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D A R R E L L E . I S S A , C A L I F O R N I AC H A I R M A N

ONE HUNDRED TWELFTH CONGRESS E L I J A H E . C U M M I N G S , M A R Y L A N DR A N K I N G M I N O R I T Y M E M B E R

D A N B U R T O N , I N D I A N AJ O H N L. M I C A , F L O R I D AT O D D R U S S E L L P L A T T S , P E N N S Y L V A N I AM I C H A E L R. T U R N E R , O H I OP A T R I C K M C H E N R Y , N O R T H C A R O L I N AJ I M J O R D A N , O H I OJ A S O N C H A F F E T Z , U T A HC O N N I E M A C K , F L O R I D AT I M W A L B E R G , M I C H I G A NJ A M E S L A N K F O R D , O K L A H O M AJ U S T I N A M A S H , M I C H I G A NA N N M A R I E B U E R K L E , N E W Y O R KP A U L A . G O S A R , D . D . S . , A R I Z O N AR A U L R. L A B R A D O R , I D A H OP A T R I C K M E E H A N , P E N N S Y L V A N I AS C O T T D E S J A R L A I S , M . D . , T E N N E S S E EJ O E W A L S H , I L L I N O I ST R E Y G O W D Y , S O U T H C A R O L I N AD E N N I S A . R O S S , F L O R I D AF R A N K C. G U I N T A , N E W H A M P S H I R EB L A K E F A R E N T H O L D , T E X A SM I K E K E L L Y , P E N N S Y L V A N I A

Congress of tfje Unite* States E D O L P H U S T O W N S , N E W Y O R KC A R O L Y N B. M A L O N E Y , N E W Y O R KE L E A N O R H O L M E S N O R T O N ,

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D I S T R I C T O F C O L U M B I AD E N N I S J . K U C I N I C H , O H I OJ O H N F. T I E R N E Y . M A S S A C H U S E T T SW M . L A C Y C L A Y , M I S S O U R IS T E P H E N F. L Y N C H , M A S S A C H U S E T T SJ I M C O O P E R , T E N N E S S E EG E R A L D E . C O N N O L L Y , V I R G I N I AM I K E Q U I G L E Y , I L L I N O I SD A N N Y K. D A V I S , I L L I N O I SB R U C E L. B R A L E Y , I O W AP E T E R W E L C H , V E R M O N TJ O H N A . Y A R M U T H , K E N T U C K YC H R I S T O P H E R S . M U R P H Y , C O N N E C T IJ A C K I E S P E I E R , C A L I F O R N I A

http://oversight.house.gov

L A W R E N C E J . B R A D YS T A F F D I R E C T O R June 2 1 , 2011

The Honorable Darrell E. IssaChairmanCommittee on Oversight and Government ReformU.S. House of RepresentativesWashington, DC 20515Dear M r. Chairman:

Today marks the six-month anniversary of my f i rs t letter to you requesting that theCommittee investigate widespread and systemic abuses by mortgage servicing companies,including illegal foreclosures, inflated fees, and fraud against American homeowners. This isnow my fourth letter to you on this subject.1

In my previous letter on May 24, 2011,1 requested that you issue subpoenas to sixmortgage servicing companies that are refusing to provide relevant documents to the Committee.M y previous letters set for th in great detail the specific allegations of abuse committed bymortgage servicing companies and the specific steps I have taken to obtain the informationvoluntarily. I have also provided youwi th copies of the written correspondence f rom themortgage servicing companies stating in clear terms that they wi l l not provide the necessaryinformation unless duly authorized subpoenas are issued.

Given this background, I was surprised when your spokesman stated that, although this is"an issue of clear bipartisan concern," youneeded "additional information" to decide on "the

See Letter f rom Representative Eli jah E. Cummings to Ranking Member Darrell E. Issa(Dec. 2 1 , 2010) (online at http://democrats.oversight.house.gov/index.php?option=com_content&task=view&id=5175&Itemid=49);Letter f r om Ranking Member Eli jah E. Cummings toChairman Darrell E. Issa (Feb. 25, 2011) (online at http://democrats.oversight.house.gov/index.php?option=com_content&task=view&id=5229&Itemid=49); Letter f rom RankingMember Eli jah E. Cummings to Chairman Darrell E. Issa (May 24, 2011) (online athttp://democrats.oversight.house.gov/index.php?option=com_content&task=view&id=5315&Itemid=49).www

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The Honorable Darrell E. IssaPage 2most appropriate next step." You have been copied on every letter sent to the mortgageservicing companies and every letter they have sent back to the Committee. Youhave nothesitatedin other investigationsto issue subpoenas in a matter of days when your deadlineswere missed, so it is unclear why a different standard applies to this investigation.

