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AN ANALYSIS OF THE POST-CONSERVATORSHIP 

LEGAL EXPENSES OF FANNIE MAE 

AND FREDDIE MAC 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 15, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–4 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

RANDY NEUGEBAUER, Texas, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL E. CAPUANO, Massachusetts, 

Ranking Member 

STEPHEN F. LYNCH, Massachusetts 

MAXINE WATERS, California 

JOE BACA, California 

BRAD MILLER, North Carolina 

KEITH ELLISON, Minnesota 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

February 15, 2011 ............................................................................................ 1 

Appendix: 

February 15, 2011 ............................................................................................ 37 

WITNESSES 

TUESDAY, FEBRUARY 9, 2011 

DeMarco, Edward J., Acting Director, Federal Housing Finance Agency, accompanied by Alfred Pollard, General Counsel, Federal Housing Finance 

Agency (FHFA) ..................................................................................................... 5 

DeWine, Hon. Mike, Attorney General of Ohio ..................................................... 29 

Williams, Michael J., President and Chief Executive Officer, Federal National 

Mortgage Association, accompanied by Timothy J. Mayopoulos, General 

Counsel, Federal National Mortgage Association (Fannie Mae) ...................... 6 

APPENDIX 

Prepared statements: 

Canseco, Hon. Francisco .................................................................................. 38 

DeMarco, Edward J. ......................................................................................... 39 

DeWine, Hon. Mike .......................................................................................... 44 

Williams, Michael J. ......................................................................................... 48 

(1) 

AN ANALYSIS OF THE POSTCONSERVATORSHIP LEGAL 

EXPENSES OF FANNIE MAE 

AND FREDDIE MAC 

Tuesday, February 15, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:23 p.m., in room 

2128, Rayburn House Office Building, Hon. Randy Neugebauer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Neugebauer, Fitzpatrick, 

Bachmann, Pearce, Posey, Hayworth, Renacci, Grimm, Canseco; 

Capuano, Lynch, Baca, and Miller of North Carolina. 

Also present: Representative Garrett. 

Chairman NEUGEBAUER. This hearing will come to order. I want 

to thank everyone for being here. We have a lot going on; we had 

a vote, and we have some members who are in a meeting, and 

hopefully they will be able to join us very soon. 

This hearing will come to order. And without objection, all members’ opening statements will be made a part of the record. 

Let me start off by saying this is the first meeting of the Oversight and Investigations Subcommittee of the Committee on Financial Services, and I am delighted to be serving with my good friend, 

Mr. Capuano, and we have actually had a meeting, and we think 

that overseeing the agencies and the responsibility of making sure 

that the American people—taxpayers’ money is being well spent, 

and that rules and regulations are being implemented in an appropriate way are important. And I look forward to working in a very 

bipartisan way to make sure that this is a productive committee. 

We will start off by having our opening statements. I will open 

with my statement, and then the ranking member with his. Since September 7, 2008, the U.S. taxpayers have sunk $153 billion into Fannie Mae and Freddie Mac. And according to the Federal Housing Finance Agency, the final tab could be as high as 

$363 billion. 

As if the news couldn’t get any worse for the American people, 

an investigation undertaken by this subcommittee has discovered 

that the taxpayers have spent more than $162 million defending 

Freddie and Fannie and their former top executives in civil lawsuits accusing them of fraud. This includes over tens of millions of 

2 

dollars for former executives who knowingly and purposely manipulated earnings to increase their own compensation and whose actions directly contributed to the demise of the GSEs. 

The history of Fannie Mae under the management of Franklin 

Raines, Timothy Howard, and Leanne Spencer is a story of abusing 

their positions to use assets of the Enterprises to further their own 

interests and careers. The abuse by these individuals was so farranging that Fannie and Freddie were forced to restate earnings by 

over $10 billion, which was followed by a $400 million settlement 

with the SEC and OFHEO, and losses of tens of billion dollars in 

market capitalization for Fannie’s shareholders. 

Unfortunately today, years after they were forced out of the company, these misdeeds of Franklin Raines and his management 

team have continued their abuse. This time, however, it is against 

the U.S. taxpayers. As a result of my inquiries, I have discovered 

that taxpayers have advanced $24.2 million in legal expenses 

against civil lawsuits accusing them of securities fraud. These three individuals, who collectively earned $150 million in 

total compensation from 1998 to 2003, are not just assured of indemnification, but are actually being advanced funds, which means 

that they have no expenses and are just running up the tab for the 

U.S. taxpayers. Moreover, their attorneys have every incentive to 

keep the case going for as long as possible to maximize their fees, 

which already are in the tens of millions of dollars. 

One case in particular has been ongoing since 2004 and has included over 120 fact depositions, various expert depositions, and 

millions of discovery documents. Unfortunately, the end is nowhere 

in sight. This open-ended taxpayer commitment was approved by 

the FHFA, the very entity that has an obligation to conserve the 

assets of the GSEs in such a way as to minimize taxpayers’ exposure. It was approved even though Fannie Mae bylaws clearly state 

that the indemnification shall not apply to directors and officers 

who breach their duty of loyalty to shareholders or engage in intentional misconduct, two measures that Franklin Raines and his 

management team clearly violated. 

It is also worth noting that under section 4617 of the Housing 

and Economic Recovery Act, or HERA, the FHFA has the power to 

repudiate the indemnification agreements for these individuals. 

