Appellate Judges

The Department of Justice Foreclosure Crisis Settlements for Homeowners Were Shameful and Unlawful Sayeth Congress

It is a cruel irony that those who have lost the most to the foreclosure crisis seem to be helped the least from DOJ settlements.



House of Representatives,

Subcommittee on Regulatory Reform,
Commercial and Antitrust Law

Committee on the Judiciary,

Washington, DC.


The Subcommittee met, pursuant to call, at 10:32 a.m., in room 2141, Rayburn Office Building, the Honorable Tom Marino (Chairman of the Subcommittee) presiding.

Present: Representatives Marino, Goodlatte, Collins, Ratcliffe, Trott, Bishop, Conyers, and Jeffries. Also present: Representative King.

Staff present: (Majority) Dan Huff, Counsel; Andrea Lindsey, Clerk; and (Minority) Slade Bond, Counsel. Mr. Marino. The Subcommittee on Regulatory Reform, Commercial and Antitrust Law will come to order.

Without objection, the Chair is authorized to declare recesses of the Committee at any time.

We welcome everyone to today’s hearing on Consumers Shortchanged? Oversight of the Justice Department’s Mortgage Lending Settlements.

I will recognize myself for a brief opening statement.

Welcome to this hearing entitled “Consumers Shortchanged? Oversight of the Justice Department’s Mortgage Lending Settlements.”

At issue are DOJ’s high profile settlements with JPMorgan, Citi, and Bank of America over their activities related to the financial crisis.

The Committee is concerned that too much of the settlement money is not making it directly to consumers genuinely harmed.

The Citi and Bank of America settlements require the banks to donate at least $150 million and as much as over a half billion dollars to activist groups.

To be sure, those groups do engage in housing counseling and related activities, but those activities are most helpful to families still in their homes.

What about the millions of Americans who have already lost their homes?

I know the Department of Justice responds that the mandatory donation provisions represent only a small portion of the consumer relief packages which total in the billions, but tell that to Jeff and Robin Brown.

After the Chrysler plant in Newark, Delaware closed in 2009, they fell on hard times.

Frustrating attempts to renegotiate their mortgage with Citi was were fruitless. They lost $3,000 to a loan assistance scam, then they received an eviction notice.

The request for two extra weeks so Robin could recover from a setback with her multiple sclerosis was denied. So they looked at what they could and they took what they were able and departed the home they had saved for and lived in for 8 years.

As a result of the settlement, they got a check from Citi for $500.

Their experience is detailed, along with others, in a Delaware online story titled “Some Who Lost Homes Feel Forgotten in Foreclosure Settlements.”

They are upset that the State of Delaware is poised to spend the remaining $36.6 million on community service projects instead of actual victims.

I want to know why DOJ did not do more to ensure that States receiving settlement money put victims before pet projects.

The evidence is not nearly anecdotal. The story noted that of 32,000 homeowners foreclosed upon, only about a thousand ever received compensation.

Most checks were for less than $1,500. That is just in Delaware.

Since 2008, there have been 4.9 million foreclosures nationwide.

It is a cruel irony that those who have lost the most to the foreclosure crisis seem to be helped the least from DOJ settlements.

Loan modifications cannot assist those already evicted.

They should have the strongest claim to the limited amount of hard dollars that the banks are paying out.

Instead, the cash is going to activist groups because they work with victims of the housing crisis.

I guess this means the Administration does believe in trickle-down economics so long as the money is trickling through activist groups.

I hope these groups at least do good work because Congress already funds some of them through Federal grants.

But therein lies another problem. It is the role of the Congress, not the executive, to allocate funds.

This is a core feature of our constitutional system of separation of powers.

James Madison called Congress’ appropriations power “the most effectual weapon.”

He noted it was the power of the purse that allowed the British Parliament to reduce “the overgrown prerogatives of the other branches of government.”

Also oversight is lacking.

For example, the Legal Services Corporation, which provides funding for legal aid, has a dedicated oversight section to monitor grantees.

The bank settlement provides no such oversight to ensure the recipient of donations use them as intended.

If the money is not being used to lift up those most affected by the housing crisis, should we not at least be concerned about how it is spent?

In short, the mandatory donation provisions also raise a host of legal and policy issues, including potential violations of the Miscellaneous Receipts Act and internal DOJ policies.

I thank Deputy Assistant Attorney Graber and all of our witnesses for attending, and I look forward to the discussion.

Unfortunately, my good friend, Mr. Johnson, is not here today because he has the flu, and he is the Ranking Member of the Subcommittee. But we are also honored and fortunate enough to have the Ranking Member of the full Committee, Mr. Conyers.

So I am now going to ask Mr. Conyers to make an opening statement if he wishes to.

Mr. Conyers. Thank you, Mr. Chairman. I do wish to. Members of the Committee, the stated purpose of today’s hearing is to determine whether there has been a misuse of mortgage settlement funds by the Administration for its so-called “pet projects.”

In truth, however, this really is a hearing, a misguided hearing, a witch hunt, that has absolutely nothing to do with helping the millions of hardworking Americans who were swindled by unscrupulous and predatory mortgage lenders and mortgage services.

Nor does it have anything to do with addressing the massive fraud committed by the securities industry that nearly led to the financial collapse of our Nation’s economy.

Rather than focus on these critical issues, the majority has cited the so-called activist organizations and the Justice Department as the perpetrators worthy of this hearing.

And who exactly are these entities?

They are housing counseling programs administered at national, State, and local levels by service providers subject to a rigorous certification process by the United States Department of Housing and Urban Development.

They include such organizations as the New York State Office for People with Developmental Disabilities, the Michigan State University Extension Service, the New York City Commission on Human Rights, and NeighborWorks America.

So let us take a look in depth at one of these organizations.

NeighborWorks is chartered by Congress.

Its board of directors, whose membership is determined by statute, consists of the heads of the financial regulatory agencies, who are presidential appointees subject to Senate confirmation. In fact, Congress in 2007 designated NeighborWorks America to administer the National Foreclosure Mitigation Counseling Program pursuant to which this organization has helped more than 1.725 million homeowners.

That is almost 2 million homeowners.

If the majority really cared about the victims of the foreclosure crisis, we would be holding a hearing on either the mortgage crisis that still grips many parts of our Nation, or on how Congress could better assist those millions of Americans who still are at risk of losing their homes.

Now, in stark contrast, when I was Chairman of this Committee, we held nine hearings and two field briefings examining the causes and impact of the foreclosure crisis as well as potential solutions.

Over the course of those hearings, the Committee heard from a United States senator, various Members of the House, representatives from the Treasury Department, the Comptroller of the Currency, the Federal Housing Finance Agency, bankruptcy judges, nationally recognized economists, leading academics, victims of predatory mortgage lending, and many more voices.

Finally, I am particularly concerned that the majority has unfairly singled out the National Council of La Raza, which is the Nation’s largest Hispanic civil rights and advocacy organization.

The Chairman of this Committee and the Chairman of the Financial Services Committee in a letter to the Justice Department last November characterized La Raza as “activist group that stands to benefit from the mortgage settlement agreements with Citicorp and the Bank of America.”

As detailed in a response from La Raza, which I ask unanimous consent to include in today’s hearing record, there is absolutely no truth to this allegation.

This information was readily available had the majority simply reached out to La Raza to confirm its allegations before putting them in writing to the Justice Department.

Thank the witnesses for joining us here today, and, Mr. Chairman, I yield back the balance of my time.

Mr. Marino. Thank you, Congressman Conyers. It is my pleasure now to recognize the Chairman of the full Judiciary Committee, the gentleman from Virginia, Congressman Goodlatte, for his opening statement.

Mr. Goodlatte. Thank you, Mr. Chairman. This hearing opens
a pattern or practice investigation into the Justice Department
mortgage lending settlements. The concern is that DOJ may have
systematically subverted Congress’ budget authority by using
settlements to funnel money to activist groups. The evidence is
a progression of startling terms in the DOJ’s mortgage banking
settlements. It began with the JPMorgan settlement that merely
offered credit for donations to community redevelopment groups.
Next came Citi and Bank of America settlements requiring $150
million in donations to housing nonprofits.

These donations earned double credit against the banks’
overall obligations. Meanwhile, credit for direct forms of
consumer relief remain dollar for dollar. Bank of America’s
settlement also required it to set aside $490 million to pay
potential consumer tax liability arising from loan
modifications. Should Congress again extend the non-taxable
treatment of home loan forgiveness, the money does not revert
to the bank. Instead it flows to activist groups, like
NeighborWorks America, which has been described as funding “a
national network of left wing community organizers operating in
the mold of ACORN.’

All told, DOJ has directed as much as half a billion
dollars to activist groups entirely outside of the
congressional budget and oversight process. DOJ will say that
the groups receiving donations provide relief to homeowners.
Even assuming this housing-related work is entirely non-
partisan, money is fungible. Donations to the housing arm of
any recipient would free up funds for the recipient to engage
in more controversial activism in other areas. Furthermore, the
Miscellaneous Receipts Act, or MRA, requires that money
received by the government from any source be deposited in the
Treasury. Directing a defendant to pay money directly to a
third party interest group is simply an end run around the law.

DoJ’s own internal guidance documents acknowledge the
potential for abuse when settlements require donations to third
parties. The U.S. Attorney’s Manual says that the practice is
restricted because it can create actual or perceived conflicts-
of-interest and/or other ethical issues. It was almost entirely
banned in 2008 due to instances of perceived abuse.

Exception was made for environmental settlements in view of
robust guidance issued by DOJ’s Environment and Natural
Resources Division. However, to the extent that guidance is the
basis for an exemption, DOJ’s banking settlements violate it.
The guidance requires a mechanism to ensure that any party
receiving the funds spends them in a manner consistent with the
intent of the community service requirement. There is no such
oversight in the DOJ’s banking settlements. The monitor is
responsible only for the bank’s compliance, not how the
activist groups who receive donations use them. Related
guidance also caps credit for donations to community service
projects at dollar for dollar.

Even more troubling, the guidelines state that community
service cannot be of such a nature that it provides additional
resources for the performance of an activity for which Congress
specifically has appropriated funds. This ensures that the
settlement does run not afoul of the Miscellaneous Receipts Act
by unilaterally augmenting a congressional appropriation.

Congress specifically funds the Department of Housing and
Urban Development’s Housing Counseling Assistance Program. In a
press release, La Raza, one of the largest grant recipients
under the program, lamented that Congress cut funding from $88
million to $45 million. It subsequently praised DOJ bank
settlements, which required $30 million in donations
specifically to HUD-approved housing counseling agencies. Thus,
DOJ’s settlements appear to restore most of the funding that
Congress specifically cut.

For DOJ to funnel money to third parties through
settlements this way may violate the law and is undoubtedly bad
policy. The purpose of enforcement actions is punishment and
redress to actual victims. Carrying that concept to communities
at large or activist community groups, however worthy, is a
matter for the legislative branch and is not to be conducted at
the unilateral discretion of the executive.

I thank all of our witnesses for appearing and look forward
to their testimony today. Thank you, Mr. Chairman.

Mr. Marino. Thank you, Chairman. Without objection, other
Members’ opening statements will be made part of the record.

And now just to do some little detail work, I think Mr.
Conyers wants to enter something in the record.

Mr. Conyers. Yes. I would like to put our colleague, Hank
Johnson’s, statement in the record. And I ask unanimous consent
to have his statement put into the record, please.

Mr. Marino. Without objection, so ordered.

