making what is now temporary a permanent circumstance and h r seventy seven deals with the hope for home homeowners program and i'd like to associate myself with the comments that you made with reference to this piece of legislation what i'd like to focus of i may on h r seven eighty eight which deals with the harbor provision for mortgage servicers who engage in loan modification i think that this piece of legislation has a lot of potential i am interested in  way it has been fashion because i can see that someone has put a lot of thought into it it seems to deal with those loans where there is a default or where it is reasonably  takes the anticipated recovery on a foreclosure then the modification becomes an acceptable remedy i think that there are many loans in many circumstances where the modification will take the value of the modification the net present value will be the value that we will acquire by way of foreclosure and i do recall from our hearings that we've had services who have given  for holding this hearing i've been back in the district and had the opportunity to meet with a lot of different groups from builders to mortgage originators to home builders is there really stability and is there really look quiddity i've heard restoration from the community bankers say that they sense a dual policy on the one hand regulators are cracking down our regulators are encouraging banks to lend but during examination the bank examiners are cracking down forcing write downs on performing loans in an discouraging increase lending from smaller institutions even though they have plenty of capital and liquidity they e that people who've been close to the foreclosure process regardless of how they're bailed out of it are most likely the ones to fall back into it at some later point to have a lot of concerns i am very pleased and i appreciate chairman frank investor actually mentioning unfortunately with this provision of statute i am not convinced troubled loans have been modified at the rates we expected for this reason i am pleased to join the chairman frank mr kanjorski to expand on the original proposal by offering the safe harbor liability protection to anyone who engages  modification regardless of the original service agreement as long as they act in a matter consistent with the home owner emergency relief act this expansion also requires servicers and gauging modification to report these activities to treasury it is my ho encourage servicers to revisit the conditions of a problematic mortgage and encourage them to restructure the loan so more americans may avoid foreclosure and with that back my times i thank the members and we will now begin with chairman frank ranking member baucus members of the committee i appreciate the opportunity to testify today on behalf of the f d a as you know quality deterioration especially among among residential mortgages played a large role in triggering the current crisis declining asset values have reduced bank capital levels which in turn has reduced their ability to lannes however it's also true that a lack of liquid among banks is also impacted their ability to land liquidity is a key component in returning the economy to a condition where it can support normal economic activity in future economic and deposits significantly insured deposits are a key source of bank liquidity as you know the f d a implemented a temporary liquidity guarantee program to help stabilize the funding structure of financial institutions and expand their funding base to support the expansion of new credit the program has had a positive impact there have been there has been a high level of participation and we are seeing significantly reduced credit spreads for participants the action to establish this program was authorized under the systemic risk exception of the special systemic risk assessment however under current law the authority to assess premiums extends only to ensure depository institutions recent actions taken under the systemic risk authority have directly and indirectly benefited entities beyond insured depository institutions such as large holding companies non bank affiliates as well as shareholders and subordinated creditors of these organizations we support amending current law to allow us to impose systemic risk assessments on the range of entities and if if from a systemic action rather than just insured depository institutions it seems only fair that those who receive the benefit should pay the cost another important way the f d i c can help foster greater liquidity is to ensure a strong and flexible deposit insurance system since the creation of the f d i c during the great depression deposit insurance has played a crucial role in maintaining the stability of the banking system by protecting deposits ensures the security of the most important source of funding available to ensure depository institutions funds that can be lent to businesses and consumers to support and promote economic activity is part of our contingency planning the f d i c recommends that congress provide additional support for a deposit insurance guarantee by increasing our existing thirty billion dollar statutory line of credit to one hundred billion dollars assets in the banking industry have tripled since one nine hundred ninety one the last time our borrowing authority was adjusted we believe it would be appropriate to adjust the line of credit proportionally to ensure that the public has no confusion or doubt about the government's continued commitment to protect their insured deposits the f d i c is committed to maintaining liquidity and stability in the financial system in times of economic uncertainty the deposit insurance guarantee plays a vital role in maintaining consumer confidence the adjustments to the f d i c assessment and borrowing authority that i have described would ensure that the f d a is fully prepared to meet any contingency in closing the f d a will continue to work with congress to ensure the banking system is able to support economic activity in these difficult times thank you development for the federal housing administration i am here representing the secretary of hud shaun donovan this past august i was appointed to serve as the executive director of the hope for homeowners board as you know the board is composed of designees from hard treasury the i and the federal reserve all of us at hud welcome and applaud your decision to make modifications to the hope for homeowners program as you are well aware the program data clearly indicated the changes are not only appropriate but necessary further more changes are needed as quickly as possible to date has ensured no loans under the program lenders have taken four hundred fifty one applications and twenty five lines of close to put these figures in perspective according to the congressional budget office's original projection would have ensured approximately forty thousand loans by this point in time that said f h a support program modifications such as those proposed in h r seventy seven your proposals cut to the heart of the problem with the program overly restrictive eligibility standards and extremely high cost to consumers we believe that elimination of a number of the eligibility criteria could result in significant program uptake the program restrictions have proven to be more and more challenging as economic conditions have worsened the march affordability test in particular prevents families who have suffered recent financial hardship from participating in the program the proposals to reduce consumer costs are equally worthy in particular the shared appreciation feature has been very problematic the way the existing law