December 16, 2010

Whitehouse Urges President to Ramp Up Foreclosure Efforts

Washington, DC – In a meeting yesterday evening with President Obama, U.S. Senator Sheldon Whitehouse (D-RI) personally delivered a letter to urge the Administration to “retool foreclosure prevention efforts.”  The letter, which also featured the story of a Riverside, RI resident who struggled to obtain a mortgage modification, asked the President to support bankruptcy court foreclosure mediation programs such as one currently used in Rhode Island.

“These programs simply require the servicer to sit down with the homeowner and negotiate in good faith,” Whitehouse wrote.  He continued, “…the mere act of bringing the homeowner together with a person who can make an intelligent decision for the bank cuts through the bureaucracy and produces mutually-beneficial modifications and short sales.”

A single loan servicer has challenged the authority of the Rhode Island bankruptcy court to require mortgage servicers to participate in this program.  Whitehouse is advocating for legislation clarifying that bankruptcy courts can require mortgage servicers to speak with homeowners to try to avoid foreclosure.

Whitehouse also testified before the House Judiciary Committee yesterday morning to discuss the mediation program.

Whitehouse was in the Oval Office for a ceremony during which President Obama signed the CALM Act into law.

The full text of Whitehouse’s letter is below.


December 15, 2010

The Honorable Barack Obama

President of the United States

1600 Pennsylvania Avenue

Washington, DC 20050

Dear Mr. President:

Thank you for your recent commitment to strengthening legal services and voluntary foreclosure mediation programs available to struggling homeowners.  While these are important steps, I write on behalf of my constituents to urge you to do more to stem the foreclosure crisis.  With only 500,000 loan modifications in the first eighteen months of the Treasury Department’s Home Affordable Modification Program (HAMP), it is clear that it is falling far short of its target of three to four million modifications.  Foreclosure rates continue at historic levels in many areas of the country, including my state of Rhode Island, and we must do more to fix a system that has become broken and distorted.

In my capacity as Chairman of the Senate Judiciary Subcommittee on Administrative Oversight and the Courts, I have chaired several hearings on the foreclosure crisis, most recently in late October.  At that hearing, a constituent of mine – Larry Britt from Riverside, Rhode Island – told a story that has become familiar to Members of Congress.  Larry had applied with his mortgage servicer for a mortgage modification under your Administration’s Home Affordable Modification Program (HAMP), and shepherding that request had become for him a nearly full-time job.  Time and again, over a nineteen-month period, the mortgage servicer asked Larry to submit and resubmit and resubmit document after document.   Despite Fed Ex and facsimile records proving his submissions, the bank consistently alleged that Larry failed to send in necessary paperwork.  When he tried to clear things up over the phone, he was punted from department to department, never once during his many calls reaching anyone who appeared to have any authority to make a decision.

After nineteen months of this paperwork nightmare, the bank finally approved Larry for a mortgage modification.  The modification papers came to him via Fed Ex just one day after a bank representative had told him that he didn’t qualify for a modification.  While cautiously optimistic, Larry still isn’t certain that the bank won’t change its mind yet again.

Larry’s experience, and thousands more like it, tell a story of bureaucracy run amok at the very heart of the foreclosure crisis: mortgage companies unwilling or unable to efficiently evaluate modification requests; homeowners and mortgage investors in limbo suffering the consequences.  When the paperwork run-around leads to foreclosure, a family loses its home, neighbors lose property value, and communities lose tax revenue.  Investors, who purchased the right to the mortgage payments, may lose out too.  The simplest failure of all is the present system’s inability to get the homeowner in contact with anyone who has authority on behalf of the lender.

Often the foreclosure is not necessary.  I recently met with a group of Rhode Island realtors, and each one of them had a short-sale approved by a mortgage company, only to have a separate division of the same company foreclose on the home.  The right hand of these behemoths does not always know what the left hand is doing, and homeowners and investors suffer the consequences.

The system is simply not working logically when it cannot answer the question, “why is the bank throwing me out of my house, to sell it to someone else who’ll pay less than I’m willing and able to pay right now?”  Slicing and dicing these mortgages into securities, and selling them to the four winds, has fractured the marketplace and introduced shards of perverse incentive.  Misaligned fee structures have led loan servicers to reject mortgage modifications that would benefit both the homeowner and the mortgage holders.  When a homeowner is “underwater” and willing and able to make payments on a rewritten mortgage with reduced principal, why would the loan servicer decline, and throw the home into a foreclosure that decimates its value?  Present practices are injurious not only to the homeowner, but often to the owners and investors in the mortgage.  That is a nonsensical result, but it is the result the present system produces regularly.  Why?  In part because of conflicts of interest built into the current system.

In light of the shortcomings of the HAMP and the failure of voluntary mediation programs generally, I ask that you retool your Administration’s foreclosure prevention efforts.  In the past, you have supported giving bankruptcy court judges the power to reduce the principal on primary residence mortgages, the same way they can for most other loans including those on vacation homes, cars, and boats.  While this reform has previously fallen to Senate filibusters, we owe it to the American people to keep trying.  Recent reports of paperwork errors may give the mortgage servicers a reason to reconsider a court process in which a judge can settle title issues.

I also ask that you support bankruptcy court foreclosure loss mitigation programs, which have been implemented in districts in Rhode Island, New York, Vermont, and Florida.  These programs simply require the servicer to sit down with the homeowner and negotiate in good faith.  While no settlement is required, the mere act of bringing the homeowner together with a person who can make an intelligent decision for the bank cuts through the bureaucracy and produces mutually-beneficial modifications and short sales.  I hope that you will consider supporting legislation which would clarify and support the courts’ authority in this area.

Thank you for your attention to this matter of superlative importance to millions of American families and the recovery of our economy.  I look forward to continuing our work in the new year.


Sheldon Whitehouse

United States Senator


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