[The prepared statement of Mr. Johnson follows:]

Prepared Statement of the Honorable Henry C. “Hank” Johnson, Jr., a Representative in Congress from the State of Georgia, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law

Thank you, Chairman Marino.

Built on the back of predatory loans, toxic mortgage
securitization, and regulatory failure, the mortgage-foreclosure crisis
has blighted entire cities across the country while destabilizing the
home market and countless other industries.

But the effects of foreclosures go far beyond simple economics.

Since the start of the Great Recession, foreclosures have sent
shockwaves throughout entire communities, taking children out of
schools, pulling families and friends apart, undermining religious
congregations, and creating other forms of social instability.

Although recent data indicates that the foreclosure-filing rate is
dropping to its lowest level since 2006, these positive figures do not
capture the continued hardship of low-income and minority and
households, which lag far behind national homeownership rates. Andrea
Levere, the president of the Corporation for Enterprise Development,
notes that this trend threatens “to exclude an increasing percentage
of Americans from our mainstream financial systems.”

We can’t allow this to happen.

It is therefore incumbent on the federal government to not only
hold fraudulent corporations accountable, but to also require that they
meaningfully help the millions of consumers they harmed.

Today’s hearing concerns settlement agreements between the Justice
Department and JPMorgan, Citigroup, and Bank of America–companies that
each admitted to fraudulently packaging, marketing, and selling
residential-mortgage back securities, even where the banks knew the
loans were defective.

These settlements amply demonstrate the fraud that pervaded every
level of the securities industry, fraud that substantially contributed
to the mortgage-foreclosure crisis and recession.

In addition to significant civil penalties, each of these
agreements contains consumer-relief provisions designed to provide
much-needed relief to millions of Americans affected by the fraudulent
sale of toxic securities.

These provisions of the agreement require the
banks to provide billions in first-lien principal forgiveness to help
families who are underwater on a mortgage to stay in their homes.

When homeowners fall behind in their mortgage payments, it is often
a major task to bring them current. For that reason alone, mortgage
modifications–such as those under the settlement agreements–are a
standard tool to bring homeowners in good standing with their home loan
and stop the foreclosure process.

Educating and assisting consumers is also a critical tool in
foreclosure prevention. The Department of Housing and Urban Development
(HUD) has documented that if a consumer works with a HUD-approved
housing counseling agency, the odds of a favorable outcome are almost
two-times greater.

Two of the Justice Department’s settlements also require the
settling banks to donate funds toward neighborhood reinvestment
activities, which include donations to HUD-approved Housing Counseling
Agencies, state-based Interest on Lawyer Trust Accounts organizations,
and Community Development Financial Institutions.

Housing counseling agencies offer a critical education component to
helping consumers avoid default and foreclosure by identifying the
documents the mortgage company needs from the homeowner and contacting
the mortgage company on the homeowner’s behalf.

As we search for ways to avoid another mortgage crisis while
repairing the incalculable damage that has already occurred, it is
essential that we use every tool to keep families in their homes.

Although I wish that the Justice Department’s settlements had
required more of the banks that contributed directly to the plight of
so many, I am confident that these agreements will do much to help
millions of consumers across the country.

I yield back.

Mr. Conyers. Thank you.

Mr. Marino. And I am asking unanimous consent to enter into
the record the following: number one, a letter to the Committee
from the predominant legal scholar, Richard A. Epstein,
outlining his view that appropriations to community groups
should not be made part of the settlement process; number two,
a statement for the record from the U.S. Chamber of Commerce
and the U.S. Chamber Institute for Legal Reform noting that
directing private parties to make payments to other private
parties as part of settlement is, in effect, creating a Federal
grant program that is administered by the agencies without
statutory authorization; and finally, number three, a memo from
the organization, Cause of Action, entitled “Investigation of
Bank of America Settlement Receipts, NeighborWorks America.”

Hearing no objections, so ordered.

[The information referred to follows:]

Mr. Marino. We have a very distinguished member today from
the Department of Justice. Welcome, sir, and I will begin by
swearing you in. Would you please stand and raise your right
hand, please?

Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you God?

Mr. Graber. I do.

Mr. Marino. Thank you. Let the record reflect that the
witness has responded in the affirmative, and please take a

Mr. Geoffrey Graber is a deputy assistant attorney general
and the director of Residential Mortgage-Backed Securities
Working Group of the Financial Fraud Enforcement Task Force for
the United States Department of Justice. Mr. Graber was an
associate for the San Francisco branch of Morrison & Foerster
prior to joining the Justice Department’s Civil Division. At
the litigation department of Morrison & Foerster, Mr. Graber
specialized in consumer class actions, securities fraud,
product defects, tort, contract law, and general civil

Mr. Graber is a graduate of the University of Southern
California Law School. And I also understand that you do a
pretty good Alec Baldwin/Glenn Close imitation?

Mr. Graber. Yes.

Mr. Marino. We may need that some time through the
testimony here, sir. The witness’ written statement will be
entered into the record in its entirety, and I ask if you would
please summarize your opening testimony in 5 minutes or less.
And to help you stay within the guidelines, there is a timing
light in front of you, and when the light switches from green
to yellow, it indicates that you have 1 minute to conclude your
testimony. When the light turns to red, it indicates that your
5 minutes have expired. And I will just politely, because
sometimes it is difficult to keep an eye on the lights and
talk. So I will just politely tap here to give you an
indication that your time has run out, and please sum up at
that point.

I now recognize Mr. Graber to give his opening statement.


Mr. Graber. Thank you. Chairman Marino, Chairman Goodlatte,
and Ranking Member Conyers, and Members of the Subcommittee,
thank you for inviting me here and for providing the Department
of Justice the opportunity to appear at today’s hearing to
describe a series of settlements that have arisen out of the
Department’s efforts to address fraud in connection with the
packaging and sale of residential mortgage-backed securities.

In November 2009, the Financial Fraud Enforcement Task
Force was established in order to strengthen the efforts of the
Department of Justice to pursue potential misconduct committed
in connection with the financial crisis. And in January 2012,
the Department of Justice formed the Residential Mortgage-
Backed, or RMBS, Working Group, in the task force to
investigate those responsible for misconduct contributing to
the financial crisis through the pooling and sale of
residential mortgage-backed securities.

The efforts of the RMBS Working Group have focused on
achieving accountability from financial institutions that
engaged in wrongdoing relating to residential mortgage-backed
securities and, to the extent possible, bringing some measure
of relief to homeowners who suffered as a result of the
financial crisis. These goals reflect the fact that misconduct
in the RMBS market impacted the entire financial system and the
American economy as a whole.

To date, the efforts of the RMBS Working Group have secured
resolutions valued at more than $36.6 billion in penalties,
compensation, and consumer relief to investors, victims, and
the American people. These settlements each embody the goals
spelled out in the formation of the RMBS Working Group.

First, each settlement achieved accountability by requiring
a significant and, in some cases, record monetary penalty, as
well as a statement of facts acknowledging the evidence
underlying the government’s allegations. These penalties will
hopefully serve to deter future misconduct, and the statements
of fact serve as an acknowledgment by the banks to their
shareholders and the American public of the misconduct
uncovered by the Department of Justice.

Second, each bank committed to provide many billions of
dollars of consumer relief of a type that is designed to enable
many Americans to stay in their homes. These consumer relief
provisions provide an especially salient feature to these
settlements. This type of relief likely could not have been
ordered by a court even if the government has prevailed at
trial. In general, the consumer relief component consists of a
menu of different types of consumer relief, menus developed in
consultation with the Department’s law enforcement partners,
including Federal regulatory agencies and states.

In each of these resolutions, the settling bank can fulfill
its obligations to implement consumer relief by undertaking the
consumer relief set forth on the menu. The banks agreed to meet
certain consumer relief targets. The agreements establish
certain constraints on how the relief is to be provided. Beyond
that, though, the banks have latitude to decide precisely how
to satisfy their consumer relief obligations.

For example, the Bank of America settlement provided for a
total of $7 billion in consumer relief, including a minimum of
$2.15 billion in first lien forgiveness calibrated to help
homeowners who face the risk of default and foreclosure. Within
this broad target, though, the bank has discretion to decide
precisely how to provide such relief.

As a second example, the various settlements all
contemplate neighborhood reinvestment activities, a type of
relief that includes the provision of certain kinds of
foreclosure prevention assistance and other counseling
activities. This is to be provided by certain categories of
organizations chosen by the bank that will receive a directed
donation to perform the types of activities specified in the
agreements, such as foreclosure prevention and counseling

These include organizations that help veterans avoid
foreclosure, organizations that deal with abandoned properties
that can inhibit neighborhood recoveries or organizations to
help prospective home purchases navigate the process of buying
a home. With the single exception of IOLTAs, the banks choose
which specific organizations receive these donations. The
Department of Justice does not mandate that any money will go
to any specific third party charity organization.

The RMBS Working Group has achieved a great deal in
fighting financial fraud. These efforts have resulted in record
civil penalties, factual statements in civil cases that show an
unprecedented level of accountability from the financial
institutions and transparency to the marketplace, and
meaningful consumer relief for the American people.

Thank you once again for the opportunity to appear before
you today. At this time, Mr. Chairman, I would be happy to
address any questions you or Members of the Subcommittee may

[The prepared statement of Mr. Graber follows:]

Mr. Marino. Thank you, Mr. Graber. And because the Chairman
of the full Committee has to be in three places at once, I am
going to defer to him for his questioning for 5 minutes. So,
Chairman Goodlatte.

Mr. Goodlatte. Mr. Chairman, thank you for your
consideration. Mr. Graber, welcome. You are a litigator, so you
know failure to provide discovery can trigger an order to a
jury to draw an adverse inference. And that is what we are
doing right now because I along with Chairman Hensarling of the
Financial Services Committee requested all communications
pertaining to the mandatory donations provisions in the bank
settlements over 2 months ago, but we have yet to receive any
responsive documents from the Department of Justice. When can
we expect to receive that?

Mr. Graber. Thank you, Mr. Chairman. I appreciate the
concern, and I understand the concern. I can tell you that we
are in process of reviewing documents that may be responsive to
the Committee’s request.

Mr. Goodlatte. Will the Department of Justice claim any
privileges over a significant percentage of the relevant

Mr. Graber. Well, because the review is ongoing, sitting
here today, I cannot tell you whether or not there would be any
type of assertion of privilege. But I can assure you that a
review is ongoing, and—-

Mr. Goodlatte. Well, let me just add that this Committee
will not stand silent, nor will, I am sure, the Financial
Service Committee, and you can expect that this will escalate
if you do not provide the documentation that we requested over
2 months ago.

Secondly, did anyone at the Department of Justice ever
consider the serious appearance of impropriety in requiring
banks to make available to activist organizations the lion’s
share of funding that Congress has previously cut off to them?
That is one of the reasons why we want to see the
communications. We want to know what considerations went into
making this decision to take this action.

Mr. Graber. Thank you, Mr. Chairman. Again, I understand
the concern. And I can tell you that one of the reasons that
the Department wanted to use a preexisting list, the one that I
believe you are referring to, the HUD approved counseling
agency list, is because that list is preexisting. The
Department did not want to be in the business of picking and
choosing which organization may or may not receive any funding
under the agreement.

