transferred the profound implications for investors as the mortgage-backed securities they believe the purchase would in fact be a mom mortgage-backed securities. if so, title most properties in the united states would be clouded and they would also be liability billould greatly exceed the capitol of the major u.s. banks. but that claims underscore the conflict of interest between mortgage servicers and investors. servicers are sponsible for prosecuting violations of representaon and warranties made to investors and securitization deals. servicers bring such actions however not least because there would often be bringing them against their own affliates. the countrywide home mortgage servicing would be bringing those claims against countrywide is self. i'm guessing that many of you received this morning a copy of the american securitization white paper on a residential mortgage backed securities transfer. it's a good document. and i gree with most of the legal analysis as far as it goes but that's the problem. the problem is the white paper neglects to address three important points. first-come it fails to address the parties can contract about the uniform commercial code which is what asf says he governs the transaction. parties are about to contract by the terms of uniform code and arguably that is exactly what mortgage securitization service cited the agreements do. if that's correct then the asf wte beavers analyze the long law. second, the asf went to first neglects what ever the applicable law is. and there are lot of potential noncompliance problems to such as premature spreading its notes and signing of the purported agents of now defunct companies. the scope of the problems is not clear but noncompliance with transfer could void the transfers. third, the asf white paper but neglects the issue and the securitization. most residential mortgage securitization trusts are governed by the new york trust all week and poses additional requirements on the transfers. arguably these requirements are not meant by many securitization deals. the new york law provides of the transfer does not comport with the trust documents, the transfer is void even if the transfer or otherwise comply with the law. that is the transfer of avoid the trust do not on the mortgages and therefore lacks the standing of to close. i want to emphasize i am not saying this is the case. ere are many unresolved legal issues and if the evidence your questions. i'm not predicting is a problem of mortgage-backed securities. instead, my point is that they are unresolved questions and the law is not as clear as either the american securitization forum any law firm with of the standing opinion letter liability would like to to believe. some of these -- we don't know how the questions are going to be resolved but some of the potential resolutions have daughter systemic consequences and the congress should be aware of the possibility because we do a lot better ahead of the ball than behind on the systemic risk one of the system a chris aspect is taking into consideration the context of other problems and a mortgage securitization world. i think it makes a compelling case for early intervention and a global settlement of the foreclosure cris and investor in litigation against services and securitized terse. only a global settlement will help revise the mortgage market, will remove the debt overhang from consumers and financial institutions and restart the u.s. economy. thank you. >> thank you very much. .. some 6 million customers >> since members of the committee, thank you for letting me to appear before you today. we are committed to insuring all hours are treated fairly and with respect -- all borrowers are treated fairly and with respect and that if for closure is necessary, the process complies with all laws and regulations. we take this issue seriously. we have worked hard to correct these issues. >> they cannot have their -- we can hear -- he is >> that is alive. [inaudible] no, you have home owners here. chairman, let the home owners speak. >> sir, sir -- [inaudible conversatio] [inaudible conversations] [inaudible conversations] >> sit down. >> sit down so we can hear the rest of the witnesses, and i'll just make those engaging in that outburst, we have to ask you to leave the room. we hope that's not necessary. we are glad to have youear to hear this important hearing. >> foreclosures cause rdship and they result in severe losses for lenders and investors, and therefore we consider whether there are viable alternatives to foreclosure. chase adopted its own modifications programs in early 2007. since 2009, chase offered 1 million modifications to struggling borrowers and has permanent modifications. sustainable modifications are no always posble and some cannot afford to stay in their homes. while we make repeat the efforts, we must proceed to foreclosure. a property does not go to foreclosure if a modification is in process, but if the foreclosure has begun,nd a borrower continues the modification process, we are instructed to allow the two processes to run at the same time. however, we don't allow a foreclosure sale if a modification is in progress. i understand the focus of the committee is to sus pent foreclosures in a number of states. to be clear, we service millions of loans, and we make mistakes, but when we find them, we fix them. it is imrtant to note that the issues arisen in connection with the foreclosure proceedings does not relate whether the foreclosures were warranted. we have not found issues that would have led to foreclosures on borrowers who are current. a recent temporary suspension of foreclosures arose out of concerns about affidavits prepared by local counsel and signed by chase employees and losed in proceedings. specifically our employees may have signed affidavits on file reviews and other affidavits performed by other chase personnel and may not have signed them in a presence of the notary, but the facts set forth in the affidavits with respect to the borrower's default, the fact were foreclosure were verified prior to the affidavits. we take these issues seriously. our process did not live up to our standards. our foreclosures have been halted and we have thoroughly reviewed our procedures and undertaken a complete review of the document policies. we have also rolled out extensive training for all personnel involved. i will be happy to answer any questions you might have. >> thank you very much. last witness and not the least, diane thompson, a familiar face to us here, and written many articles to the foreclosure process and provided and