Washington, D.C. – December 8, 2009 – (RealEstateRama) — Congressman Ron Klein (FL-22) today participated in a hearing of the House Financial Services Committee seeking solutions to the current mortgage crisis. Klein described the serious problems in the South Florida housing market for the Committee and witnesses, and said that it “is essential for banks and the federal government to implement effective programs to increase loan modifications and prevent foreclosures. It is simply not acceptable to watch responsible families in our community lose the homes they have worked so hard for.”
To view a video of Congressman Klein’s statement to the committee, please click here. The full text, as prepared for delivery, follows.
Statement of Congressman Ron Klein
Hearing of the House Financial Services Committee
The Private Sector and Government Response to the Mortgage Foreclosure Crisis
December 8, 2009
As prepared for delivery
Thank you, Chairman Frank, for holding this important hearing. In South Florida, we still face serious problems with the housing market, and it is essential for banks and the federal government to implement effective programs to increase loan modifications and prevent foreclosures. It is simply not acceptable to watch responsible families in our community lose the homes they have worked so hard for.
I am pleased to see the increased focus on foreclosure prevention from the Obama Administration, and they have taken positive steps in the right direction. But there are still important issues that must be addressed. A house is not solely an investment, it is a home, and too many South Florida families have lost the homes they love.
One of the problems with the Home Affordable Modification Program (HAMP) and other Administration initiatives is incomplete paperwork. Mortgage servicers testify that many borrowers do not provide complete information when applying for a loan modification under the HAMP program, and it is important to educate borrowers on both the availability of the program and the required documentation to obtain a loan modification.
However, I constantly hear from my constituents that they send in requested forms two, three, or four times – with the mortgage service companies repeatedly misplacing paperwork. I understand that the increased volume of loan modifications causes strains on mortgage servicers, but the Treasury Department must ensure that banks have the necessary quantity and quality of personnel, as well as procedures in place to adequately handle the caseload and required paperwork. It is particularly unacceptable for banks that have received taxpayer assistance to delay or deny mortgage relief through lost paperwork and inadequate staffing.
Further, while many of the major mortgage servicers have ramped up trial modifications under the HAMP program, only a small percentage have been converted to full loan modifications. We must do a better job. Ocwen Financial Corporation, based in my district, has been very successful converting trial loan modifications to permanent modifications – with an over 70% conversion rate – well above the national industry average. The Treasury Department might want to look at their program and others like it to see if these programs can be used by other mortgage servicers.
I am also concerned about the current situation regarding the processing of short sales. My constituents, in large numbers, as well as realtors, continually tell me about the complex and time consuming process that they must go through with banks to complete a short sale. Sellers and potential buyers are forced to wait months before the bank signs off on a short sale deal, and many potential buyers walk away during the delay. It appears that in many cases banks aren’t making a serious or concerted effort to facilitate short sales.
I appreciate the recently published Treasury guidelines on increasing the closings on short sales, and I think they are a positive step forward. Yet I have concerns that they don’t go far enough to address some of the issues complicating the execution of short sales, particularly regarding secondary liens and investor interests. We must require banks to process short sales in a consistent and timely manner, and we must ensure that we have the right incentives in place to encourage short sales. If mortgage services and investors are holding up the process and unduly denying short sales, they must be held accountable.
Another issue is the changing nature of mortgage default. Initially there was a significant problem with subprime loans and borrowers in mortgage products that were clearly not affordable for them. We are now increasingly seeing a situation where job loss and income decline is the major cause of mortgage defaults. It is essential for banks to remain flexible and adapt programs to the changing environment.
Appraisals are another issue. Residential properties were certainly overvalued in many areas of the country, and the market must be allowed to adjust to the current economic environment. But we must ensure that appraisers are familiar with the local real estate market, and that fire-sale pricing due to foreclosures aren’t bringing appraised values below the true market value of residential properties. This will only deepen the problem and prolong the recovery.
Further, to the extent justified foreclosure proceedings are filed, they should be processed in a way that brings closure and does not harm neighboring property values. When banks drag their feet, neighbors who pull their weight are unfairly and negatively affected. Individuals who are not making their mortgage payments are also likely not current on their taxes, and are not paying their condo fees or homeowners’ association dues, which directly impacts their neighbors. Where they are unavoidable, foreclosure proceedings that are completed in reasonable time frames are the best case scenario for property values in the community.
I understand the difficulty in developing effective programs to increase loan modifications and stem foreclosures, yet many South Florida families face the real possibility of losing their homes. My staff and I stand ready to assist the Administration in any way we can. I look forward to the testimony today.