With all of that being said, even if the FHFA still feels obligated 

to advance legal expenses for Mr. Raines, Mr. Howard, and Ms. 

Spencer, the contracts state that they are entitled to the advancement of reasonable legal fees, and I think many of—all of my colleagues can agree that many of these fees are not reasonable, given 

the mounting taxpayer exposure. 

The delay tactic of the defendants and the fact that many of 

these security-related lawsuits have no end in sight, one thing I 

feel very strongly about is that this subcommittee needs to do everything it can to minimize further taxpayer exposure associated 

with Fannie Mae and Freddie Mac. I would like to work with Mr. 

DeMarco and the FHFA to make sure that they are equipped with 

all the tools necessary to accomplish this objective. 

In closing, I would like to state that this particular topic has 

raised many more questions about continuing operations of GSEs 

and, accordingly, this will more than likely not be the last of many 

3 

hearings to happen in the future. Along these lines, I am also looking forward to working with Chairman Bachus and Chairman Garrett to take a serious look at whether conservatorship of the GSEs 

is the best structure to protect the U.S. taxpayers. 

And with that, I would yield to the gentleman from Massachusetts, Ranking Member Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. I look forward to working with you, as well. As you stated, we had a meeting that was 

very productive and very cooperative, and I think it is going to be 

actually a great term to be able to work together. There are a lot 

of questions that we both have about a lot of different things that 

have gone on in the financial services world. This is one of many. 

I, for one, really want to hear today about industry standards 

and whether this situation mirrors industry standards, and if not, 

why not, and what are we going to do about it? And even if it does, 

I think we have serious questions of what to do, going forward. To 

me, those are the biggest questions. I have some understanding of 

what happens in the private industry world and how it works, but 

I want to make sure that has been the situation. 

And my hope is that the panelists here today address that issue 

more than anything else. I am not here on a witch hunt for anything or anybody, but at the same time, this is a huge amount of 

money. On its face, it appears to be unreasonable, but again, I will 

listen to others if they disagree, and if so, why. And I think that, 

more than anything else, this hearing is a very good hearing to ask 

serious questions on an important issue. 

And with that, I yield back the balance of my time. 

Chairman NEUGEBAUER. Thank you. I will now yield 2 minutes 

to the gentleman from New York, Mr. Grimm. 

Mr. GRIMM. Mr. Chairman, I am going to yield right now. I am 

waiting for my—I have a couple of questions that I just wrote right 

before I came in that are being printed up for me. 

Chairman NEUGEBAUER. Okay, thank you. Does any other member on this side want to make an opening statement? Mr. Miller? 

Mr. BACA. I am Mr. Baca. Excuse me. Thank you very much, Mr. 

Chairman and Mr. Ranking Member, for calling this hearing today. 

I also want to thank the witnesses for sharing substantive understanding regarding Freddie Mac and Fannie Mae, as well as the 

legal expenses incurred. 

This hearing is important to the American taxpayers. It is important for us to understand the complexity of the problem caused by 

the fall of the housing market. 

So much damage was caused by allowing an industry to take advantage of our families, and I state, ‘‘take advantage of our families’’ who only wanted to have the American dream, and that is to 

own a home. They wanted to own their own homes, and now some 

are homeless. Others are forced to endure the nightmare of foreclosure, and in my district, we have one of the highest foreclosures 

in the Nation, so I am very much concerned. 

Sadly, there are even more Americans who own a home that is 

not worth the financial obligations they legally were bound to pay 

because of the housing crisis that caused the market to fall. And 

this is very depressing, when many of the individuals who ended 

4 

up buying their homes ended up paying outrageous prices, and it 

is not even worth it at this point. 

Today, we will hear about the legal fees, another example of a 

financial loss caused by allowing an industry to go unregulated or, 

simply stated, they got greedy. Today, we will learn that these 

legal fees are an additional ramification caused by the Bush Administration’s failure to monitor and control the housing industry. 

So let us put it where it started, not where it was the last 2 years, 

but where it started, with no oversight and no transparency. 

Again, I want to thank the chairman and the ranking member 

for their leadership on this issue. I look forward to hearing from 

my colleagues and the witnesses on the issues at hand. I yield back 

the balance of my time. 

Chairman NEUGEBAUER. The Chair recognizes Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

The financial crisis is now well into the litigation stage where everybody is suing everybody for everything. According to published 

reports, Chase is involved in litigation as a plaintiff against—as a 

securitizer of mortgage-backed securities suing the lenders who 

made the mortgages in the first place, saying the mortgages fail to 

meet the contractual requirements and are defendants in other litigation against the people who bought the mortgage-backed securities, saying that the mortgages are perfectly fine, the very same 

mortgages. 

So we will—I think we can expect more of that, and this is probably the period in this crisis that we learn more from the litigation 

than we learn from the Financial Crisis Inquiry Commission, 

SIGTARP, or the Congressional Oversight Panel, from well-motivated lawyers going after their claims. 

And this is also the period in which the taxpayers’ exposure for 

ultimate loss for Fannie and Freddie is really going to be determined. It is going to be very easy to hide behind the lawyers and 

provide further subsidies, back-door subsidies, to an industry that 

has already gotten too many subsidies by failing to vigorously pursue claims that Fannie and Freddie have or by giving in too easily 

where Fannie and Freddie are the defendant. 

