LEGISLATIVE SOLUTIONS FOR PREVENTING LOAN MODIFICATION AND FORECLOSURE RESCUE FRAUD HEARING BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION MAY 6, 2009 Printed for the use of the Committee on Financial Services Serial No. 111–28 ( U.S. GOVERNMENT PRINTING OFFICE 51–587 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\51587.TXT TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York PETER T. KING, New York LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina RON PAUL, Texas GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois BRAD SHERMAN, California WALTER B. JONES, JR., North Carolina GREGORY W. MEEKS, New York JUDY BIGGERT, Illinois DENNIS MOORE, Kansas GARY G. MILLER, California MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West Virginia RUBE´ N HINOJOSA, Texas JEB HENSARLING, Texas WM. LACY CLAY, Missouri SCOTT GARRETT, New Jersey CAROLYN MCCARTHY, New York J. GRESHAM BARRETT, South Carolina JOE BACA, California JIM GERLACH, Pennsylvania STEPHEN F. LYNCH, Massachusetts RANDY NEUGEBAUER, Texas BRAD MILLER, North Carolina TOM PRICE, Georgia DAVID SCOTT, Georgia PATRICK T. MCHENRY, North Carolina AL GREEN, Texas JOHN CAMPBELL, California EMANUEL CLEAVER, Missouri ADAM PUTNAM, Florida MELISSA L. BEAN, Illinois MICHELE BACHMANN, Minnesota GWEN MOORE, Wisconsin KENNY MARCHANT, Texas PAUL W. HODES, New Hampshire THADDEUS G. McCOTTER, Michigan KEITH ELLISON, Minnesota KEVIN McCARTHY, California RON KLEIN, Florida BILL POSEY, Florida CHARLES A. WILSON, Ohio LYNN JENKINS, Kansas ED PERLMUTTER, Colorado CHRISTOPHER LEE, New York JOE DONNELLY, Indiana ERIK PAULSEN, Minnesota BILL FOSTER, Illinois LEONARD LANCE, New Jersey ANDRE´ CARSON, Indiana JACKIE SPEIER, California TRAVIS CHILDERS, Mississippi WALT MINNICK, Idaho JOHN ADLER, New Jersey MARY JO KILROY, Ohio STEVE DRIEHAUS, Ohio SUZANNE KOSMAS, Florida ALAN GRAYSON, Florida JIM HIMES, Connecticut GARY PETERS, Michigan DAN MAFFEI, New York JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel (II) VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\51587.TXT TERRIE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY MAXINE WATERS, California, Chairwoman NYDIA M. VELA´ ZQUEZ, New York SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts THADDEUS G. McCOTTER, Michigan EMANUEL CLEAVER, Missouri JUDY BIGGERT, Illinois AL GREEN, Texas GARY G. MILLER, California WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas KEITH ELLISON, Minnesota WALTER B. JONES, JR., North Carolina JOE DONNELLY, Indiana ADAM PUTNAM, Florida MICHAEL E. CAPUANO, Massachusetts KENNY MARCHANT, Texas PAUL E. KANJORSKI, Pennsylvania LYNN JENKINS, Kansas LUIS V. GUTIERREZ, Illinois CHRISTOPHER LEE, New York STEVE DRIEHAUS, Ohio MARY JO KILROY, Ohio JIM HIMES, Connecticut DAN MAFFEI, New York (III) VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\51587.TXT TERRIE VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\51587.TXT TERRIE C O N T E N T S Page Hearing held on: May 6, 2009 ....................................................................................................... 1 Appendix: May 6, 2009 ....................................................................................................... 37 WITNESSES WEDNESDAY, MAY 6, 2009 Anderson, John W., Vice Chair, Federal Housing Policy Committee, National Association of Realtors (NAR) ............................................................................. 26 Coakley, Hon. Martha, Attorney General, Commonwealth of Massachusetts ... 7 Drexel, Scott J., Chief Trial Counsel, The State Bar of California ..................... 22 Freis, James H., Jr., Director, Financial Crimes Enforcement Network (FinCEN), U.S. Department of the Treasury ..................................................... 4 Saunders, Lauren, Managing Attorney, National Consumer Law Center .......... 20 Story, Robert E., Jr., Chairman-Elect, Mortgage Bankers Association (MBA) .. 24 Twohig, Peggy, Associate Director, Division of Financial Practices, Bureau of Consumer Protection, Federal Trade Commission (FTC) ............................. 5 APPENDIX Prepared statements: Anderson, John W. ........................................................................................... 38 Coakley, Hon. Martha ...................................................................................... 