Mr. Goodlatte. No, but it is the Congress’ responsibility
to appropriate funds, and the Congress’ responsibility to be
picking and choosing who gets appropriations for expenditures.
And we want to know what connection there is between the fact
that cuts were made and then apparently restored through a

Mr. Graber. Well, Mr. Chairman, to my knowledge there was
never any discussion of a decision by Congress to cut funding
one way or another to various third party organizations and the
negotiations that took place in the lead up to these

Mr. Goodlatte. You do understand that the Constitution very
specifically provides in Article 1 that no money shall be drawn
from the Treasury but in consequence of appropriations made by
law. And when you make a settlement and you require funds to be
paid as part of a fine, a settlement, those funds are deposited
into the Treasury. And if you make a decision to divert some of
those funds before they ever get into the Treasury, we have
very serious questions about whether you are attempting,
through the Department of Justice, to fulfill the function of
the Congress to appropriate funds.

So please explain to us why you think the framers thought
this was so important and your personal view of its role in the
separation of powers.

Mr. Graber. Mr. Chairman, the way these settlements were
structured was that certain funds, namely the civil penalties,
were deposited directly into the Treasury. These were the
record civil FIRREA penalties that were obtained—-

Mr. Goodlatte. Well, we understand that.

Mr. Graber. Right. The—-

Mr. Goodlatte. But other funds, which could have been a
part of that settlement, said it is one lump sum and it goes
into the Treasury. Instead it said pay us this money, and we
order you to pay other money to other people.

Mr. Graber. Right. So the other components to the
settlement, in particular the monies that you are referring to
that would go to the HUD approved counseling agencies, those
funds were never diverted. They were a separate part of the
settlements. There was the civil penalty component of the
settlements. There are other components of the settlements, and
then there is this small portion relating to the counseling

Mr. Goodlatte. “Small” is a relative term when you are
talking about $150 million, right?

Mr. Graber. I am sorry?

Mr. Goodlatte. I said “small” is a relative term when you
are talking $150 million.

Mr. Graber. Well, the $150 million is—-

Mr. Goodlatte. It is a lot of money to most people. I do
not know how many thousands of additional people that were
ostensibly being protected by this whole prosecution that would
have been receiving additional direct help if the funding had
gone into the Treasury as opposed to elsewhere.

But first and foremost, once it went into the Treasury,
then the elected representatives of the people would get to
decide the most appropriate way to use those funds. It might be
to reduce the $18 trillion debt of our country. It would make a
small dent in that. There are lots of different things that
could be done with that money if it had not been, I would
argue, appropriated by the Department of Justice to go to
places where the Congress had already made decisions that
funding did not need to go in its larger fund.

But the bottom line is get us the documents. If you want to
assert what your position as to how this came down, get us the
documents that show us what communications were made and how
that was done, and get them to us expeditiously. Thank you, Mr.

Mr. Graber. Thank you.

Mr. Marino. Thank you. The Chair now recognizes the Ranking
Member of the full Committee, the gentleman from Michigan,
Congressman Conyers.

Mr. Conyers. Thank you, Mr. Chairman, and welcome, Mr.
Graber. Would you please describe the fraudulent conduct of
JPMorgan, Citigroup, Bank of America, that gave rise to
settlement agreements? How does this conduct directly relate to
the mortgage foreclosure crisis?

Mr. Graber. Thank you, Congressman. The Department
conducted extensive investigations in the lead-up to each of
these settlements. And as outlined more fully in the statement
of facts that accompanied each of the settlements, the
Department’s investigations revealed, generally speaking, that
with respect to each of the financial institutions, these
financial institutions made a variety of representations to
RMBS investors, in particular that the securities that were
collateralizing the–excuse me–the mortgages that were
collateralizing the securities were underwritten generally in
accordance with underwriting guidelines, that folks could repay
the mortgages that were being taken out, that the income was
verified or the income was accurately stated on the loan
applications. They made a variety of representations like that.

The Department’s investigations revealed that the banks
received information at the time of the securitization that was
inconsistent with those representations. That information put
them on notice that the representations were false, and
investors were never told of that information either. So, as I
said, those allegations are–those facts, I should say, are
laid out in more detail in the statements of facts. But that is
in general what the Department’s investigations revealed.

Mr. Conyers. Thank you. Now, do you recall what the total
minimum requirement for donations to HUD-approved housing
counseling agencies under the Bank of America and Citigroup
settlements were?

Mr. Graber. Yes. I believe that in the Citigroup
settlement, the minimum to which you are referring is
approximately $10 million, and in the Bank of America
settlement it is $20 million. And in each of those cases–I
believe I have the math right–it works out to less than 1/10th
of 1 percent of the total settlements.

Mr. Conyers. Okay, thanks. Now, have any of the settling
banks donated any funds to third party groups under the terms
of the agreements?

Mr. Graber. Based on the monitor reports that have come out
to date, it is my understanding that no money has been directed
to third party organizations under the terms of these

Mr. Conyers. Now, how rigorous is the approval process for
HUD-approved housing counseling agencies? Discuss with us
whether there are auditing requirements for these agencies and
whether they may be terminated for failing to meet these

Mr. Graber. So the list of HUD-approved counseling agencies
is a list that has been developed and is maintained by HUD. It
is not the Department’s list, and it is my understanding that
it is a congressionally mandated list. It has existed in one
form or another since, I believe, 1968. And my understanding is
that there is oversight, and there is an auditing process that
the Department of Housing and Urban Development maintains. And
I also understand that if there is a failure to comply with the
requirements, with HUD’s requirements, that they can be removed
from the list.

Mr. Conyers. Thank you. What benefits do HUD-approved
housing counselors and State-based legal aid organizations
provide to assist consumers?

Mr. Graber. My understanding is that they provide very
valuable assistance to homeowners. You know, it is my
understanding that these HUD-approved counseling agencies
provide foreclosure assistance. They provide assistance to
homeowners to repay their loans and to navigate the loan
modification process.

You know, folks around the country have, you know, suffered
a lot dealing with, you know, independent third parties who
have perpetrated loan modification scams and that type of
thing. With these HUD-approved counseling agencies, because
they go through such a rigorous process and they are subject to
oversight, there is much less of a chance of something like
that happening.

Mr. Conyers. Mr. Chairman, I have three additional
questions I would ask him to respond to very briefly, please.

Mr. Marino. Without objection.

Mr. Conyers. Thank you, sir. Does the Justice Department
have any control or discretion regarding the distribution of
funds to third party organizations?

Mr. Graber. No, we do not. As I stated previously, the
banks are required to choose which organization off the list of
HUD-approved counseling agencies they will direct funds to.
That list, as far as I know, consists of hundreds and hundreds
of organizations. Some of them are Catholic Charities
affiliated with dioceses around the country, Christian legal
service organizations, Jewish charities, and many, many other
non-profit organizations. It is up to the bank to decide which
organization to which they will direct funds.

Mr. Conyers. Let me quickly ask these two questions. Do any
third party organizations have any influence or discretion
regarding the use of funds donated through the settlement

Mr. Graber. My understanding is that they are required to
use the funds as outlined in the settlement agreement. So the
extent any third party organization receives funds through
these settlements, they will be required to use them for
foreclosure assistance or other forms of housing assistance.
And it will be the job of the monitor to ensure that those
terms are complied with.

Mr. Conyers. Thank you. And finally, please discuss the
role of independent monitors in verifying that banks meet their
consumer relief obligations.

Mr. Graber. So each one of these settlements includes a
monitor. In JPMorgan, the monitor is Joe Smith, and in
Citigroup it is Tom Perrelli, and in the Bank of America
settlement it is Eric Green. And it is the job of the monitor
to ensure that all terms of the settlement are complied with.
And more specifically, as the banks fulfill their obligations
under the consumer relief component of the settlements, they
will report their progress to the monitors. And then it is the
job of the monitors to actually, you know, audit and then give
credit under the settlement agreement to each of the banks.

So if a bank were to, you know, provide funding or take
steps that were inconsistent with the agreement, the monitor
would then have the power to not credit those dollars that go
out the door.

Mr. Conyers. Thank you, Mr. Chairman, for your generosity
with time.

Mr. Marino. Thank you. Now, I am going to ask some
questions, Mr. Graber. First of all, if you could, I want to
understand the genesis of what is going on with this program,
and I want to understand the precise mandatory donation
provisions in Citibank and American settlements. And could you
tell me, first of all, who told you or who was the highest
Ranking Member at DOJ involved in making mandatory donation

Mr. Graber. Thank you, Mr. Chairman. Each of these
settlements was the result of a very long, complex, and arduous
negotiation. And there were dozens and dozens of officials from
the Department of Justice—-

Mr. Marino. But there had to be an individual from
Department of Justice that said this is the route we are going.
Who was that?

Mr. Graber. So if I may, with respect to each of these
settlements, when you are talking about the specific terms that
were contained in these settlements, I do not think it is fair
to say that any single individual was responsible for deciding,
you know, whether to go one way or another.

Mr. Marino. Sir, I disagree with you. I worked at Justice,
okay? I was a U.S. attorney. Someone always gave a subordinate
direction on what to do. It was either done through face-to-
face communication, email, or direct letter. Now, someone had
to come up and say who gave the order to do this. Now, do you
know what that is?

Mr. Graber. I am not aware of any direct order.

Mr. Marino. Would you not ask how your authority was
granted? Did you not ask under what circumstances am I
permitted to pursue this?

Mr. Graber. So with respect to the consumer relief
component of these settlements, there was a team of, I would
say, a dozen or more—-

Mr. Marino. Did the DAG know about this?

Mr. Graber. These settlements were approved at the highest
levels of the Department.

Mr. Marino. The Attorney General?

Mr. Graber. The Attorney General is familiar with these
settlements, and he—-

Mr. Marino. Okay. Was anyone at the White House involved in
these discussions?

Mr. Graber. I am not aware of anyone at the White House
being involved in these negotiations in the lead-up to these

Mr. Marino. I am assuming that you are personally not
aware. Have you heard of anyone at the White House being
involved in these?

Mr. Graber. I am personally not aware of anyone at the
White House being involved. I never heard of anyone at the
White House being involved. And I would be very surprised to
learn if anyone at the White House was involved or, you know,
had any communications with people at the Department of Justice
about these settlements because that would be contrary to the
protocols of the Department of Justice.

Mr. Marino. Were there any outside groups that participated
in these discussions for mandatory donations?

Mr. Graber. There was no outside third party group. There
was no non-profit or, you know, charitable organization that
participated in any way in these negotiations.

Mr. Marino. Are you familiar with the EPA guidelines, and
settlements with third party payments are common with EPA. Are
you familiar with those guidelines that EPA has?

Mr. Graber. I am sorry. Could you repeat that?

Mr. Marino. Yes. Settlements with third party payment terms
are most common in an environmental context. Are you aware of
those guidelines?

Mr. Graber. I have heard of them. I am not particularly
familiar with them.

Mr. Marino. Okay. What guidelines, if you can sum it up for
me in 15 seconds, do you follow under this program?

Mr. Graber. These settlements, and the Department has very
clear authority to compromise claims on behalf of the United
States, and that is what occurred here. The Department sought
the appropriate internal guidance in the lead-up to these

Mr. Marino. But you know of no guidelines. Let me give you
an example. You know, the mitigation percentage according to
environmental procedures should not exceed 80 percent of the
SEP costs with two exceptions. For small businesses, maybe set
as high as 100 percent, and for SEP costs, maybe set as high as
100 percent. Are you familiar with any of these guidelines that
should be followed?