As you know, Members of our Committee voted unanimously on February 10, 2011, toadopt the Committee's oversight plan for this Congress pursuant to House Rule X, Clause 2(d).The oversight plan states explicitly that the Committee w i l l "examine the foreclosure crisisincluding wrongful foreclosures and other abuses by mortgage servicing companies."3 Ifmortgage servicing companies are allowed to disregard requests for documents that are integralto this investigation, the Committee's integrity w i l l be called into question and, moreimportantly, abuses may continue.

Last week, in the context of a different investigation, you made a strong statement aboutthe need fo r prompt action by the Committee. You stated: "[OJversight delayed is oftenoversight denied. I believe that path would be unacceptable to the American public."4

This same sense of urgency should apply even when the targets of the Committee'sinvestigation are banks. The foreclosure crisis is affectingmillions of Americans across thecountry, devastating communities, and impairing our nation's economic recovery. I am alsoparticularly alarmed by increasing reports that U.S. servicemembers and their families have beenillegally evicted f rom their homes and charged millions of dollars in unwarranted fees.5 For allof these reasons, I am wr i t ing again to reiterate my request for subpoenas and to provideadditional information that has come to light since my last letter to you on this subject. 6

2 U.S. House Democrat Wants Subpoenas of Six Mortgage Cos., W a l l Street Journal(May 25, 2011) (online at http://online.wsj.com/article/BT-CO-20110525-703178.html).

House Oversight and Government Reform Committee, Oversight Plan, 112th Cong.(Feb. 10, 2011) (online at http://oversight.house.gOv/images/stories/l 12th_Oversight_Plan_02092011.pdf).

4 Letter f rom Chairman Darrell E. Issa to Ranking Member Eli jah E. Cummings (June 17,2011).

5 See, e.g., Overcharges on Soldiers' Mortgages Investigated, NBC News (Jan. 26, 2011);JP Morgan Chase Settles Military Mortgage Case, AP (Apr. 2 1 , 2011); DOJ: BofA, MorganStanley Units to Pay $22Mto Settle Charges, W a l l Street Journal (May 26, 2011).

6 Since my May 24, 2011, letter, Bank of America has indicated that it plans to providesome documents, the adequacy of which we can review and evaluate when they are produced.www

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The Honorable Darrell E. IssaPage 3

New Data from S I G T A R P

During our Committee's f irs t hearing on January 26, 2011, Nei l Barofsky, the SpecialInspector General for the Troubled Asset Relief Program (SIGTARP), testified that theperformance of mortgage servicing companies has been "abysmal" and that "stories of servicernegligence and misconduct are legion."7

On February 25, 2011,1 wrote to SIGTARP to request "a survey of the variouscomplaints SIGTARP has received or is aware of relating to mortgage servicers" and "acategorization of the specific allegations ofwrongdoing."8 On May 3 1 , 2011, SIGTARPofficialsresponded by providing a breakdown of approximately 2,683 complaints they had receivedrelating to the performance of mortgage servicing companies.9

According to SIGTARP, more than 27 percent of these complaints reported that mortgageservicing companies improperlv foreclosed on homeowners who were enrolled in governmentmodification programs. According to SIGTARP, these homeowners reported that "they werevictims of premature default or foreclosure proceedings."10

In addition, more than 14 percent of these complaints reported that mortgage servicingcompanies improperlv reported homeowners to credit bureaus, despite the fact that they wereenrolled in government modification programs, " w i t h the effect that their credit score decreasedand their ability to secure credit was reduced."11

n

Testimony of N e i l M . Barofsky, Special Inspector General for the Troubled Asset ReliefProgram, Hearing on Bailouts and the Foreclosure Crisis: Report of the Special InspectorGeneral for the Troubled Asset Relief Program, House Committee on Oversight and GovernmentReform (Jan. 26, 2011) (online at http://oversight.house.gov/images/stories/Hearings/Opening_Statements/Testimony.Barofsky.SIGTARP.012611 .pdf) .

