Tuesday, April 20, 2010

House Financial Services Committee holds hearing on Second Liens

Original posted on Lexology:

Today, the House Committee on Financial Services held a hearing entitled “Second Liens and Other Barriers to Principal Reduction as an Effective Foreclosure Mitigation Program.” Committee Chairman Barney Frank (D-MA) opened the hearing by stating that its purpose was to address the ongoing question of how to handle the home foreclosure crisis that has damaged the national economy. Mr. Frank acknowledged that the issue could not be resolved with “magic wands” or “buttons to push” but stated that a “series of efforts” have been made. Testifying before the Committee were executives representing the four largest bank-affiliated mortgage lenders, Bank of America Home Loans, CitiMortgage, Inc., JPMorgan Chase Home Lending and Wells Fargo Home Equity Group. In early March, Chairman Frank sent letters to each of the four banks urging them to adopt more aggressive principal forgiveness programs.

Appearing before the Committee were the following:

  • Barbara Desoer, President, Bank of America Home Loans
  • Jack Schakett, Credit Loss Mitigation Strategies Executive, Bank of America Home Loans
  • Sanjiv Das, President and Chief Executive Officer, CitiMortgage, Inc.
  • Steve Hemperly, Executive Vice President, Citi
  • Molly Sheehan, Senior Vice President, Housing Policy, JPMorgan Chase Home Lending
  • David Lowman, Chief Executive Officer, JPMorgan Chase Home Lending
  • Mike Heid, Co-President, Wells Fargo Home Mortgage
  • Kevin Moss, Executive Vice President, Wells Fargo Home Equity Group

Each of the witnesses provided an update on their institution's foreclosure mitigation and mortgage loan modification efforts and the status of their current initiatives under the Home Affordable Modification Program ("HAMP"). Most discussed their intent to implement the Treasury Department’s Second Lien Modification Program ("2MP").

The witnesses addressed the topic of principal reduction as an element of their loan modification programs, but urged caution in its use. Mr. Heid noted that "principal forgiveness is not an across-the-board solution" and that "we have found that principal forgiveness is best used to assist those customers [whose] homes are owner-occupied and concentrated in geographic areas with severe price declines where there is little prospect for full recovery of home values." Similarly, Mr. Lowman stated that a "broad-based program of principal reduction would be very expensive" and Ms. Desoer echoed that "we must [use principal forgiveness] in a measured, responsible way so that only customers with a legitimate hardship and genuine interest in maintaining homeownership qualify." Among other concerns, the bank executives cautioned that more aggressive principal forgiveness "could raise issues of fairness" in the eyes of other borrowers and taxpayers generally.

Ranking Member Spencer Bachus (R-AL) also expressed concerns that principal reduction could increase the cost of borrowing and the amount required for home down payments and that the financial burden of principal reduction programs would be borne by responsible taxpayers.

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