Now, it is not that easy for lawyers to conduct litigation while 

providing a continuous play-by-play commentary of the facts and 

the law and of every strategic decision. But it is very entirely appropriate for the taxpayers, and for us as a Congress, to expect 

that there will ultimately be some openness, some transparency 

about how the litigation was conducted, litigation that will really 

determine how much the taxpayers are going to lose from Fannie 

and Freddie. 

So whether I ultimately agree that Fannie and Freddie have— 

or that FHFA has handled this litigation appropriately or not, I do 

welcome the oversight into litigation in which Fannie and Freddie 

are parties. It is the least that we should do. 

Chairman NEUGEBAUER. Thank you. If there are no other opening statements, then we will hear from our panelists. First, we will 

hear from Mr. Edward DeMarco. He is the Acting Director of the 

Federal Housing Finance Agency, and I believe you have with you 

Mr. Pollard, who is your general counsel. So Mr. DeMarco, thank 

you for being here, and you may proceed. 

5 

STATEMENT OF EDWARD J. DeMARCO, ACTING DIRECTOR, 

FEDERAL HOUSING FINANCE AGENCY, ACCOMPANIED BY 

ALFRED POLLARD, GENERAL COUNSEL, FEDERAL HOUSING 

FINANCE AGENCY (FHFA) 

Mr. DEMARCO. Yes, sir. Thank you, Mr. Chairman. 

Chairman Neugebauer, Ranking Member Capuano, and members 

of the subcommittee, thank you for inviting me to address matters 

relating to legal expenses of Fannie Mae and Freddie Mac and advancement of legal fees for certain former officers. 

I share the frustration of members of this subcommittee and others that funds are being advanced to finance the legal defense of 

former officers at Fannie Mae, funds that effectively increase the 

cost to taxpayers of the conservatorship. 

These former officers have been disgraced by the findings of 

FHFA’s predecessor agency, OFHEO, and they were forced from 

their jobs as a result of those findings. Yet our frustration cannot 

interfere with our responsibilities to follow the law, respect the 

rights of those involved, allow the judicial process to proceed under 

the oversight of the presiding judge, and allow other government 

agencies to act under their authorities. 

As some of the matters you have asked me to address are currently in litigation in which FHFA participates as conservator, I 

have accepted the offer of the chairman to have FHFA’s General 

Counsel, Alfred Pollard, here with me during this hearing. Members should know that I am not a lawyer, but many of the subjects 

of concern involved technical legal matters. 

The Federal Housing Finance Agency has consistently viewed indemnification as a prerequisite for attracting and retaining skilled 

officers and directors. Indemnification, properly administered, is in 

the best interest of Fannie Mae and Freddie Mac, and therefore fits 

within FHFA’s goal of preserving and conserving assets. 

At the same time, properly structured indemnification includes 

guidelines for denying indemnification and requiring repayment of 

advanced fees in certain circumstances. Overturning existing contracts or policies would be a determination with potential adverse 

consequences and would be inconsistent with standard business 

practice. 

At the time of the conservatorship, FHFA announced it intended 

for the Enterprises to operate as going concerns with new CEOs 

and Boards of Directors, and that they were to continue normal 

business operations in support of the mortgage markets. This included the need to attract and retain skilled professionals. These 

officers and directors, therefore, could be sued just as before conservatorship, thus the need for retaining indemnification. 

The determination by FHFA not to interfere with indemnification 

in advancement of legal fees for former Fannie Mae executives was 

based on Fannie Mae’s corporate bylaws, governing Delaware State 

law, the provisions of statute governing FHFA’s oversight of Fannie 

Mae, and court cases addressing such an action. 

FHFA believed the continued advancement of funds was in line 

with the conservatorship framework and that actions to interfere 

would be counterproductive due to the ability of individuals denied 

to sue the agency for such actions. Also, such action would raise 

secondary issues related to other employees and their view of the 

6 

validity of indemnification of their legal expenses and their willingness to continue their employment at the Enterprises. 

At the time the Enterprises were placed into conservatorship, it 

was important to avoid losing personnel who could help reduce 

costs to the taxpayer from their large portfolios and business activities and who could be distracted by an absence, or potential absence, of indemnification. Securing new CEOs, Boards of Directors, 

and employees for the Enterprises would not have been possible 

without indemnification. 

Even in ordinary times, the Enterprises are large corporations 

and incur significant legal expenses. Clearly, in conservatorship, 

their legal expenses continue and the mortgage market crisis has 

led to even greater legal costs. Beyond legal expenses associated 

with pre-conservatorship lawsuits, the companies have substantial 

legal expenses related to lawsuits by homeowners, investigations 

by government agencies, and expenses related to securing recovery 

of damages from their counterparties. 

In all of these activities, the legal issues are very complex and 

litigation involves significant expenses associated with extensive 

discovery, document production, expert witnesses, and other costs 

involved in judicial and regulatory proceedings. 

Clearly, Mr. Chairman, controlling expenses has been the concern that you have highlighted by calling this hearing. I believe 

that FHFA can build on its existing work with the Enterprises to 

control legal and other expenses in a way that protects taxpayers. 

Likewise, I believe we can inform the courts and other regulators 

of the expenses involved and the role of the taxpayers while the 

Enterprises are in conservatorship. 

Thank you for this opportunity, and I would be happy to answer 

questions. 

[The prepared statement of Acting Director DeMarco can be 

found on page 39 of the appendix.] 

Chairman NEUGEBAUER. Thank you. 