Mr. Graber. Well, those are guidelines that I believe apply
to environmental settlements. These are not environmental

Mr. Marino. I understand. I understand that clearly, but
they are guidelines. As the Chairman said, we are talking about
millions of dollars to be handed out. And there are indications
that the Justice Department is just picking and choosing. Now,
the issue is not if it is a left-leaning group. It may be. The
issue is someone at Justice, someone, as you said, at the
highest levels is picking and choosing who should get this
money. And it is usually to organizations that may consult with
people after they have lost their house, but it has nothing to
do with those that are in mortgage foreclosure on how to help
those individuals. So could you please, what say you about

Mr. Graber. Thank you, Mr. Chairman. I understand the
concern. The Department did not want to be in the position of
picking and choosing who may or may not receive funds with
respect to this component of the consumer relief provisions in
these settlements. And that is why we, you know, decided that
it would be best to use a preexisting list that contains
hundreds and hundreds of organizations.

Mr. Marino. I understand the list. The list is not the
issue. The issue is someone makes the decision to whom that
goes. Someone has communication from the Justice Department, at
least I believe, with the banks as to here is a list of names,
or here are a couple of names on who the donations can be made

But let me read you something, a letter dated May 14th of
2008 from Mark Filip, Deputy Attorney General. “Plea
agreements, deferred prosecution agreements, non-prosecution
agreements, and extraordinary restitution.” There is a lot
here. I want to do this on the record if there is no objection.
But here is the line that is important. “Apart from the
limited circumstances described below, this practice is
restricted because it can create actual or perceived conflicts
of interest and/or other ethical issues.”

And this is why we are holding this hearing today. As the
Chairman said, perhaps if we would have received the documents
that we requested a long time ago, maybe you would not be here
today. But it has been customary from the Justice Department to
drag things out for not only 6 months, but over a year. So the
taxpayers have a right to know where hundreds of millions of
dollars are going, and if someone is cherry picking left wing
organizations or right wing organizations to hand out this

I see my time has expired, so now I am going to ask the
gentleman from New York, Mr. Jeffries?

Mr. Jeffries. Thank you, Mr. Chairman. Let me also thank
the distinguished Ranking Member of the entire Committee. Mr.
Graber, in 2008 our economy collapsed, correct?

Mr. Graber. Yes. Well, there was certainly a very severe
financial crisis that began around 2008.

Mr. Jeffries. Right. In fact, it was the worst economic
crisis that this country has experienced since the Great
Depression, correct?

Mr. Graber. I would agree with that.

Mr. Jeffries. And millions of Americans lost their homes as
a result of this financial collapse. Is that correct?

Mr. Graber. That is correct.

Mr. Jeffries. Okay. And this collapse was in large measure
triggered by the reckless behavior of some financial
institutions engaged in the mortgage-backed securities market,

Mr. Graber. I would agree that that was a contributing

Mr. Jeffries. Right. I think economists who are in any way
objective about what happened have indicated that that was a
large part of the economic trauma that this country
experienced, in fact is an extraordinary experience. We are
discussing an ordinary remedy to deal with what was an
extraordinary experience. And so, I am not quite clear what the
controversy is.

But in response to this economic collapse, the Department
of Justice initiated these lawsuits against financial
institutes who were in part responsible for this economic
trauma, correct?

Mr. Graber. I think that is correct. I mean, in light of
what occurred, you know, and what occurred in the RMBS market
and in the broader economy in general, that was certainly a
significant contributing factor to the Department’s decision to
allocate resources to pursue these investigations, yes.

Mr. Jeffries. Now, we are discussing settlements against
three major financial institutions where an extraordinary
amount of money was secured as a result of the behavior that
was conducted, true?

Mr. Graber. I would agree with that.

Mr. Jeffries. And can you give me that number again?

Mr. Graber. The Department has secured over $36.6 billion
through the three settlements that are being discussed today.

Mr. Jeffries. And is it fair to say that the overwhelming
majority of this money secured by the Department of Justice
independent of any congressional action–I am not aware of
Members of Congress participating in the litigation–that the
overwhelming majority of this funding went to direct consumer
relief for everyday Americans who were harmed by the behavior
of these financial institutions triggering the economic
collapse, correct? The overwhelming majority went to everyday
Americans. Is that true?

Mr. Graber. I would say, yes, that the vast majority of the
monies that have been recovered through these settlements have
either gone to civil FIRREA penalties and to consumer relief,
and the vast majority of that consumer relief–I would say
actually all of it–is going to provide some measure of relief
to homeowners who have suffered as a result of the financial

Mr. Jeffries. Okay. Let me enter into the record, with the
distinguished Chairman’s approval and unanimous consent, if
that be issued, a statement by the Center for American Progress
dated February 12, 2015.

Mr. Marino. Without objection.

Mr. Jeffries. Thank you. Now, is it in fact the case that
with respect to the Bank of America and Citigroup settlements,
only .3 percent of the settlement funds were to be directed
toward housing counseling? Is that true?

Mr. Graber. That sounds about right.

Mr. Jeffries. Okay. And there is some dispute I gather as
to whether this housing counseling is of benefit to the
American people. But there are over a million homes that are
still in foreclosure in America right now, correct?

Mr. Graber. Yes. I do not have the precise numbers, but
that sounds correct.

Mr. Jeffries. Okay. And is it true that of those who go
through the National Foreclosure Mitigation Counseling Program,
they are 3 times more likely to receive a loan modification?
Does that sound right to you?

Mr. Graber. That does sound right to me. It is my
understanding that the folks who utilize the services of
organizations that are on the HUD-approved counseling list are
far more likely to stay in their home and are less likely to

Mr. Jeffries. And 70 percent, in fact, of individuals who
go through counseling will stay on track in terms of their
payment, a far greater number than those who do not receive
this type of counseling. So I just want to thank the Department
of Justice for the tremendous work you have done in securing
these robust settlements, holding these financial institutions
responsible for the collapse of our economy and triggering the
Great Recession accountable, and for diverting some of the
money legally to these organizations providing a good service.

And I yield back.

Mr. Marino. Thank you, Mr. Jeffries. The Chair now
recognizes the gentleman from Texas, Congressman Ratcliffe.

Mr. Ratcliffe. Thank you, Mr. Chairman. Mr. Graber, how
long have you been at the Justice Department?

Mr. Graber. I have been at the Justice Department since May
of 2009.

Mr. Ratcliffe. All right. I was there for a number of years
as well along with the Chairman. I had the great opportunity to
serve as a line level prosecutor and later as a U.S. attorney
for the Eastern District of Texas. Chairman Goodlatte mentioned
earlier the United States Attorney Manual that I was obligated
to follow, and the obligations created under that manual to
avoid any actual or perceived conflicts of interest in

And, in fact, is it not true that everyone at the
Department of Justice–you, when I was there, the Attorney
General–we all take an oath to remain decidedly apolitical in
the enforcement and administration of the Department mission?

Mr. Graber. Absolutely.

Mr. Ratcliffe. All right. Now, La Raza, which was mentioned
earlier by the gentleman from Michigan, which describes itself
as one of the largest advocacy groups in this country, that is
a decidedly political group. Would you agree with me?

Mr. Graber. I am aware of La Raza generally. I am aware
that they, especially in the lead-up to these hearings, I am
now aware that they engage in political activities.

Mr. Ratcliffe. Well, how does the direction of settlement
funds or making settlement funds available to decidedly
political groups like La Raza mesh with the Department of
Justice’s mission?

Mr. Graber. Thank you, Congressman. As I indicated
previously, under the terms of these settlements, the
Department of Justice does not direct any monies to any
specific organizations on the HUD-approved—-

Mr. Ratcliffe. But it makes them available.

Mr. Graber. I am sorry?

Mr. Ratcliffe. But it makes them available.

Mr. Graber. Anyone who is on the list would be available
under the terms of the agreement. The Catholic Charities that I
mentioned earlier, Christian Legal Services, Jewish charities,
the organizations that you mentioned, if they are on the list,
all of those organizations–I believe there are hundreds of
them–would be available. And it will be up to the financial
institutions to determine which one of those organizations on
the list will receive any funding.

Mr. Ratcliffe. Does it concern you at all the appearance of
impropriety in requiring banks under this settlement to make
settlement funds available to activist groups?

Mr. Graber. Thank you, Congressman. Look, I understand the
concern, and that concern is why the Department did not want to
be in the business of picking and choosing any specific
organization that would receive funding under the terms of the
settlements. Instead, the Department thought it best to use a
preexisting list, the HUD-approved counseling list. This is a
congressionally mandated list that has existed for decades, and
there are hundreds and hundreds of organizations on that list,
and to leave it within the discretion of the financial
institutions to choose which one of those organizations on the
list to direct funds to.

Mr. Ratcliffe. Well, Mr. Graber, that is the problem. The
Department should not be making those decisions. The
Department’s mission is to enforce the Constitution, correct?

Mr. Graber. I would agree with that.

Mr. Ratcliffe. Okay. And the Constitution provides that
“no money shall be drawn from the Treasury but in consequence
of appropriations made by law.” Congress makes the laws,

Mr. Graber. That is correct.

Mr. Ratcliffe. All right. And you certainly respect the
separation of powers that our Constitution provides, right?

Mr. Graber. Absolutely.

Mr. Ratcliffe. All right. And you think that the Department
of Justice should remain in the business of enforcing the laws,
not making laws.

Mr. Graber. I would agree with that, and I would say that,
you know, these settlements are an example of the Department’s
vigorous enforcement of the laws.

Mr. Ratcliffe. All right. Well, we will just have to
disagree about that. I will yield my time back.

Mr. Marino. Thank you, Congressman. Okay. The Chair now
recognizes the gentleman from Michigan, Congressman Trott.

Mr. Trott. Thank you, Mr. Chairman. I appreciate your
testimony. You know, it looks and smells a little bit like a
slush fund. And I guess the critical question for me is when
the settlements were reached with Citi, Chase, and B of A, how
did they get access to the list for non-profits?

Mr. Graber. I am sorry. Could you repeat that question?

Mr. Trott. How did the financial institutions, they were
just handed a list of the non-profits that were eligible for
the money?

Mr. Graber. I believe the HUD-approved counseling list is
publicly available. It is on the website, and through the
course of negotiations it was agreed that the parties would
utilize that list.

Mr. Trott. Okay. So you can state unequivocally that no
attorney at Justice, the monitors of these settlements, none of
those folks suggested at any time to B of A, Citi, or Chase
that within this list of approved counseling agencies, there is
any kind of preferred group. That is the critical question, is
it not? I mean, if there was a preferred group, then we are
talking about a slush fund, would you not agree?

Mr. Graber. That is a perfectly fair question, and I am not
aware of, and I would be shocked to learn, if any financial
institution was ever directed to utilize any specific
organization on the list. I am not aware of that at all.

Mr. Trott. So you can understand with that apprehension why
the documents that Chairman Goodlatte is looking for are so
critical to this discussion. Would you agree that that would
resolve this question, would it not?

Mr. Graber. Well, I am aware of the request, and as I
stated, our response is in process.

Mr. Trott. Mr. Chairman, one of the things we need to do is
we need to get folks in from B of A, Chase, and Citi and ask
them when you got this settlement and you started picking who
was going to get involved in the non-profit world, how did you
make that decision. And if someone there contradicts what you
have said, then this whole discussion is over. It is a game,
set, match, and it is a slush fund.

Now, if the Justice Department thought that this money for
the non-profits was so productive, and some of it is. I have
dealt with non-profits in the housing counseling world for many
years. Some of them do a great job. Some of them do no service
to the borrower who needs that help. But if they thought it was
so productive, why would they not just recommend that the
President’s budget allocate more money to HUD for the non-
profits, and that would be consistent with the Constitution?
And why would they have to have part of the settlement that the
money is directed this way?

