutory authority to proceed with principal reduction programs at this time, and you focused instead on new analyses that you began receiving in December 2010, one month after the congressional elections.  If these allegations by the former employee are accurate, your response to Congress is seriously deficient and misleading.

Rather than highlighting these and other pertinent facts, you chose to begin your letter with a highly inflammatory statement that was quickly cited by the press—that it would cost American taxpayers $100 billion to reduce principal on all three million underwater mortgages owned or guaranteed by Fannie Mae and Freddie Mac.  This was an answer to a question that was never asked and a flagrant distortion of the fundamental issue.  A more relevant figure would have been an estimate of the costs of taking no action at all and allowing all three million underwater mortgages to default—an amount that vastly exceeds your $100 billion estimate.

In fact, your own calculations prove that principal reduction programs prevent losses from occurring.  The data you provided indicate that implementing principal reduction programs for even a small subset of these underwater homeowners would save taxpayers an estimated $28 billion compared to the losses that would occur if no action were taken to prevent defaults.

Economists across the political spectrum have concluded that addressing the housing crisis is the key to improving our nation’s economic recovery, and they believe principal reduction programs offer a sound approach to addressing this crisis responsibly while serving the interests of taxpayers.

Over the last several days, however, we have received troubling new reports that you are now blocking efforts to allow Fannie Mae and Freddie Mac to participate in principal reduction programs agreed to as part of the multi-state settlement under which the nation’s five largest mortgage servicers will provide billions of dollars in compensation for their abuses and illegal actions against homeowners.

We understand that the Federal Housing Finance Agency (FHFA) is not part of the Obama Administration, and that you do not take direction from Administration officials, but it appears that your refusal to follow Congress’ direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers.

Unlike almost any other official in the entire government, you have an historic opportunity to improve our nation’s fragile economy, to provide real assistance to millions of struggling homeowners, and to save American taxpayers billions of dollars in the process.  It is time for you either to seize this opportunity or to step aside.
BACKGROUND

During your testimony before the Oversight Committee on November 16, 2011, you made two assertions:  that FHFA lacks the statutory authority to authorize principal reduction programs for Fannie Mae and Freddie Mac; and that after examining data and analyses, you determined that principal reduction programs do not serve the long-term interests of taxpayers.

Specifically, Rep. Tierney asked why FHFA refused to allow Fannie Mae and Freddie Mac to utilize principal reduction programs when the Emergency Economic Stabilization Act of 2008 specifically directs FHFA, Fannie Mae, and Freddie Mac to “implement a plan that seeks to maximize assistance for homeowners.”

In response, you stated:  “I believe that the decisions that we’ve made with regard to principal forgiveness are consistent with our statutory mandate.”  You also stated:  “I do not believe that I’ve been appropriated taxpayer funds for the purpose of providing general support to the housing market.”  During your testimony, however, you identified no specific statute that prohibits FHFA from allowing Fannie Mae and Freddie Mac from developing principal reduction programs in select cases that would serve the long-term interests of both taxpayers and homeowners.

You also testified at the hearing that principal reduction programs do not serve the interests of taxpayers.  You stated:

We have been through the analytics of the underwater borrowers at Fannie and Freddie, and looked at the foreclosure alternative programs that are available, and we have concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.

In contrast, many leading economists believe that principal reduction programs could fulfill this goal while also serving the long-term interests of the taxpayers.  For example, appearing before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, the President of the New York Federal Reserve Bank, William Dudley, testified:

We think that you can devise a program that, for home buyers that have mortgages that are under water, to incent them to continue to pay on those mortgages by giving them some program of principal reduction.  Obviously the devil’s in the details, so you have to have good program design.  But we are confident that one can design a program, which would be net beneficial—net positive—to the taxpayer.

At the conclusion of Rep. Tierney’s questioning, he asked you to provide both the statutory authority for your claim that you are prohibited from allowing principal reduction programs and the analysis you conducted demonstrating that principal reduction programs do not serve taxpayer interests.  He stated:

What you’re telling me flies in the face of all these people who have come up with a quite different idea. … I’d like you to do two things for the Committee if you would.  First, I want you to identify anywhere in the statute that specifically prohibits you from developing principal reduction programs. … [S]econd, I’d like you to submit whatever analysis you have done that shows why reducing the principal on some mortgages is worse for the United States taxpayer than foreclosure.

In response, you committed under oath to provide these documents, stating:  “We can provide that information as you suggested, Congressman.”

On November 30, 2011, all Democratic Members of the Committee wrote to follow-up on this request and to ask that you provide to the Committee “(1) the specific statutory provision you believe prohibits the Federal Housing Finance Agency (FHFA) from allowing Fannie Mae and Freddie Mac to reduce mortgage principal in all cases; and (2) the analysis you conducted, including the data you examined, demonstrating that principal reduction never serves the long-term interests of the taxpayer when compared to foreclosure.”

After receiving no response, we sent a letter to Committee Chairman Darrell Issa requesting that he issue a subpoena compelling the production of the requested documents.

CONCERNS WITH FHFA RESPONSE TO CONGRESS

On January 20, 2012, you sent a three-page response letter explaining your rationale for refusing to authorize principal reduction programs for mortgages owned or guaranteed by Fannie Mae and Freddie Mac and providing data you relied on in order to make your decision.   Although you did not include any original documents, you did include a summary of three sets of analyses you were provided in December 2010, June 2011, and December 2011.  Based on consultations with experts in the government and private sector, as well as a thorough review of the information you provided, we have numerous concerns with your response, each of which is addressed below.

Claim That Principal Reduction Does Not Serve Taxpayer Interests

In our opinion, the single most significant revelation in your letter to Congress is that, even based on your own questionable assumptions and data, principal reduction programs serve the taxpayer interests even when compared to your preferred alternative of forbearance.

Your letter concedes that both principal reduction and principal forbearance programs serve taxpayer interests by reducing the rates of default and the numbers of foreclosures.  Nevertheless, you argue that forbearance is preferable because it saves more money.  As you testified at the hearing on November 16, principal reduction “is not going to be the least-cost approach for the taxpayer.”

However, your letter and accompanying data demonstrate the opposite.  The analyses from December 2010, June 2011, and December 2011 confirm that, in light of the significant uncertainty underlying your assumptions, there is no effective difference between the estimated savings from these two approaches.  As the analyses concede, any perceived difference between the two is “negligible given the model risk.”

In fact, according to the latest report you provided from December 2011, which is based on the most recent data and up-to-date analyses, principal reduction programs actually save more money than forbearance programs.  Table 3 on page 19 of your letter indicates that Fannie Mae would save more money with principal reduction programs than with forbearance.  It shows that implementing principal reduction programs for borrowers who are Net Present Value (NPV) positive would reduce overall losses by $28.3 billion, while principal forbearance programs for these borrowers would reduce overall losses by $27.9 billion compared to the cost of taking no action.

If your estimates truly guide your decisions, it appears that you are disserving the American taxpayers by subjecting them to unnecessary and avoidable costs because you refuse to approve principal reduction programs.

One explanation you provide in your letter for not approving principal reduction programs is that they would require “changes to the existing IT systems, which are outdated and inflexible.”  We do not believe this is a valid justification for inaction, particularly since you did not even ask Fannie Mae or Freddie Mac to estimate the costs of adjusting their IT systems.

Claim That Principal Reduction Programs Would Cost $100 Billion

Rather than acknowledging that principal reduction programs serve the interests of American taxpayers, the first paragraph of your letter under “FHFA Considerations” included a highly inflammatory assertion implying that principal reduction programs could cost American taxpayers $100 billion.  You said this:

Putting this determination in context, as of June 30, 2011, the Enterprises had nearly three million first lien mortgages with outstanding balances estimated to be greater than the value of the home. … FHFA estimates that principal forgiveness for all of these mortgages would require funding of almost $100 billion to pay down mortgages to the value of homes securing them.

No Member of the Committee asked how much it would cost to pay down the mortgages of all three million mortgages backed by Fannie Mae and Freddie Mac that are currently underwater.  Nevertheless, your statement apparently had its intended effect of diverting attention from the questions we posed as news outlets immediately ran provocative headlines like “Mortgage Writedowns Could Cost Taxpayers $100B.”

To the contrary, your own data show that principal reduction programs would save taxpayers billions of dollars.  According to the data accompanying your letter, you examined borrowers with loan-to-value ratios exceeding 115% and concluded that taxpayers currently stand to lose an estimated $102 billion as a result of the defaults and foreclosures that will occur if no modification efforts are undertaken.  Your December 2011 analysis shows that implementing principal reduction programs would reduce these losses by $28.3 billion.

We have not identified a single press account in which you corrected the misimpression you created by suggesting that principal reduction programs would cost taxpayers $100 billion.  Beginning your letter with such a misleading statement trivializes the critical issues we are struggling to address and undermines your credibility and impartiality.

Statutory Authority Prohibiting Principal Reduction Programs

Your letter finally puts to rest the false argument that federal law prohibits FHFA from authorizing principal reduction programs for mortgages owned or guaranteed by Fannie Mae and Freddie Mac.

Your letter correctly references “three principal mandates set forth by Congress that direct FHFA’s activities and decisions.”  Your letter also correctly acknowledges that under the Emergency Economic Stabilization Act of 2008, “FHFA has a statutory responsibility to maximize assistance for homeowners to minimize foreclosures.”  Finally, your letter concedes that “FHFA did not conclude that ‘principal reduction never serves the long-term interest of the taxpayer’.”

What remains unclear, however, is why you have refused to exercise the authority Congress gave you to implement principal reduction programs.  As discussed above, your own data indicate that principal reduction programs would save taxpayers more money than forbearance programs in certain situations.

Your letter acknowledges that you might “reconsider” whether to authorize principal reduction programs “if other funds become available.”  This seems to be a reference to your ongoing efforts to seek additional taxpayer funds from the Treasury Department in order to provide incentives to mortgage servicing companies to conduct principal reduction programs.

Although additional incentives may be warranted in some cases, taxpayers have already provided $153 billion to Fannie Mae and Freddie Mac, and it is irresponsible and contrary to Congress’ direction for you to refuse to authorize principal reduction programs when they serve taxpayer interests today, according to your own data.  In other words, if your own data show that principal reduction programs would serve the interests of taxpayers now, you should implement these programs immediately and aggressively rather than holding out for additional funds from the Treasury Department.

In addition, as discussed below, a former Fannie Mae employee has informed us that a pilot program to initiate a targeted principal reduction program was vetted by agency legal counsel prior to receiving preliminary approval, yet it was cancelled by Fannie Mae officials on ideological grounds.  If this assertion is accurate, it suggests that the use of legal arguments to prevent principal reduction programs is misplaced and misleading.

Differences in Re-Default Rates

Based on input from numerous experts on housing policy, we have concerns about the assumptions used to estimate acceptance and re-default rates when comparing principal reduction programs to principal forbearance programs.  In particular, the assumptions underlying your analysis may underestimate the benefits of principal reductions and overestimate the benefits of forbearance.

First, your letter observes correctly that borrowers are less likely to re-default when they receive principal reductions compared to when they receive principal forbearance.  It states that the model you used “assumes that principal forgiveness reduces the rate of re-default on the loans to a greater extent than would forbearance.”

