U.S. Department of Justice Office of Legislative Affairs (Office ofthe Assistant Attomey General Washingion, D.C. 20530 January 6, 2015 The Honorable Bob Goodlatte Chairman ‘Committee on the Judiciary U.S. House of Representatives Washington, DC 20510 The Honorable Jeb Hensarling Chairman Committee on Financial Services U.S. House of Representatives Washington, DC 20510 Dear Chairman Goodlatte and Chairman Hensarling: ‘This responds to your letter to the Attomey General, dated November 25, 2014, regarding recent morgage fraud settlements entered into by the Department of Justice (the Department). Your letter focuses on the consumer relief provisions in the Department's two recent settlements with Citigroup and Bank of America, and states that the terms of those settlements “Jook less like consumer relief and more like a scheme to funnel money to politically favored special interest groups.” In fact, the consumer relief provisions in these agreements explicitly require the settling financial institutions to provide specific amounts and types of consumer relief, targeted to help precisely those Americans in need of such relief—those who are still suffering the effects of the misconduct that was the basis for these investigations For example, your letter notes the importance of relief for affected consumers and, among other things, focuses on the important role played by loan modifications. The Department agrees that such modifications can powerfully assist struggling consumers. The importance of this form of relief is evident in the Bank of America settlement, which requires $2.15 billion in such first lien principal forgiveness—by far the largest minimum requirement under the agreement. By contrast, the settlement agreements require a much smaller commitment of donations to third-party organizations. The Bank of America settlement, for instance, requires the Bank to accrue only $100 million in consumer relief credit through donations. Although such provisions represent a much smaller portion of the consumer relief package, these donations are calibrated to provide assistance to those consumers and communities most in need of help. Importantly, the‘The Honorable Bob Goodlatte ‘The Honorable Jeb Hensarling Page Two banks are responsible for choosing specific recipients of consumer relief funds. To be clear, the Department plays no role in that selection process, with the exception of the provision in the Bank of America settlement requiring donations to the state-based Interest on Lawyers" Trust Account (IOLTA) organization in each state and territory, to then be distributed by IOLTAs to organizations of their choosing for use in foreclosure prevention legal assistance and community redevelopment legal assistance. Again, the Department plays no role in that ultimate selection process, nor do we encourage the settling banks to select any particular recipient for these funds. In addition, these settlements contain a liquidated damages provision requiring that, in the event the financial institution fails to meet its obligation under the agreement to provide all of the consumer relief within the designated timeframe, it must make payments to IOLTA organizations or the congressionally-chartered NeighborWorks America, a national nonprofit created to provide financial support, technical assistance, and training for community-based revitalization efforts.’ The agreements call for the organizations to use the funds for foreclosure prevention and community redevelopment, foreclosure prevention legal assistance, community development legal assistance, housing counseling, and neighborhood stabilization. Again, the liquidated damages funds are required only ifthe financial institution fails to meet its consumer relief obligations by the end of the compliance period for these consumer relief provisions, the first of which does not occur until December 31, 2017.” And again, the Department plays no role in determining whether the liquidated damages provision will become relevant; a liquidated damages provision will come into play only as a result of a bank’s own choices. ‘The Citigroup and Bank of America settlements are just the most recent examples of the Department's broad effort to hold financial institutions accountable for their misconduct related to the housing market. The Department's record global resolutions with JPMorgan, Citigroup, and Bank of America all arose from investigations into the fraudulent conduct those banks ‘committed in packaging and selling residential mortgage-backed securities (RMBS). These three resolutions resulted in total settlements of $36.65 billion, and include the largest settlement against a single entity in American history—$16.65 billion in the Bank of America settlement— as well as the largest penalty ever recovered under the FIRREA slatute—$5 billion in the Bank of America settlement. A significant portion of these settlements, a total of $13.5 billion, is devoted to various types of consumer relief to help remediate some of the harm suffered by consumers and communities from the financial crisis resulting from the banks’ misconduet. Together, the consumer relief provisions in these three agreements contain some or all of the following elements: (1) loan modifications, including forgiveness of principal on underwater mortgages; (2) refinancing assistance to certain homeowners currently paying high interest rates on their mortgages; (3) down payment assistance, and closing cost payments for (a) borrowers in * See 42 U.S.C. $§ 8101-8107, establishing the Neighborhood Reinvestment Corporation now known as NeighborWorks America. Teshould be noted thatthe settlement with Bank of America requires the Bank to set up a Tax Relief Fund to help alleviate some of the tax burden resulting from the debt forgiveness provided as part of the consumer relief. State- based IOLTA organizations and Neighbor Works America will receive any funds that remain in the Tax Relief Fund, See Bank of America settlement, Annex 3, at 3,The Honorable Bob Goodlatte ‘The Honorable Jeb Hensarling Page Three areas with a high number of vacant or distressed properties and foreclosures, (b) borrowers who lost homes to foreclosure and short sales, and (¢) first-time, low-to-moderate-ineome borrowers; (4) donations to certain categories of community development funds, legal aid organizations, and housing counseling agencies; and (5) financing for affordable rental housing. In addition, the Citigroup and Bank of America settlements require the settling banks to conduct outreach to consumers to help them obtain consumer relief, including holding a specific number of outreach events each year until the banks’ consumer relief obligations are satisfied, and preparing a document, available online, that explains the consumer relief available under the agreements. Inall of these settlements, the banks are required to report their consumer relief efforts to independent monitors, who are paid by the banks. The independent monitors are charged with verifying that the banks meet their consumer relief obligations and will publicly report their findings. We expect that those reports will provide further information relevant to some of the points raised in your letter, including (among other things) the precise ways in which the banks are satisfying their consumer relief obligations. Accordingly, we would like to provide the briefing you have requested following the first monitor report for the Citi settlement, which we expect to become public soon, and we will continue to confer with Committee staff to schedule the briefing Finally, in response to your questions about the process involved in arriving at the various consumer relief provisions in each of the settlements, all of these settlements were negotiated by the Department in good faith with the banks, who were represented by counsel. Decisions in these settlements about the most effective ways to provide relief to those still suffering the effects of the banks’ misconduct were not dictated by the White House or any outside entity. We hope this information is helpful. Please do not hesitate to contact this office if we may provide additional assistance regarding this or any other matter. P44 Peter J. Kadzik Assistant Attomey General