Mr. Graber. Well, Mr. Congressman, I cannot speak to any
decision with respect to the President’s budget. What I can say
is that through the course of the negotiations leading up to
these settlements, we thought that directed funds to these
types of organizations that provide housing counseling, and
foreclosure mitigation, foreclosure prevention services, was a
valuable part of the overall consumer relief package. You know,
if through these settlements folks utilize the services
provided by these housing counseling agencies and folks are
able to stay in their homes, that is a good thing, and that is
something that we hope can be achieved through these

Mr. Trott. But there was another way to accomplish that,
which is to have the money come into Treasury and recommend
that the money be allocated accordingly in the President’s
budget. That would have accomplished the same result, would you
not agree, and be consistent with our Constitution?

Mr. Graber. Well, you know, that may be one hypothetical
situation where funds could be allocated to third party groups,

Mr. Trott. Well, the budget allocates money to non-profits
under the HUD grants, so more funding in that area would have
accomplished the same result.

Mr. Graber. Mr. Chairman, I would agree with you that
Congress could certainly allocate funds to these counseling

Mr. Trott. I appreciate it. Next question. Why would there
be a 2-to-1 credit? You know, in my experience, you have a
borrower that has a $70,000 mortgage. The property when they
bought it was worth $100,000. Now it is under water to the tune
of $50,000. It is a very difficult loan modification to
accomplish without some loan balance relief. Why not allocate
it differently? Instead of 2-to-1 in terms of favoring
potential slush fund abuses, allocate it 2-to-1 to the borrower
and give credit to Bank of America twice for every dollar they
allocate to help some borrower that has got a loan balance that
is workable.

Mr. Graber. So the crediting mechanisms in these
settlements reflect a variety of factors, one of the most
important of which is the relative expense of the various forms
of consumer relief to the banks. So the reason that there is a
2-to-1 crediting on the direct donations provision that we have
been discussing is because that form of relief compared to
modifications of assets already on the books of the financial
institutions, those directed donations are very, very expensive
for the financial institutions.

It is my understanding–I cannot speak for the banks–but
it is my understanding that the modifications of underwater
loans, the type that you just mentioned, those types of
modifications are far less expensive to the banks than the
directed donations provision.

Mr. Trott. Thank you, sir.

Mr. Marino. The gentleman’s time has expired. The Chair
recognizes now the gentleman from Georgia, Congressman Collins.

Mr. Collins. Thank you, Mr. Chairman, and good to see you
there leading us in this Committee now. There are several
things that confuse me, Mr. Graber, as we have been starting
this. One, it is interesting you have been asked several times
about, you know, the chain of command, and where the orders
come from, and how did this get in here. Let me make sure. The
DOJ, you all actually negotiated these settlements, correct?

Mr. Graber. Yes.

Mr. Collins. Okay. Well, I am glad we are at least starting
on this foundational level here. So somebody had to know
something that was going on on the direction of these
settlements, correct? I am beginning to believe, and judging by
what you had said earlier, it was like there was a group. It is
almost like maybe we will walk down the hall of the DOJ and
say, hey, we are going to a settlement discussion, who wants to
throw in some information. Somebody had to have been giving
some direction here, and to be honest, your answers are not

Let us just start here. The JPMorgan settlement did not
have the mandatory donation provision, correct?

Mr. Graber. That is correct.

Mr. Collins. Okay. But yet Citi and Bank of America did,

Mr. Graber. That is correct.

Mr. Collins. Let me ask you this. Why did you decide to
depart from the previous precedent or precedents of previous
agreements that came under the Bush Administration that
provided that only money left over after all consumer injury
had been redressed could go to third party groups?

Mr. Graber. I am sorry. Could you repeat the question?

Mr. Collins. Previous precedent was that only money left
over after all injury or redress was there could that be then
redressed to a third party group. Who made the change in that
decision, or is this another group decision that really nobody

Mr. Graber. So as I stated previously, I am not aware of
any direct order or any specific, you know, decision by an
individual to go with the mandatory minimum provision. I was–

Mr. Collins. So where did it come from? Was it just a
kumbaya moment in the negotiations? And I am not trying to be
funny here, but, I mean, I have sat through negotiations. I am
attorney. I have sat through many negotiations. You have sat
through many negotiations. At some point in time something had
to give here. Something had to be interjected into the process
to say, hey, here is a good idea, or, hey, here is a bad idea.
Where did that come from?

Mr. Graber. So as I stated earlier, there was a team, which
consisted of a dozen or more officials from Department of
Justice, and HUD, and other folks from the government, who were
responsible for negotiating the consumer relief provisions. On
any given day they were discussing dozens and dozens of details
in each of these settlements. It is my understanding that—-

Mr. Collins. Did Department of Justice bring this up, did
HUD bring this up, or did the banks bring this up? How did it
get brought up?

Mr. Graber. If I may, it is my understanding at a certain
point, you know, the team determined that it was the best
course of action to put in the mandatory minimum provision. It
is not my understanding that there was any decision—-

Mr. Collins. Mr. Graber, look, I have a minute 40 left in
my conversation here.

Mr. Graber. I am sorry?

Mr. Collins. I have a little over a minute left, a minute
and a half. We are not going to run the ball out here. At this
point in time, someone at the table, because it was not the
JPMorgan. Somebody at the table, either DOJ, HUD, this
wonderfully amorphous group that you keep talking about,
somebody ought to say, well, let us put a minimum in here or
let us send these to third parties. Was that DOJ’s idea? Was it
HUD’s idea? Where did it come from? And I am going to stop
right here. If you tell me about this amorphous group,
everybody having a good idea again, then just say I do not
know. I am giving you a chance.

Mr. Graber. I do not know—-

Mr. Collins. Thank you.

Mr. Graber [continuing]. If there was any specific
individual who, you know, who brought it up first—-

Mr. Collins. And if was your idea, take credit for it. I
mean, this is amazing. Let us go about it real quickly, 47
seconds left. I want to switch. The monitoring process you
talked about, it only deals with the banks, okay? And we talk
about the banks, making sure that they live up to their
agreements and their end of this. DOJ does not have any
monitors in place to ensure that if these monies go to intended
groups that they are actually using it for the purposes stated.
Is that not a concern of DOJ in making these agreements, that
they would go to third party groups, but your monitors only
monitor the bank that they gave them the money, no that the
intended result was going to happen.

Mr. Graber. Actually it is my understanding that the
monitor will actually oversee the use of these funds by third

Mr. Collins. But that was not your earlier testimony. Your
earlier testimony was that the monitors were to monitor the
banks, that the money went to where it was supposed to go, and
they would do the audit to make sure they got the money so they
could get properly credited in that process. And also any
research that we have done is that there is no DOJ monitoring
to do that for the third party groups.

Mr. Graber. Absolutely. The monitor will oversee the
allocation of the funds from the banks, including allocation
under these provisions to third parties. And it is my
understanding that if the third parties were to use the funds
in a way that is inconsistent with the terms of the agreement,
the monitor would be responsible for catching that. And the
monitor would not credit the bank for the funds that went out
the door on that.

Mr. Collins. But, again, that is contradictory to some of
your testimony. With that, Mr. Chairman, there are many, many
questions here left to go. But with that, I yield back.

Mr. Marino. Thank you, Congressman. The Chair now
recognizes the gentleman from Michigan, Congressman Bishop.

Mr. Bishop. Thank you, Mr. Chairman. Thank you, Mr. Graber,
for your testimony. Is it the practice of the Department of
Justice to send one person to a hearing like this?

Mr. Graber. I could not tell you the answer to that. It is
the practice today certainly.

Mr. Bishop. It just seems to me that the gravity, the
weight of what we are talking about today would require that
you would send some of your folks over. It is frustrating to
sit here and hear “I do not know” over and over and over
again on questions that, very frankly, should be answered, you
know, off the top of your head. On some of these issues I am
sure there are folks that have direct understanding and
knowledge of these issues, and it is frightening as a citizen
to sit here. It is angering as a Member to sit here and hear
this banter back and forth and hear very important questions,
and not get specific answers. The answer should never be “I do
not know.”

I noted in your testimony, and as a former prosecutor
myself, I consider this laudable because I do believe that
prosecutors have a responsibility to stand up on behalf of
victims. You indicated in your testimony that the DOJ was
securing relief that “likely could not have been ordered by
the court even if the government had prevailed at trial.” Was
that your statement?

Mr. Graber. That is correct.

Mr. Bishop. I think that is wonderful that the Department
of Justice has that kind of resolute interest in making sure
they secure, you know, the proper level of relief for each one
of its consumers. But does that not scare you a little bit or
should it not scare us a little bit to think that the
Department of Justice has that ability to secure that kind of
justice outside the court system over and beyond what we would
have at trial, for example?

Mr. Graber. Thank you, Congressman. The settlements that we
entered into here, namely pre-litigation, out of court
settlement, is very much consistent with the Department’s
authority to compromise claims on behalf of the United States.
And the Department enters into settlements like this all the
time, every day, in fact. So I do not think there is anything
unusual about that.

Mr. Bishop. It is not unusual for the DOJ to have more
authority than someone else would have in a regular court

Mr. Graber. Well, no, I would not necessarily agree with
that. I just think that the fact that this settlement occurred
out of court, you know, prior to litigation is consistent with
the Department’s authority, and is, quite frankly, typical. And
I would also say that it is not unusual for parties to reach
agreements to compromise claims that contemplate forms of
relief that may not have been able to be awarded by a court.

Mr. Bishop. So it is the very threat of the DOJ, the heavy
hand of government, to come in that could probably extract a
better concession, a better settlement than you could in court.
I mean, that is a rather imposing threat to level on someone,
is it not?

Mr. Graber. I would say that we do not know what a court
may or may not have done if we had decided to litigate these

Mr. Bishop. All right. The Bank of America settlement, just
switching gears here. The Bank of America settlement requires
the bank to set aside $490 million to cover potential consumer
tax liability. Was that something that the DOJ suggested?

Mr. Graber. Yes, I believe that that was something that the
Department suggested and certainly the Department supported.

Mr. Bishop. Did the DOJ also want a similar provision in
the Citi settlement, which was concluded I think just before
that, a month earlier?

Mr. Graber. I do not recall specific discussions about, you
know, that specific term or a potential term in the course of
the Citi negotiations. I should also point out that, look, in
the lead-up to these settlements, again, I mean, the reality is
that there were dozens and dozens of officials who were
involved. There were dozens, if not hundreds, of meetings,
sometimes simultaneous meetings. Sitting here today, the fact
of the matter is that I was not in every one of those meetings.

Mr. Bishop. Thank you, sir. Yield back.

Mr. Marino. Thank you. Deputy Graber, thank you for being
here. You are excused. And we now call the second panel to
today’s hearing. Thank you, sir.

Mr. Graber. Thank you.

Mr. Marino. Before you sit down, could I ask the panel to
please stand, to raise your right hand?

Do you swear the testimony that you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you God?

[A chorus of ayes.]

Mr. Marino. Let the record reflect that the witnesses have
affirmed their testimony. Thank you, ladies and gentlemen, for
being here.

I am going to start with a brief introduction of our panel
witnesses and get right to the questions. We are in a hard-
pressed time to be out of here in about 45 or 50 minutes.

Mr. Paul Larkin is a senior research fellow and director of
the Rule of Law Initiative Project for the Heritage Foundation,
specializing in countering abuse of Federal criminal law. Mr.
Larkin worked at the U.S. Department of Justice as an assistant
to the Solicitor General and as a counsel in the Criminal
Division’s Organized Crime and Racketeering Section. During his
time at the Environmental Protection Agency, he was a special
agent and an acting director for the Criminal Enforcement
Branch. Mr. Larkin also served as counsel to the Senate
Judiciary Committee and was the chief of the Crime Unit under
panel chairman, the Honorable Orrin Hatch.