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Letter f rom Ranking Member Eli jah E. Cummings to the Honorable N e i l M . Barofsky,Special Inspector General for the Troubled Asset Relief Program (Feb. 23, 2011) (online athttp://democrats.oversight.house.gov/images/stories/Correspondence/Foreclosure%20Letters/Cummings%201etter%20requesting%20SIGTARP%20report.pdf).

9 Letter f rom ChristyL . Romero, Acting Special Inspector General for the Troubled AssetRelief Program, to Ranking Member Eli jah E. Cummings (May 3 1 , 2011).

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SIGTARP officials also reported that more than 46 percent of these complaints reportedthat mortgage servicing companies lost or misplaced homeowner documents, "resulting inmultiple documentation submissions or rejection or disqualification"f r o m government programsintended to help families modify their mortgage loans to avoid foreclosures.12

Based on its review of these complaints, SIGTARPofficials also reported that, " [ t ]o theextent that the complaints raise issues wi th in SIGTARP's jurisdiction, we have pursued criminal

13or c i v i l investigations."Regulators' Findings of Improper Foreclosures and Other Abuses

On May 3 1 , 2011,1 wrote to the Office of the Comptroller of the Currency, the FederalReserve, the Office of Thr i f t Supervision, and the Federal Deposit Insurance Corporation torequest additional information on their recent "interagency reviews" of widespread foreclosureabuses by 14 mortgage servicing companies.14 Their public summary of these reviews, whichwas issued on Apr i l 13, 2011, made this f ind ing :

[T]he weaknesses at each servicer, individually or collectively, resulted in unsafe andunsound practices and violations of applicable federal and state law and requirements.The results elevated the agencies' concern that widespread risks may be presentedtoconsumers, communities, various market participants, and the overall mortgage market.The servicers included in this review represent more than two-thirds of the servicingmarket. Thus, the agencies consider problems cited wi th in this report to have widespreadconsequences for the national housing market and borrowers.15

The summary also identified specific cases of improper foreclosures that violated federallaw. It stated:

12 Id.nId.1 4 Letter f rom Ranking Member Eli jah E. Cummings to Office of the Comptroller of the

Currency, Board of Governors of the Federal Reserve System, Office of Thr i f t Supervision, andFederal Deposit Insurance Corporation (May 3 1 , 2011) (online at http://democrats.oversight,house.gov/index. php?option=com_content&task=view&id=5 321&Itemid=49).

1 5 Federal Reserve System, Office of the Comptroller of the Currency, and Office ofThr i f t Supervision, Interagency Review of Foreclosure Policies and Practices (Apr. 13, 2011)(online at www.occ.treas.gov/news-issuances/news-releases/201 l/nr-occ-201 l-47a.pdf)(emphasis added).www

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[EJxaminers did note cases in which foreclosures should not have proceeded due to anintervening event or condition, such as the borrower (a) was covered by theServicemembers C i v i l Relief Act , (b) f i led for bankruptcy shortly before the foreclosureaction, or (c) qualified for or was paying in accordance w i t h a trial modification.16

To address these major systemic deficiencies, the regulating agencies issued "consentorders" that required these 14 mortgage servicing companies to hire private consultants toconduct a more thorough review of the files of affected homeowners. More comprehensivereviews were necessary because the regulatory reviews covered a "relatively small number of

17files." The regulating agencies directed the mortgage servicing companies to "determine anyfinancial injury to borrowers caused by errors, misrepresentations, or other deficiencies identifiedin the review, and to remediate, as appropriate, those deficiencies."18 They also directed themortgage servicing companies to submit for their approval "engagement letters" establishing theterms of the review and the methodologies to be used.19 These engagement letters were duewi th in 45 days of the date of the consent orders.20

Despite this deadline, none of the 14 mortgage servicing companies met this requirement.On June 10, 2011, the Comptroller of the Currency and the Office of Thr i f t Supervision wrote tome to confirm that " f ina l engagement letters do not exist."21 On June 13, 2011, the Office of theComptroller of the Currency announced that it was extending the deadline for mortgage servicing

9 9companies to comply w i t h this requirement.