is written borrowers are being asked to pay the federal government for the benefit of program participation in an amount that is likely far to exceed the principle right down there today there is no dollar cap or time limitation and the borrower can only pay off the shared appreciation mortgage by selling the home f h a also appreciates and welcomes the proposed language requiring the hope for homeowners program to be run in accordance with existing f h a practices every minor deviation from existing standards requires that large lenders trained staff modify systems and establish new quality control measures any disparities within the loan operations of a large institution require a great deal of time and resources both of which hinder program uptake and certainly slow lender implementation time frame well how generally supports all of the proposed legislative changes there are a few that could benefit from some additional consideration such as the proposal to be upfront mortgage insurance insurance premium all together as an insurance company with a three hundred billion dollars insurance authorization to run this program and upfront premium reduces the subsidy costs from potential foreclosures and claims the upfront premium helps to defray the subsidy expenses in a way that stretches the insurance authority farther enabling f h a to help more families in need how do agrees that the upfront annual fees are too high but some amount of upfront premium income should be considered another area worthy of additional discussion is the effect of the mandatory principal write down on subordinate lienholder well f h a supports the overarching congressional objective to reduce the borrowers debt load to create assets you know if you have the assay standpoint if you give market value or as opposed to hold a maturity value our current you know distressed value it doesn't help the banks does it not so what can you give us any inside out and what actually the price would be i mean that's certainly the most difficult question to determine in setting up any kind of structure that it would take assets off the banks balance sheet is what's the appropriate price to pay for determine what is fair value in a kind of market where i can't speak to all the specifics of discussions but generally determine how one would determine an appropriate price would be important you know not just close by saying obviously the  toward the direction the eligibility criteria that were set out in the original law clearly were intended to serve the right purpose but have served as barriers to participation we've heard that again and again both from counseling organizations and lending institutions and secondarily the cost to the consumer the cost of the product today is very very high between the shared appreciation mortgage the shared equity mortgage the upfront mortgage insurance premium and the very high end of all insurance premiums it's the kind of product that people need to think twice about before they just decide to take it so i think that temporary liquidity guarantee program who are taking advantage of that program who do not have the authority to make holding companies today probably seven thousand institutions have entered the part of the program the deals with guarantee  o get the a guarantee what the systemic risk us already does for us is if we end up with greater defaults then we've collected revenue under the law we would have a systemic risk assessment to get the extra revenue from the industry to cover our costs but right now we could only assess the banks in the us we could not assess the bank holding companies in the thrift holding companies how do you heart adapt our to the set up a program without the companion authority to make that kind of assessment is under the systemic risk making a systemic risk determination is one part of legislation we have from congress but to assess additional premiums is a different part of legislation that focuses only on banks rather than the holding companies and we think it would be fair and prudent to be able to assess the same group that is receiving the benefits from that contingent assessment you're saying they additional money to those who benefited from that is there sufficient value in your opinion for for this authority to be made permanent as opposed to just three years out  reduction to increase the cost to the government has estimated what those increased cost will be now in the previous paragraph in your testimony hope for homeowners is a product that is intended to help as many families as possible unquote i suppose only subject to the three hundred billion dollars ceiling theoretically you could help family in america that was having trouble paying their mortgage but in the balance between how much more taxpayers will have to bear versus struggling homeowners who may receive taxpayer can't help every single person in trouble but it's a program that's available to help those who have sufficient income and his debt obligations are not so great that they can qualify for this mortgage product but qualifying standards would not change under the program it simply opens the door to make sure that more people are eligible so for example the affordability measure that exists in the law today says that as of march first two thousand and eight a borrower must have a mortgage payment to income ratio of thirty one percent there are people who have sustained some type of loss to their income since march first two thousand and eight as of march first they were able to make their mortgage since march first they can't those people are eligible to participate in help for homeowners i don't actually think that was the original intent of congress so those are the kinds of eligibility restrictions that foreclosure we started by looking at loans that were sixty or more days past due probably a percentage of those who would go into foreclosure a certain percentage that would able to pay and so we would look at a formula to say can this person's mortgage be reduced enough to make you affordable and sustainable for them and still provide a greater present value than would be obtained through foreclosure so it's a fairly old model to run through not everybody is going to qualify if your income if you don't have a job your income has dropped very low then it's not going to be sustainable or affordable and it won't get the modification so the programs designed to do that to maximize net present value and for the institution and be affordable and sustainable for the borrower in terms of are large number of americans who are out and i know just recently in my district talk to some small business people because they don't have the liquidity they are beginning to layoff individuals want to and it's having a real effect i was wondering whether or not the use  current market where the marketplace is very unsure of the value of their assets and the credit quality was not the banks were on able to borrow money that they in turn could could lend to businesses in  consumers so this program is to provide liquidity for banks to help them land in debt and we think it's been working very well their borrowing spreads have come down significantly because of the f they are paying the fees for that guarantee it was structured it is structured where they can continue to issue senior unsecured  through mid year this year for maturities of up to three years beyond that so that they can borrow longer term funds to keep lending going for a longer period of time so we think it's been a very helpful program and that is the purpose to help businesses and consumers obtain loans i think mr watt asked the question about make it permanent