Senate Hearing on Foreclosure Mess Goes Badly for Banks

It’s become conventional wisdom to denounce Congressmen as know-nothings who routinely harass businessmen by hauling them before investigations and asking them uninformed questions.

Tuesday, we saw a refreshing and badly needed contrast to that stereotype in the form of a comparatively short (less than three hour) hearing by the Senate Banking Committee on the foreclosure/securitization crisis. The senators were informed, engaged, and well versed in most of the issues. The rushed timetable also helped, for instead of having the witnesses read their prepared testimony, each had to give a shorter summary, which gave the hearings a sense of urgency and meant most of the hearing time was spent on questions from the committee members.

What was striking was the contrast between the representatives of the banking industry, namely Barbara Desoer of Bank of America, David Lowman of Chase, and R.K. Arnold of MERS, versus the critics, who were Tom Miller, the Iowa attorney general, Adam Levitin, Georgetown law professor, and Diane E. Thompson of the National Consumer Law Center.

I strongly recommend you watch the hearings, they were very instructive and even entertaining at points (several Senators gave long form reports of how badly their constituents were being treated by banks). Even Richard Shelby had his moments. Shelby used to be in the title insurance business and roughed up R.K. Arnold, who looked like a rabbit in the headlights. Or you can read the liveblogs at FireDogLake by David Dayen and emptywheel

The financial services industry members offered not merely tired bromides, but repeated flat out lies: we always try to save borrowers; we don’t foreclose on people who aren’t delinquent; we don’t make money from foreclosing (no joke, the Chase guy said that); we never consider out second liens in our foreclosure decisions (huh? only true on a case by case basis, utter bunk at the institutional level); we don’t have any conflicts (double huh, every business has to make tradeoffs); yes, we make mistakes, but we correct them as soon as we learn about them (yeah, right). And this palaver did elicit reactions. Early on, when Lowman claimed that Chase was committed to working with homeowners, he was called a lair by a member of the audience from the audience. The session had to be halted while the offending truth-teller was removed. And the other witnesses often felt compelled to take the floor after a particularly egregious bank remark, as Levitin did on the claim that banks don’t make money from foreclosing, and offered evidence to the contrary.

Some highlights of the session:

Thompson did a very effective job of debunking the “deadbeat borrower” meme, and her written testimony contains an extensive discussion of servicer-driven foreclosures and abuses with numerous examples. Senator Johans tried to minimize the impact of her account by asking her how many people were being foreclosed upon who hadn’t failed to pay (note Thompson had examples of that too). Thompson was not diverted, and stressed that she as an attorney only fought foreclosures when she thought the borrower should not have been foreclosed upon, and intimated that her views were not unusual among legal services types. After a lengthy exchange, she estimated that 10% of her cases had been where the borrower had never been late (!) and another 50% were the result of improper servicing fees being charged (the balance were people who were in mod programs where the foreclosure was not halted).

Levitin endorsed the failure to convey-New York trust theory that has been discussed at length on Naked Capitalism. He made it clear that there are unanswered questions of fact and law, and the worst case scenario was dire indeed. He also stressed that the problem was not the law but failure to comply.

Dodd comported himself well and gave a very good introductory speech, and in particular, stressed that this was precisely the sort of issue that the Financial Stability Oversight Counsel needed to address.

There was consensus from virtually everyone who spoke save the two bank representatives about the merits of principal mods for viable borrowers, as well as having banks initiate mod discussions before proceeding to foreclosure, and having an expedited foreclosure process for borrowers who are clearly not viable.

It is remarkable to see how much the bank representatives stick to their talking points and do everything they can to not discuss contradictory evidence. It wasn’t convincing in this session, and I imagine it will start wearing thin on the wider public. The one bit of bad news about these hearings is how little media attention they’ve garnered: no mention on the business page of the New York Times, while the weak American Securitization Forum paper is featured in Dealbook. But these issues are not below the radar for the public, as the degree of engagement by the senators attests.

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  1. AR

    Yves: Do you have a link for Diane Thompson’s written testimony that works? I just downloaded the pdf from the nclc link below and couldn’t open it. The error message said the file was damaged.
    Did you learn anything from the last point made before the hearing was adjourned, about 30% of houses being bought by investors with cash, and turning them into rentals ‘in certain communities’? Could this point to a pattern of forced foreclosures to order for investors, thus promising a quick infusion of cash for [BoA]? Desoer tried to generalize Sen. Dodd’s question about 30% of FC sales being for cash, by interjecting that 30% of all sales were for cash, then added “for the past several months”. She said that in certain communities investors were buying up FCs in large numbers. I don’t like the implications of this.

    I find it interesting that Sen. Dodd had this information and waited until the last minute, literally, to ask it.

    1. LJR

      I just downloaded the pdf using the link you provided above. I opened it in Acrobat 6.0 without difficulty.

        1. readerOfTeaLeaves

          I don’t know whether you are aware of it, but the Senate committee has a web page for the exhibits, and related information, in case you missed it.

