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Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing

November 18, 2010
Committee Remark

Congresswoman Maxine Waters (D-CA), Chairwoman of the Subcommittee on Housing and Community Opportunity, delivered the following opening statement during a hearing addressing systemic problems in the mortgage servicing industry:

I would like to thank the Ranking Member and the other Members of the Subcommittee on Housing and Community Opportunity for joining me today for this hearing on "Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing."

This hearing is about the failure of the mortgage servicing industry to uphold due process, to obey the law, and to live up to its oft stated goal of preventing foreclosures. This hearing is about the aftermath of what happens when an industry is, essentially, broken. It's also about what happens when our regulators do nothing to pick up the pieces. 

Since foreclosures started to spin out of control in 2007, I've been sounding the alarm about problems in the mortgage servicing industry. Working directly with homeowners, I've seen firsthand the problems they create for borrowers trying to obtain a loan modification: lost paperwork, incorrect information, incorrect fax numbers, and flat out lies.

Therefore, the recent allegations of foreclosure fraud and robo-signing don't surprise me. In fact, I believe that we are seeing foreclosure fraud and robo-signing for the same reasons that we are seeing problems with homeowners unable to receive loan modifications. It's because it's in the servicers' financial interest to foreclose. And they want to foreclose as quickly as possible, no matter the consequences.

The financial incentive that pushes servicers to foreclose is the very reason why the Treasury Department designed the Home Affordable Modification Program (HAMP), which was supposed to remove that incentive to foreclose by paying servicers to modify loans.

However, it appears that HAMP is delaying foreclosures just long enough for the banks to improve their balance sheets. Of the 1.6 million homeowners who have been offered trial modifications through HAMP, only 36 percent have obtained permanent modifications. In the meantime, foreclosures rates are virtually unchanged since this time last year when HAMP was supposed to be in full swing. I think it's safe to say that HAMP isn't meeting its goal of preventing foreclosures.

 
There is significant evidence to suggest that the speed-driven, corner-cutting operations endemic in the mortgage servicing industry have produced systemic and damaging consequences for the nation's homeowners and for our housing and financial markets.

First, I am very concerned about reports that in the rush to securitize loans, many promissory notes may have never been properly transferred into their trusts.  Without properly transferred notes, servicers could lack standing to foreclose and mortgage securities lose their favorable tax treatment. I agree with my colleagues on this Committee, the Congressional Oversight Panel, and Senator Dodd that the Financial Stability Oversight Council—created by the Dodd-Frank Act—should assess the extent to which this poses a systemic risk to the nation's financial system.

Second, and more importantly, a broken servicing industry means that borrowers were likely denied due process. They got the runaround.  They waited for loan modification requests to be processed, only to be served with foreclosure notices.  They faxed and re-faxed paperwork, which was repeatedly lost.  They were told to skip payments in order to receive help, only to be placed into foreclosure when they followed that advice.

Third, investors in mortgages are growing increasingly dissatisfied with servicers for not meeting their contractual obligations to negotiate profit-maximizing loan modifications.  Some of them are suing originators for misrepresenting the original loan packages.  And some are uneasy that servicers may have never had standing to foreclose on thousands of homes in the first place.

Therefore, I am very anxious to hear from our witnesses on this issue. Frankly, I want to know, given the problems in the mortgage servicing industry—problems which have been apparent for years—what our government and industry witnesses intend to do to fix these problems and why any of them should keep their jobs.

I would now like to recognize our Subcommittee's Ranking Member to make an opening statement.