Similarly, an August 2010 staff report from the Federal Reserve Bank of New York agreed with this approach and stated:

We find that delinquent borrowers whose mortgages receive some modification have a strong tendency to re-default, but that different kinds of modifications have diverse effects on outcomes. … [T]he re-default rate declines with the magnitude of the reduction in the monthly payment, but also that the re-default rate declines relatively more when the payment reduction is achieved through principal forgiveness as opposed to lower interest rates.

The benefits of principal reductions may be understated in your analysis, however, since your hypothetical principal reduction program is not as sophisticated as programs proposed by experts or currently being implemented elsewhere.  For example, a number of principal modification programs include shared equity features that enable lenders or investors to recover a portion of appreciation in the home’s value.  In such programs, the “loss” from principal reduction may be less than otherwise assumed if the home is later sold at a higher value.

In addition, credible principal reduction programs typically seek to restore borrowers to positive equity positions and are likely to be more successful in obtaining borrower acceptance and preventing re-defaults.  According to your letter, however, you assumed only that principal would be reduced to 115% mark-to-market loan-to-value.  No data were provided comparing loans with loan-to-value between 101% and 115%, and no data were provided comparing modifications that reduce loan-to-value to any level other than 115%.

On the other side of the equation, it appears that the model used by FHFA to estimate the re-default rate for borrowers who receive forbearances may be overly optimistic.      In particular, the NPV tool appears to assume that if borrowers do not re-default within a given period of time (e.g., within one year), they will never re-default.  Such an assumption is highly suspect given projections that housing prices are likely to remain depressed for many years.  The failure to consider likely re-default rates over multiple years may skew your analysis to make forbearance appear more successful in preventing losses than it really is since many borrowers may be underwater for years.

Insufficient Detail to Evaluate Analyses

Your letter fails to provide any of the calculations made to generate the data presented in the tables that accompany the analyses.  In addition, it fails to provide definitions of key terms or to enumerate specific assumptions built into the models used to conduct the analyses.  The analyses appear to aggregate data from across 50 states and do not include any data on more narrow categories of borrowers, such as borrowers with loan-to-value between 115% and 125% or higher than 126%.  As a result, it is impossible to conduct a thorough analysis of the findings you have presented or to understand whether certain sub-sets of borrowers might benefit more than other borrowers from principal reduction programs.

INFORMATION FROM FORMER FANNIE MAE EMPLOYEE

A former employee of Fannie Mae has come forward to express concerns to us about your blanket refusal to authorize any principal reduction programs, even when those programs have been fully vetted by agency legal counsel and have the potential to save the American taxpayers billions of dollars.

According to this former employee, Fannie Mae officials conducted a significant amount of work developing a pilot program to test different principal reduction approaches and determine the most effective models.  As part of this effort, officials identified a major mortgage servicing company that was willing to become a partner in this program, analytical modeling was conducted by both Fannie Mae and the mortgage servicing company, consumer education materials were drafted, and a third-party counseling service was retained, according to the former employee.

This former employee has informed us that preliminary approvals for this pilot program were obtained from a variety of officials, including the Risk Subcommittee of Fannie Mae’s Executive Committee, as well as officials at FHFA and the Office of the Comptroller of the Currency.  The analytical teams at Fannie Mae and the mortgage servicing company also reportedly analyzed a host of factors, including the comparative risk of re-default with shared equity modification options.

According to the former employee, the purpose of the program was to develop “a responsible way to reduce principal balances for underwater mortgage borrowers without creating undue incremental moral hazard.”  As the former employee told us:

The thesis was straightforward:  the program would minimize losses for Fannie Mae versus conventional loss mitigation practices.  The analytical modeling done by both Fannie Mae and its pilot program bank/servicer partner supported this thesis.

According to the former employee, after six months of development work, and two weeks prior to its launch, the pilot program was cancelled in mid-2010 by senior executives in loss mitigation at Fannie Mae who were “philosophically opposed to writing down principal balances.”

The former employee informed us that dozens of officials were involved in this effort and that FHFA and Fannie Mae would have all of the documents relating to this pilot program, including all of the legal and analytical reviews that were conducted.

The former employee also explained to us the purpose of coming forward at this time, stating:  “I believe that we could be saving tens of billions of dollars while also helping stabilize housing prices and stimulating economic growth.”

If the allegations put forth by this former employee are accurate, it is unclear why you failed to include any of this information in your response to Congress.  Even if you subsequently questioned the data or assumptions relied on for this pilot program, your failure to disclose this information calls into question the completeness and accuracy of your response, as well as your motivation for continuing to oppose principal reduction programs.

REQUESTS FOR RESPONSES, DOCUMENTS, AND INTERVIEWS

In order to address the numerous concerns raised about your response to Congress and the new information provided by the former Fannie Mae employee, we request that you provide the documents requested below:

(1)    All documents relating to estimates of losses that would incur if all three million underwater mortgages owned or guaranteed by Fannie Mae and Freddie Mac were allowed to default without any modifications.

(2)    All documents relating to specific default assumptions in the NPV model used by FHFA to compare modifications that include principal reduction with modifications that include principal forbearance.

(3)    All documents relating to estimates of re-default rates for mortgages owned or guaranteed by Fannie Mae and Freddie Mac, including those that received modifications that include principal forbearance, disaggregated by loan-to-value level.

(4)    All documents relating to estimates of specific costs that would be associated with information technology upgrades needed to implement principal reduction programs.

(5)    All documents relating to analyses, if any, of the estimated consequences of reducing mark-to-market loan-to-value to levels other than 115%.

(6)    All documents relating to assumptions and estimates of the potential consequences of offering loan modifications, including forbearance or principal reductions, to borrowers who have mortgage insurance.

(7)    All documents relating to estimates of the number of mortgages owned or guaranteed by Fannie Mae and Freddie Mac that have mortgage insurance or second liens, as well as the share of potential gains from principal reduction programs that would go to unrelated beneficiaries as a result.

(8)    All documents, whether in draft or final form, relating to any pilot program developed by Fannie Mae relating to principal reduction modifications, including but not limited to:

(a)    records of communications, including emails, between and among officials at FHFA, Fannie Mae, the Office of the Comptroller of the Currency, and any outside parties including mortgage servicing companies and consulting firms, relating to such programs;

(b)    legal analyses conducted before, during, or after consideration of such pilot programs;

(c)    accounting or actuarial studies evaluating shared equity modeling or other aspects of such pilot programs, whether prepared by government entities or outside parties;

(d)    consulting, analytic, or other contracts or memoranda or agreement relating to such programs, as well as any products prepared pursuant to such contracts or memoranda of agreement;

(e)    consumer education materials prepared relating to such programs; and

(f)    agendas, briefing papers, minutes, summaries, or other documents prepared by, on behalf of, or after consideration of such programs by the Executive Committee, including but not limited to its Risk Subcommittee.

Please provide the requested documents by February 29, 2012.  To the extent that no documents exist that are responsive to these requests, we ask that you provide a substantive explanation in response to the specific issues raised in this letter.  Thank you for your cooperation with this request.

Sincerely,

__________________________________        __________________________________

Elijah E. Cummings                                        John F. Tierney

Ranking Member                                            Member

cc:    The Honorable Darrell E. Issa, Chairman
Committee on Oversight and Government Reform

source: http://democrats.oversight.house.gov

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Lets say it all together, what these banks did, was & continue to do is plain FRAUD…FRAUD….FRAUD!!!

What part of FRAUD do these States not understand?

Business week-

State attorneys general reviewed a proposed settlement with banks over foreclosure and mortgage- servicing practices that negotiators are pressing to complete as Delaware said it would reject a deal said to total $25 billion.

Representatives of Democratic attorney general offices met at a Chicago hotel yesterday to discuss the negotiated terms and ask questions, said Iowa Attorney General Tom Miller. Miller, who is helping to lead talks, said an agreement with the banks is getting closer.

“There are still issues to be worked out,” Miller said in an interview. “This is one step along the way, and it was a very productive day.”

[BUSINESS WEEK]

Letter Documents Committee’s Effort to Protect Banks While Attacking New Consumer Protection Agency

Washington, DC (Jan. 23, 2012) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, sent a letter to Chairman Darrell Issa renewing his requests to call top executives from the nation’s biggest mortgage banks to testify and issue subpoenas for documents relating to widespread foreclosure abuses.  Cummings’ letter documents the contrast between the Committee’s lax investigation of mortgage servicing companies to date and its aggressive scrutiny of the new Consumer Financial Protection Bureau (CFPB).

“Rather than using its substantial investigative powers to protect American consumers from the abuses of banks, the Committee has focused instead on attacking the new agency created by Congress to protect these same consumers,” Cummings wrote.

As Cummings’ letter noted, in its first full year of investigations this Congress, the Committee held 118 hearings with 342 witnesses, but not a single bank executive was called to testify on the foreclosure crisis.  In contrast, the letter noted that tomorrow the Committee will hold its third hearing with officials from the CFPB.

Cummings’ letter also highlighted that in 2011, the Committee issued more than 200 detailed document requests and subpoenas, but none sought documents relating to wrongful foreclosures or abusive lending practices.  The only exception was a joint document request to Bank of America, which has not produced a single responsive document.  In contrast, the Committee has received hundreds of pages of documents in response to detailed document requests regarding unfounded allegations that CFPB acted outside its authority in providing advice during negotiations toward a possible settlement with mortgage servicing companies relating to foreclosure abuses.

“Based on the witnesses the Committee has called and the documents it has requested so far this Congress, it appears that the Committee is more interested in protecting powerful banks than vulnerable American consumers,” Cummings wrote.  “I do not believe these priorities reflect the best interests of the American public.  Given the extent of the foreclosure crisis and the harm it has caused our constituents, I sincerely hope we can work together to reverse this trend in the coming year.”

Below is the full letter:

January 23, 2011

The Honorable Darrell E. Issa
Chairman
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

     At the outset of the 112th Congress, the Oversight Committee unanimously adopted an oversight plan that included a proposal I offered to “examine the foreclosure crisis including wrongful foreclosures and other abuses by mortgage servicing companies.”  Although the Committee has taken some preliminary steps to examine these issues, to date it has failed to conduct a full, fair, or thorough investigation of the widespread abuses committed by mortgage servicing companies against American families, particularly military servicemembers. 

     In its first full year of investigations this Congress, the Committee held 118 hearings with 342 witnesses, but not a single bank executive was called to testify on the foreclosure crisis, despite multiple requests from me and other Committee Members.  In addition, in 2011, the Committee issued more than 200 detailed document requests and subpoenas, but none sought documents relating to wrongful foreclosures or abusive lending practices.  The only exception was a document request you and I sent jointly to Bank of America, but it has not produced a single responsive document, and the Committee has taken no action to compel production. 

     Rather than using its substantial investigative powers to protect American consumers from the abuses of banks, the Committee has focused instead on attacking the new agency created by Congress to protect these same consumers.  Tomorrow, the Committee will hold its third hearing with officials from the Consumer Financial Protection Bureau (CFPB).  In addition, the Committee has received hundreds of pages of documents in response to a detailed document request you sent in June 2011, as well as numerous questions for the record after Committee hearings, regarding allegations that CFPB acted outside its authority in providing advice during negotiations toward a possible settlement with mortgage servicing companies relating to foreclosure abuses.