worked rather from 1994 until 2007 at the land of lincoln legal foundation representing low income home owners in east st. louis and testified at our hearing in july of 2009 before this committee, and i'll be interested to hear how progress was made since the last hearing of july of last year. i thank you again for joining us. >> thank you. thank you for inviting me to testify today and to answer your question, no, not enough progress has been made. i was shocked when i took out my testimony from last july in getting ready for this how much of that testimony is still relevant. aam an -- i am an attorney, and with my work i provide training and support to hundreds of attorneys representing home owners from all across the country, so i hear what's going on in alaska and in mississippi on a daily basis as well as in new york and illinois. the recent signing scandal reveals the contet that exhibited the rules. the rules in the court procedure in the scandal and th contract rules breached by miscommon application and the rules for modifications honored unfortunately were more in breach. servicers do not believe the rules apply to everyone else applies to them. this lawless attitude created in part by financial incentives and tolerated by regulators is the root cause of the robo signing scandal. in my written testimony, i provided dozens of examples of the harm caused to homeowners by services. many of the foreclosure cases coming to national attention involving signing allegations originated due to the unnecessary force placement of insurance, sometimes at more than 10 times the actual cost of the homeowner's existing insurance policy. often misrepresentations lead directly to foreclosure. in one site cited in my written testimony, a north carolina woman was placed in foreclosure by chase after 15 months of timely and full modifications payments. when she made the mistake of following the advice of a chase representative to make a partial payment in the 16th month. in another case, they told an attorney that the pooling and servicing agreement prohibited all loan servicing modifications. they went so far to provide the attorney with an electronic snapshot of the relevant section of the psa, but that snapshot converted a comma to a period, and removed the immediately following clause which provided for loan modificaons in most circumstances after default. these abuses occur because servicers have strong financial incentives to deny modifications and proceed with foreclosure. the illegal fees that push homeowners into foreclosure are profit centers for servicers. they recover their cost faster in modification than in foreclosure and servicers and affiliates profit. this strips wealth from investors as well as homeowners. unless, and until services are held accountable for their behavior, we will continue to see flaws in servicing in cascading costs throughout our society. the lack of restraint on servicers abuse has created and deepens the foreclosure crisis, and at worst, it threatens our global economic curity. solutions must address the affidavit and ownership issues address the recently, but more is needed. we must require servirs to modify before foreclosure, offer modifications will provide a net benefit to the investors and provide that the failure to do so is a defense to foreclosure. funding for mediation and representation of low income homeowners is desperately needed. principle reduction must be mandat and reign service abuse and restore rationality to the mortgage markets. thank you for the opportunity to testify here today. i am happy to answer any questions you may have. >> thank you very much, ms. thompson. appreciate it. [applause] >> audience please, this is a hearing, not a rally. republican colleagues have a caucus, and i've invited senator shelby to go before me. >> i have a number of written questions to be summited >> go ahead. >> i'll start with you and ms. thompson can chime in here i ho. as i understand, i used to do this many years ago, let's say a bank in anywhere in america, we'll use my hometown in alabama. a bank makes a loan in a home or a mortgage, banker or whoever it is, and that mortgage, that note is signed and the mortgage, you know, is recorded at the courthouse, and the bank owns the mortgage, that's the security for the loan. now, it used to be, and correct me if this changed, that they would sell that loan, andhey would do an assignment of record saying x assigned the record to y bank or pension fund, and that's recorded, and they went on the mortgage of record, you know. there'd be a rorpd of that in the -- record of that in the courthouse there. if they foreclosured, you recite this in the foreclosure notice of the default made in certain mortgage dated so and so to x bank and subsequently assigned three or four times, and you'd have to do that. what has changed, electronically what is the problem and what has caused it? did you get away from the basic property laws of the state? you know, i don't know. is that causing the problems when you -- i realize that you in the securitization you maight take a -- might take a thousand of these mortgages i talked aboutnd you pool them and securitytize them, but still the fundamental of the hole owners remains, and they are in debt and there's a record of their indebtedness. am i right? what has changed? i'll ask ms. thompson. thanks. >> excuse me. there's been a great deal that has changed -- >> tell the committee. >> par of that is that the sheer velocity of the transactions jammed up the recorder's offices. there would be mistakes in the assignments, filed in the wrong order. >> wait a minute, excuseme. you say there's mistakes you say in the courthouses? >> no, senator. >> where are the mistakes? >> in the assignments the banks were prepares. >> okay. the banks made the mistakes? >> yes. >> oka >> and that would ultimately cause title problems, breaks in the chain of title. it was unnecessary that those assignments would be recorded every -- >> why would it be unnecessary to show who owned the mortgage before you foreclosured on it? heretofore you close in the holder of the record, did you not? i guess? is that right? >> yes, that's the general rule in most states. >> go ahead, sir. >> that still happens today. what merse is is a common agent for all of those banks, and that way when servicing changes hands covered under the truth and lending act, there's a hello-good-bye letter, and any time that changes, that's reflted on e system -- >> excuse me. it might be reflecting on your computer, but is it flected in the courthouse where the mortgage is