but you said that would be up to someone else but thought that i did read somewhere that this three year temporary period was going to be extended was thought about being extended to ten years could you tell me something about that to extend the program would the indeed that will happen that's being evaluated would you recommend i think it's going to it certainly depends on continued market conditions as to how long you be part of that dialogue and there are other regulatory bodies within the department of housing and urban development who would certainly be a part of that conversation what about originators oftentimes i have found that you've had originated who made you have an f h a loan that does it and they don't comply with f h a requirements in that regard if someone or originator has a  insolvent and for a temporary period until it could assess the industry to replenish the fund then it would be a source of borrowing for the agency to cover that shortfall until such time that the industry also think it's critically important that we have a refinance product available that modifications are fine and good and certainly helps borrowers who are in trouble but a refinance product a different place in the tool it but there are other eligibility criteria which are very obvious when you actually read the original piece of legislation there was a requirement that the borrower certify that they did not intentionally default on their previous mortgage that's really problematic only in the sense that technically everybody intentionally defaults you're making a very hard decision as a consumer when you're in trouble to pay my gas bill and keep the heat on so that my kids are warm or do i make my mortgage payment there are a lot of people who feel very uncomfortable certifying that they did not intentionally default on their previous mortgage there was a provision that said that borrowers must not have provided false or misleading information to qualify for their previous mortgage there are certainly a number of people who had stated income loans who either knowingly or perhaps unintentionally provided false income information to qualify for that previous mortgage these people aren't eligible to participate there's a provision in the law that says the borrower cannot fault on the first payment on the hope for homeowners loan we believe the intent of congress was good that you were all trying to protect f lenders dumping non performing loans on the great intent but it really scares away lenders they say gosh if there's any chance that a consumer might miss that first payment it's not somebody i want to serve  so there are all of these eligibility criteria was set out in the law that are very specific and very narrow that are proven to be problematic and perhaps an easier way to write a piece of legislation is more broadly or generally to give authority to the federal much mr events i am still trying to connect the dots and my question isn't a sophisticated as some of the others that have been asked of you but it will help me a little bit better handles and enable me to better explain some of the things that ha names you know countrywide people who are in a house that has a four hundred thousand dollar mortgage and i like that term somebody use it has become a devalued asset behind a couple payments on the house and i got another job and so they get right to make the payment and the mortgage company says now we're not going to accept your payment unless you get caught up and pay us up and fall now help me understand when you're upside down fifty percent a piece of property and you're supposed to be trying to mitigate your loss how in the world that can happen i certainly don't understand why something like that would happen if you have a property that's worth two hundred thousand and four hundred thousand and you were going to go into foreclosure you're not even going to get two hundred thousand after you go through all your expenses except seeing some reduction from a borrower in such a circumstance certainly makes sense to me it's the kind of program that the a has supported to have more say fordable mortgages in situations where it works to the institution and the borrowers benefit i think as maybe some of these events were developing there were situations weren't handled by some institutions the way they should be and i think all of us are trying to be very public about how would you recommend we approach things like what do i tell the people i mean is there a call to action they can have out the people that are better holding this paper that they're obviously clearly willfully and knowingly jeopardizing for lauralee knows what reason i mean they've told me they've shown me clearly how it makes sense to let their home go back and buy one next door in a short sale i mean because that's the kind of neighborhood that it's in right now but the company just plain is crazy hardball and and i don't see any upside would would agree that there were a number of consumers who took out sub prime loans who certainly could have benefited from an f h a loan where they would have gotten prime rate financing are close to prime but with this particular product  thing if we want people to take a loss to put into the hope for homeowners program or some other type of refinance vehicle we actually need to make it as easy as possible for them to do that and not set up barriers to entry and that's really what we have with this product that  proposed in the legislation i think if congress were to go forward and make permanent the deposit insurance level to two hundred and fifty thousand  it does add exposure to the fund so we would need a way we would need to be able to charge premiums to the industry to help restore the balance level of fun and it would seem appropriate to have that kind of flexibility and go on from five to eight years to be able to balance how quickly to bring the revenue in with the demands being placed on the banking industry at that time so that that flexibility to me seems to go together with the two hundred fifty thousand if if one were it would be appropriate to have the other those are very very careful deliberations on what is appropriate premium level to charge the banking industry and how quickly to replenish the deposit insurance fund back to it normal level given those competing objectives that we have at this time and friends i was just going to ask you i know you mentioned you really believe that removing these barriers and making it much easier to participate in the hope for homeownership program is really going to make it successful i guess my question is do you have any sense of what the timeline might be to actually see some real numbers come in because when you see the forecast of four hundred thousand homes that are potential users actually use the of legislation be passed and how similar with the program look to an existing f h a product the closer to an existing f h a program the easier it is to implement for everyone obviously but also for the lending community one of the things that makes the program so difficult today is that it has so many distinct requirements and these new financial instruments that require the lending community to set up new protocols  lot to respond to the first part of your question there are going to be some situations where a loan modifications aren't going to work and somebody has lost their job and has no income then it's going to be not going to be possible propre a type of loan modification so there you need some different kind of package to help stimulate job creation in the economy so i think long modifications are very positive been convicted of some type of activity