     Based on the witnesses the Committee has called and the documents it has requested so far this Congress, it appears that the Committee is more interested in protecting powerful banks than vulnerable American consumers.  I do not believe these priorities reflect the best interests of the American public.  Given the extent of the foreclosure crisis and the harm it has caused our constituents, I sincerely hope we can work together to reverse this trend in the coming year.

Bank Abuses Neglected

     Recent mortgage lending practices and the resulting collapse of housing prices have cost American households $7 trillion, and millions of households are in, or facing the possibility of, foreclosure.  One of the most troubling aspects of the crisis is the continued allegations of abusive and fraudulent practices by the nation’s banks against homeowners. 

     In April 2011, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the then-Office of Thrift Supervision released an Interagency Review of Foreclosure Policies and Practices, which identified “critical weaknesses” in the foreclosure practices of 14 federally regulated mortgage servicers.  The Review found that these weaknesses resulted in “unsafe and unsound practices and violations of applicable federal and state law and requirements.”  The Review indicated the regulatory agencies found multiple examples of foreclosures that should not have proceeded, including illegal foreclosures against military homeowners in violation of the Servicemembers Civil Relief Act.  Thousands of affected servicemembers have been identified, and three major banks have been forced to pay unprecedented, multimillion dollar settlements related to the abuses. 

    Since becoming Ranking Member, I have written to you multiple times highlighting the need to investigate abusive and improper conduct against homeowners.  In December 2010, I requested that the first hearing convened by the Committee consider alleged flawed and fraudulent practices by the mortgage servicing industry. 
In January 2011, I asked that you invite the Executive Vice President and General Counsel of JPMorgan Chase to testify, which you refused. 

     In February, the Committee adopted its oversight plan for the 112th Congress, which included a commitment I proposed to “examine the foreclosure crisis including wrongful foreclosures and other abuses by mortgage servicing companies.”  At the time, you commended my efforts and stated, “I believe we now have a plan that can be unanimously adopted.”

     Later that month, I asked that you join me in requesting from the ten largest mortgage servicing companies key documents relating to alleged illegal foreclosures and inflated fees charged to homeowners.  When you did not act, I sent letters to those companies myself. 

     In May, I requested that you issue subpoenas to the six mortgage servicing companies that had refused to comply voluntarily with my February requests for documents.  You did not issue the subpoenas.

     In June, I sent you a letter providing additional information on mortgage servicer abuses and reiterating the need for subpoenas for documents relating to illegal foreclosures, inflated fees, and other abuses being committed against military servicemembers.  Again, you did not act.

     During a hearing in July, after receiving no indication that you planned to move forward, I moved to subpoena mortgage servicing companies that allegedly initiated or completed illegal foreclosures and committed other abuses against military servicemembers.  After suspending the hearing and consulting with staff, you agreed to join me in requesting documents relating to the abuses affecting U.S. servicemembers.

     To date, however, you have not sent these document requests.  Instead, you sent letters requesting that mortgage servicing companies provide narrative descriptions of violations they have committed and the steps they have taken to address them.  Although their responses were interesting and helpful, they did not include the production of any pre-existing documents that would be helpful to the Committee’s investigation. 

     The Committee has not used its full investigative power to protect American consumers or to thoroughly examine the numerous allegations of wrongdoing by mortgage servicers.  Among the 342 witnesses who were called to testify at our 118 Committee and subcommittee hearings in 2011, not a single bank executive was called to testify on the foreclosure crisis.  Though you issued over 200 document requests and subpoenas in 2011, only one bank – Bank of America – was asked to produce documents about wrongful foreclosure or abusive lending practices.  It still has not produced a single responsive document, and the Committee has taken no action to compel production. 

Bank Reform Efforts Scrutinized

     Instead of investigating the widespread abuses committed by banks against American homeowners, the Committee has repeatedly attacked efforts to protect consumers from financial abuse. 

     Tomorrow, the Committee will hold its third oversight hearing with leadership of the CFPB, a newly created federal agency charged with protecting ordinary American consumers from abusive, misleading, or confusing financial practices.  During the first two hearings, the majority repeatedly questioned the character of Professor Elizabeth Warren, who was charged with standing up the Bureau, and criticized the Bureau’s structure, funding, and regulatory authority, even though these were established by an act of Congress. 

     In addition, on June 20, 201l, you sent a letter along with TARP, Financial Services, and Bailouts of Public and Private Programs Subcommittee Chairman McHenry, Financial Services Chairman Spencer Baucus, and three Financial Services Subcommittee Chairmen, Representatives Shelly Moore Capito, Scott Garrett, and Randy Neugebauer, to the Treasury Department.  This letter included a wide-ranging request for the following documents:

All documents and communications between Elizabeth Warren or the CFPB and any State Attorney General, representative of any State Attorney General, and any federal agency or mortgage servicer, or any other potentially interested party, including plaintiffs’ attorneys preparing class action lawsuits, referring or reacting to mortgage servicing, foreclosures, or a possible settlement involving State Attorneys General from September 2010- present, relating in whole or in part to mortgage servicing or foreclosures or a possible settlement involving State Attorneys General from September 2010-present.

    You also sent a letter to the Treasury Department on August 15, 2011, with a series of detailed and far-reaching questions for the record following the Committee’s hearing with Professor Warren on July 14, 2011.  In response, CFPB has now produced hundreds of pages of responsive documents to the Committee showing that CFPB was providing helpful advice to state and federal authorities and appropriately preparing to carry out its critical mission to oversee the mortgage servicing industry. 
Now that the President’s appointment of Richard Cordray to be Director of the CFPB has activated the full panoply of the Bureau’s statutory authorities, Chairman McHenry’s invitation for Mr. Cordray to testify at tomorrow’s hearing appears to be motivated primarily by an effort to protect financial entities from the Bureau’s “new powers to broadly regulate consumer financial products and services.” 

     The Committee has also leapt to investigate other highly improbable allegations that banks have been victims of abuse.  On the basis of an anonymous tip and a press report, for example, you sent letters to five of the largest U.S. banks seeking documents about whether representatives of the Occupy Wall Street movement attempted to extort financial support from them.  The three banks that responded all refuted the allegations and stated clearly that they had not been subjected to any such abuses.

Renewal of Minority Requests

The foreclosure crisis is affecting millions of Americans across the country, devastating communities, and impairing our nation’s economic recovery.  I am particularly alarmed by increasing reports that U.S. servicemembers and their families have been illegally evicted from their homes and charged millions of dollars in unwarranted fees.  We cannot wait any longer to use the full authority of this Committee to investigate these actions.

In the context of a different investigation, you made a strong statement about the need for prompt action by the Committee. You stated:  “oversight delayed is often oversight denied.  I believe that path would be unacceptable to the American public.”  This same sense of urgency should apply even when the targets of the Committee’s investigation are banks.

To fulfill the Committee’s unanimously approved oversight agenda, and to adequately investigate abuses against our constituents, we must obtain responsive documents from mortgage servicing companies, and we must call top executives from the nation’s mortgage servicers to testify.  For these reasons, I renew my requests that you:

1. Issue subpoenas to Bank of America, Wells Fargo & Company, U.S. Bank N.A., PHH Mortgage, Suntrust Banks, Inc., and MetLife, Inc., which all refused to comply voluntarily with my previous document requests.
2. Invite top executives of JPMorgan Chase, Bank of America, Wells Fargo, Citibank, US Bank, Ally Bank, HSBC, and MetLife, to testify at a public hearing about abusive mortgage servicing practices, including illegal foreclosures of servicemembers, illegal and inflated fees, and wrongful foreclosures.With the start of the second session of the 112th Congress, I truly hope the Committee will take the side of the American people and begin work on these critical issues. 

Sincerely,

Elijah E. Cummings
Ranking Member

source: http://democrats.oversight.house.gov

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NEWS RELEASE
For Immediate Release Contact:

Corinne Russell (202) 649-3032
January 23, 2012 Stefanie Johnson (202) 649-3030

FHFA Releases Analysis on Principal Forgiveness
As Loss Mitigation Tool

Washington, DC – In response to a request from members of Congress, the Federal Housing
Finance Agency (FHFA) has publicly disclosed the analysis that led the agency to exclude
principal forgiveness from its menu of loss mitigation tools. On Friday, FHFA delivered to
Representative Cummings, Representative Tierney and other members a letter summarizing
the agency’s determination and three separate staff analyses prepared over the past year that
formed the basis for the determination.

As requested, the information here provides the analytic and legal basis for FHFA’s previously
announced determination on the use of principal forgiveness as a loss mitigation tool. FHFA is
not seeking any legislative action in this area. FHFA remains committed to achieving its
statutory mandate to conserve the assets and property of Fannie Mae and Freddie Mac in
conservatorship while maximizing assistance to troubled homeowners, mindful of the net
present value cost to taxpayers. As FHFA has noted before and states in the letter, changing
circumstances may call for an updating of our analysis.

Background

Each month, FHFA reports on the full array of loss mitigation activities undertaken by Fannie
Mae and Freddie Mac, including loan modifications. Each quarter, FHFA reports on the
redefault rates on loan modifications. Those Foreclosure Prevention & Refinance reports may
be found here. Since establishment of the conservatorships, Fannie Mae and Freddie Mac have
modified more than one million mortgages and undertaken about 2 million foreclosure
prevention actions. Notably, the re-performance rate on loan modifications has improved
substantially as the modifications themselves now typically involve far greater reductions in
monthly payments than did modifications in the early months of the housing crisis.

When a homeowner owes more on their mortgage than the property is worth, this is typically
referred to as being underwater on a mortgage. Being underwater does not imply that a
borrower lacks the ability or the desire to make good on one’s financial obligation, nor does it
relieve a household from that responsibility. Indeed, FHFA estimates that, as of June 30, 2011,
Fannie Mae and Freddie Mac held 1.4 million mortgages with current loan-to-value ratios
above 115 percent. Of these, 1 million were current and 176,000 had been delinquent for more
than a year. For delinquent and deeply underwater borrowers, Fannie Mae and Freddie Mac
offer loan modifications that include principal forbearance, which means no interest is charged
on a portion of the underwater amount.

Finally, for underwater borrowers who remain current on their mortgage, last October FHFA
announced changes to the Home Affordable Refinance Program (HARP), which further
enhance the opportunity to refinance. These HARP changes allow these underwater borrowers
whose mortgages are owned or guaranteed by Fannie Mae and Freddie Mac to take advantage
of today’s lower mortgage rates and to shorten their mortgage term, which would enable
borrowers to get back above water more quickly.

###

The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.7 trillion in funding for the U.S. mortgage markets and financial institutions.

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Washington, DC (Jan. 18, 2012) – Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and Committee Member John F. Tierney sent a letter today to Chairman Darrell Issa requesting that he issue a subpoena to the Federal Housing Finance Agency (FHFA) compelling the production of all documents associated with its analyses of whether mortgage loan modifications with principal reductions should be offered by Fannie Mae and Freddie Mac. 