Our next panelist is Mr. Michael Williams. He is the Chief Executive Officer of the Federal National Mortgage Association. I believe you are accompanied by your General Counsel, Mr. 

Mayopoulos. Is that correct? Mr. Williams, you may proceed. Thank 

you. 

STATEMENT OF MICHAEL J. WILLIAMS, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE), ACCOMPANIED BY TIMOTHY J. MAYOPOULOS, GENERAL COUNSEL, FEDERAL NATIONAL MORTGAGE ASSOCIATION 

Mr. WILLIAMS. Chairman Neugebauer, Ranking Member Capuano, and members of the committee, good afternoon. My name is 

Mike Williams, and I am the President and Chief Executive Officer 

of Fannie Mae. I was named to that role in April of 2009 after the 

company had been placed in conservatorship. 

Fannie Mae is playing a critical role in stabilizing the Nation’s 

fragile housing market. Since 2009, Fannie Mae has provided more 

than $1.2 trillion in mortgage liquidity, helped one million families 

to buy homes, and enabled 3.8 million homeowners to refinance 

into lower-cost mortgages. In that time, we have also provided over 

7 

$30 billion of financing for more than 570,000 units of affordable 

rental housing. 

Fannie Mae has also substantially strengthened its underwriting 

standards and set new guidelines for the industry on loan quality. 

As a result, we are building a profitable new book of business. We 

are committed to putting a very strong foundation in place for a 

sustained recovery in housing, which is key to getting the U.S. 

economy back on track. 

The committee has asked me to discuss Fannie Mae’s post-conservatorship legal expenses. As CEO, I am keenly aware of Fannie 

Mae’s responsibility to manage expenses prudently. Fannie Mae is 

currently facing an unprecedented volume of complex legal matters. 

For example, various members of the plaintiffs’ trial bar are pursuing class-action lawsuits against Fannie Mae, including one 

brought on behalf of the Attorney General of Ohio. Plaintiffs and 

their lawyers are seeking billions of dollars. Fannie Mae has substantial defenses in these lawsuits and is vigorously defending the 

company and the taxpayers from this potential liability. 

Fannie Mae has also been the subject of numerous agency and 

congressional investigations. In cooperating fully, we have incurred 

significant expenses collecting, processing, reviewing, storing, and 

producing tens of millions of pages of data and documents. 

We also incur legal expenses in the aggressive pursuit of claims 

against entities that owe Fannie Mae money. To date, we have 

been successful in recovering sums well in excess of our legal costs. 

In addition to our legal expenses, Fannie Mae is obligated to advance certain legal expenses incurred by current and former officers. This obligation derives from Article 6 of our bylaws, which 

Fannie Mae’s shareholders adopted in 1987. It is also governed by 

the contracts that Fannie Mae’s Board has entered into with each 

of its officers and directors. 

Our conservator affirmed these contracts in 2008. Where they 

apply, the company’s obligation is to advance legal expenses, and 

that is always mandatory. If Fannie Mae were to refuse to honor 

this obligation, we would undoubtedly be sued and likely be subject 

to additional costs. 

Corporations throughout America make provisions similar to 

ours in order to attract and retain strong and experienced officers 

and directors. Since 2009, Fannie Mae has put in place a new 

Board of Directors and senior executive team. It would not have 

been possible for the company to recruit and retain these professionals without offering advancement protections and applying 

them consistently. 

Since 2005, Fannie Mae’s General Counsel has used the services 

of a third-party vendor to review all legal bills for individuals entitled to advancement. Currently, we use a legal invoice audit firm 

that has provided services for some of the largest corporations in 

America and various government entities. The vendor negotiates 

billing rates and determines reasonableness and necessity of all 

charges. 

In closing, we take seriously our responsibility to manage effectively the resources that we have been provided. Today, I am joined 

by our General Counsel, Timothy Mayopoulos, and we look forward 

to taking your questions, Mr. Chairman. 

8 

[The prepared statement of Mr. Williams can be found on page 

48 of the appendix.] 

Chairman NEUGEBAUER. Thank you, Mr. Williams. I do want to 

remind everyone that, without objection, your written statements 

will be made a part of the record. 

I will start the questioning. Mr. DeMarco, under section 4617 of 

the Housing and Economic Recovery Act of 2008, the conservator 

or receiver of the GSEs may disaffirm or repudiate any contract if 

the conservator determines that the performance of these contracts 

is burdensome and that the repudiation of the contract will promote the orderly administration of the affairs of the GSE. You evidently made a determination that paying these legal fees and continuing to defend these individuals was not burdensome to the corporation. How do you justify that? 

Mr. DEMARCO. Mr. Chairman, yes, that determination was made. 

It was made at the time the conservatorship was established by my 

predecessor, and the determination was made by my predecessor 

for the reasons that are outlined in my testimony, that this advancement of legal fees was required by FHFA’s own regulation, 

that the indemnification that was in place was required by FHFA’s 

own regulation, was consistent with Fannie Mae’s bylaws and was, 

at that point, a requirement under applicable State law. 

So the determination was made at that point, and that is not, at 

this point, a determination to be revisited. 

Chairman NEUGEBAUER. We keep talking about Fannie Mae’s bylaws. I want to read you something that is also from Fannie Mae’s 

bylaws. For example, it states that the indemnification will not be 

provided when the officer or director breaches his duty of loyalty 

to the corporation, acts, or fails to act in good faith, and engages 

in intentional misconduct. 