          Here’s the main committee page, from which you can scout around and find anything else — or if particularly interested, the committee has contact info at this page.

          1. readerOfTeaLeaves


            Here’s the web address:

            Videos should be archived by now, and available through this link, or else contact your Sen or the committee.

            (In a previous phase of my life, I spent years sitting through land use related hearings, so I’ve been following this avidly.)

  2. Bought Sold

    Are there a million or more of these types of people who are clearly not viable? This is a nasty fucking statement:

    “and having an expedited foreclosure process for borrowers who are clearly not viable. ”

    Waiting for more work? A job offer perhaps?

    Seems at one time these borrowers were viable enough, to be given loans, but in this hall of decorum no one appears to be looking back. Can we look back at Dodd at Countrywide for example? (Oh nooo, hush hush.)

    1. Blurtman

      Deval Patrick at Ameriquest. Robert Rubin at Citi.

      These folks should be in jail.

      But not in this banana republic.

  3. magwa


    You came away with a much more positive take from the hearing than I did. What I heard consistently was the committee and the AGs being in favor of “working with” the banks to “find a solution” in order to avoid “systemic consequences”. In other words, TBTF is going to win again. Watch and see.

    1. readerOfTeaLeaves

      From my low-level experiences in the policy process, I had a different perspective than you seem to have gleaned.

      First, Dodd and the others are IMVHO generally far too polite.
      Second, at some point Sen Tester (D-MT) stated publicly that ‘there aren’t going to be any more bailouts, (so the banks better get their sh*t) together.
      Third, look how well prepared Bennet (D-CO), Tester (D-MT) and a few others were with respect to the personal experiences of their constituents ** and also** — this is absolutely key! — how much staff time this one topic of foreclosure mills and fraud is sucking up for their offices. Nothing gets an elected’s attention like their staff reporting day, after day, aout these kinds of experiences. Further, in a state like Montana (rural, Out West as I am myself) property is more like a religion: you got Jesus, Mary, Joesph, and Property Rights.
      Fourth, even Richard Shelby (R-AL) pointed to the fact that this whole mess threatens our system of property rights. The world has started shifting on its axis, I suspect.

      Also note the respect with which all the Senators treated both Iowa AG Tom ? and also Prof Levitin; it was clear that anything those two said carried a ton of weight.

      What we saw yesterday, in my view, was the result of people taking time to contact their electeds and explain their problems, the outrageous personal stories, the documentation of their problems; it’s all finally starting to accumulate — primarily because of people who are trying to use the political system for some justice.

      Finally, note the way that Bennet (D-CO) asked about ‘alignments’ of incentives — basically, the servicers are screwing the ‘investor’. Now further note that in many respects the ‘investors’ are the pension funds for all the cops, teachers, prison guards, and bus drivers (as well as local judges) those senators represent.

      I’d love to know how many municipal government computers were live streaming this one.

      I’ve watched years and years of hearings, so although I would not call myself an ‘expert’, I probably watch aspects that someone who hasn’t sat rhrough years of b.s. wouldn’t think to be on the lookout for — and it’s my humble, personal view that the bankers looked unrepentant, bland, oblivious, and robotic. Probably not a wise outcome for them.

      But a senator can be extremely bland while twisting the knife, so don’t get fooled by the appearance of civility. This was a disaster for the banks.

      Too bad the MSM didn’t catch onto that fact, perhaps because some bankster was busy buying them lunch.

    1. Chris

      Yep, he’s a piece of shit liar. If you call chase, you get the run around, months of waiting, and stonewalling tactics.

  4. LJR

    I doubt new RMBS will be a significant source of funding for housing going forward. Freddie, Fannie and the banks left standing will have to shoulder the load. Doesn’t sound like the housing market will revive for a long long time.

  5. Brian Longley

    I remember seeing some of the same things you mention, but where was the testimony about the root of the issue? I watched a sanitized dog show where even the dogs were wearing diapers.
    Nothing of the origination fraud was mentioned. How about the selling of loans multiple times to different pools? How about the issue of there being no holder in due course of a loan with MERS, or that has no chain of title for any loan sold to securitize?
    Sorry, but the convenient ignorance of the dogs and the superficial nature of the show made it look like a meat the press interview where the guest writes the questions. It is particularly telling when an attorney that is supposed to be one of the people on the “defense” side indicates she has a level of deadbeat that she will defend? What the hell would have happened if people with real knowledge of this attended? Loan modifications. Prove the loan or obligation exists first, then we can talk later.
    It wasn’t a love fest, but it might as well have been. All the bankers had a collective sigh of relief when they realized it was going to be this easy to defraud.

    1. LJR

      The obvious truth is that one of the major US exports is the dollar. Banks are the institutions that manufacture and administer the dollar. Banks loan the government nearly half of its operating budget each year.

      The treasury issues T-Bills that cannot be bought directly by the Fed – too cozy. So they have to be sold to commercial banks. Commercial banks borrow from the Fed to buy the T-Bills.

      When you look at the structure of the arrangement it becomes quite clear that to expect the government to discipline the banks is to expect the tail to wag the dog.