During questioning from Tierney at a Committee hearing on November 16, 2011, FHFA Acting Director Edward DeMarco testified that programs to reduce mortgage principal do not serve the long-term interests of taxpayers when compared to foreclosure. DeMarco testified that FHFA had conducted analyses supporting this conclusion, and he committed under oath to provide materials relating to these analyses to the Committee.

On November 30, 2011, Cummings and all Democratic Members of the Committee sent a letter to DeMarco requesting that he provide these documents by December 9, 2011. Despite numerous written and oral follow-up requests, however, DeMarco has failed to provide them to date.

“Given Mr. DeMarco’s failure to produce to the Committee the documents he committed under oath to provide and the call by Federal Reserve officials for the implementation of loan modification programs that include principal reduction to address the ongoing housing crisis, we believe we are left with no option but to compel Mr. DeMarco’s compliance,” Cummings and Tierney wrote to Issa. “For these reasons, we request that you issue a subpoena demanding these documents, or that you schedule a business meeting so Members may vote to authorize a subpoena in order to obtain these documents.”

Below is the full letter:

January 18, 2012

The Honorable Darrell E. Issa
Chairman
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Issa:

        We write today to request that you issue a subpoena to the Federal Housing Finance Agency (FHFA) compelling the production of all documents associated with its analyses of whether mortgage loan modifications with principal reductions should be offered by Fannie Mae and Freddie Mac.  During a hearing before the Committee on November 16, 2011, the Acting Director of FHFA, Edward DeMarco, committed under oath to provide these materials to the Committee.  Despite numerous written and oral follow-up requests, however, Mr. DeMarco has failed to provide them.

        During the Committee’s hearing in November, Rep. John Tierney asked Mr. DeMarco whether he had determined, as a matter of policy, that it was preferable to foreclose on properties rather than offer loan modifications that include principal reductions, even if foreclosures resulted in greater losses to FHFA and U.S. taxpayers than would be associated with principal reductions.  In response to Rep. Tierney’s question, Mr. DeMarco stated:

We have been through the analytics of the underwater borrowers at Fannie and Freddie, and looked at the foreclosure alternative programs that are available, and we have concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.

        At the conclusion of his questioning, Rep. Tierney asked Mr. DeMarco to provide both the statutory authority for his claim that FHFA is prohibited from allowing principal reduction programs, as well as any analysis that FHFA conducted demonstrating that foreclosures always serve taxpayer interests when compared to principal reductions.  Specifically, Rep. Tierney stated:

What you’re telling me flies in the face of all these people who have come up with a quite different idea. … I’d like you to do two things for the Committee if you would.  First, I want you to identify anywhere in the statute that specifically prohibits you from developing principal reduction programs. … [S]econd, I’d like you to submit whatever analysis you have done that shows why reducing the principal on some mortgages is worse for the United States taxpayer than foreclosure.

        In response to Rep. Tierney’s request, Mr. DeMarco committed under oath to provide these documents, stating:  “We can provide that information as you suggested, Congressman.”

        In order to follow-up on this request, all Democratic members of the Committee sent a letter to Mr. DeMarco on November 30, 2011, making clear what information he should provide to the Committee.  The letter requested that he produce:

1.      “the statutory provision you believe prohibits the Federal Housing Finance Agency (FHFA) from allowing Fannie Mae and Freddie Mac to reduce mortgage principal in all cases”; and
2.      “the analysis you conducted, including the data you examined, demonstrating that principal reduction never serves the long-term interests of the taxpayer when compared to foreclosure.”

        We requested that this information be provided by December 9, 2011, but Mr. DeMarco has failed to provide even a single document.  Minority staff have made repeated inquiries to Mr. DeMarco’s staff about the status of the document production, but they have failed to provide any indication of when he plans to comply.

        While Mr. DeMarco has failed to provide supporting documents demonstrating why a principal reduction program is not in the best interest of taxpayers, economists are increasingly announcing their support for such a program.  For example, over the past several months, officials with the Federal Reserve have made strong public statements supporting principal reduction.  On January 4, Federal Reserve Chairman Bernanke issued a white paper to Congress that stated:

Principal reduction has the potential to decrease the probability of default (and thus the deadweight costs of foreclosure) and to improve migration between labor markets.  Principal reduction may reduce the incidence of default both by improving a household’s financial position, and thus increasing its resilience to economic shocks, and by reducing the incentive to engage in “strategic” default (that is, to default solely based on the household’s underwater position rather than on the affordability of the payments).

On December 16, 2011, during a hearing before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, the President of the New York Federal Reserve Bank, William Dudley, also called for implementation of a targeted principal reduction program to bolster the nation’s economic recovery and serve the long-term interests of U.S. taxpayers.  President Dudley explained:

[w]e think that you can devise a program that, for home buyers that have mortgages that are under water, to incent them to continue to pay on those mortgages by giving them some program of principal reduction.  Obviously the devil’s in the details, so you have to have good program design.  But we are confident that one can design a program, which would be net beneficial—net positive—to the taxpayer.

        The recent statements in support of principal reduction issued by Chairman Bernanke and President Dudley follow similar public statements issued by Neil Barofsky, former Special Inspector General for TARP; Alan Blinder, former Vice Chairman of the Federal Reserve; and Mark Zandi, Chief Economist, Moody’s Analytics.  

Given Mr. DeMarco’s failure to produce to the Committee the documents he committed under oath to provide and the call by Federal Reserve officials for the implementation of loan modification programs that include principal reduction to address the ongoing housing crisis, we believe we are left with no option but to compel Mr. DeMarco’s compliance.  For these reasons, we request that you issue a subpoena demanding these documents, or that you schedule a business meeting so Members may vote to authorize a subpoena in order to obtain these documents.

        If you have any questions, please contact Lucinda Lessley at (202) 225-5051.  Thank you in advance for your attention to this matter.  

Sincerely,

_________________________                         _________________________

Elijah E. Cummings                                               John F. Tierney

Ranking Member                                                   Member

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Washington, DC (Jan. 17, 2012)—Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, sent a letter to Chairman Darrell Issa seeking information about how he plans to proceed with his investigation of Members of Congress who received mortgage loans from Countrywide Financial Corporation under its VIP loan program, also known as the “Friends of Angelo” program after the company’s embattled CEO, Angelo Mozilo. 

In one of his first official acts after becoming Chairman last year, Rep. Issa issued a unilateral subpoena demanding the mortgage files of the Members of Congress who received Countrywide VIP loans.  He stated that “the American people have a right to know the totality of who participated in the Countrywide’s VIP program and what they did in return for access to it,” and that his goal was to “find a way to disclose it all and then get the American people outraged enough to make sure that it never happens again.”

Below is the full letter (click the link for footnotes):

January 17, 2012

The Honorable Darrell E. Issa
Chairman
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

     I am writing to request information about how you plan to proceed with the Committee’s investigation of Members of Congress who received mortgage loans from Countrywide Financial Corporation under its VIP loan program, also known as the “Friends of Angelo” program after the company’s CEO, Angelo Mozilo.

     Over the past three years, you have waged a high-profile campaign to obtain the mortgage files of Members of Congress who received VIP loans from Countrywide.  You have referred to these loans as “bribes,” “influence buying,” and “public corruption.”  Although two previous Chairmen of the Oversight Committee followed the longstanding practice of referring matters involving Members of Congress directly to the Ethics Committee, you abandoned this practice last February when you issued a unilateral subpoena—your first as Chairman—demanding to see these Member files yourself.

     The documents produced in response to your subpoena reveal four previously undisclosed instances in which Members of Congress received Countrywide VIP loans.  All four instances involve Republican Members, including three current Republican House Members and one former Republican House Member.

     When you issued your subpoena last February, you explained that you had two purposes in demanding these files.  The first was to determine whether any official actions were taken by policymakers to benefit Countrywide.  The second was to make public all of the information obtained by the Committee in order to deter future wrongdoing.  In one of your first public interviews after issuing your subpoena, you stated that your goal was to “find a way to disclose it all and then get the American people outraged enough to make sure that it never happens again.”

     Last month, however, you reversed course.  Rather than publicly identifying the four additional Members who received Countrywide loans or attempting to determine whether they took any official actions on behalf of Countrywide, you chose instead to refer their cases to the Ethics Committee.  This is exactly the approach you criticized when used for Democratic Senators Kent Conrad and Christopher Dodd and precisely the approach you abandoned when you issued your subpoena last February. 

    On January 13, House Armed Services Committee Chairman Howard “Buck” McKeon and Rep. Elton Gallegly reported publicly that you referred them to the House Ethics Committee, although both denied taking inappropriate actions on behalf of Countrywide.  To date, you have declined to publicly identify the two other Republicans who also received Countrywide VIP loans. 

    Despite your decision to refer these cases to the House Ethics Committee, you have now scheduled two transcribed interviews with Countrywide officials to take place this week.  Both of these transcribed interviews will be with the Countrywide officials who oversaw and processed Chairman McKeon’s VIP loan.

    Since you failed to consult with me before taking these actions, I have several questions about how you plan to proceed with this investigation, which are set forth below.

Campaign to Obtain Files on Members of Congress

    You launched your campaign to obtain the files of Members who received loans under the Countrywide VIP loan program on June 17, 2008, when you wrote to former Committee Chairman Henry A. Waxman requesting that “the Committee investigate and hold hearings on allegations that mortgage lenders may have made special deals with Members of Congress.”  Chairman Waxman denied your request, responding that the longstanding practice of the Committee had been to allow the House Ethics Committee to handle allegations regarding Members of Congress.

    Rather than defer to the Ethics Committee, you argued that the Oversight Committee must investigate Members of Congress who were part of a wider conspiracy of “influence buying” and “public corruption.”    You stated:

We’re talking about a vast business enterprise that was buying, currying favor with politicians throughout the country and in fact probably distorted the laws that you and I had to live under.

    You also stated:

We cannot close the book without criminal investigations and likely indictments against Countrywide officials and people who knowingly took subsidized below-cost loans and in return produced, if you will, a deal for Countrywide.

    Even when the Ethics Committee conducted investigations, you dismissed them as limited and inadequate.  After the Senate Ethics Committee found no credible evidence that Senators Kent Conrad or Christopher Dodd knowingly accepted discounted loans, you stated:

This story does not change my approach to the investigation of the Countrywide VIP program.  I will continue to press forward with this investigation and strongly believe that a subpoena to Bank of America [which purchased Countrywide] is a necessary next step to fully expose how Countrywide attempted to use its VIP program to buy influence.

Similarly, on September 30, 2009, you stated:

We’re beyond ethics here.  We are at a point where the American people at least should know who they gave money to or benefit to, how they did it, and so on. … What we do know is there is a level of intended corruption by Countrywide that clearly had an effect on government’s decisions for years, and we are ignoring it.