they certainly wouldn't be eligible programs regarding marketing one of the concerns that we always have is misrepresentation by an organization that they are part clarify the way that works at the beginning of a calculate we actually do a projection at the beginning to try to determine what do we think the composition of the book of business for that year will look like and what do we think the volume of the business will look like  conditions greater losses than we projected at the beginning of the year so we're going to take some funds from the reserve account to cover those future potential losses it really is a prudent management practice as opposed to any embrace something like this let me say regarded not in any position to speak to what ultimately may be the proposal from the administration on on what they  not anything in the bill that would enable the service to go back to the legal counsel for the bond holders who drawn up the bond you know i i keep getting more and more frustrated as we get to this closure situation i just don't believe that we have our hands around the enormity of the problem i mean we're helping hand to the banks to the automobile to industry to others that have come before here but to the poor struggling homeowners we give no kind of help we didn't give any help in the to we've got a we've really got to change i think and really get big of those two point eight million that we said will lose their homes this year over one million of those will be seniors who've lost their pensions because of their retirements or for one when we look at the magic thousand three hundred homes every day we're losing that is almost been matched now by the number of jobs we're losing every day that has gotten over six thousand every day so the question comes down to the fundamental question we can dance around this all we want to modified is inappropriate and i know the state of california a similar thing based upon that indy mac's model so it could be looked at at the end of the day there will be a in their home how do you how would you suggest would be the best way for him to spend that we're running out of time and we have to career professionals chairman i'd like to if you would help to provide some with reference to why we have some institutions that are not lending to the extent that it is that they should be let's start if you will with the tarp fund approximately three hundred billion dollars that went into something that we now call that is a capital purchase program and let us find the don't mean to let me put it this way they like to borrow at a low rate at a higher rate ok i don't mean to demean any of the banks i just want to be factual and in so doing we now have a circumstance that we've had a circumstance where the posits were not sufficient so that they could make some loans and there were banks that were afraid to lend to each other so they couldn't borrow money to make a loan we have opened the discount window hopefully that will be to borrow money to make loans to my questions or is this what percentage if you can tell me generally speaking the banks are not making loans because they don't have the pop that such that they can make of not withstanding being capitalize they don't have the deposits from which to make a lot is that a pervasive problem i wouldn't thought the capital cash reserve is something that's required to act as a cushion in the event there is something called a run so they are not allowed generally speaking to lend that money they have to land the deposit and they have to lend money that they can borrow so again how pervasive is this lack of liquidity in the posit such that loans can be made i'm really pass quickly level before my time is up let me ask you about the second part of this which has to do with the the lack of a source to borrow we have we pretty much taken care of that the lack of a source from if we were to create that authority statutorily so that servicing agents could have that authority when you agree that that would lead to some subset of these loans being modified more people staying in their homes and a higher percentage of return to the owners of these obligations as a general proposition modifications well that was the second part of my question if it would be beneficial should we also create incentives to do that including protections   certainly protection and it would give them greater ability to modify mortgages and however that is structured you just need to be sure of what other you see a way of crafting the legislation so that someone would not be able to have interest bearing accounts of over five million dollars in various banks t ensure that's a difficult question i mean there broker deposit market exists now where somebody can have accounts separated and spread in different banks and legislative different types of liabilities structures require higher premium charges to the deposit insurance fund and we put out such a proposal related to broker deposits for comments that sometimes there may be ways to approach things more flexible in a regulatory framework but i don't have an answer for you in terms of what specific you should why i hope you get your ideas because anything you can do we can also do if you have ideas along these lines and it would depend on the judgment of the committee but increasing to two hundred fifty thousand just means that somebody willing to deal with one hundred banks is able to get two and a half times as much insurance are our objectives are most faceted on this but one of them is to provide assurance to middle class families and even upper middle class families and when somebody starts getting federal insurance in excess of millions of dollars we may be exceeding our purpose of course even leaving things that one hundred thousand dollars simply means that they have to deal with  more than one of my town halls they ask why should i pay my mortgage one of the if you can afford to pay your mortgage that is your legal and moral obligation but also to get some money for the federal government but to convince the people of my district to never benefit from any of these programs that they're not suckers and that in fact those who are homeowners are also giving up some balances are greater than the value of four trillion dollars of underwater mortgages and we're not going to provide help for all those folks willing to provide help to those who most need it i got a lot people who are underwater but they're making the same mortgage payment they were making five years ago and they can make that payment for the next five years and hopefully they'll be above water how do we convince the person who has a underwater mortgage  speak to exactly what they would propose i definitely i'm not asking for proposals i'm saying from what you've seen having to look at various loans that might be given consideration what do you hearing from servicers about what we would be giving you more if  i think that the elimination of of the eligibility criteria that we discussed earlier in the hearing would definitely go a long way towards increasing program uptake i think reducing some of the cost of the program i definitely think the shared appreciation  feature is extremely complicated for people to administer and a very high cost to the consumer i definitely think this bill goes in the right direction to go back to the shared appreciation you also  get to the issues that congressman sherman which suggest to those who are making their payments that somehow they are being under served by doing so and keeping some degree of moral hazard in there and recouping some of the cost to taxpayers who are homeowners who are already getting debt