I know that you have read the OFHEO report, and this is a copy 

of the report. All of these tabs represent areas where the three individuals that you are continuing to pay legal fees on acted in ways 

that were not in the best interest of the corporation and, to me, violated the very bylaws of this corporation. 

And so, for the determination to find that is not burdensome, and 

that, in fact, these contracts should be honored, is a little puzzling 

to me, and I think it is a little puzzling to the American taxpayers, 

because they are continuing to pay fairly substantial legal fees for 

these three individuals who, according to this report, weren’t doing 

things that were to the benefit of the corporation and, ultimately, 

the taxpayers had to come in to the tune of—right now of about 

$150 billion. 

And that total could go up. So I am still trying to figure out how 

you felt like that was in the best interest of the corporation. 

Mr. DEMARCO. Mr. Chairman, that is a fair question. And I 

think that my written statement, which goes into some detail in 

defining indemnification, defining the grounds under which indemnification would be denied, may be helpful here. But let me try to 

summarize, and then if counsel wants to supplement, that may be 

helpful as well. 

But essentially, indemnification is something that actually takes 

place at the conclusion of a judicial or administrative activity. 

There are two areas in which the actions of these former executives 

9 

have come under review. The first is there was an administrative 

notice of charges that was filed by FHFA’s predecessor agency, 

OFHEO, based upon the findings in the report that you referenced. 

That notice of charges was made in December of 2006 and ultimately resulted in a settlement in April of 2008, a settlement with 

the three former executives that resulted in payments by those executives but did not result in any finding or admission of the 

breaches that would violate—that would meet the standards in the 

bylaws to avoid indemnification. 

The litigation that is ongoing today, the multi-district litigation 

that is the subject of such attention here, is in fact to determine 

the behavior and activities of these former officers and whether 

they did breach. So the finding that would be the predicate for denying indemnification has not taken place yet because we are, in 

fact, in the midst of such litigation. 

Therefore, what is going on right now is an advancement of legal 

fees, and that is very much required by contract and by law, and 

the advancement of legal fees will continue until the conclusion of 

this judicial action when there is finality to that based upon what 

the outcome or findings of that may be. 

There would then be a determination as to whether indemnification of these officers would be provided or whether there are 

grounds to seek repayment of the advancement of those fees. But 

that cannot take place while this is in process. It is something that 

takes place at the end of the legal process. 

Chairman NEUGEBAUER. I would also say, though, that you could 

have denied advancement, or if you weren’t going to repudiate the 

indemnification, you had the ability to say to these individuals, 

‘‘You know what? We have a little problem here. We are broke, and 

we are not advancing additional monies for these fees.’’ Obviously, 

I think that brings some incentive for those individuals not to keep 

burning taxpayers’ money. 

Mr. DEMARCO. Mr. Chairman, I certainly understand the issue 

and the concern that you are raising there. I would simply say that 

the determination at FHFA was that to cease advancing those legal 

fees would have resulted in suits against us, and operating with 

the responsibility as conservator, we determined that, looking at 

the legal case law here and the facts and circumstances and what 

governed in terms of contract law and other applicable law, what 

needed to be done was to continue advancing those fees. 

That is the determination that was made at the time the conservatorship was established. FHFA did affirm that for the company, and so we continue to operate with that affirmation in place. 

Chairman NEUGEBAUER. My time has expired. 

Mr. Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. DeMarco, basically you made a determination as to who 

makes the decision as to who breached these fiduciary responsibilities, and obviously you made a determination—correct me if I am 

wrong—that would require a final court decision as to whether 

they breached their responsibilities. Is that a fair summary? 

Mr. DEMARCO. I did not make that determination, Mr. Capuano. 

I believe that determination is effectively what is required by statute and governing law here. 

10 

Mr. CAPUANO. So that is—but still— 

Mr. DEMARCO. But—interpretation of that, yes— 

Mr. CAPUANO. —somebody had to interpret the law. 

Mr. DEMARCO. —it is our interpretation. 

Mr. CAPUANO. I don’t mean to be disrespectful. I am a lawyer. 

Without differences of opinion as to what laws mean, you wouldn’t 

need lawyers. So somebody had to make a determination that is 

what the law meant, and I understand that. And I would respectfully suggest that, going forward, we make a determination as to 

where we are going to draw the line. 

And I would argue that I understand the legal arguments that 

you probably would have gotten sued. I agree, you would have. You 

may have won. You may have lost. You still should have taken the 

hit, done the right thing, taken the hit, and if you lose it going forward, you lose it going forward. Having done the right thing, you 

wouldn’t be here today. We would be saying, ‘‘Good job. Keep it 

up.’’ 

As opposed to that, you made a decision to take the conservative 

view, to allow them to keep going, and now you are here today, and 

we are going to beat you up a little bit today and probably a little 

bit more, going forward. And in my opinion, in defending the taxpayer’s money, I think on occasion you have to take a little bit of 

a reach as to who makes those determinations. 

I would also ask, is this agreement—and as I understand it, it 

is, but I want to hear it from you and from Mr. Williams—is the 

current agreement, and even the one that was in place then, I 

agree that directors and officers liability insurance is an important 

aspect. I buy the concept. There are many ways to do that. Do you 

believe that the past and current agreements on directors and officer liability is within the standard of normal operating business 

procedures today? 

Mr. DEMARCO. I do. 