    Over the past three years, you have stated repeatedly that the Oversight Committee should determine the full scope of the loan program and make this information public.  According to a Washington Post story on March 19, 2009, you stated:  “The full story of Countrywide’s efforts to buy influence hasn’t been told and shouldn’t be swept under the rug because no chairman is prepared to issue a subpoena.”  Similarly, on June 24, 2009, you stated in a press release:  “The American people deserve to know the extent that special benefits co-opted public servants who were supposed to be watchdogs of the mortgage industry.”  And on September 29, 2009, you stated on Fox Business:  “[I]f we don’t get to these individuals and figure out what they did in their official capacity, we’re not going to be able to reasonably undo some of what was done.” 

Information About Additional Republican Members

    In one of your first official acts as Chairman, you issued a unilateral subpoena on February 16, 2011, demanding a wide array of documents, emails, and other communications relating to mortgages offered through the “VIP and/or Friends of Angelo program.”  Unlike the subpoena issued by former Chairman Edolphus Towns, your subpoena demanded that mortgage files for Members of Congress—even those of current Members—be delivered directly to your offices instead of the House Ethics Committee. 

    You reiterated that your goals were to determine whether any official actions were taken by policymakers to benefit Countrywide and to make public information you obtained in order to deter future wrongdoing.  You stated:

This subpoena will allow us to obtain the information needed to answer the outstanding public interest questions regarding the full size and scope of the VIP program.  The American people have a right to know the totality of who participated in the Countrywide’s VIP program and what they did in return for access to it.  Our role is to get all of the facts so that the American people can judge for themselves who should be held responsible and accountable.

     Prior to the issuance of your subpoena, three Democratic Members of Congress had been identified publicly as potentially having received VIP loans from Countrywide:  Senator Kent Conrad, Senator Christopher Dodd, and Congressman Edolphus Towns.  Senators Conrad and Dodd were both cleared by the Senate Ethics Committee, which concluded on August 7, 2009, that there was “no credible evidence” that either Senator “knowingly accepted a gift, including a loan not available to the public.”  Congressman Towns issued several public statements denying that he knowingly received any preferential treatment from Countrywide.

    In response to your subpoena, the Committee obtained information about four previously unknown instances in which Members of Congress received VIP loans, including three current Republican House Members and one former Republican House Member.  After discovering that all of these Members are Republicans, you sent a letter on December 16, 2011, referring their cases to the House Ethics Committee.

    On Friday, House Armed Services Committee Chairman Howard “Buck” McKeon and Rep. Elton Gallegly acknowledged publicly that they are two of the Republican Members you referred to the House Ethics Committee in December.  In particular, a spokesperson for Chairman McKeon said he was “pretty shocked and angry” when you informed him about the VIP loan documents obtained by the Committee.

Interviews with Countrywide Officials Who Processed Chairman McKeon’s VIP Loan

    Although you referred cases involving Members to the House Ethics Committee in December, you have now scheduled two transcribed interviews with Countrywide officials to take place this week.  In particular, Committee investigators are scheduled to conduct transcribed interviews with two officials who oversaw and processed Chairman McKeon’s VIP loan:  Stephen Brandt, a Countrywide Executive Vice President who oversaw the VIP program, and Maritza Cruz, a Countrywide Loan Manager for VIP loans.

     The documents obtained pursuant to your subpoena indicate that Ms. Cruz is listed as the contact person for several of Chairman McKeon’s VIP loan documents.  In addition, she prepared his Uniform Underwriting and Transmittal Summary.  Her signature, as well as Chairman McKeon’s signature, appear on his Notification of Underwriting Approval and Closing Conditions. 

     These documents also indicate that Chairman McKeon appears to have obtained a significant discount on his VIP loan as a direct result of personal intervention by Countrywide CEO Angelo Mozilo.  Specifically, an internal email from Mr. Brandt to Countrywide employees handling this loan states explicitly:

Per Angelo – “take off 1 point, no garbage fees, approve the loan and make it a no
doc”.

     Last week, a spokesperson for Chairman McKeon stated that he had “no inkling” that he received a VIP loan and that, “as far as he knew, never received any special favors on the home loan.”  The documents obtained pursuant to your subpoena do not indicate whether Chairman McKeon was informed about his discount.  However, the documents describe at least three conversations Chairman McKeon had with Countrywide employees, including with an account executive instructed to provide the preferential rate.  That employee’s notes of these conversations state:

FOA [Friends of Angelo] referral, Please order appraisal ASAP.  You may call the borrower at his Washington office [number redacted] and get the Sons phone number for the appraiser contact.  The borrower would like to hear from the appraiser this week. 

The borrower is a bit difficult to deal with.  He seems on the edgy side.

Called Mr. McKeon at work [redacted name] his secretary said she would ask “B” for son’s phone #.  Mr. McKeon called said we could call 1) his home [number redacted] his wifes work [number redacted] campaign office

Borrower wants to close ASAP.  Explained to him demands are not here yet.

     In addition, a follow-up letter sent to Chairman McKeon provided forms for him to sign and stated:  “Thank you for allowing COUNTRYWIDE’s VIP TEAM to assist you with your financing needs on the above referenced property.”

    Finally, the documents obtained pursuant to your subpoena indicate that Chairman McKeon was referred to the VIP program by “Mike Farrell/MBA.”  This notation appears to be a reference to Michael J. Ferrell, who was then the chief lobbyist of the Mortgage Bankers Association of America (MBA).  According to his biography, Mr. Ferrell led MBA’s successful campaign to lobby Congress to block the imposition of higher fees on mortgage lenders.

Request for Information

    When you issued your unilateral subpoena last February, press accounts noted your aggressive approach and your high-profile demands for Member files.  For example, one press report stated that your “maiden subpoena is no-holds-barred Issa” and that the “restraint showed in the prior Congress … is nowhere to be found in this subpoena.”  It also stated:  “Issa could be launching grenades.  If the probe turns up anything and the findings become public, it could provide a degree of discomfort for lawmakers.”

    At the time, you seemed to recognize the possibility that Republicans could be among the Members of Congress who received VIP loans.  On multiple occasions over the past three years, you indicated that you planned to pursue this investigation even if Republican Members were implicated.  For example, on September 29, 2009, you stated:

There’s plenty of high profile Republicans who took these, some might call them bribes, certainly they were inappropriate to take under our laws.  Congressman, key staffers, including on the committees of jurisdiction on the Republican side are involved.   

    After initially driving the Committee down the road of investigating Members of Congress, you appeared to reverse course in December when you referred these cases to the Ethics Committee.  Now, however, you have scheduled transcribed interviews with Countrywide officials who oversaw and processed Chairman McKeon’s VIP loan.  These sudden shifts raise key questions about how you plan to proceed with this investigation:

1. You have stated:  “The American people have a right to know the totality of who participated in the Countrywide’s VIP program and what they did in return for access to it.”  Have you instructed your staff to question Mr. Brandt and Ms. Cruz about their roles in overseeing and processing Chairman McKeon’s VIP loan?  
2. You have stated:  “The full story of Countrywide’s efforts to buy influence hasn’t been told and shouldn’t be swept under the rug because no chairman is prepared to issue a subpoena.”  Do you intend to publicly release the identities of the remaining two Republican lawmakers, one current and one former, who your investigation has revealed were also beneficiaries of Countrywide VIP loans? And do you intend to conduct a transcribed interview with the former chief lobbyist of the Mortgage Bankers Association of America?
3. You have stated:  “The American people deserve to know the extent that special benefits co-opted public servants who were supposed to be watchdogs of the mortgage industry.”  Do you intend to hold public hearings on these issues?  If so, do you intend to call as a witness former Countrywide CEO Angelo Mozilo?

    Thank you in advance for your prompt answers to these critical questions.

                        Sincerely,
                        Elijah E. Cummings
                        Ranking Member

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source:http://democrats.oversight.house.gov

“Obama may talk of the “99 percent” but his administration is engaged in an aggressive coverup of bank crimes.”

Politico-

Bubbling under the surface of politics is the foreclosure crisis — where the power of big finance is brushing up against the rule of law. The party leaders seem to have decided it is essentially a giant — but unavoidable — tragedy. GOP presidential candidate Mitt Romney said foreclosures have to clear for the housing market to reset. The Obama administration, meanwhile, has spent only about $2 billion of the $75 billion authorized for the Home Affordable Modification Program.

But the foreclosure crisis is not only a few million personal tragedies. It is a few million crime scenes.

[POLITICO]

H/T Matt Stoller

December 15, 2011

The Honorable Eric Holder, Jr.

U.S. Department of Justice

950 Pennsylvania Avenue, NW

Washington, DC 20530-0001

Dear Attorney General Holder:

I write regarding the ongoing settlement talks between state attorneys general, federal fraud regulators, the White House, and large financial institutions over alleged illegal foreclosure and mortgage servicing practices and abuses.

I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.

Large financial institutions helped inflate the housing bubble through tranching and securitizing mortgages at a frenetic pace while disregarding mortgage and foreclosure laws. Collecting fees from issuing mortgages then selling to investors securities backed by these mortgages allowed the largest financial institutions to pump up profits and home prices, while dumping any potential losses on homeowners, taxpayers, and investors. When the housing bubble burst taxpayers were forced to bail out the largest financial institutions. It is estimated that the federal government disbursed over $4.7 trillion to financial institutions, and guaranteed an additional $13.87 trillion, during the financial crisis.

Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.

I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.

A settlement with mortgage servicers must also require reforms to ensure such abuses do not happen again. The goal of servicing mortgages must be accuracy and adherence to the law, not expediency and corner-cutting. Confidence must be restored that proper transference of notes and mortgages was followed and clear chains of titles are available for all mortgages. Until then, the burden of proof must be on financial institutions to prove that they have the legal authority to foreclose. The Mortgage Electronic Registration System should be dissolved and shut down, and the shortcut that allowed banks to avoid hundreds of millions, if not billions, in local fees to local registrars of deeds be closed off. It is critical that large banks not be allowed to shirk their tax obligations to local governments. A settlement in this case must compensate state and local governments for taxes and fees which were owed but not collected.

The crisis in our housing and financial markets has shaken the confidence of the American people in our financial system and in government. Holding banks accountable for abusive and fraudulent practices, while compensating damaged homeowners, wrongfully evicted, local governments, and defrauded investors is vital to restoring that confidence. I urge you to ensure that any settlement with mortgage servicers over alleged foreclosure abuses does not absolve liability for crimes and wrongdoing that has yet to be fully investigated, and ensures just compensation for victims.

I appreciate your attention to this matter.

Sincerely,

U.S. Senator Maria Cantwell

###

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Little by little they are working their way up to freedom.

All their eggs are almost in the basket…

WSJ-

Banks are demanding that the Consumer Financial Protection Bureau relinquish the right to sue over certain flawed mortgage originations, in exchange for their participation in a proposed multibillion-dollar settlement of alleged foreclosure abuses.

The banks say their inability to secure a sufficiently broad release from the new bureau, which was sidelined in earlier discussions as it launched, would be a deal breaker. The five biggest U.S. mortgage banks, state attorneys general and Obama administration officials are pushing to finalize a deal before the end of the year that would be worth $19 billion or more.

[WALL STREET JOURNAL]

We already knew this and if you expect any real restitution, you’re in for a surprise!

HW-

A mortgage servicer will be granted a waiver from future claims depending on what sort of remediation a borrower gets from the foreclosure reviews conducted under federal consent orders.