forgiveness does make a case for sure depreciation but anything missing from the changes we're making that you haven't already spoken to  situation for the vast majority community would be no they are very well capitalized for the most part but there are going to be circumstances where there are going to be individual institutions need more capital so dealers or real retail establishment owners shopping center owners and these are these industries are kind of questionable right now you better be harder on the loans that you make to them or the loans that you  government and regulators are not going outside the box for creativity and how are we going to solve these problems keep doing the same old same old and that's where i'm coming from thank you thank you mr chairman general that three fourths of all the bad assets in this country are actually held by only four banks citigroup bank of america j p morgan chase and wells fargo is that correct i don't have an answer for you for  eligible where where public corporations by their nature that's more of the larger institutions it was then rolled out to private corporations only recently terms for how to invest in mutual organization so the rollout has been slower for the smaller ones and that's certainly been a cause for concern from the point of view well by giving tens of billions or even hundreds of billions of dollars and to these four banks are we basically rewarding them i think the intent of of all of these programs is to try to stimulate the economy an important part of that is stabilizing the banking system as a whole so we do need to take steps which talked about components of doing that is  capital and liquidity the larger banks are going to be an important part of of stimulating the economy and by necessity are going to be an important part of any programs that for banks because of the mistakes that they made in accumulating a trillion dollars or more in bad assets and not helping the smaller banks who could provide stimulus and help local communities around america well the general principle we moral hazard we want market discipline in the economy i think as we've gone through this financial crisis there been a great many shareholders in senior debt holders who've lost a great deal of money and so i think they'd certainly be of the market have been provided some discipline and i think when you get into a situation as severe as the one we're in then we need to look  at stem a cli what needs to be done at least for that period of time to take care of the bigger issue which is financial stability of the country what discipline is there been for the managers of citibank and bank of it's going to be easy for people to look at it others say this is why something happened from our point of view we're going to do everything we can to ensure that the right messages are getting across and i believe they are  there is some appropriate underwriting standards in lending to credit worthy borrowers that has to be held and and and there have to be some standards and yet we have to be careful that those standards your changes to the i wasn't sure and make improvements in the hope for homeowners program and provide prompt availability of capital through the capital purchase program for community banks a b i supports this bill let me address each of the major elements a b a supports making permanent the two hundred fifty thousand dollar deposit insurance limit that was set on a temporary basis an emergency stabilization of this increase from one hundred thousand help tighten consumer and small business confidence and also result however this increase expires at the end of two thousand and nine as important at this issue be addressed by congress as quickly as possible as a product matter with each passing month it becomes more difficult for banks to effectively offer certificates of deposits over one hundred thousand because the expiration date on the insurance increases moving closer for example by june banks will only be able to offer six months  and one hundred to two hundred fifty range thousand range that are fully insured or over the expiration date and differing levels of insurance on c d s will be confusing to customers it is important to note that the hundred treasury is a reasonable change given the f d i c more flexibility to manage cash flows related to bank cash flow issues occurs the f d i c acquires assets that need to be sold off in an orderly fashion we would emphasise that this is a line of credit and that any draws on it by the constituted borrowing that must be repaid by the banking industry we reiterate our continued support for the hope for homeowners program we believe the changes to the program recently announced by the department of housing and urban development have the potential to attract many more borrowers and lenders we see that further changes are included in the bill we also support the provision relating to securitization it is widely agreed that the legal liability issues relating to securitization are inhibiting foreclosures we also support the provisions in the bill that direct the treasury to take necessary actions to provide capital under the capital purchase program to community banks and to do so on terms comparable to those offered to other c p p recipients we strongly believe that the current commitments should be killed in order to prevent disparities from occurring and to competitive disparities from occurring and to assure ensure that every community has the same opportunity for its banks to participate for example in many new england communities mutual institutions predominate currently those communities do not have the same opportunity for their banks to participate in the c p p finally i compare feel compelled to mention once again another issue relating to the subject of this up but it's not just banks in the past two weeks we have seen accounting rules undermine the ability of the federal home loan bank system to provide liquidity and we've seen a financial emergency in the credit union industry because of the impact of mark to market on corporate credit unions and emergency which appears to be offsetting roughly the entire earnings of the industry in two thousand and eight the credit union is straight into the deposit insurance premiums maybe appreciate statements by members of this committee on mark to market and urges you to make accounting policy part of your reform agenda mr chairman i'd just like to say that i agree completely with your comments about the conflicting signals that we have been receiving from different back seventy million dollars community bank and we are focused on our community i'm honored to be chairman of the independent community bankers of america as we focus our representation exclusively on community banks we applaud the efforts of this committee to promote banks are the backbone of small business lending key provisions of your bill contribute directly directly to this measure and as a result create jobs your improvement hope for homeowners expands the alternatives for community banks liquidity competition for deposit the increase in deposit insurance coverage to two hundred fifty thousand as help community banks part of the solution to the credit crisis caused by the activity of a few large financial institutions fifty thousand dollars level in transaction accounts under the temporary liquidity guarantee program more than seven thousand banks including thousands of community banks have chosen to participate in the transaction account guarantee program the programs an important measure to enhance confidence of commercial customers and community banks and has been an important tool for enhancing