Throughout his 25 years of practice, Mr. Larkin has argued
before the Supreme Court in 27 cases. He is a graduate of
Stanford Law School and a former law clerk for Judge Robert H.
Bork on the U.S. Court of Appeals for the D.C. Circuit.
Welcome, sir.

Mr. Ted Frank has won millions of dollars for consumers and
shareholders through the non-profit Center of Class Action
Fairness, which he founded in 2009. Mr. Frank has argued and
won several landmark appellate cases protecting consumers from
unfair class action settlements. His work in this area has been
profiled by, among others, the Wall Street Journal, Forbes, the
National Law Review, the ABA Journal, and The American Lawyer.
He has testified before Federal and State legislative
subcommittees multiple times about class action conflicts of
interests and settlements and about legislative victim
compensation programs.

Mr. Frank is a graduate of the University of Chicago Law
School and a former law clerk to the Honorable Frank H.
Easterbrook of the U.S. Court of Appeals for the 7th Circuit.
Welcome, sir.

Mr. Frank. Thank you.

Mr. Marino. Ms. Mrose is the CEO of Compass Films of New
York LLC. Her work focuses on the housing industry and the
interaction between government, banks, housing advocates, and
the economy. Her experience includes co-hosting a talk radio
program and research on regulations issued by the Department of
Housing and Urban Development.

Ms. Mrose is a graduate of Tufts University’s Fletcher
School of Law and Diplomacy, and welcome, ma’am.

Ms. Mrose. Thank you.

Mr. Marino. And I am sorry, Professor White, but I do not
have your background. If someone gives it to me at some point I
will read it. I apologize for it for not being here, but I do
want to welcome you, and thank you for being here today, and we
will get to your background when it is handed to me. I see it
is right here. Thank you.

Professor Alan White joined the faculty of CUNY School of
Law in 2012. He teaches consumer law, commercial law,
bankruptcy, comparative private law, and contracts. The latter
was not my favorite in law school. He is a nationally
recognized expert on credit regulation in the residential
mortgage market. Professor White is a past member of the
Federal Reserve Board’s Consumer Advisory Council, a member of
the American Law Institute, and is currently serving as
reporter for the Uniform Law Commission’s Project on a
residential real estate foreclosure statute.

He is quoted frequently in the national media, including
the New York Times, the Wall Street Journal, and the Washington
Post in connection with his research on the foreclosure crisis.
He has published a number of research papers and articles on
housing credit and consumer law issues, and has testified
before Congress and at Federal agency hearings on the
foreclosure crisis bankruptcy reform and predatory mortgage

Before becoming a full-time teacher, Professor White was a
supervising attorney at the North Philadelphia office of
Community Legal Services, Inc., and was also a fellow and
consultant with the National Consumer Law Center in Boston, and
an adjunct professor with Temple University Law School and
Drake University School of Law. His legal services practice
includes representation of low income consumers in mortgage
foreclosures, class actions, bankruptcies, student loan
disputes, and real estate matters.

Mr. White received his B.S. from the Massachusetts
Institute of Technology and his J.D. from the New York
University School of Law. Welcome, sir.

Mr. White. Thank you.

Mr. Marino. Each witness’ written statement will be entered
into the record in its entirety. I ask that each witness
summarize his or her testimony in 5 minutes or less. And to
help you with staying within that time, you see the lights in
front of you. If the light switches from green to yellow, it
means you have a minute left, and when it gets to red I will
politely tap here to give you an indication if you would please
wrap up.

The Chair now recognizes Mr. Larkin for his opening
statement. Sir?


Mr. Larkin. Mr. Chairman, Ranking—-

Mr. Marino. The microphone in front of you, you have to
push the button there, and the light should come on.

Mr. Larkin. My mistake. Sorry.

Mr. Marino. That is quite all right. I do it.

Mr. Larkin. Mr. Chairman, Mr. Ranking Member, it seems to
be common ground that if these checks that were due to the
United States were actually deposited in the Treasury, the
Justice Department would lack any authority to require that
they then be turned over to anyone else. Not only would they
not have possession of the check, the law–that is, the
Constitution as well as the Anti-Deficiency Act and the
Miscellaneous Receipts Act–would prohibit the Department of
Justice from handing out this money.

So the only dispute is whether the Justice Department can
engage in the same result simply by directing the bank to do
it. In other words, once the Department has deposited the
check, they could not give the money to these groups. So
instead, what the Department has done is tell the bank do not
give me the check. Give the check to these private parties.

Now, if you want to understand this, flip the facts around.
Suppose this were a settlement and the Department was paying
the banks. The lawyer, who is handling the case for the banks,
could not tell the Department do not write all of the checks to
me. Write some of the checks to a charity of my choosing or a
charity of your choosing. The lawyer for a client cannot give
away the money that belongs to the client, and in this case,
the Department represents the United States, and they are not
allowed to give away money that belongs to the United States
unless there is express statutory authority to do it, and there
is none here.

What aggravates this problem even more is that you have
these sorts of settlements gradually coming into wider and
wider use ever since the Anderson case was resolved with
everyone being a loser. Why is that a problem? Because
oftentimes there is no judicial involvement whatsoever. These
agreements often are a means of disposing not of charges or a
lawsuit that has already filed. They are a means often of
disposing of charges or a lawsuit before any are filed. So
there is no judicial involvement whatsoever. You have an
agreement entirely between the lawyers for the United States
and the lawyers for other parties. And in this agreement they
are trying to engage in what is for all intents and purposes a
sham transaction to avoid depositing all of the money that is
due to the taxpayers of the United States into the account that
the Treasury maintains, that Congress thereafter can decide how
it will be spent.

After all, Article 1 says that no appropriations can be
made–or excuse me–no money can be taken from the Treasury
except pursuant to an appropriation. It is designed to prevent
the President from using the Treasury as if it were his own
personal account. Only Congress can authorize him to spend that
money. When the money then comes into the government, the
Miscellaneous Receipts Act requires that it be deposited into
the Treasury with a few exceptions, none of which are
applicable to housing cases or the ones we have here.

Once the money is then deposited, it is up to the elected
members to decide how to spend it. If they want to give it to
these organizations, that is perfectly proper. When I worked
for Senator Hatch, the Judiciary Committee worked on
legislation to authorize money to be given to the Boys and
Girls Clubs. Why? Because the Committee thought that would
advance the welfare of the Nation, but only if the Committee
had authorized it and then the appropriators had appropriated
the money could that be done.

And it does not matter whether this is done in a Democratic
or Republican Administration. As my paper and the paper by the
Chamber of Commerce point out, Republicans have done this
before, and when they did, they were just as wrong. And it does
not matter that the money goes to an organization that may be a
valuable mechanism for disposing of funds. It does not matter
if it goes to Catholic Charities. It does not matter if it goes
to any Christian organization. It does not matter if it goes to
any organization whatsoever. If it is an organization that is
not authorized by Congress to receive the money, the
expenditure is impermissible.

The same ethics rules should apply to government lawyers in
this context that would apply to private parties. They act on
behalf of the United States. In so doing, they are not allowed
to make their own decisions. And by the way, if you want to
find out who made this decision, I would start by looking at
the two agreements because if you look at the two agreements,
what you will see is that they were signed for the United
States by Tony West, the Associate Attorney General, who is the
number three person in the Department.

So in all likelihood, he knew what these provisions were.
And given the size of this, unless he was irresponsible, he
also brought that to the attention of his superiors in the
Department. You do not enter into an agreement like this
without telling your boss what you are about to do.

I am glad to answer any questions you may have.

[The prepared statement of Mr. Larkin follows:]

Mr. Marino. Thank you, sir.

Mr. Frank?


Mr. Frank. Thank you, Mr. Chairman, Mr. Ranking Member—-

Mr. Marino. You want to push that button.

Mr. Frank. Thank you, Mr. Chairman, Mr. Ranking Member, and
the Committee for having me here. I am the head of the non-
profit public interest law firm, Center for Class Action
Fairness, but I do not speak on their behalf today. However, my
experience with the center is with civil litigation in class
action settlements that raise very similar issues where class
counsel breached their fiduciary duty to their clients and
tried to divert money to third party charities rather than to
the purportedly injured plaintiffs in a class action.

So, for example, 5 weeks ago we won a case in the 8th
Circuit involving Bank of America shareholders where class
counsel for the shareholders, instead of distributing $2.7
million of leftover money to the shareholders, decided that he
wanted to write a big check to the local Legal Aid Society and
have a ceremony of the big check where he would get his picture
in the paper. That might be nice for the attorney who has more
gratitude from his local charity than from shareholders getting
a few dollars each, but it is a breach of their fiduciary duty,
and we got that diversion overturned.

We won another case in the 9th Circuit, Nachshin v. AOK, where the lawyers tried to give money to the judge’s husband’s charity. These are real conflicts of interest. They are real problems, and courts have been stepping in. Most notably, Chief Justice Roberts indicated the need for this in the Merrick v. Lane case, 134 S. Ct., page 8.

The problem is even more egregious in the prosecution
context for the reasons Mr. Larkin has just demonstrated, but I
would like to raise some other issues. These settlements are
being discussed as providing $7 billion of consumer relief or
$2.5 billion of consumer relief. But when you get into the
weeds of the agreements in Annex Number 2, you see these $2 or
$1 credits, $3 credits, as much as $3.75 per dollar credits.
And as a result, you are not talking about a diversion of $150
million. You are talking about the Department of Justice
getting credit for “$7 billion of consumer relief,” but, in
fact, the banks will be paying billions of dollars less in
order to funnel money to the Department of Justice’s preferred

Now, again, as Mr. Larkin said, it may be some of these recipients are good. They may not be. But at the end of the day, the Justice Department does not have the authority to do  that except by bypassing the Treasury through these settlement agreements, and the bypassing has other legal consequences. For example, in Chapter 45 of the Code of Federal Regulations, when the Federal Government gives money to legal aid societies, as this settlement requires, there are a lot of strings attached to that Federal money. The legal aid societies can only use it in certain ways.

This settlement bypasses those congressional restrictions
or these Federal legal regulations and restrictions. And,
again, the monitor will not be overseeing this. The monitor is
only determining whether the bank has given the money that they
are supposed to give.

Other problems. In effect, DOJ is creating housing policy,
Treasury policy, and in many ways, overriding existing policies
of the Treasury Department and the Housing Department without
any oversight from Congress or otherwise. So there is credit
being given for loan modifications that do not satisfy the
Treasury Department’s HAMP requirements. Now, there are
disputes over whether or not HAMP is effective, but what is
clear is if you loosen those requirements, it is going to be
less effective than the existing Treasury Department program.
But the DOJ is now creating its own loan modification program
without the regulatory expertise to do so, and with potentially
adverse public policy results.

There is another provision in the Bank of America
settlements in Section 2.A of the Annex, menu item 2.A of the
Annex. Bank of America gets a $10,000 credit for providing
first-time home buyers of lower/moderate income a loan. Now,
there are two possibilities there. One, these are financially
viable loans that Bank of America would be happy to make
anyway, in which case it is completely illusory relief. They
are just going to get a $10,000 offset to what is supposed to
be consumer relief. Or these are not financially viable loans,
but the DOJ is distorting the market for loans to encourage yet
more loans for mortgages that potential low and moderate income
people cannot actually afford. And that is how we got into this
mess in the first place.

I welcome your questions.

[The prepared statement of Mr. Frank follows:]

Mr. Marino. Thank you, sir.