Independent consultants, approved by the Office of the Comptroller of the Currency and the Federal Reserve, will review nearly 4.5 million foreclosure files over the next several months. They will be looking for any harm caused by improper practices uncovered last year.

[HOUSING WIRE]

Planned…just in time for the Holidays around the corner!

Here’s hoping you forget when you get back from celebrating!

WSJ-

Five large lenders could be forced to make concessions worth roughly $19 billion as bank representatives and government officials push to put the finishing touches on a settlement of most state and federal investigations of alleged foreclosure improprieties.

Housing and Urban Development Secretary Shaun Donovan and state officials hope to reach a deal as soon as this week, though any agreement could be delayed by unresolved issues including the naming of a monitor to oversee the agreement.

The settlement would end months-long negotiations among federal officials, state attorneys general and the nation’s five largest mortgage servicers: Ally Financial Inc., Bank …

[WALL STREET JOURNAL]

For some background information on Sheila Bair please read Joe Nocera’s great article: Sheila Bair’s Bank Shot

 Bloomberg-

Sheila Bair, the former Federal Deposit Insurance Corp. chairman, is a leading candidate among state officials to ensure banks comply with any settlement of a nationwide foreclosure probe, a person familiar with the matter said.

Bair, who led the agency from 2006 until stepping down this year, is supported by some state officials as a third-party monitor of any settlement with mortgage servicers, including Bank of America Corp. (BAC), the person said. At least one bank in the talks, Citigroup Inc. (C), opposes her selection, said the person, who didn’t want to be named because the talks are private.

[BLOOMBERG]

Doing something — anything — quickly but poorly is no substitute for taking the time to do what needs to be done well.

American Banker-

Congresswoman Maxine Waters (D-CA) is fearful that the quick-and-poor may prevail with mortgage servicer reviews, based on what she sees planned in response to last April’s consent orders from federal regulators.

“The only thing worse than no accountability for the banks,” according to Waters, “is for regulators to create the illusion of accountability, while putting no enforcement power behind their efforts.”

[AMERICAN BANKER]

Washington, DC (Dec. 6, 2011) – Today, Rep. Elijah Cummings, Ranking Member of the House Committee on Oversight and Government Reform, sent a letter to Senators Harry Reid, Mitch McConnell, Tim Johnson, and Richard Shelby expressing strong support for Richard Cordray to serve as the first Director of the Consumer Financial Protection Bureau (CFPB).  President Obama nominated Cordray on July 18, 2011, and the Senate Banking Committee subsequently approved his nomination.  Yesterday, Senate Majority Leader Harry Reid filed cloture on the nomination, and a vote could occur this week.

The full letter follows:

December 6, 2011

The Honorable Harry Reid                    The Honorable Tim Johnson
Majority Leader                                         Chairman
United States Senate                                Senate Committee on Banking,
S-221 United States Capitol                  Housing and Urban Affairs
Washington, DC 20510                         136 Hart Senate Office Building
                                                                        Washington, DC 20510

The Honorable Mitch McConnell            The Honorable Richard C. Shelby
Minority Leader                                             Ranking Member
United States Senate                                    Senate Committee on Banking,
S-230 United States Capitol                     Housing and Urban Affairs
Washington, DC 20510                              304 Russell Senate Office Building
                                                                             Washington, DC 20510

Dear Majority Leader Reid, Minority Leader McConnell, Chairman Johnson, and Ranking Member Shelby:

I am writing to express my strong support for Richard Cordray’s nomination to serve as the Director of the Consumer Financial Protection Bureau (CFPB), and I encourage the Senate to confirm his nomination as soon as possible.

As Ranking Member of the House Committee on Oversight and Government Reform, I have consistently underscored the importance of the consumer protections in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and I have pressed for prompt action to ensure that our financial system is fair and transparent for American consumers.

The Oversight Committee has conducted considerable oversight of the CFPB, and this oversight has highlighted the critical need for the Bureau to assume its full role, as envisioned under the Dodd-Frank Act, to protect American consumers and taxpayers.

This year, for example, the Oversight Committee has been investigating illegal foreclosures and inflated fees charged against U.S. servicemembers by the nation’s largest banks and mortgage servicing companies.  As a result of our ongoing investigation, we have become convinced of the crucial role CFPB currently plays, and will play in the future, in protecting mortgage holders across the nation. 

In addition, the Bureau must be able to exercise its supervisory and enforcement authority over non-bank financial institutions, including debt collectors, credit reporting agencies, and payday lenders.  As you know, the Bureau cannot exercise its full authority under the Act until a director is confirmed.

We need a CFPB director who will make consumers a top priority, and Mr. Cordray has a proven track record of protecting consumers and holding financial institutions accountable for their actions.  For all of these reasons, I respectfully urge you to confirm Mr. Cordray’s nomination as the CFPB’s first director.

                        Sincerely,

                        Elijah E. Cummings
                        Ranking Member

cc:    The Honorable Darrell E. Issa, Chairman
    Committee on Oversight and Government Reform

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source: http://democrats.oversight.house.gov

Washington, DC (Nov. 30, 2011) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and all Democratic Members of the Committee sent a letter to Edward DeMarco, the Acting Director of the Federal Housing Finance Agency, seeking documents he promised to produce to the Committee regarding his analysis of programs to reduce mortgage principal and why such programs never serve the long-term interests of taxpayers when compared to foreclosure.

“For too long now,” Cummings said, “we have heard superficial excuses about why principal reduction programs are not feasible at Fannie Mae and Freddie Mac, despite a growing chorus of economists and other experts who believe these programs serve the long-term interests of taxpayers.  Even though commercial banks have implemented their own principal reduction programs, FHFA stubbornly continues to favor massive waves of foreclosures.  It’s high time to see the actual data and analyses behind this policy, and to work towards new approaches that finally put American homeowners and our nation’s economy first.”

DeMarco committed to providing these documents during a hearing before the Committee on November 16, 2011, in response to questioning by Representative John Tierney, who pointed out that several banks are already implementing principal reduction programs that serve their financial interests while providing assistance to homeowners.  The Members requested that DeMarco provide the documents by December 9, 2011. 

The full letter follows:

November 30, 2011

Mr. Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street NW
Washington, D.C. 20551

Dear Acting Director DeMarco:

            During the Committee’s hearing on November 16, 2011, you agreed to provide the Committee with:  (1) the specific statutory provision you believe prohibits the Federal Housing Finance Agency (FHFA) from allowing Fannie Mae and Freddie Mac to reduce mortgage principal in all cases; and (2) the analysis you conducted, including the data you examined, demonstrating that principal reduction never serves the long-term interests of the taxpayer when compared to foreclosure.  We are writing to request that you provide these documents by December 9, 2011.

            When you were asked about statutory prohibitions against principal reduction programs, you responded:  “I believe that the decisions that we’ve made with regard to principal forgiveness are consistent with our statutory mandate.”  Although you were not asked about providing “general support” to the housing market, you also said this:  “I do not believe that I’ve been appropriated taxpayer funds for the purpose of providing general support to the housing market.”  During your testimony, however, you identified no specific statute that prohibits FHFA from allowing Fannie Mae and Freddie Mac from developing principal forgiveness programs in select cases that would serve the long-term interests of both taxpayers and homeowners.

            As Rep. John Tierney explained, when Congress enacted the Emergency Economic Stabilization Act in 2008, it specifically directed FHFA, Freddie Mac, and Fannie Mae, among other things, to “implement a plan that seeks to maximize assistance for homeowners.”  Many economists believe that principal reduction programs could fulfill this goal while also serving the long-term interests of the taxpayers who are funding Fannie Mae and Freddie Mac.  They include the following:

• Federal Reserve Chairman Ben Bernanke:  “In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”

• Martin S. Feldstein, former Chairman of the Council of Economic Advisers under President Reagan:  “To halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value.”

• Alan Blinder, Former Vice Chairman of the Federal Reserve:  “Most economists see principal reductions as central to preventing foreclosures. … Perhaps the cost to taxpayers could be reduced by giving the government—or even private investors—some of the upside when house prices finally start climbing.”

• Neil Barofsky, former Special Inspector General for the Troubled Asset Relief Program:  “There needs to be a recognition that many borrowers will never make the required payments on their underwater mortgages, and that the owners of these mortgages have already lost any meaningful chance of obtaining a full recovery of the outstanding principal.  The sooner that this reality is recognized and addressed, the sooner a recovery can take hold.  As such, an aggressive principal reduction program is necessary.”

          During your testimony, you stated that you had completed a thorough analysis of why foreclosures always serve the interests of taxpayers better than principal reduction programs.  Specifically, you stated:

We have been through the analytics of the underwater borrowers at Fannie and Freddie, and looked at the foreclosure alternative programs that are available, and we have concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.

          As Rep. Tierney noted, however, several banks are already implementing principal reduction programs that serve their financial interests while providing assistance to homeowners.  For example, Ocwen has established a program under which a servicer may reduce a loan to 95% of a home’s fair market value, and the excess principal is forgiven over three years as long as the homeowner remains current on mortgage payments.  When the home is sold or refinanced, the borrower is required to share 25% of the appreciated value with Ocwen.  According to the company’s CEO:

Shared appreciation modifications help homeowners avoid foreclosure and restore equity, providing a significant benefit to the customer, the economy, and the housing market.

          Other banks also have principal reduction programs, including JPMorgan Chase, Ally Financial, Bank of America, and Wells Fargo, which reportedly reduced the balances of approximately 73,000 borrowers by an average of $51,000 in 2009 and 2010.

          At the conclusion of Rep. Tierney’s questioning, he asked you to provide both the statutory authority for your claim that you are prohibited from allowing principal reduction programs and the analysis you conducted demonstrating that foreclosures always serve taxpayer interests when compared to principal reductions.  He stated:

What you’re telling me flies in the face of all these people who have come up with a quite different idea. … I’d like you to do two things for the Committee if you would.  First, I want you to identify anywhere in the statute that specifically prohibits you from developing principal reduction programs. … [S]econd, I’d like you to submit whatever analysis you have done that shows why reducing the principal on some mortgages is worse for the United States taxpayer than foreclosure.

          In response, you committed under oath to providing these documents, stating:  “We can provide that information as you suggested, Congressman.”

          We are writing to request that you provide this information by December 9, 2011.  If you have any questions, please contact Davida Walsh at (202) 225-5051.  Thank you for your cooperation with this request.
Sincerely,
Elijah E. Cummings                                                       Edolphus Towns
Ranking Member                                                          Member
Carolyn B. Maloney                                                     Eleanor Holmes Norton
Member                                                                       Member
Dennis J. Kucinich                                                        John F. Tierney
Member                                                                       Member          
Wm. Lacy Clay                                                            Stephen F. Lynch                                            
Member                                                                       Member
Jim Cooper                                                                  Gerald E. Connolly
Member                                                                       Member
Mike Quigley                                                                Danny K. Davis                                               
Member                                                                       Member
Bruce Braley                                                                Peter Welch
Member                                                                       Member
John Yarmuth                                                               Christopher S. Murphy                        
Member                                                                       Member
Jackie Speier
Member

cc:        The Honorable Darrell E. Issa, Chairman
            Committee on Oversight and Government Reform

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source: http://democrats.oversight.house.gov

New Bloomberg Report Estimates that Banks Reaped $13 Billion from Below-Market Rate Loans

Washington, DC (Nov. 28, 2011) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, sent a letter to Chairman Darrell Issa requesting that the Committee hold a hearing with Federal Reserve Chairman Ben Bernanke and officials from the nation’s largest financial institutions that benefitted from trillions of dollars in previously undisclosed government loans provided at below-market rates.

