By: Politico

Robin Atchley, a mother of four in Ballground, Ga., said her son offered to give up his lunch money so she and her husband could make the mortgage payments.

Needless to say they didn’t let him. The family sold their house last year so they wouldn’t be foreclosed.

UI law Associate Professor Katie Porter met with Atchley and the U.S. Senate subcommittee of administrative oversight and the courts to discuss current problems with mortgage loans and the servicers that provide them.

She was one of four witnesses to discuss what needs to be done about lack of conversation between borrowers and servicers.

The subcommittee invited Porter to the hearing because of her work on mortgage-servicing companies. She completed a study last fall in which she found unreasonable discrepancies between what mortgage servicers, or lenders collecting payment from homeowners, were charging borrowers and what the borrowers thought they had to pay.

"[We've had] too many horror stories, too many investigations, too many sanctions for us to simply take the word of company spokesmen that says ‘mistakes were made,’ " Sen. Charles Schumer (D-N.Y.) said during the hearing.

The majority of the conversation and questioning was focused on Steve Bailey, the senior managing director and chief executive officer of loan administration for Countrywide Financial Corp.

Although he was brought to the subcommittee because his company is allegedly representative of the loan market, Bailey says Countrywide has an error rate less than 1 percent - a contention that Schumer and Porter didn’t buy.

"Unfortunately, it seems these dubious practices are held by the entire loan-servicing industry," Schumer said.

Although Bailey’s appearance was a good sign, Porter said, she remains worried about all the other companies and thinks congressional action is needed.

"Already, we’ve done something important just by holding the hearing," she said. "[We're] bringing public awareness."

Sheldon Kurtz, a UI law professor and mentor of Porter, said legislators need research such as Porter’s.

"Without that work, legislators would be running around in the dark," he said.

Porter said she hopes there will be more enforcement on mortgage servicers, because they’re a big part of the subprime mortgage crisis.

During the hearing, she encouraged the bankruptcy rules subcommittee to adopt the "best practices" - standardized recommendations for good business practices - as mandatory.

Debra Miller, a trustee with bankruptcy advisers Chapter 13, said during the hearing that no loan service that she works with uses the best practices.

"And those rules need to actually be enforced so we don’t get excuses from servicers that they don’t follow the rules because the rules are not routinely enforced," Porter said.

She joked that she might be the only law professor who wants more laws immediately.

But Sen. Sheldon Whitehouse ( D-R.I.) was not joking when he asked Bailey in the hearing, "Why is this suddenly optional to comply with the rules?"

Financial incentives are what Porter said makes the loan servicers add fees - many of which are labeled as "other," or have no explanations. The best part of the hearing was when Schumer read off a statement made by the president of Countrywide, saying that when mortgage servicers give loans on bad mortgages, they rely on fees, she said.

But to completely get rid of the problem, the entire market for these loans would have to change, Porter said.

Kelli Shaffner reports for University of Iowa’s The Daily Iowan. The Daily Iowan is partnering with Campus Politico for the 2008 elections.

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