Mr. CAPUANO. Mr. Williams, do you? 

Mr. WILLIAMS. Yes, I do. 

Mr. CAPUANO. Okay. I—again, I would like to pursue that a little 

bit more at a later time with maybe some outside experts. But at 

the moment, I accept your decision. 

At the same time, the definition of the term ‘‘reasonable’’—has 

anyone questioned the term ‘‘reasonable amounts of money that 

have been paid out?’’ I understand you have an outside agency 

doing it. Has anyone questioned that, either inside Fannie or inside 

FHFA or any of the plaintiffs? Has anyone said we disagree with 

this vendor’s determination that these charges of X gazillion dollars 

are reasonable? 

Mr. DEMARCO. Sorry. I am not aware of particular claims being 

made that the legal fees that have been incurred are unreasonable 

as based on an industry standard. I am simply not aware of that. 

Mr. CAPUANO. Mr. Williams, are you aware of anything? 

Mr. WILLIAMS. Congressman, I am not aware. 

Mr. CAPUANO. Okay. I guess for me, the question is also I understand—yes, go ahead, Mr. Pollard. Sorry. 

Mr. POLLARD. In our oversight capacity, we have a—to make all 

efforts to observe the reasonable— 

Mr. CAPUANO. Yes. I think your microphone is not on. 

11 

Mr. POLLARD. I apologize. I would say that our oversight capacity 

from the office of general counsel and the agency, we have spoken 

with both companies on an ongoing basis, reminding them of the 

need to keep fees down across-the-board, not just for individuals 

here, but the general legal expenses. 

And I believe they have undertaken to do the best they can in 

this market to try and keep fees down and to hold fees in line. 

Their fees are very much going to be judged, in fact, by their legal 

advisory firm by looking at what other firms do. In other words, 

what do other courts— 

Mr. CAPUANO. I understand that. So that is always the problem 

with the term ‘‘reasonable’’ is that people read it differently. For 

me, $160 million worth of legal fees, it certainly sounds unreasonable. Again, I understand people can disagree. But I am also interested in going forward. Is there anything in these provisions? And 

if not, can you put them in? Would you consider putting them in? 

For the sake of discussion in this case, clearly OFHEO should 

not have accepted this deal the way it was written. Somebody 

should have sat up and screamed that they were not going to take 

the deal because it means we now have to pay these outrageous 

legal fees. Okay, it was done. 

Going forward, at the very least, and hopefully today, and hopefully if not soon, let us assume this happens again tomorrow, and 

you, Mr. DeMarco, make a determination that somebody else has 

breached their responsibility. Why shouldn’t we then, continuing 

with the typical rules of directors, not just liability, say, Okay, from 

this day forward, we will either put these payments in some kind 

of a contingency fee, or we will put a lien on something, or we will 

have some other surety to guarantee that we will be able to get 

these fees back, since an initial determination has already been 

made by a neutral body that you have violated some standard? 

Understanding fully well that determination won’t be final until 

it is final, but in the meantime, right now, as we sit here, let us 

be serious. We are never going to get this money back, at least I 

don’t think any reasonable person thinks we will. And that is the 

problem. I understand paying it up front. I understand having liability coverage. I get all that. 

But what I don’t get is why we leave ourselves totally naked to 

someone who on at least one level, understanding it is not final, 

has already been determined to have breached their fiduciary responsibilities, and yet we are still going to pay through the nose 

forever and ever with no real hope of recouping that money. Is 

there anything we can do going forward, either in this case or in 

future cases, to say, if this happens again, at the very least, we will 

have a lien, we will have sureties, we will have something else on 

the side that we can recoup this money when the time comes? 

Mr. DEMARCO. I am sorry, I am not aware of what—I don’t have 

that particular recommendation or answer to that question. I 

would observe that the matter that you are asking is far broader 

than two companies in conservatorship. This strikes me as a general matter of both corporate practice and existing law that governs 

these matters. There is a great deal of case history, as I have been 

told about these things. So to your question of what could be done, 

it is a much broader question here— 

12 

Mr. CAPUANO. But these case histories are not based on taxpayer 

dollars doing this. These case histories are on shareholders’ dollars 

doing it, not taxpayer dollars. This is a unique and different situation that I would suggest we consider going forward, at the very 

least, having unique and different approach. 

Mr. DEMARCO. Right. I would certainly agree with that, sir. 

There is no precedent for 21⁄2 years of conservatorship for major financial institutions like this in conservatorships that are likely to 

continue for a number of years further until this is ultimately resolved. There has been nothing like this before, sir, and it does 

pose unique and new questions for us. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the vice chairman of the committee, Mr. Fitzpatrick. 

Mr. FITZPATRICK. Thank you, Mr. Chairman, for calling this 

hearing. 

This question is for Mr. DeMarco and Mr. Williams, sort of following up on Mr. Capuano’s comments that Fannie Mae and 

Freddie Mac have never really been private entities, fully private. 

So when a member of our panel questions the appropriateness or 

reasonableness of paying for the legal defense of former Fannie officers or directors, we just ask that you keep that in mind. 

Before the conservatorship, Fannie enjoyed privileges that other 

private firms were denied. It did not have to pay State taxes, and 

it didn’t have to pay local taxes. Until 2006, they did not have to 

register the securities with the SEC. They had a line of credit with 

the Treasury. 