“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” said Cummings.

Cummings requested the hearing in light of a report in Bloomberg Markets Magazine that revealed that the Federal Reserve secretly committed more than $7 trillion as of March 2009 to rescuing the nation’s top financial institutions, and that these banks “reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”

According to economists cited in the Bloomberg report, this “secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.”  The Bloomberg report disclosed that total assets at the largest six banks increased by 39% and executive compensation increased by 20% over the past five years.

According to the Bloomberg report, information about these secret loans was withheld from Congress as it debated reforms ultimately included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and banks also failed to disclose this information to their shareholders.

The full letter follows:
November 28, 2011

The Honorable Darrell E. Issa
Chairman
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

    I am writing to request that the Committee hold a hearing with Federal Reserve Chairman Ben Bernanke and officials from the nation’s largest financial institutions that benefitted from trillions of dollars in previously undisclosed government loans provided at below-market rates.

    In the past, the Oversight Committee has played a prominent role in investigating the actions of government entities and private sector corporations that led to the financial collapse.  On October 23, 2008, for example, former Federal Reserve Chairman Alan Greenspan testified before our Committee, stating:  “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”

Yet, a report yesterday in Bloomberg Markets Magazine disclosed that the Federal Reserve secretly committed more than $7 trillion as of March 2009 to rescuing the nation’s top financial institutions.  As a result, the banks that received these loans “reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”  This report was based on 29,000 pages of Federal Reserve documents obtained under the Freedom of Information Act after a protracted legal dispute.

    According to economists cited in the Bloomberg report, the scope of these previously undisclosed loans resulted in a financial windfall for the banks.  For example, Dean Baker, co-director of the Center for Economic and Policy Research, stated:  “getting loans at below-market rates during a financial crisis—is quite a gift.”  Similarly, Viral Acharya, an economics professor at New York University, stated:  “Banks don’t give lines of credit to corporations for free.  Why should all these government guarantees and liquidity facilities be for free?”

    The Bloomberg report disclosed that this “secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.”  According to Federal Reserve data cited in the report, total assets held by the six largest U.S. banks increased 39% from 2006 to 2011.  In addition, based on data from the Bureau of Labor Statistics, employees at these banks received more than $146 billion in compensation in 2010, an increase of nearly 20% from five years earlier.  According to Anil Kashyap, a former Federal Reserve economist, “The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out.”

The Bloomberg report explained that Congress lacked access to information about the secret Federal Reserve loans while it debated reforms ultimately included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  For example, former Senator Judd Gregg stated:  “We didn’t know the specifics.”  Similarly, Senator Richard Shelby stated:  “I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability.”  According to Neil Barofsky, the former Special Inspector General for the Troubled Asset Relief Program, “The lack of transparency is not just frustrating; it really blocked accountability.”

When Congress passed the Dodd-Frank Act, it required the Government Accountability Office to “conduct a onetime audit of all loans and other financial assistance” from December 1, 2007, to July 21, 2010.  Although GAO issued its report in July, it analyzed assistance—including mortgage-backed securities purchased through open market operations—with peak outstanding balances of only $3.5 trillion.  Even with respect to these amounts, GAO concluded:

The context for the Federal Reserve System’s management of risk of losses on its loans differed from that for private sector institutions.  In contrast to private banks that seek to maximize profits on their lending activities, the Federal Reserve System stood ready to accept risks that the market participants were not willing to accept to help stabilize markets.

    In addition to withholding information about these loans from Congress, banks also apparently failed to disclose this information to their shareholders.  For example, Kenneth D. Lewis, the Chief Executive Officer of Bank of America, told shareholders on November 26, 2008, that the company was “one of the strongest and most stable major banks in the world.”  According to the Bloomberg report, however, he failed to disclose that “his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.”

    Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure.  Unfortunately, officials from many of these financial institutions declined to comment about these loans, including officials from Goldman Sachs, JPMorgan, Bank of America, Citigroup, and Morgan Stanley. 

For all of these reasons, I respectfully request that the Committee hold a hearing with the Federal Reserve chairman and officials from each of these financial institutions to examine these issues in greater detail.  Thank you for your consideration of this request.

                        Sincerely,

                        Elijah E. Cummings
                        Ranking Member

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Source: http://democrats.oversight.house.gov

Washington, DC (Nov. 22, 2011)—Ranking Member Elijah E. Cummings released the following statement today regarding the public release of highly redacted “engagement letters” between mortgage servicing companies and independent consultants they hired to review past foreclosure abuses:

“Although I am encouraged that some information is being made public today, our Committee should issue subpoenas to obtain full, unredacted copies of these documents so we can ensure that homeowners are being fully and appropriately compensated.  Six months is too long to wait to conduct oversight of mortgage servicing companies that illegally foreclosed against homeowners.”

Today, the Office of the Comptroller of the Currency released copies of the engagement letters with significant redactions, including the removal of sections regarding past work, actual and potential conflicts of interest, and the procedures available to homeowners to file claims and complaints due to errors, misrepresentations, or other deficiencies in a foreclosure process.

Cummings first asked for full copies of these engagement letters on May 31, 2011, following a report issued by federal regulators finding “critical weaknesses” and “widespread risk” with 14 of the nation’s largest mortgage servicing companies’ foreclosure practices.

The regulators ordered the mortgage servicing companies to hire private consultants to conduct more comprehensive reviews of their foreclosure actions, but the regulators allowed them to propose the terms of the reviews, including the methodology of the reviews, the criteria guiding the selection of cases to be reviewed, and any proposed sampling techniques.  Some have criticized this approach for providing insufficient oversight of the banks’ actions.

In their responses to Cummings, the regulators explained that, by law, they cannot produce the full engagement letters until they are legally compelled to do so.

As a result, on October 27, Cummings wrote to Committee Chairman Darrell Issa requesting that he either issue subpoenas for the engagement letters or schedule a subpoena vote for the Committee’s business meeting on November 17, 2011.  Issa declined to take either step, stating at the business meeting that he preferred to wait until Thanksgiving to determine whether the engagement letters would be released voluntarily.

source: http://democrats.oversight.house.gov

Mr. Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street NW
Washington, D.C. 20551

Dear Acting Director DeMarco:

I am writing to request additional information about $150 million in fees that Fannie Mae and Freddie Mac charged mortgage servicing companies in 2010 for failing to conduct foreclosures quickly enough to meet federally imposed timelines. I am concerned that these penalties, at least some of which were ordered by the Federal Housing Finance Agency (FHFA), may have contributed to widespread abuses by mortgage servicing companies and law firms attempting to meet arbitrary deadlines to expedite foreclosures.

Evidence of Abuses Prior to 2010

On February 25, 2011,1 launched a major investigation into abuses and illegal activities
by mortgage servicing companies, including wrongful foreclosures, deficient recordkeeping,
inflated fees, and fraud in lending. As part of this investigation, I wrote to the FHFA Inspector
General requesting an investigation into “widespread allegations of abuse by private attorneys
and law firms hired to process foreclosures as part of the ‘Retained Attorney Network’
established by Fannie Mae.”1

On September 30, 2011, the Inspector General issued a report in response to my request
concluding that “there were multiple indicators of foreclosure abuse risk prior to 2010 that could
have led FHFA to identify and act earlier on the issue.” According to the Inspector General,
these warnings included “consumer complaints alleging improper foreclosures; contemporaneous
media reports about foreclosure abuses by Fannie Mae’s law firms; and public court filings in
Florida and elsewhere highlighting such abuses.”2

In one instance, a review commissioned by Fannie Mae found that “foreclosure attorneys
in Florida are routinely filing false pleadings and affidavits.” Similarly, in June 2010, officials
from FHFA’s Office of Conservatorship Operations performed a two-day field visit to Florida,
after which they noted:

[Servicers, attorneys, and other supporting personnel were overloaded with the volume
of foreclosures, the average timeline for foreclosures had increased from 150 to 400 days,
documentation problems were evident, and law firms (referred to as “foreclosure mills”)
were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure
and volume-based processing model.3

Despite evidence of widespread problems among foreclosure law firms retained by
Fannie Mae and Freddie Mac, the Inspector General’s report concluded that FHFA “did not
begin to act on foreclosure abuse issues involving Fannie Mae’s RAN until mid-2010.” The
Inspector General recommended that FHFA review why it failed to heed these warnings sooner,
implement comprehensive procedures to prevent these abuses in the future, and address “poor
performance” by law firms that have contractual relationships with Fannie Mae and Freddie
Mac. FHFA agreed with all of these recommendations.4

Penalties for Slow Foreclosures

In addition to finding that there were multiple indicators of foreclosure abuse prior to
2010, the Inspector General reported that during this same timeframe in 2010, FHFA “directed
Fannie Mae to impose compensatory fees against the servicers for violating foreclosure timeline
limits.”5

In fact, FHFA General Counsel Alfred M. Pollard disclosed in a letter to me on
November 1, 2011, that Fannie Mae and Freddie Mac assessed penalties totaling approximately
$150 million in 2010. He wrote:

To date, the top ten servicers account for the bulk of the fees due; the total amount for all
servicers, after approving appeals and corrections, is approximately $150 million dollars
for 2010.6

Mr. Pollard also described the methodology for calculating these penalties. He
explained:

Fees are assessed based on each Enterprise’s specific allowable foreclosure timelines for
individual states as published in their Seller/Servicer Guides. Each Enterprise assesses
the servicers a per day fee—approximately $30 a day—for each day that the servicer
exceeds the established timeline.7

The size and timing of these penalties raise serious questions about whether FHFA may
be more interested in expediting foreclosures to clear its books than protecting the rights of
homeowners.

Request for Information

On October 3, 2011,1 wrote to you to inquire about the extent of penalties imposed
against mortgage servicers that failed to meet federally imposed timelines to conduct
foreclosures. Specifically, I requested that you “provide a list of all servicers that have been
assessed compensatory fees, identify the total amount of fees assessed against each servicer,
identify the reasons these fees were assessed, and identify whether the fees have been paid in
f u l l . ” 8

Although the letter from Mr. Pollard disclosed that the total amount of these penalties for
2010 was $150 million, it did not provide the specific information I requested, including the
amount of fees charged to each mortgage servicing company. For these reasons, I request that
you provide the following information:

(1) a list of all servicers that have been assessed compensatory fees;
(2) the total amount of fees assessed against each servicer;
(3) the reasons these fees were assessed against each servicer;
(4) whether each servicer assessed compensatory fees has paid the assessed fees in
full; and
(5) if a servicer has not yet paid the assessed fees in full, the expected date by which
the fees will be paid in full.