      For this reason I am inclined to agree with those who think this farce is intended, like a Hollywood set, only to give the appearance of reality and to hide “nothing.”

    2. readerOfTeaLeaves

      What you saw was a snapshot.
      The epic is still accumulating in the background; this was only 3 hours.

  6. Fractal

    Sorry, this is cross-posted from the thread on Bank of America’s loan-by-loan fight.

    It is shocking to see how blatantly the MSM is stroking & fluffing the criminal banks. NYT ran this story about how hard BAC is working to help homeowners facing foreclosure, replete with fulsome details of how one of its executives planned to testify to Senate Banking:

    Then NYT’s Dealbook ran this fairly even-handed look at claims by the American Securitization Forum that MERS is lawful even though it blatantly disregards centuries of common law governing real property:

    That particular Dealbook entry, unlike most, actually quoted a big chunk of the warning of systemic risk published by the Congressional Oversight Panel, and ended with a snarky question about the long history of bad behavior by the securitization industry, linking to Michael Lewis’s book The Big Short.

    But, still, not a word in NYT about what actually happened during the Senate Banking hearing yesterday.

    Bloomberg’s coverage is, if possible, even worse. It pretended to report on the Senate Banking hearing, but completely ignored the two witnesses who testified most cogently about the endemic fraud and homeowner abuse committed by the servicers:

  7. Fractal

    WaPo coverage of the hearing was essentially buried at the end of its oft-revised story touting the supposed “settlement” talks between the 50 state AGs and the big banks. Like Bloomberg, WaPo completely ignored the testimony of the homeowner advocate (NCLC attorney Thompson) and the expert legal witness (Georgetown prof Levitin):

    There is actually some important, though discouraging, information in WaPo’s inteview of Iowa AG Miller, which WaPo posted at mid-day yesterday. Among other revelations: the 50 state AGs have not issued ONE SINGLE SUBPOENA TO ONE SINGLE BANK yet. What kind of “investigation” is that?

  8. karen1p

    That “member of the audience” who claimed Lowman (what a name for a scoundrel) was lying and claimed Lowman was committing perjury to the committee, was Bruce Marks, CEO of NACA, a homeowner advocacy group. He just became my new hero. He also said, “The homeowners deserve the right to be heard at these hearings.” Which is absolutely true. The members of the Committee have yet to let any homeowners who have been so affected by this criminal activitiy be heard!

    I was so impressed by Levitin, I will be writing to him today to let him know how much I appreciated his testimony and his truth. The financial institutions have once again left our nation in peril.

    I was specifically amazed at how angry the Senator from Montana was. He also deserves kudos. And he vehemenently said, “There will be NO MORE BAILOUTS!”

    Everyone should watch this video!!!

  9. Joseph James

    I watched the hearings on CSPAN with great anticipation as I am a Hardship Homeowner who happens to be a senior, a veteran, a single parent of a Special Needs Child, and a person who,like many, experienced a drastic decline in income due to being in a field grossly effected by the economy. I had a 17 year excellent payment record with CW and then BofA until the “crash” and found it necessary to apply for a Hardship Modification” under HAMP through BofA who was my lender. I was approved for Trial, made all payments in a timely fashion, found out how to submit docs after being told numerous times that they only received 1 or 2 of 30 sheets, when a BofA employee told me “if the loan number is not on every single sheet in “BOLD PRINT” they just get tossed”. Employees were never instructed to inform homeowners of this requirement. After my three trial payments I inquired about my perm mod and was told they were “backlogged” and to just keep paying the trial payments. I called every week and spoke to a different person each time with a different story. Finally, after contacting my Congressman I received a Fedex letter of Approval from MHA Home Retention dtd March 30, 2010 after having made 8 trial payments. The letter thanked me for supplying all needed documents and to look for my Permanent Mod Package to arrive shortly, sign it and return it before the due date. The package never came and in the ensuing months I spoke to 7 different people telling me “it is under review, perhaps your dog chewed it up, talking to investor, etc. Finally after making 13 Trial Payments I received a call from Isabelle stating she had good news for me;. I was approved for Perm Modification with a “better deal”. I asked what that is and she said you are getting a better interest rate. I asked what was the payment and she told me a payment which was 65 percent of my total gross income rather than the 31 percent under MHA and which I made as trial payments. I asked about MHA and was told it was not available. I emailed Barbara DeSoer, and other various people within the bank and basically was told I could decline the mod if I want or take it or leave it. I signed an unaffordable mod because I could not take a chance of being put in the street with a handicapped child who must attend a special school near our home so I signed it but I continue to contact BofA in hopes of them giving me what I was approved for under MHA but no one will acknowledge the Fedex letter of approval nor did anyone ever give me notice of not receiving HAMP as required. My life has been consumed with this process for almost two years, my health has declined and now I am faced with more lies from Bank of America. It is unfortunate and ludicrous to see the bankers sit before the panel and tell outright lies without homeowners receiving equal time to tell of their experiences with the banks. Thank you to Senator Tester to have the balls to tell it like it is.

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