16 Id.17 Id."Id.19 See, e.g., Office of the Comptroller of the Currency, Consent Order in the Matter of

Bank of America (Apr. 13, 2011) (online at http://www.occ.treas.gov/news-issuances/news-releases/201 l/nr-occ-201 l-47b.pdf).

20 Id.Letter f rom Office of the Comptroller of the Currency and Office of T h r i f t Supervision

to Ranking Member Elijah E. Cummings (June 10, 2011).Office of the Comptroller of the Currency, Deadline Extended for Action Plans under

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Additional Information

In addition to the information above, there have been other troubling developments. OnJune 13, 2011, for example, it was reported that the Officeof Inspector General for theDepartment of Housing and Urban Development f i led a sworn declaration stating that its reviewof foreclosures was "significantly hindered by Bank of America's reluctance to allow us tointerview employees or provide data and information in a timely manner." 2 3

A week earlier, on June 9, 2011, the Department of the Treasury for the f irs t timewithheld servicer incentive payments f rom Bank of America, Wells Fargo, and J.P. MorganChase for errors in calculating borrower incomea key determinant of eligibility under theMaking Home Affordable program.24

On May 26, 2011, the Government Accountability Office issued a survey of problemsreported by housing counselors who work for a network of approximately 130 non-profit housingagencies that receive funding through the National Foreclosure Mit iga t ion Counseling Program.25GAO reported that "over 78 percent of the counselors ranked 'servicer lost the borrower'sdocumentation' as one of the three highest challenges," and that 53 percent of counselors accusedmortgage servicing companies of "[straightforward miscalculations of annual income (e.g.,confusingbiweekly, semi-monthly, and weekly pay)."

ConclusionL ik e my home state of Maryland, your home state of California also appears to have been

severely affected by the foreclosure crisis. By the end of 2010, California ranked fourth in the

BofA Significantly Hindered Foreclosure Review of Its Loans, U.S. Says, Bloomberg(June 13,2011).

2 4 Department of Treasury, Making Home Affordable Program Performance ReportThrough Apr i l 2011 (June 9, 2011) (online at www.treasury.gov/initiatives/financial-stability/results/MHA-Reports/Documents/April%202011 %20MHA%20Report%20FLNAL.PDF).

2 5 Government Accountability Office, Troubled Asset Relief Program: Results ofHousing Counselors Survey on Borrowers' Experiences with the Home Affordable ModificationProgram, (May 26, 2011) (GAO-11-367R).www

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The Honorable Darrell E. IssaPage 7number of mortgages that were 90 or more days delinquent or already in foreclosure. A surveyof California housing counselors conducted by the California Reinvestment Coalition (CRC) in2010 found that more than 60 percent of counselors "had clients who suffered foreclosurewhilenegotiating w i t h their loan servicer," and nearly 80 percent reported that it is "very common forservicers to deny loan modifications because they claim not to have received all borrowerdocuments."28

In February, you were asked by San Diego Union-Tribune how you planned to addressthe foreclosure crisis in San Diego County. Inresponse, you said that the "best, long-termsolution for rel ief of struggling homeowners is to f ind more and better jobs."29

We fu l ly support measures to promote job creation, but we cannot ignore illegal andabusive acts by mortgage servicing companieswhich are precisely the subject ofmy request forsubpoenas. The best long-term solution that our Committee can offer in response to illegal actscommitted by mortgage servicing companies is vigorous investigation, oversight, andreform.Inaction w i l l tacitly reward abuse and signal tolerance for major corporate wrongdoing.

To fu l f i l l the Committee's unanimously-approved oversight agenda, and to adequatelyinvestigate abuses against our constituents, we must obtain responsive documents f rom thesemortgage servicing companies. For these reasons, I request again that you authorize and issuesubpoenas to compel the production of the previously-requested documents. I appreciate yourinterest in these issues and look forward to working w i t h you.

Center for Responsible Lending, Dreams Deferred: Impacts and Characteristics of theCalifornia Foreclosure Crisis (August 2010).28

California Reinvestment Coalition, Chasm Between Words and Deeds VI: HAMP isN ot Working (July 2010).

29Rep. Issa: San Diegans Need Jobs, Not Foreclosure-Relief Program, San Diego

Union-Tribune (Feb. 3, 2011).

Sincerely,

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