Above all, they had a lower cost of funding than any other private entity would have because they were beneficiaries of an implied government guarantee. Notwithstanding this, they are advantages that still resulted in paying for the GSE’s shareholders as a 

result of accounting scandals, and now paying for the taxpayers as 

a result of the conservatorship status. 

The accounting scandals resulted in fines, decreases in market 

capitalization, expensive internal corrective actions, and declines in 

share prices which cumulatively blocked the safety and soundness 

of these institutions. $400 million in fines were paid to the SEC 

and OFHEO in 2006. Earnings restatements totaling $11 billion 

were made for both firms. 

In 2006, Acting Director of OFHEO Jim Lockhart said this about 

the cost of Fannie’s earning manipulation executed by Fannie senior management. This is his quote: ‘‘Fannie Mae’s executives were 

precisely managing earnings to the 100th of a penny to maximize 

their bonuses while neglecting investments in systems, internal 

controls, and risk management.’’ 

And he went on to say, ‘‘The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion in losses, well over $1 billion in expenses to 

fix the problems, and ill-begotten bonuses in the hundreds of millions of dollars.’’ 

The conservatorship has brought cost to the taxpayers for the 

GSEs misdeeds. To date, the Fannie Mae and Freddie Mac bailout 

total stands at about $153 billion, making the GSE conservatorship 

by far the costliest of all the taxpayer bailouts carried out over the 

past 3 years. The cost of the bailout could still go higher. On SepVerDate Nov 24 2008 11:47 Apr 01, 2011 Jkt 064553 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\64553.TXT TERRIE
13 

tember 15, 2010, in testimony before this committee, Mr. DeMarco 

stated severe stress scenarios. The Treasury draws for the GSEs 

could come in, I think you said, at about—or perhaps just under 

$400 billion. 

That brings us to the question before us today of legal fees for 

Franklin Raines, Tim Howard, Leanne Spencer and the others at 

Fannie Mae who have been responsible for the massive losses to 

shareholders and now taxpayers. And so I ask the two of you, in 

this context, is it reasonable to advance legal fees for individuals 

who have been found by both OFHEO and the SEC to have manipulated earnings for their own private benefit? Is that reasonable to 

ask the taxpayers? 

Mr. DEMARCO. Congressman, I believe the answer is we have an 

obligation to advance these legal fees. And at this point, I think it 

may be best to ask my counsel to provide a little bit more of the 

legal context as to why we have that view. 

Mr. POLLARD. Congressman, OFHEO put in place regulations requiring the Enterprises to select a State law under which to operate. Fannie Mae operates under Delaware law. If you go into Federal court, Delaware law will be the subject that will be raised in 

any action. 

In looking at the requirements of that law and the court decisions under it, there is indemnification, which comes at the end, 

and there is advancement of legal fees. Even if a company sues its 

own employees for breaches of fiduciary duties, they are entitled to 

advancement of legal fees until the final determination. I am just 

trying to give you, at the extreme end of this. 

So I think, just in looking at the law and what we have had to 

advise from the office of general counsel to the senior management 

of our agency is that the obligation that we are looking to, under 

Delaware law, is to advance fees. That does not mean at the end 

of the day, when a decision is made on indemnification, if someone 

determines the findings by the agency are its findings, here is what 

we found, but for someone to sue—and I might note some of the 

court cases preceded actions by our agency even—that requires the 

determination by a court or another adjudicative body that you 

have, in fact, breached these fiduciary duties. And that is what I 

think the Director has been trying to say. 

So the short answer is, under all the law that I have seen and 

read in Delaware and other States, looking at State law in this 

matter, is that advancement of legal fees is considered mandatory. 

The Supreme Court of the United States—excuse me, the Second 

Circuit of the United States has said that, where the Justice Department was looking to interfere with advancement of legal fees, 

this would be considered unconstitutional. This was in a criminal 

case, and I want to be clear, that is a different matter. 

But clearly, the courts have been uniform that it is the very 

charge of the breach of the fiduciary duty, because it is so serious, 

that is the one that would permit, and even require, advancement 

of legal fees because you are the most at-risk in that situation. So 

I think that is the foundational law. 

The chairman and the ranking member asked about why don’t 

you step in. All the court cases that I have looked at in cases of 

advancement of legal fees have gone against the private sector 

14 

firm, and even the government, where the government was trying 

to stop advancement of fees. 

So I think that is sort of the foundational basis in which we operate, and I think the ranking member’s question about what can we 

do, and I think the Director’s answer about that, a large question 

is there. So I hope that is helpful in terms— 

Mr. FITZPATRICK. So the court cases were construing mostly private corporation? 

Mr. POLLARD. They are private corporations, companies, but I 

even have one case of a company under the RTC that was in receivership. And the court ordered the advancement of legal fees to the 

officers of that firm when they were being sued by the company. 

Mr. FITZPATRICK. But none of those cases are construing a law 

with respect to government-sponsored enterprises? 

Mr. POLLARD. No, sir. 

Mr. FITZPATRICK. So this would be a case of first impressions? 

Mr. POLLARD. It would be a case of—yes, sir. 

Mr. FITZPATRICK. And they are construing the law of indemnification on the corporate side, correct? 

Mr. POLLARD. In advancement of fees, yes. 

Mr. FITZPATRICK. And are you relying on sort of the corporate 

law of indemnification, as you understand it, as well as the contracts of these individual employees? 