recorded? >> merse is reflected in the courthouset all times, and then if -- >> wait a minute. do they record the assignment there at the courthouse? i could go look it up and see who owned the mortgage? >> there is no assignment if merse is the mortgaged -- >> that's what i'm getting at. you're correcting yourself. actually, what you're doing with the electronic transfer, you take the place of historically the propty laws of the states. is that wrong or right, ms. thompson? >> that's correct, and it is true that mers has the case from new york and several cases where clerks challenge the notification and removes from the record any chain of title an complicates the holder of the mortgages. >> isn't this part of the problem in the foreclosure process? people are saying -- i'm asking you mr. arnold you don't check this mortgage, you have no -- there's no record of you owning it, how can you forclose on it is that right? >> if there's a mortgage in the name -- >> is that legal? is that the law of the land? >> the mers can be fore closed. >> no, i asked you a question. is that the law of the land? you can dohis? you used to not do this. you had an assignment properly recorded in x county to show, would you not? >> whether or not mers can foreclose is a hot issue and varies state by state. in other states there's litigation and other states there's litigation that has forbidden mers to foreclose in its own name. >> mers is part of the problem? >> it complicated what the correct standing is and has the affect of concealing from the public the role of major lending institutions in foreclosures. >> i don't know if you have answered my question correctly or like i want you to, but i don't -- i'm looking for the truth of what the problem is. i think that when you deviated from the basic property laws of the country, you got yourself in trouble. maybe i'm wrong. >> i think mers is e piece of the problem. there's more serious and complicated pieces of the problem. >> okay, thank you, mr. chairman. >> thank you, bob, and turning it to senator. >> thank you, i appreciate the curtesy from both senators. ms. thompson, help me undersnd this if you will. all of the abuses that you've described somebody altering a document and trying to mislead someone. i don't think there's anyone in the room or anyone in the country that would try to claim that that's right. it's not right. i mean, fundamentally it's just not right. i want to kind of drill down on the mortgage-foreclosure issue itself, and try to help get your help in me understanding this. as i've done many mortgages through my life, my first mortgage was probably when i was in my 20s and bought my first house, and my understanding is complex as those documents are, and you know they give you a stack about that thick to sign, my understanding was that somebody was giving me money that would at least partially buy the house. these days maybe buy most of the house, andhat if i failed to repay that in a timely way, they would take the house. i mean, as sad and unfortunate as that is, that was the bottom line. how many instances have you run into, or is it a common practice that these foreclosure people are foreclosing on properties where in fact someone has not failed to pay? do you see what i'm getting to? >> i do, and in my written testimony i believe there's three examples of cases where people were not actuay in default when the foreclosure was initiated. >> let me say again, that's not right, but i'm trying to figure out if it's 3 million or 3,000 or 3ecause -- >> i think it's very -- it's certainly more than 3. i certainly had many examples ke that in thecourse of my practice. it's a complicated question because sometis a person's absolutely not in default, and they initiate foreclosure. sometimes the wrong bank initiates foreclosure, and sometimes -- >> but -- >> there's a placement of fees that make the payment double or triple, andat that point the person goes into default. now, -- >> yeah let me just -- >> in that case, it's a placement of the improper fees causing of foreclosure even though the person is in default. >> let me just say ain. i don't think that's right. again, i don't think you're going to get much debate from anybody about that. i just don't think that's right, and i want to make that clear, but for the purposes of this banking committee, in this area it's so important that we understand what we're dealing with, and so at least today you can give me three cases where a default was initiated in a situation where a person wasn't in default, three. >> i said there's about 26 example in the written testimony, and i believe three of them involve cases with no default. three of them involve cases where the homeowner submitted a modification by the servicer rs and the servicer then declared a default, and at least three or four involve cases where people went into default solely because of the placement of improper fees. it is not uncommon, i think it is very difficult for us to assess the magnitude of it in part because there's no verification of the modifications they submit. to determine whether this is correctequires hours of analysis of the payment histories. >> ms. thompson, i make this request to you. again, i'm trying to get a notion of the scope of what we're dealing with here, and so we can unrstand what we are to fix, but if this is truly a case where you're tellg me out of all of the work you've done in this area that you can bring to mind three cases where somebody was default or sued and foreclosed upon, that's a different dynamic r me then if there's 300,000 of them. >> out of all the cases i took, out of the hundreds of homeowners i represented in, every case, i believe the homeowner was not in default looking at the surrounding facts. >> would you be able to provide us with some information to back up that statement? you just made a statement out of all of these cases and virtually every one, the homeowner was not in default. that really -- i find that troubling that there's people out thereforeclosing when the homeowner is not in default. you see how that doesn't -- >> yes, and as a legal services attorney i had precious little time, and i only took certain cases. i represented in court dozens of homeowners. in every case i believe there's a strong defense to beat the foclosure. you can only beat the foreclosure if you esblish there's not a legal default. it is a widespread problem throughout the country. >> i'm a lawyer myself, and although i did a little bit of this work in my career, i department do a lot, so i start with that deficiency, but i will tell you there are leg