I request that you provide this information by November 30, 2011. I also request that you
provide the information requested above regarding compensatory fees assessed against mortgage
servicers in 2011 when that information becomes available. Thank you for your consideration of
this request.

Sincerely,

Elihah E. Cummings

Ranking Member

cc: The Honorable Darrell E. Issa, Chairman
Committee on Oversight and Government Reform

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Washington, DC (Oct. 18, 2011) – Today, Congressman Elijah E. Cummings, Ranking Member of the Committee on Oversight and Government Reform, responded to an announcement by the Federal Housing Finance Agency (FHFA) that it has instructed Fannie Mae and Freddie Mac to begin “transitioning away” from their use of designated foreclosure attorney networks to a system under which “mortgage servicers select qualified law firms that meet certain minimum, uniform criteria.”

“Several of these law firms were able to engage in abusive and illegal behavior that violated the rights of borrowers, in part because of deficient oversight by FHFA, Fannie Mae, and Freddie Mac,” said Cummings.  “In light of the extensive problems recently documented by the FHFA Inspector General, I urged FHFA to seriously consider terminating these attorney networks, and it appears they are implementing my request.”

“I remain concerned, however, that FHFA has not provided specific details about how mortgage servicers will select and oversee law firms to ensure that abusive behavior is prevented,” added Cummings.  “I will continue my oversight efforts to ensure that specific measures are in place to require mortgage servicers to properly oversee the actions of law firms conducting foreclosure proceedings, including those involving mortgages owned or backed by the government sponsored enterprises.”

On February 25, 2011, Ranking Member Cummings launched a major investigation into abuses and illegal activities by mortgage servicing companies, including wrongful foreclosures, inflated fees, and the filing of improperly executed legal documents during the foreclosure process.  As part of that investigation, Cummings sent a letter asking the FHFA Inspector General to examine “widespread allegations of abuse by private attorneys and law firms hired to process foreclosures as part of the ‘Retained Attorney Network’ established by Fannie Mae.”

On September 23, 2011, the FHFA Inspector General issued a report concluding that Fannie Mae and its regulators, including FHFA, were alerted repeatedly to serious problems with the legal firms in Fannie Mae’s retained attorney network (RAN) beginning as early as 2003, but failed to take corrective action.  The Inspector General reported that “FHFA did not begin to act on foreclosure abuse issues involving Fannie Mae’s RAN until mid-2010,” despite “multiple indicators of foreclosure abuse risk prior to 2010 that could have led FHFA to identify and act earlier on the issue.”

On October 3, 2011, Cummings sent a letter to FHFA Acting Director Edward DeMarco requesting additional documents and information regarding these oversight failures.  Cummings requested that the agency “give serious consideration to terminating the existing Fannie Mae Retained Attorney Network program.”  He also requested that “FHFA take immediate and decisive action to remedy these failures and ensure that no additional borrowers suffer similar abuses.”

source: http://democrats.oversight.house.gov

Washington, D.C. — Today Representatives Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, Adam Smith, Ranking Member of the Committee on Armed Services, and Robert Andrews, Ranking Member of the Subcommittee on Health, Employment, Labor and Pensions, joined nine Members in writing to federal housing regulators requesting a comprehensive review of the challenges facing servicemembers who are forced to relocate for work and risk losing their homes.

“Men and women in uniform, who make unyielding sacrifices to protect our nation, are not immune to the worst economic downturn in nearly a century,” the Members wrote.  “We urge you to protect their homes by adjusting current home foreclosure prevention programs and pressing mortgage servicers to address the unique challenges of military homeowners.”

The Members sent letters to Departments of Treasury and Housing and Urban Development, the Federal Housing Finance Agency, and the Securities and Exchange Commission, after hearing concerns from servicemembers about the difficulties they face when receiving Permanent Change of Station (PCS) orders, and attempting to qualify for home foreclosure prevention programs. Servicemembers and their families are often unable to sell their homes quickly at prices that will enable them to pay off their mortgages, and they cannot generate enough rental income to cover their mortgage payments or retain their homes until housing prices return to normal values.

The Ranking Members have led congressional efforts to help servicemembers and their families stay in their homes.

In July, Members led a forum with Senator Jay Rockefeller to examine illegal foreclosures against servicemembers and their families. Holly Petraeus, the director of the Office of Servicemember Affairs at CFPB, appeared alongside servicemembers and other experts to begin developing recommendations to help servicemembers with housing issues.

Below is the letter.

September 27, 2011

The Honorable Timothy Geithner                       The Honorable Shaun Donovan
Secretary of Treasury                                              Secretary of Housing and Urban Development
U.S. Department of the Treasury                        U.S. Department of Housing
1500 Pennsylvania Avenue, N.W.                     and Urban Development
Washington, D.C. 20220                                        451 7th Street, S.W.
                                                                                         Washington, D.C. 20410

Edward DeMarco                                                     The Honorable Mary L. Schapiro.
Acting Director                                                        Chairman
Federal Housing Finance Agency                    Securities and Exchange Commission
1700 G Street, N.W., 4th Floor                         100 F. Street, N.E.
Washington, D.C. 20552                                      Washington, D.C. 20549

Dear Secretary Geithner, Secretary Donovan, Chairman Schapiro and Director DeMarco:

We write to urge you to take action to protect military families who have been particularly hard hit by the ongoing foreclosure crisis.  Men and women in uniform, who make unyielding sacrifices to protect our nation, are not immune to the worst economic downturn in nearly a century.  We urge you to protect their homes by adjusting current home foreclosure prevention programs and pressing mortgage servicers to address the unique challenges of military homeowners.

We hear repeatedly from servicemembers and their families about challenges they face with Permanent Change of Station (PCS) orders.  These servicemembers are typically current on their mortgages, but they are forced to move because the military requires them to do so.   Like so many other Americans, servicemembers and their families are often unable to sell their homes quickly at prices that will enable them to pay off their mortgages, and they cannot generate enough rental income to cover their mortgage payments or retain their homes until housing prices return to normal values.  Many of these families are also forced to make ends meet with lower housing allowances at their next duty stations, and they sometimes lose the incomes of non-military spouses as they try to find new employment.

Military servicemembers with PCS orders often do not qualify for mortgage modifications because they are not delinquent on their mortgages or because their homes are no longer their primary residences.  If they opt for delinquency, foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy, their credit could be negatively affected and their security clearances could be suspended, rendering them unable to perform their assignments.  For example, the Treasury Department’s Home Affordable Modification Program requires homeowners to be in imminent default and covers only primary residences.  In addition, many home foreclosure prevention initiatives offered directly by mortgage servicers have similar requirements.  As a result, some servicemembers are opting to move alone to their new duty stations without their families.  This is particularly disheartening for servicemembers who have just returned from overseas deployments.

United States servicemembers should not have to choose between saving their homes and continuing to serve their country.  To address these concerns, we ask that you review these problems comprehensively and develop specific initiatives to address the unique needs of military servicemembers.  We would appreciate a response to this request by October 7, 2011, describing the joint efforts you are undertaking.  Thank you for your consideration.

Sincerely,

Elijah E. Cummings                                                   ……………Adam Smith   
Ranking Member                                                      …………… Ranking Member
Committee on Oversight and Government Reform       Committee on Armed Services

Rob Andrews                                                            Edolphus Towns
Member of Congress                                             Member of Congress

Eleanor Holmes Norton                                       John F. Tierney
Member of Congress                                             Member of Congress

William Lacy Clay                                                     Stephen F. Lynch
Member of Congress                                                 Member of Congress

Danny K. Davis                                                        Bruce Braley
Member of Congress                                            Member of Congress
Jackie Speier                                                           Peter Welch
Member of Congress                                            Member of Congress

cc:    Holly Petraeus
    Office of Servicemember Affairs
    Consumer Financial Protection Bureau

[source: http://democrats.oversight.house.gov]

Washington, DC – The SEC Inspector General has completed a six-month investigation into allegations of conflict of interest against SEC’s former general counsel, David Becker, concerning his role in the Commission’s work relating to the victims of the Bernie Madoff Ponzi scheme.  The IG’s final report was issued publicly today.  Ranking Member Elijah E. Cummings issued the following statement:

“In its report, the IG’s office found sufficient evidence of Mr. Becker’s conflict of interest to call into question the integrity of the process used by the Commission to decide how to value fictitious profits made under the Madoff scheme.  The IG also found that procedures at the SEC ethics office broke down and failed to prevent a conflict of interest from potentially tainting the agency’s work.

“I believe the victims of the Madoff scheme deserve to know that the SEC’s decision in this case was not tainted by conflicts of interest.  The IG recommended that the Commission take a second look and conduct a revote of its decision.  I strongly urge the Commission to take these appropriate steps in order to give Madoff’s victims that peace of mind.

“I hope that the Commission will adopt the IG’s other recommendations as well.  I am encouraged that Chairman Schapiro asked SEC Inspector General H. David Kotz to open this investigation, which was a good faith effort on her part to get to get to the bottom of this issue.  I am also encouraged that Chairman Schapiro decided last year to revamp the office of ethics, to hire new ethics counsel for the agency, and to provide greater resources to that office.”

###

Source: http://democrats.oversight.house.gov/

Members ramp up pressure on FHFA to implement President’s plan to boost economy by helping responsible homeowners refinance at historically low rates.

(Washington, DC) – Congressman Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and Congressman Dennis Cardoza, Co-Chair of the Housing Stabilization Task Force, today were joined by 27 Members of Congress in sending a letter to Edward DeMarco , Acting Director of the Federal Housing Finance Agency (FHFA), renewing their request for a meeting to begin discussing a plan to allow more American families to refinance their mortgages at historically low interest rates.

Cummings and Cardoza originally made the request in a previous letter last Friday , but FHFA officials declined the request, asserting that it would be premature to give Congress a “briefing” on their response to the President’s proposal.

“Contrary to the assertion made by your Office of Congressional Affairs, the letter from Representatives Cummings and Cardoza did not request a ‘briefing,’” the Members wrote.  “It requested a meeting that would enable us to begin a detailed dialogue about the process by which agency officials will ‘review, evaluate, and implement the President’s proposal.’”

“Contrary to another assertion made by the Office of Congressional Affairs, this meeting would not be premature—if anything, it is overdue,” the letter stated. “On Friday, you issued a public statement in response to the President’s address indicating that your office has been ‘analyzing these issues’ and discussing them with ‘a range of stakeholders.’ As Members of Congress who have been tirelessly seeking to support renewed economic growth by stabilizing the housing market, we certainly deserve the same courtesy and consideration as other stakeholders in this process.”

Today’s letter significantly increases the pressure on FHFA to act quickly on the President’s proposal, which is similar to bipartisan legislation introduced in the House and Senate that garnered widespread support from industry, investors, and consumer groups. 

According to Bill Gross, the Managing Director and co-CIO of the world’s largest bond fund, PIMCO, removing barriers to refinancing under this type of proposal could provide an economic stimulus of up to $50 or $60 billion.

There are currently more than 8 million homeowners whose mortgages are guaranteed by Fannie Mae and Freddie Mac and that carry an interest rate at or above 6%, even though current 30-year mortgage rates are hovering at about 4.12%.

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