49 Drexel, Scott J. ................................................................................................. 57 Freis, James H., Jr. .......................................................................................... 66 Saunders, Lauren ............................................................................................. 75 Story, Robert E., Jr. ......................................................................................... 98 Twohig, Peggy ................................................................................................... 104 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Waters, Hon. Maxine: Written responses to questions submitted to John W. Anderson ................. 117 Written responses to questions submitted to Hon. Martha Coakley ........... 120 Written responses to questions submitted to Scott J. Drexel ....................... 126 Written responses to questions submitted to James H. Freis, Jr. ............... 131 Written responses to questions submitted to Lauren Saunders ................... 138 Written responses to questions submitted to Peggy Twohig ........................ 145 Capito, Hon. Shelley Moore: Written statement of Florida Attorney General Bill McCollum ................... 153 (V) VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\51587.TXT TERRIE VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\51587.TXT TERRIE LEGISLATIVE SOLUTIONS FOR PREVENTING LOAN MODIFICATION AND FORECLOSURE RESCUE FRAUD Wednesday, May 6, 2009 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 10:03 a.m., in room 2128, Rayburn House Office Building, Hon. Maxine Waters [chair- woman of the subcommittee] presiding. Members present: Representatives Waters, Lynch, Cleaver, Green, Ellison, Driehaus, Himes, Maffei; Capito, Jones, Putnam, Jenkins, and Lee. Also present: Representative Moore of Wisconsin. Chairwoman WATERS. This hearing of the Subcommittee on Housing and Community Opportunity will come to order. Good morning, ladies and gentleman. I would like to thank our ranking member, Shelley Moore Capito, and the other members of the Sub- committee on Housing and Community Opportunity, for joining me today at this hearing entitled, ‘‘Legislative Solutions for Preventing Loan Modification and Foreclosure Rescue Fraud.’’ I believe that this hearing is critical, given the emergence of a new type of criminal actor in the housing market, at a time when the U.S. economy is still reeling from subprime meltdown. We are witnessing homeowners being taken advantage of by predators claiming they can modify their loans or prevent foreclosure. Today’s hearing will help identify legislative solutions to put an end to loan modification and foreclosure rescue fraud. These scam artists portray themselves as foreclosure consultants, and offer to rescue or help struggling homeowners stay in their homes through aggressive marketing campaigns. For a fee, these individuals or en- tities promise to help save homes from foreclosure, but either charge an excessive fee for services that can be obtained for free by a qualified nonprofit counseling agency, or deliver little or noth- ing for the money received. In addition, loan modification consultants are also entering the market, claiming to have established relationships in the mortgage industry which will enable them to negotiate better loan modifica- tion terms than borrowers could do for themselves. They can charge as much as 2 percent of the loan amount to negotiate with the homeowner’s market servicer, but often deliver either nothing (1) VerDate Nov 24 2008 11:15 Sep 03, 2009 Jkt 051587 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\51587.TXT TERRIE 2 or a higher payment than the homeowner was paying before con- tacting these companies. These companies often use terms such as ‘‘Federal,’’ to mislead borrowers into thinking they are official U.S. programs. In response to this growing crisis, Federal agencies have begun to take action. Earlier this month, Treasury Secretary Timothy Geithner announced the establishment of the multi-agency task force to address foreclosure rescue and loan modification fraud, in- cluding the Department of Justice, HUD, and the FTC, State inves- tigators and prosecutors, civil