Merkley, Snowe Push for New Rules to Protect Homeowners from Mistreatment by Banks

Washington, D.C. –
A group of 18 U.S. Senators, led by Jeff Merkley (D-OR) and Olympia Snowe (R-ME), urged government agencies to take action to prevent foreclosures and help families keep their homes. 

The senators made their request in a letter sent to Treasury Secretary Timothy Geithner, Secretary of the Department of Housing and Urban Development Shaun Donovan, Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Sheila Bair, Acting Comptroller of the Currency John Walsh, Acting Director of the Federal Housing Finance Agency Edward DeMarco, Attorney General Eric Holder, and Iowa Attorney General Tom Miller.  Joining Senators Merkley and Snowe in signing the letter are Senators Akaka (D-HI), Begich (D-AK), Bingaman (D-NM), Blumenthal (D-CT), Durbin (D-IL), Franken (D-MN), Lautenberg (D-NJ), Leahy (D-VT), Levin (D-MI), Menendez (D-NJ), Reed (D-RI), Schumer (D-NY), Shaheen (D-NH), Tom Udall (D-NM), Whitehouse (D-RI), and Wyden (D-OR).  The senators advocated for national regulatory standards that would decrease foreclosures, stabilize the housing market, and help spur job creation.

“As long as the housing market continues to falter, economic growth and job creation will falter too.  By creating alternatives to needless foreclosures, we can assist Oregonians who have been hurt by the recession, reduce the downward spiral empty houses have on local communities, and strengthen a major sector of the economy.”

Read more about Senator Merkley’s housing proposal on the web: the Way to a Healthy Housing Market1.pdf

Read the full text of the letter below.




March 3, 2011

The Honorable Timothy Geithner

U.S. Secretary of the Treasury

Honorable Shaun L.S. Donovan


United States Department of

Housing & Urban Development

Honorable Ben S. Bernanke


Board of Governors of the

Federal Reserve System

Honorable Mary L. Schapiro


Securities and Exchange


Mr. John G. Walsh

Acting Comptroller

Office of the Comptroller of the Currency

Mr. Edward J. DeMarco

Acting Director

Federal Housing Finance Agency

Honorable Eric Holder
Attorney General
U.S. Department of Justice

Honorable Tom Miller
Attorney General
Iowa Department of Justice

Honorable Sheila C. Bair


Federal Deposit Insurance Corp.

Dear Sirs and Madams:

We write you today to urge you to establish clear national regulatory standards for the loan servicing industry that eliminate confusion and barriers to mortgage modification and help keep families in their homes.  We believe those standards should include establishing a single point of contact, ending the dual track of pursuing foreclosure during the loan modification process, and ensuring an independent third-party review prior to sending a homeowner to foreclosure.

As you know, the subprime boom and bust and the near-collapse of the financial system led to our deepest recession in eight decades.  It has caused enormous devastation to families who have lost their jobs and their homes, and it has greatly restricted the lending, investment, and wealth creation that are essential to our economic recovery.

The Administration has initiated numerous programs to help families stay in their homes.  Most of these loan modification and foreclosure prevention initiatives rely on loan servicing companies as implementers.  This is a new role for this industry and has required extensive new hiring and training on the part of these companies.  Given these challenges, numerous shortcomings in the way that some of these firms have operated have emerged.  These problems include the submission of false foreclosure affidavits, improper assignment of funds submitted by borrowers, inappropriate advice that borrowers go into default to qualify for a loan modification, and foreclosures that do not meet legal standards.  These several problems have significantly hampered the Administration’s foreclosure prevention programs.  Many have also been potentially serious violations of state and federal law.

The current situation is untenable.  A single set of clear national standards for the loan servicing industry must be adopted.  This is both an essential step to restoring the health of our housing market and our financial system today, and to prevent the emergence of these problems again in the future.  Each of your organizations plays a role in developing and enforcing these standards, and we urge you to act as quickly as possible to develop and promulgate clear rules of the road to protect families and the economy.

Your supervision and enforcement role with the loan servicing industry also gives you the opportunity to advance these standards immediately.

We urge you to give special attention to the following issues as you write regulations and engage in supervision and enforcement:

Single Point of Contact

Loan servicers should designate a single point of contact for borrowers who are pursuing a loan modification or an alternative to foreclosure. 

Servicers should assign each borrower a single case manager who will remain with that borrower throughout their loss mitigation experience.  This case manager should have decision-making authority, full accountability, and access to the highest levels of management in the loan servicing company.  Additional line staff may assist the case manager, but the case manager must always be accessible to the borrower.  These case managers would oversee the borrower’s case regardless of whether they are pursuing a HAMP loan modification, a proprietary modification, or an alternative to foreclosure.

No Dual Track

No foreclosure should be initiated until the servicer has completed a full review of a borrower’s file and determined that the borrower does not qualify for any available loan modification or foreclosure prevention program. 

If the borrower is already in foreclosure when he or she requests a review, the servicer should suspend the foreclosure process from the time all required documents have been received until the review is completed.  We believe this review can be completed quickly, so that in cases where no modification is offered, any existing foreclosure process would not need to be restarted from step one.  During this period, the servicer should refrain from sending foreclosure notices to the borrower, conducting or scheduling a sale, or causing judgment to be entered.  If the borrower is not approved for a modification, the loan servicer should notify the borrower that they were not approved and detail the reasons for the denial prior to initiating or resuming a judicial or non-judicial foreclosure process.

Third Party Review

Prior to notifying a borrower that they will not be approved for a modification and will be foreclosed upon, an independent third party should review the borrower’s file and ascertain that they have been appropriately considered for all HAMP and proprietary loan modification programs and that they do not qualify for any program that would prevent foreclosure.

We urge you to enact these much-needed procedural reforms as quickly as possible, and request that you notify us promptly as to your intentions in this matter.