community bank liquidity this program allows eastern bank and trust to compete with the too big to include a two year extension of the current transaction account program with other deposit insurance provisions that the committee will consider tomorrow eliminating the program at the end of this year would have a negative impact on community bank liquid again at a critical time this important program should be extended by congress to give the nation's deposit more time to stabilize thank you so much for an opportunity to represent the community bank of america happy to take any the new amended provisions in a child seven hundred three are important measures towards stemming the foreclosure crisis restoring bank liquidity and rebuilding consumer confidence and financial system in the u s economy has seven o three is annual premium makes for a much more attractive program moreover the amendments would allow to eliminate age for ages annual premium payments once the borrower is equity reach levels consistent with stan a underwriting practices and products produced equity sharing with the federal government is another welcome in the hands meant to age for age and the new age would allow the sovereign government to recoup its investment at the same time while preserving significant wealth building opportunities for borrowers another major advancement offered by age seventy three is the same provisions for services which will increase the likelihood of meaningful loan modification this provision protects the services investor losses if the investor reasonably ending good faith believes that its loan modifications will exceed the net present value basis the anticipated recovery of the loan print that can be achieved through foreclosure h r seven hundred three is a major step in the right direction towards addressing the foreclosure crisis however in addition to that step and c r c urges the committee to consider a broad s loan purchasing program h s seven o three still requires voluntary participation from the industry while offering safe and incentives but there will still be the need for the government to proactively purchase whole loans f or other approaches like using the calmest clause in the spending clause of the constitution which allows the government to regulate interstate financial markets proactive steps like this is necessary to wrestle a lot of these loans away from the market and closing h s seven those three is an important and necessary measure to stem foreclosures and stabilize the financial markets and c s c is pleased to endorse and i will take questions at the appropriate time thank you  tarp let me begin with the hope for homeowners program which was intended to be a tool to help delinquent homeowners avoid foreclosure but has had trouble getting off the ground h r seven hundred three would remove the obstacles that have prevented optimal use  the bill dropped the requirement the bar was have a housing debt to income ratio greater than thirty one percent participation it also increases the maximum loan to value permissible under the program for ninety percent of appraised value to ninety three changes premiums that are in line with other f h a products this reduction will only make hope for homeowners program more affordable for troubled borrowers n b a appreciates the committee's efforts to provide services with greater legal protections for performing loss mitigation services although most pooling and servicing agreements a lot from modifications and workouts not all do some p s a that allow modifications and workouts may contain conflicts while others may be  prove successful services will be exposed to significant legal liability and losses for breaching their contracts despite their actions being within the spirit of this law in v a would recommend that congress include a provision that would indemnify servicers from liability  important to return to its original purchase purpose which was to purchase non performing assets off of bank balance sheet and while the government focus to date has been on writing the residential mortgage market we also recognize that the broader  credit has negatively impact impacted the commercial multifamily real estate sector mr chairman because because this hearing is about bank liquidity i want to take a minute to bring to your attention that has and is hamstring many independent mortgage bankers and that is the shortage of warehouse lines of credit from commercial bank lines of credit are used to finance loans held for sale from origination to delivery into the secondary market warehouse lending capacity has declined dramatically from over two hundred billion in two thousand and seven to approximately twenty to twenty five billion in two thousand and eight for the originator the depends wholly on warehouse lines of credit this reduction could reduce liquidity extinguish their lending business and adversely impact the consumers in their market stifling the real estate recovery before it has a chance to really get off the ground congress and administration should take steps to maintain existing lines of warehouse credit and create new lines of warehouse winning by providing a short term federal guarantee of warehouse lines that are collateralized by general housing eligible mortgages or one of other several other alternatives there are are also available my written testimony discusses this issue a great length as well as these other steps congress and the obama administration can take to restore faith in the mortgage industry and boy foreclosures first and foremost mr chairman we need stronger of mortgage bankers and mortgage brokers by working together we can build a better regulatory system one that works for consumers and the industry alike in its members want to be your partners as we move forward in these efforts we also need to continue to strengthen f h a by investing in new technology allowing them to hire staff on a par with other financial regulators and we need to increase the loan limits and we need to remember jenny which now securitize has forty percent of the mortgage market subprime borrowers mr chairman and members of the committee thank you for your continuing effort to mill your deepening financial crisis we are running out of time two weeks ago goldman sachs com observed that if we did not gain control of the foreclosure crisis in the upcoming week it may be too late to prevent our economy falling into a depression in this context comment on the bills before the committee it's appropriate that these bills address servicers banks and homeowners of all three these are tied together in addressing the housing crisis all  currently suffering unnecessarily severe losses due to structural obstacles accidentally embedded in the structure of mortgage securities studies repeatedly that loans not caught in the labyrinth of securities modified more frequently more forcefully and more successfully the benefit of all the protests in reviewing these bills is important now dramatically how the landscape of the financial crisis has changed here the expected that interest rate has been more than offset by the dramatic decline in housing prices today more than one out of five homeowners with mortgages are under and more than their houses were in that number is rapidly increasing that is what is driving the avalanche of foreclosures that continue to bury our economy on top of this bank reluctant or regulatory accounting reasons to mark down the value of mortgage assets and loans ironically by the banks overstating how well they are doing we have country are doing far worse than we should be could be the failure to recognize these losses and modify mortgages is making