Ms. Mrose? Am I pronouncing that right?


Ms. Mrose. Hello.

Mr. Marino. Hello.

Ms. Mrose. Thank you.

Mr. Marino. Am I pronouncing your name correctly—-

Ms. Mrose. Yes, that is perfect.

Mr. Marino. Mrose?

Ms. Mrose. That was perfect.

Mr. Marino. Thank you.

Ms. Mrose. Thank you for inviting me. As the Chairman
already said, my firm, Compass Films of New York, is going–
well, you did not say that. But I am the CEO of the Compass
Films of New York, and I am making a film about the true causes
of the financial crisis, and how the real culprits are doubling
down. And in order to do that, I went and interviewed various
people. One of them was the former CEO of BB&T, John Allison.
And I want to start off by reading you the answer that he gave
to me when I asked him the following question.

So my question to John Allison was this: “Did BB&T make
loans it would not have made otherwise in order to keep a good
or excellent CRA rating,” and “Was BB&T pressured by
community activists to make subprime loans or to pledge money
for future loans to what they called underserved areas?” “Did
you have any direct contact with activist groups?” And his
answer was this. “BB&T did make high risk low income loans to
meet CRA requirements, and we were pressured to make subprime
loans and pledge money by activist groups. All banks paid
bribes to CRA groups. I had direct contact with them.”

I am quoting this because it sheds light on the enormous
power and the political influence on a vast left-leaning non-
profit network that exists in the United States today. And I do
not have much time, but I am going to focus on this left-
leaning network in my 3 minutes remaining. You can read the
details in my prepared comments.

First of all, I would like to say that in 1960, the
government of the United States gave very little money to non-
profit organizations. That has changed dramatically. The Urban
Institute published in 2013 a national survey of non-profit
groups. It is an excellent survey. It contains a lot of

In 2012, government in the United States, Federal, State,
and local, gave $137 billion to non-profit groups. $81 billion
of those $137 billion went to social service non-profit
organizations. These are affordable housing groups, legal aid
groups, civil rights groups, ethnic groups. There were
approximate 200,000 contracts and grants with about 30,000 of
these social service non-profits in 2012. On average, six to
seven grants and service contracts, non-profit.

Now, I want to focus on particular group that stands to
profit from the particular stipulations in the settlement. The
name of this group is NeighborWorks Orange County. It is a
501(c)(3) tax exempt non-profit organization based in Orange
County, California. And I am focusing on this one because it is
one of these various groups that are specified in the
settlement, a CDFI HUD-approved housing counseling agency, et

So NeighborWorks Orange County is a chartered member of
NeighborWorks America. It is also an affiliate of the National
Council of La Raza and CLR. It is a HUD certified housing
counseling agency. HUD has, by the way, 2,400 of these approved
housing counseling agencies in the United States with about
8,000 housing counselors.

NeighborWorks Orange County is certified by the U.S.
Treasury Department as a community development financial
institution, a CDFI. The Treasury Department provides funds to
CDFIs through various programs, and it is also a community
development corporation, a CDC. All these special organizations
are listed in the settlement.

How much money did Orange County receive in 2012? It
received $3.8 million from the government, from the Federal,
State government. It received more money in the past. In 2010
it got around $8 million, and in 2009 it received around $5
million. Not all of the money that NeighborWorks Orange County
received came from government entities. Some of it came from
taxpayers. And if you look at who gives money to this non-
profit, you see that most of these enterprises are banks, so
all the big banks. Citibank is there, and Bank of America is
there, and Chase, and Wells Fargo, and many other banks, which
means that a very small percentage, 3.4 percent, of its money
came from private business. 94.6 percent came from taxpayers.

This is quite typical. When you look at such non-profit
organizations that many banks contribute to such groups. Why?
It is basically protection money. They give to groups that are
certified and approved by government agencies. It is an attempt
to buy protection against being singled out for punishment by
the Department of Justice.

Mr. Marino. Ms. Mrose, could you wrap up—-

Ms. Mrose. Oh, yes.

Mr. Marino [continuing]. Because your full statement will
be made part of the record.

Ms. Mrose. Yes, I certainly will. So I wanted to talk
about, and I will not have time to do that, but just briefly.
NeighborWorks Orange County, what does it really do? It has 26
employees. And what are they doing? Is it useful to the
American citizens, the work they are doing? No. They are
basically navigating the various Federal and State government
programs designed to let people buy a house who cannot really
afford to do so.

So there are example programs like “Making Home
Affordable,” which is an official program of the Department of
the Treasury and HUD, or, of course, HARP, or Keep Your Home
California, a program of CalHFA Mortgage Assistance
Corporation. That is also a non-profit organization that
receives Federal funds, et cetera, et cetera.

Now, you might ask yourself is that a good use of
taxpayers’ money? Does it really make sense for these 26
employees to spend navigating the labyrinth of government, easy
credit access programs that are also financed by taxpayers all
in order to let buy houses that they cannot afford.

Mr. Marino. Okay, Ms. Mrose, we are running out of time
here. So you will be able to address some of those in questions
that you are asked, if you do not mind, please.

Ms. Mrose. Thank you.

[The prepared statement of Mr. Mrose follows:]

Prepared Statement of Cornelia Mrose, CEO,

Compass Films of New York LLC

Mr. Marino. Professor White?


Mr. White. Thank you, Mr. Chair, and Mr. Ranking Member,
Members of the Committee for the invitation to testify today.
As you mentioned, I have a great deal of experience doing
research on the mortgage market and on the foreclosure crisis.
And I did want to mention that for 24 years I represented low
income homeowners in foreclosure cases in Philadelphia,

I make a number of points in my written testimony. I would
like to just focus my 5 minutes on two points about legal aid
organizations and housing counselors. And to say, first of all,
that directing money to these groups is an effective and
perhaps the most effective way of remedying the injury that the
Federal lawsuits were designed to remedy. That is, to
compensate both homeowner consumers and as well investors who
lost billions, possibly trillions, of dollars as a result of
the fraud that is the subject of the lawsuits.

The second point I want to make is about the accountability
of legal aid and housing counseling agencies because I have
both personal and professional knowledge about that. So let me
first talk about effectiveness. There is considerable empirical
research, and I cite it, that demonstrates that having a
housing counselor or a legal aid lawyer, for example, for the
Delaware couple that the Chairman mentioned earlier, will
greatly increase the chances of a successful workout with the
bank, so that a thousand or two spent on a housing counselor or
a legal aid lawyer can save the homeowner’s home and prevent a
loss that is typically going to run in the hundreds of
thousands of dollars for the bank and for the investors. And I
do not think there is really any controversy about that.

I would also like to say that most of the housing
counseling agencies are not these activist groups that we hear
about. For example, I believe in Williamsport, Pennsylvania,
the primary housing counselor is Consumer Credit Counseling of
Northeast Pennsylvania, an organization I am a little bit
familiar with because of some foreclosure crises that occurred
in the Poconos while I was practicing.

The consumer credit counseling agencies were set up
originally funded by the banks to advise consumers on how to
deal with unmanageable credit card debt. And after the
foreclosure crisis, they began to get into the business of
helping people navigate their way through the very difficult
process of workouts with banks. So the consumer credit
counseling services, some of the faith-based organizations,
veterans groups. There are lots and lots of groups that are
both very effective at this work and that I think if Bank of
America and Citibank choose to fund them and to avoid activist
groups, they can certainly do that.

On the accountability point, there have been some
settlements at the State level. State attorneys general have
done things similar to what Justice has done with this
settlement in directing funds to legal aid and housing
counseling networks. And I spoke with somebody I know who helps
to administer the New York Attorney General’s program, and she
assures me that every contract with every housing counselor and
every legal aid agency specifies exactly what they can and
cannot do with the funds.

And, of course, we do not know what Bank of America or
Citibank’s contracts with whoever they choose to fund are going
to provide. But there is every expectation that they are going
to restrict the use of the funds to the activities specified in
the settlement. And I can tell you from experience that those
kinds of non-profits, housing counselors, and legal aid
organizations do detailed cost accounting.

We kept time records in which we accounted for every 10
minutes of every hour and specified what activity we were
engaged in, and which funding source was paying for that
activity. And I can certainly assure you that if we violated
the terms not only of government funding at the Federal or
State level, but even private funding from foundations, our
auditors would point that out, and we would have a problem. And
the housing counseling agencies typically operate on that
model. They are very carefully overseen and audited.

Part of the difficulty with this hearing is we do not
really know exactly how the banks are going to administer these
programs. And as far as I know, I do not think they have gotten
very far. From everything I have heard from inquiring, they
have not actually picked who the groups are going to be and how
they are going to administer the funds. It is a relatively
small portion obviously of the programs they have to implement.
But I have every expectation that the banks will establish the
same kind of contractual restrictions that we have seen in
other settlements. And so, so the idea that a small amount of
money is going to be misdirected toward political activism
seems to me unlikely in the extreme.

So I did want to focus on the counseling agencies on the
legal aid providers because I think that a lot of the publicity
about this issue has really been unfortunate in
mischaracterizing who they are and what they do. And they are,
as I say, an extremely effective and useful means of remedying
the wrong that these lawsuits were intended to remedy.

So with that, I will answer any questions you might have.

[The prepared statement of Mr. White follows:]

Mr. Marino. Thank you, sir. I am going to start out by
asking my 5 minutes of questions. I will start with Professor
White. I do not know if it is coincidental that you used my
hometown in Williamsport, Pennsylvania or if that is where you
knew I came from?

Mr. White. That is not a total coincidence. I grew up in
State College.

Mr. Marino. Nevertheless, I agree with just about
everything you said. I think the agencies, what they are
designed for are good. But it should be focusing on people who
are in the process of losing their homes and not handling
issues where people have already lost their homes
unfortunately, and it perhaps should have been done that way to
begin with. And you say, well, we do not know yet. That is
exactly what we do not know.

DoJ will not turn over any information that we have asked
for concerning who, what, where, and when. Where does this
money come from and how is it spent? And you are right. Legal
aid, which I have dealt with as a district attorney and even as
a U.S. attorney, these people do a great job in defending those
that cannot afford it, but they are very regimented. And my
good friends on the other side and you have even stated to a
certain degree that we are only talking about a little bit of
money. I do not care if it is a thousand dollars. It is still
taxpayers’ money that has to be accounted for.

But you know what the issue is here, Professor? The issue
is Congress appropriates, not the Justice Department. And the
Justice Department has taken this on itself to determine how
these settlements are going to be made. I do not agree with the
2-for-1 for the 3-for-1 credit. This all boils down to who has
the authority to appropriate, and it is Congress. And what say
you, sir?

Mr. White. Well, I guess I would say I respectfully
disagree with a couple of your points.

Mr. Marino. Well, let us start ticking them off.

Mr. White. As far as the constitutional issue about
appropriations, that is not really my specialty. I will say I
do teach remedies, and the idea that—-

Mr. Marino. It is one of my specialties because I pay a lot
of attention to it. And so, the Constitution is very clear. I
think some of my colleagues agree with me that unless we
specifically state by statute, nobody, not the executive
branch, not the judicial branch, has a right to appropriate
money. Do you disagree with that, sir?

Mr. White. I do not think that is a characterization of
what the Justice Department is doing here. I do not think they
are appropriating taxpayer funds. I think they are—-

Mr. Marino. Well, they are using extortion to make banks–

Mr. White. If I could continue—-

Mr. Marino [continuing]. Appropriate funds to left-leaning
organizations. Now, there is no accounting at this point as to
how this money is being appropriated, whether Justice hands it
out or they tell a bank to hand it out a certain way. So what
would be your recommendation as to how we can account for this?
What is wrong with this process, turning the money over to the
Treasury, the Treasury then allocating that money through
legislation that we in Congress can legislate, and follow, and
have oversight on it? Now what is wrong with that process, sir?

