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BloombergBusinessweek: Lawmakers Criticize Treasury Program on Mortgage Modification

November 18, 2010
In The News

By Lorraine Woellert and Clea Benson
U.S. House lawmakers criticized the Obama administration's program to prevent foreclosures as a Treasury Department official testified that the initiative has reduced monthly mortgage payments for almost 520,000 homeowners.

Phyllis Caldwell, chief of the Treasury's Homeownership Preservation Office, told House Financial Services Committee members at a hearing today that the number of borrowers aided by the administration's Home Affordable Modification Program had grown from the 495,898 reported in September.

Lawmakers said HAMP, which pays lenders to modify loans and reduce monthly payments for struggling borrowers, isn't doing enough to help homeowners falling behind on their mortgages amid high unemployment and depressed real estate values.

"I think it's safe to say that HAMP isn't meeting its goal of preventing foreclosures," Representative Maxine Waters, a California Democrat, said at the hearing.

The Treasury Department program has been faulted by lawmakers and watchdogs including Neil Barofsky, special inspector general for the Troubled Asset Relief Program, for the high number of aid recipients who default on mortgages after getting government help. Treasury is scheduled to release details of its monthly progress report on HAMP today.

Today's hearing was the second in Congress this week to examine problems with documents that led some banks to temporarily halt foreclosures in September and October.


Thomas Marano, chief executive officer for mortgage operations at Detroit-based Ally Financial Inc., said his firm's handling of documents used to seize homes from delinquent borrowers was flawed and "unacceptable."

Affidavits were signed "outside the immediate physical presence of a notary and without direct personal knowledge of the information in the affidavit, Marano told the panel.

Lawmakers on the panel said they were concerned that the problems in foreclosure paperwork may make it unclear who owns a loan and has the right to seize a home.

Representative Barney Frank, the Massachusetts Democrat who leads the Financial Services panel, called for legislation to establish that one party would be in charge of making decisions about residential mortgages. Investors in pools of mortgages would defer to the decisions of that responsible party, he said.

The current system, in which many parties have often conflicting interests in a loan, means that "even when there is a will to move we have a tangle that is very daunting," Frank said.

Republican Control

If lawmakers decide to take up legislation affecting foreclosures, they are unlikely to act before January, when the House will revert to Republican control.

Ally's GMAC Mortgage unit halted evictions in 23 states in September and is reviewing foreclosures nationwide in response to questions over the handling of legal documents. Attorneys general from all 50 states are investigating mortgage lenders and servicers after revelations that banks may have acted illegally in using so-called robo-signers to validate documents without reviewing the underlying facts.

The Office of the Comptroller of the Currency, the Treasury unit that regulates national banks, didn't discover flaws in mortgage foreclosure documents before they were disclosed in September because its routine examinations don't include reviews of paperwork until there are warning signs, Acting Director John Walsh said.


"Examiners generally do not directly test standard business process or practices, such as the validity of signed contracts, or the processes used to notarize documents or the actual physical presence of notes with document custodians, unless there is evidence of a material weakness or breakdown in governance and internal controls," Walsh said.

Regulators including the OCC are now conducting on-site examinations of foreclosure practices and documents, he said.

The review, a joint effort of the OCC, the Federal Reserve, the Office of Thrift Supervision, and the Federal Deposit Insurance Corp., will be completed in January, Federal Reserve Governor Elizabeth Duke said.

"We are prepared to take supervisory action where necessary and appropriate to hold institutions accountable for poor practices," Duke said in her testimony.

--With assistance from Phil Mattingly in Washington. Editors: Lawrence Roberts, Gregory Mott