this crisis much longer and deeper than it should be along with that we have obstacles of the pooling  servicing agree the bills before the committee today all address aspects of this challenge looking first at the hope for homeowners we applaud the changes to make this program more flexible and we urge  that there be even more administrative flexibility so this program can be adapted to meet the crisis we also urged lenders acknowledge the need to reduce loan levels to reflect current values and the judicial lo modifications be available to borrowers as a last resort as well the next bill which provides a safe harbor for service or provides an important benefit to help remove artificial obstacles to rational loan modification similarly with today's foreclosure crisis individual are pursuing needless foreclosures that may appear to be in their best interest but are devastating homeowners and the overall economy intervention chairman ranking member baucus and members of the committee i appreciate the opportunity to testify before you today i am currently residing in orange county north carolina this region is farm country on the edge of what used to be a small town america but now about the raleigh durham chapel hill triangle i was raised near pittsburgh pennsylvania so i do have a bit of perspective of city life as well as a private citizen i'm honored to have this opportunity to speak to you mr chairman and members of the committee during the last number of months my family has struggled to make ends meet because of the financial crisis while i have been unemployed because  construction downturn my husband and i continue to change our activities we cut back on the necessary spending to make sure we can pay our mortgage on time and pay our bills as my family and i continue to work and adjust our life we cannot understand why we have to struggle or given a free pass on their mortgages many of the bailouts that have been undertaken will penalize those who have been responsible we are going to pay higher taxes to pay higher mortgage and not benefit from any rate reduction this is the wrong approach and punish is responsible behavior let me be clear i'm not here asking for assistance but i feel that it is not right for many of my many of americans living within their means to have to pay for the cost of those who live outside their means i have bills to pay and i believe i should be allowed to keep more of my money i'm a second generation american whose grandmother taught her the marls of freedom and all the opportunities it brings my mother and father taught me the value of hard work honesty integrity with a reminder that pride does go before a fall the constant lesson that within them in america you could judge to reduce their outstanding mortgage balances to the current market values of their home if this bill is an active will be much more expensive and much less effective than it appears now demand for the hope for homeowners act and bankruptcy will be more attractive than mortgage modification outside of those to homeowners and to mortgage servicers homeowners who cram down because of a permanent write down in the mortgage balance servicers will prefer it to because their costs loans have strong incentives to do the right thing they don't need interference from bankruptcy judges down with the flood of bankruptcy cases overwhelm the courts and delay the crisis potentially for years every bankruptcy judge handles about twenty six hundred  per year currently the courts would have difficulty handling a dramatically increased case load with the care necessary to successfully modify loans and even under the current caseload two thirds of chapter thirteen plans fail third down as expensive private lenders cramdown exposes taxpayers to the risk of losing billions of dollars as financial and suffer losses and need further capital injections from the government down is the wrong approach and so is actually hope for homeowners because i mortgages that are already under the control of fannie freddie and unlike hope for homeowners our proposal requires no government guarantee on privately securitized mortgages they lie at the core of the fun of the housing crisis they represent although they and make modification not foreclosure the preferred solution if a mortgage is ongoing the servicer receives a monthly if it goes to foreclosure service or receive nothing in addition the government servicers from legal liability when they have a reasonable our proposal would avoid up to one million foreclosures but the government can do more even among mortgage is controlled by the modification can inhibit and can be inhibited by the presence of secondly the government should therefore offer second lien holders up to fifteen hundred dollars to drop their claims when a primary mortgage is being modified this plan could facilitate one point four million new modifications together our proposals would address the current crisis at a cost of twelve point eight billion dollars payable by tarp funds this approach largely because though it can be effective it is much more costly than alternatives ok the relative to eternity is a cost taxpayers more money and you don't support the cram down either again for the same reason most of your life most of your  my together with my columbia colleagues section six of h r seven zero three and use it as a foundation what needs to be layered on top of it is at the very least a set of economic incentives that encourages servicers to modify even when they have the legal and congressman speaking as a community bank we have not had a challenge with mark to market on our balance sheet as of this point in time but there are community banks about the country that are struggling with mark to market  legitimate performing thirty year mortgage and it has agreed and you've got to file the current mark to market standards it hurts your capital that hurts your ability to leverage your bank that hurts or belittle and then your community so mark to market has got to be or i would we characterize that as a community bankers are not experiencing as much pressure as the largest banks of the nation with mark to market we are experiencing pressure on mark to market and i would just say that i've  talked to a number of community bankers where there's a huge problem and i'll give you two quick examples about how it can affect lending outside the traditional banking industry the federal home loan banks just in the last few weeks because the accountants came in and we're going to take your mortgage your private mortgage security portfolio and we're going to make you market to the markets have experienced a contraction of their capital and yet when moody's looked at that number and i'm doing this from memory corrected if it's wrong for the record i said it's a thirteen billion dollars write down on capital but when they looked at the individual securities they said we just in the last couple of weeks took a massive hit relatively speaking to the corporate credit unions where they had to have a huge in effect guarantee from the credit union insurance and most of that was mark to market and i understand the committee may be looking at the way that insurance premiums for credit unions are currently paid right now under our analysis they would have to pay basically all the earnings from two thousand and eight to changes we will see greater degree of lender participation i think you will see a greater degree of participation i think also one of the important things here  programs to adjust to whatever problems we find going forward we're creating a flexible system that can just i think one of the problems has been that we had to ride