Mr. White. I would be totally in favor of Congress
appropriating more funds for housing counseling and legal

Mr. Marino. So they are not doing that, though.

Mr. White. Listen—-

Mr. Marino. Pardon me?

Mr. White. With all due respect, those two approaches are
not mutually exclusive. Negotiating remedies for victims in
lawsuits and Congress appropriating funding for similar
activity, those are both—-

Mr. Marino. Congress has not appropriated the funding on
this specific issue. These agencies also receive money through
HUD, so in addition there is a double dip there. So, I am
sorry, I do not agree with you that this is a legitimate way to
establish appropriation. Show me a statute where it says that
the Justice Department has the authority to negotiate with
banks that they can give money to left-leaning organizations.

Mr. White. Well—-

Mr. Marino. You cannot do that, sir.

Mr. White. That is a compound question. I would object—-

Mr. Marino. Well, you are an attorney. You are a professor.
You should be answer. I am sure you have compound questions on
your law school exams.

Mr. White. They are not left-leaning organizations, first
of all. Secondly, the Justice Department is not, as I
understand it, proposing to appropriate any taxpayer funds.
They are simply negotiating restitutionary relief, which State
attorneys general and the Justice Department does all the time.
Not only do you seek an award of fines that are paid to the
Treasury, but you seek restitution to be paid to the victims of
the misconduct.

Mr. Marino. Exactly right, sir. And as a U.S. attorney, I
did the same thing on the criminal side and on the civil side.
And whether there is a violation on the criminal side or
whether there is a breach of the civil side, the restitution,
the fines, are taxpayer dollars.

Mr. Larkin, you have heard the answers by Mr. White. What
say you?

Mr. Larkin. You can only give out–my apology. You can only
give out money in restitution if there is a statute that
authorizes you to give out money in restitution. If the
Department is working in a criminal case where there is
statutory authority to see that victims of crime receive some
type of financial compensation, and the Department does it best
to make sure that victims get that compensation, the Department
is acting within the law.

But if the Department is owed a check by a private party,
the law requires that that check be deposited into the Federal
Treasury, and if there is no statute that allows them to
negotiate a restitution agreement or any type of agreement with
a civil defendant or a criminal defendant, the Department
cannot do that.

Mr. Marino. Thank you, sir. My time has expired, and now I
recognize the gentleman from Michigan, the Ranking Member, Mr.

Mr. Conyers. Thank you, Mr. Chairman. I ask unanimous
consent to place into the record the Congressional Research
Service memo on the principles associated with monetary relief
provided as part of financially related legal settlements.

Mr. Marino. Without objection.

[The information referred to follows:]

Mr. Conyers. I welcome the witnesses, and I am delighted to
ask the first question to Mr. White to comment if he can on
some of the remarks of Mr. Larkin that we have noted here, that
the donations under settlement agreements are rife with
opportunities for political cronyism, that settlement
agreements circumvent the constitutional process for
appropriating taxpayer dollars, and a few others. But were you
disturbed or in less than full agreement with some of those
remarks, Mr. White? Professor White?

Mr. White. I am sorry. Would you mind repeating the

Mr. Conyers. Well, I was just going over some of our first
witness’, Mr. Larkin, comments that I wanted to see if you were
bothered by any of them as I was.

Mr. White. Well, I certainly disagree. I guess on the
constitutional point, I think where I could see a reasonable
debate, to Mr. Frank’s point, about particular cy pres
remedies. But the general concept that in settling litigation
you try and compensate the victims of the harm and you figure
out the most effective and direct way of doing that, that is a
completely uncontroversial principle. So I just think it is
very farfetched to characterize the Justice Department’s
settlement here as appropriating taxpayer dollars.

And as far as money being directed to favor groups or to
left wing groups, I mean, I just do not understand the factual
basis for that when it is the banks. And I am curious to know
why we did not ask the lawyers for the banks to come and tell
us what they are going to do with the money because it is
really up to them.

Mr. Conyers. Are foreclosing banks, Professor White,
usually represented by counsel? Can homeowners in a foreclosure
generally afford counsel even?

Mr. White. No, it is a serious problem, and there has been
research about that as well. There is a study by the Brennan
Institute for Justice on the number of homeowners who have
legal counsel in foreclosure, and it is far too few obviously.
It is also the case that there are many homeowners, like the
couple in Delaware that was mentioned earlier, who try and deal
with the banks without help from either housing counselors or
legal aid lawyers.

And the evidence is very clear that you get a better result
not just for the homeowner, but for the bank and the investor
when you can either get an agreeable workout where the borrower
pays off their loan perhaps at a lower interest rate or even
where the homeowner has to surrender their house, sell it in a
short sale, give a deed in lieu. All of those scenarios
facilitated by those non-profits is going to save hundreds of
thousands for each homeowner and for the investors in that
mortgage loan. So it is just an extremely effective way to use
these funds to try and compensate the victims of the financial

Mr. Conyers. Mr. Larkin, could I ask you about the Justice
Department testimony that it is the banks, not the Department,
who choose how to allocate their settlement donations? Do you
think that is an accurate evaluation?

Mr. Larkin. It may be accurate, but it is utterly
immaterial. I say “may” because I do not have all of the
agreements here. But I do know if you looked at Title 18,
Section 2, you will see that it addresses this problem. It
defines principals under the criminal law. If a particular
individual takes an act himself, he or she is a principal, and
if it is a crime, that person is responsible. If an individual
forces somebody else to do the act rather than do it him or
herself, the first person is still responsible.

You cannot evade responsibility by getting somebody else to
do your work for you. If you force somebody else to do it, you
are responsible, and that is what is happening here. The
Department is just telling private lawyers and private parties
not to give all the money to the United States. They are
telling them to give some of it to parties who Congress has not
authorized to receive taxpayer funds. And it does not matter
who that is. I do not care. No one is allowed to receive it
unless Congress has authorized it.

Mr. Conyers. Okay, thank you, sir. One more question, Mr.
Larkin. You state that NeighborWorks of America funds a network
of left wing community organizers in the mold of ACORN. I am a
little offended by that. Do you know that NeighborWorks is
chartered by Congress?

Mr. Larkin. Sir, I think if you look you will see I did not
say that. I quoted Investor’s Business Daily as saying that. I
did not say that. Investor’s Business Daily made that
statement, and I just quoted from what they said in my piece.
And the problem there is even if it is not true that there is
anything with ACORN, even if it is not true there is anything
wrong with any of these organizations, they raise the
appearance of impropriety. And Congress should be concerned
about the appearance of impropriety as well as the fact of

And it does not matter whether it is a Republican or
Democratic Administration. No Administration should be free to
give out money that the Congress has not authorized someone to

Mr. Conyers. Thank you very much. Let me ask Professor
White about the research consistently demonstrating that
foreclosure prevention counseling produces better results for
homeowners who are facing foreclosure or in it, and are 70
percent more likely to remain current after receiving a
modification in the National Foreclosure Mitigation Counseling
Program, who are 3 times more likely than non-counseled
homeowners to receive a loan modification. Does that comport
with your experience?

Mr. White. Yes, absolutely, and there is more than one
study that has demonstrated that. And I think it is important
to keep in mind that we still have over 2 million families who
are either seriously delinquent or in foreclosure now, and
there are a lot of preventable foreclosures that could be

And coming back to some points made to the Chair about the
level of appropriation, I mean, there are plenty of reasons
that Congress needs to be careful about how much is
appropriated for various functions. But the fact is, in my
view, both the legal service organizations representing
homeowners and the housing counselors could effectively use
more money than they are receiving from all sources, from
private, State, Federal. They are underfunded.

Mr. Conyers. Thank you so much. My time has expired. I
thank you all.

Mr. Marino. Ms. Mrose, you stated in your opening that you
had a discussion with a Mr. Allison.

Ms. Mrose. That is correct.

Mr. Marino. Was that a personal discussion that you had, or
was that information relayed to you?

Ms. Mrose. That was a filmed interview that lasted an hour,
and he released it for the public because we are going to use
excerpts from it in the film.

Mr. Marino. Okay. And I am assuming you are continuing to
interview people. Have you interviewed other lending
institutions to this point?

Ms. Mrose. I have not interviewed other lending
institutions. I interviewed Peter Wallison and—-

Mr. Marino. And what does he do?

Ms. Mrose. Peter Wallison is at the American Enterprise
Institute, and he was one of the commissioners of the Financial
Crisis Inquiry Commission.

Mr. Marino. Have you requested to interview people at
lending institutions, and have they refused to talk to you?

Ms. Mrose. We are going to do that, and I am looking
forward to that.

Mr. Marino. First of all, before I ask another question, I
would like to enter a document in the record. It is United
States Environmental Protection Agency, and it is a memorandum
concerning guidelines. And I just want to cite a section from
here, and then the full document will be made a part of the

[The information referred to follows:]

Mr. Marino. “Cash donations to third parties are not
permissible. Defendants/respondents may not simply make a cash
payment to third party conducting a project without retaining
full responsibility for the implementation or completion of the
project as this appears to violate the MRA,” and that is the
Miscellaneous Relief Act.

Mr. Frank, what is wrong with having guidelines to explain
how taxpayer dollars, or fines, or restitution should be

Mr. Frank. Well, the guidelines should be implemented by
Congress given that the executive branch does not have the
authority to allocate money. But I think guidelines are a good
thing and are a good way to avoid the potential conflicts of
interest when the executive branch bleeds into the separation
of powers by structuring settlements this way.

Mr. Marino. Mr. Conyers?

Mr. Conyers. Would you yield? Thank you, sir. Mr. Frank, in
your written testimony, sir, you describe the Justice
Department as having unfettered power to structure settlements.
Were the settling banks represented by counsel in those
settlement negotiations? Were the banks under any coercion to
settle as opposed to litigating? And could a Federal court
award consumer relief provisions had these cases been
litigated? What are your thoughts about that, sir?

Mr. Frank. Those are multiple issues.

Mr. Conyers. Yes.

Mr. Frank. But certainly the defendants were represented at
the settlement table, and it is not clear that they did not get
one over on the Justice Department here by getting the illusion
of $7 billion that might end up costing them $2 or $3 billion.
With respect to whether this could happen in a court, I do not
believe FIRREA, the underlying statute where the allocations
were made here, would authorize this sort of particular relief
if it was litigated to judgment, whether a court would approve
a settlement involving these third party transactions.

Well, what district courts do is not always what is particularly legal, especially in the settlement context where they are trying to get cases off of their dockets. And that is the experience I have had in the civil context.

Mr. Conyers. Let me ask you, did the Justice Department
settlements with Citigroup of Bank of America involve, in your
view, class action lawsuits in any fashion?

Mr. Frank. No, those were not class action lawsuits, but
the underlying principles are the same principles.

Mr. Conyers. Good. Thank you, Mr. Chairman. I yield back
any time I may have.

Mr. Marino. As I said earlier, we are pressed for time to
get out of this room. I do want to thank all of you for being
here and testifying. I wish we could have another hour or two
of hearing from you. Maybe in the future we will have that
opportunity. And this concludes today’s hearing, and, again,
thank you for attending.

And without objection, all Members will have 5 legislative
days to submit additional written questions to the witnesses or
additional materials for the record.

This hearing is adjourned.

[Whereupon, at 12:37 p.m., the Subcommittee was adjourned.]

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