Washington, DC – Congresswoman Maxine Waters (CA-35) cited the experiences of a homeowner in her district to illustrate the challenges facing millions of American homeowners trying to prevent foreclosure, and she urged Congress to take action to help.
Congresswoman Waters, who chairs the House Subcommittee on Housing and Community Opportunity, is among the Members of Congress selected to negotiate the final details of Wall Street reform and consumer financial protection legislation. In a statement she delivered today during deliberations of the House-Senate conference committee, the Congresswoman argued that this comprehensive restructuring of the nation’s fi nancial system must address the housing crisis. Congresswoman Waters advocates legislation that would make loan modifications mandatory because voluntary programs have not been sufficient to prod mortgage servicers to help homeowners. Congresswoman Waters’ full statement follows:
America’s homeowners need our help. They have been asking for our help since the foreclosure crisis began three years ago. As a Congress we have failed to respond to them. That must end today. It must end because an estimated 2.5 million foreclosures were completed from 2007 – 2009, and an estimated 5.7 million additional foreclosures are imminent.
Our current efforts to end this crisis, including the Administration’s initiative, have fallen woefully short. Hope for Homeowners has not come close to reaching the 400,000 homeowners that were initially intended to be served by the program. In fact, as of February 2010, the program had received 1,083 applications, and 35 mortgages had been insured by FHA.
The Home Affordable Modification Program (HAMP), a voluntary program with little enforcement from Treasury, remains challenged and has failed to put a dent in the epic numbers of foreclosures sweeping our country. For example, at the end of 2009 only 86.4 percent of mortgages nationwide were current and performing. Moreover, out of the 3.2 million loans eligible for HAMP, only 1.2 million have received trial modifications. Of that amount, only 347,000 of those modifi cations have become permanent. Meanwhile, Congress has repeatedly denied homeowners the right to modify their loans through the bankruptcy courts.
I find it interesting that during the most comprehensive restructuring of our financial system since the Great Depression—which had record levels of foreclosures as well— the base text does nothing to help struggling homeowners on Main Street. Now, the House offer for Title XIV does include a provision I authored with Chairman Frank to provide $3 billion for loans to help unemployed homeowners make their mortgage payments, and while I hope the Senate accepts our offer, that assistance will only help to solve part of the problem.
In order to truly help homeowners and end foreclosures, we must tackle the heart of the problem. The problem is that homeowners are at the mercy of their mortgage servicers because loan modifications are provided at the discretion of the servicer. The only way to help homeowners is to mandate loss mitigation activities, including loan modifi cations such as principal reduction.
Research has consistently shown that principal reduction is the most effective means of providing a sustainable loan modification for a borrower. For example, according to a 2009 study by the Federal Reserve Bank of New York, when a borrower’s monthly mortgage payment is reduced by 25 percent through interest rate reduction, the borrower is 11 percent less likely to default within one year. However, if the same borrower’s monthly payment reduced by 25 percent through principal reduction, the chance of the borrower redefaulting falls by nearly 27 percent. With one in 4 homeowners underwater on their loans, principal reduction must be considered as a viable means of loan modification.
Voluntary programs don’t work. I’m going to speak honestly: HAMP was written by the Treasury and the servicers. They’re not doing anything in that program that they don’t want to do. And that’s why the program isn’t working. Every week my office gets dozens of calls from homeowners who have had servicers lose their paperwork, give them incorrect information or outright lie to them, offer them modifications that would lead to them owing more on their loan or making more in mortgage payments, deny them for HAMP modifications, initiate foreclosure proceedings on them while they are waiting for a modification… the list goes on and on.
My staff and I try to help these homeowners to the best of our ability. For example, a few weeks ago my office received a call from a constituent who was told by his servicer that his loan is current, and therefore he is not able to get a loan modification. The servicer said that the borrower had to be at least 2 months delinquent on their payments in order to get a modification, per the investor agreement. When my staff called the servicer, suddenly they were willing to offer a loan modification to the borrower. So this servicer obviously lied to the borrower about what was allowed in the investor agreement.
This example illustrates that at the end of the day, we—much like the homeowners— are asking the servicer for a favor. We are asking them to let someone stay in their home or to receive a payment they can afford. The servicers are saying “no” because there is no benefit to them if they say “yes.” It is in their power to say “no,” and with no one compelling them otherwise, they will continue to say “no.” It’s time that we take that power away from them.
Mr. Chairman, I introduced legislation last year, H.R. 3451, the Foreclosure Prevention and Sound Mortgage Servicing Act, which would provide for mandatory loss mitigation, reform the servicing industry, and provide real relief to America’s homeowners. Senator Jack Reed from Rhode Island also introduced legislation, S. 1731, the Preserving Homes and Communities Act, that would also provide for mandatory loss mitigation. It is clear that there’s at least some support in both chambers for an approach that does more than just pay lip service to America’s homeowners. This is why I am asking that Title XIV be left open so that House and Senate Members and staff can work together over the next few days to develop a solution to assist America’s homeowners.
I think that we can do this, Mr. Chairman. So far during the conference, both sides have made concessions, have listened to the other’s prerogative, and have been willing to negotiate. I hope that when it comes to helping our country’s homeowners, that same spirit of negotiation and compromise can be achieved.
I must note that if we pass this bill without doing anything to prevent foreclosures—if we fix Wall Street and ignore Main Street—we will have done a disservice to our country, our homeowners, and the chambers we represent.