hard right and hard wire requirements here and there was no ability to adjust to what is clearly been a very rapidly changing circumstance and then again the part about securitization is very important number of the members of commented on participation by the lenders or any other incentives or proposals that might help us the loss of homes in our in our economy i must say that throughout this process from the very beginning there's a real opportunity to make a dent in this but i still think we're going to be challenged down the road and i hope i'm wrong about this but i think unless there is a proactive step in which we step into the market in a way and direct those that it would encourage more voluntary modification by providing some pressure that it would provide a good return to lenders and it would not hurt the cost or availability of the mortgage standard much concerned about that standard as i would be concerned about any legislation being interpreted differently by different courts standard is as clear as any legal standard other than one that absolves servicers of any liability which we definitely do not safe harbor that we've proposed which is identical to the one in h r seventy three present value test which is very similar to the ones that are very similar to the test that's routinely applied in chapter eleven reorganization judge is asked to decide many who were victimized and i think congress in a bipartisan basis to address that issue but you do raise the point that this might create moral hazard i think many favorite believe that that's i don't even count my calculation count of the various commitments we have to the banks and other institutions that are exposed to mortgage cramdown and you also indicate that you think eventually that this will lead to higher borrowing mortgages originated after the effective date and if bankruptcy cramdown becomes a permanent feature of the code there is no doubt that it will affect credit markets credit suisse report that was just cited by mr calhoun is riddled with errors one of which is reliance upon a study claiming no affect on credit markets mortgage cramdown study and i can point you to be exact tables finds just the opposite effect with respect to disadvantaged borrowers meaning borrowers who do have left imperfect records and like your reaction to whether the concept of a bad bank creates some moral hazard i would like to your reaction to the credit it's been touched off and i think the real problem with not an insurmountable problem but is valuation and i don't know how you evaluate those assets in a way that given some of its mark to market  given the fact that if you value him at the current mark to market it's way too low and if you value higher i think some of you are going to say well are the tax payers being disadvantaged so i believe the administration is looking think that the in many ways this is a cost benefit analysis and i think if there's a way to reach a compromise on this because if you look at the benefits that people talk about  we can argue about how big they are but the idea is that it will help some people stay out of foreclosure and on the cost side do you think the studies wrong to the degree of may impl proposal was that it was a limit that helps one of the problems as i keep using date of an act bank are saying to me well what should i be doing right now but i do think most of the benefits would be on the side of looking at the kinds of mortgages that probably should have been made and those are where the real problems are and if you limited to those then you don't have as much of a cost because going forward presumably lenders aren't going to be making those kinds of percent interest rate proposal and what impact it has in this whole equation i think they're related we have tremendous relief already and that's been helpful but not enough the foreclosure crisis underwater mortgages even a favorable rate some other assistance that's eventual there has to be some sort of write down or subsidy involved and the cram down i think it's important people talk of this drive down you written any white papers comparable to the one that i have some body of knowledge that talk that deals with  the relevant comparison is what as one of your colleagues i think was representative sherman said is that we want to solution that cost taxpayers the least amount of money and i agree cramdown would reduce foreclosures hope for homeowners would reduce foreclosures but we have to ask how much do taxpayers get charged for these policies and i think the relevant question for policy makers is to ask what alternatives are available and my colleagues  ones that aren't getting the help now and that may be correct i think if you look at the way the capital purchase program was designed it was designed to help only healthy banks on the theory that you put  capital in them you built a strong capital base and they could go out and lend to their customers and pick up the customers of others that may be where credit might not be available i think there are going to be some institutions  n important are going to have to be taken care of and i was in the middle i think under the current program are left to go to the private markets and raise capital when they c not i have trouble trouble we answer the question because of i'm not sure what's in your head as to what's a good bank bad bank but in some ways i think we're so beyond that discussion because you know as mike said earlier and to paraphrase him i think the services the banks communities in this congress were all in this together if we don't find a way to stabilize the financial services sector and to deal with these problems it isn't going to be a matter of who was the good guy who was the bad guy but it's going to be a matter of how far we go into this recession and whether we go into woods and he is calling a potential depression and i think what we need to do is create as much liquidity as possible and do something we haven't done yet and that is help the homeowners help the source of what was the original impetus for this recession and stop the foreclosures and go right after the people who are still working who are able to pay on their mortgages and would gladly continue paying on their we have to using the tarp funds figure out a way that we can liquefy these balance sheets we can get these bad loans either corralled or off the balance and having done that then take control as the chairman talks about find a way as we've talked about here of dramatically and aggressively dealing with those long once we get around it but we've got to have liquidity in the marketplace regardless of whether it's a large national bank bank small regional bank bad but right now we need to stabilize our financial sector if we don't stabilize the financial system both good and bad banks will see unemployment on main street academic studies of when world com defaulted on bonds that held by banks those there's been a great deal of focus given to a lot of the questioning that's gone on today as well as in the congress and it's really been a means of getting capital into the hands of the lenders obviously but you know the community banks which are obviously organized across the full range  dramatically increase our access to capital and there are over twenty five hundred subchapter s banks thousand three hundred eighty banks in this nation and if congress would continue to encourage the treasury to program do so and use that money to lend into their local communities we have a local bank that took advantage of tarp and from all of our perspectives are using it very responsibly lending there leveraging it they're lending it out ten to