Mr. POLLARD. Yes, that, but also our own regulation, which says 

select a State law, our own regulation which says you can indemnify your employees with appropriate safeguards. By the way, I 

think the word ‘‘reasonableness’’ from our perspective, is that it has 

to be done appropriately and it needs to be reasonable. 

Chairman NEUGEBAUER. I thank the gentleman for his questions. 

And I now yield to the other gentleman from Massachusetts, Mr. 

Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. 

And I want to thank the witnesses for helping the committee 

with its work. 

I have been reading through some of the descriptions of the court 

case against Fannie Mae and its officers by a couple of pension 

funds in Ohio. And I have to admit, while I understand the principle of indemnification in order to get officers to serve, this case 

has been going on for 6 years, and that is far longer than any average case under these circumstances. 

I understand this is a big case, but I am also reading that, even 

at the most mundane and procedural conferences, that Fannie Mae 

and the officers are bringing in 35 to 40 lawyers and paralegals 

while the plaintiffs are coming in with 2 or 3, that they are bringing in 25 expert witnesses when the plaintiffs are bringing in one 

or two. And in many cases, the judge has pointed out that they are 

driving up the cost of this litigation. 

So I am interested in indemnifying the taxpayer, because we are 

bleeding here. This is 6 years and counting, and these are staggering numbers that we are seeing here. 

I understand the principle. You have to have indemnification to 

an extent in order for people to be willing to serve in these positions, but indemnification is an insurable risk. Now, I don’t know 

who made the decisions, but we should have an insurance policy 

15 

to provide a fixed amount of resources for a person to fight these 

claims against them. We shouldn’t be having to reach into the taxpayers’ pocket every time there is another hearing or a deposition 

or any other legal proceeding where we need counsel. 

And it bothers me greatly that this is an insurable risk. Corporations, every one of them, all across America, get a policy to indemnify their officers. And here we are, Fannie Mae? That is what you 

would call a target-rich environment, where I am sure you have 

probably hundreds, if not thousands of folks, suing Fannie Mae for 

their either nonfeasance or malfeasance during this whole crisis. 

And it just bothers me to no end that we are not—we are worried 

about indemnifying these officers to the tune of $137 million and 

counting. They have already paid a $400 million fine, and nobody 

is watching out for the taxpayer, in my opinion. 

Does anybody want to take a shot at this? Why did we not—is 

somebody managing this litigation from your standpoint, where 

they are saying, ‘‘No, you shouldn’t really have 40 attorneys here? 

You shouldn’t have 30 paralegals. You shouldn’t have 25 expert 

witnesses.’’ Someone to manage—believe me, if this was coming out 

of their pocket, they would not be handling this this way. 

Mr. DEMARCO. Right. Congressman Lynch, there are observations and questions. I believe that Mr. DeWine, who is in the next 

panel, has raised, in his prepared statement, a situation which, as 

you describe, there were numerous attorneys present at a particular deposition. I have been told that the presiding judge said 

something about that at that time, and that has not been repeated. 

More generally, of course, the judge is the presiding officer in the 

litigation, and excesses and delays that are taking place on either 

side are the responsibility of the judge to address. 

And finally, with respect to this litigation—and it is in litigation, 

so I need to be careful about what I can say, but one might ask 

the other side, the plaintiff in this case is continuing to pursue the 

litigation in light of the conservatorship. At this point, the plaintiffs are effectively suing for funds that ultimately could come from 

the U.S. taxpayer. 

So the defense that is being put up here is defense against a suit 

that, if successful, would presumably result in a claim against 

Fannie Mae, Fannie Mae in conservatorship being backed by the 

taxpayer, so there are some questions here about—I agree about 

the situation that we are in. But what we are trying to do is to respect everyone’s legal rights, and the judicial process in this matter 

is with the judge. 

And the other thing I would say that I think may be helpful here 

is I intend to file my written statement for this hearing with the 

court so that the court is aware of the concern of this body and the 

discussion that we had here today. 

Mr. LYNCH. Thank you. 

Thank you, Mr. Chairman. 

Chairman NEUGEBAUER. Thank you. 

We have been joined by Mr. Garrett, who is the chairman of the 

Capital Markets Subcommittee, and I would ask unanimous consent to allow him to be a part of our—on the dais today and ask 

questions if he chooses, without objection. 

Next, to the gentleman from Florida, Mr. Posey. 

16 

Mr. POSEY. Thank you, Mr. Chairman. 

I guess you have read Mr. Devine’s statement—is it Devine— 

DeWine—have you all read that? 

Mr. DEMARCO. Yes, sir. 

Mr. WILLIAMS. Yes, we have. 

Mr. POSEY. I was struck somewhat by the fact that 13 lawyers 

appeared at the April 2010 hearing, the deposition, to represent the 

accused, so to speak, here. And I was wondering, what if they had 

brought 50? Would that be okay? They brought 13 for 5 defendants. 

What if they had brought 50? Would that have been okay? 

Mr. MAYOPOULOS. Congressman, perhaps I could address this 

issue, because I think there is—the statement in Mr. DeWine’s— 

sorry, Attorney General DeWine’s statement that there were 13 attorneys present for the defendants at Mr. Raines’ deposition is not 

entirely accurate. 

As you know, Mr. Raines and Mr. Howard and Ms. Spencer are 

all defending lawsuits alleging significant liability, and they are all 

entitled to have their own separate representation. But at most 

depositions, one attorney for each defendant appears. For particularly important depositions, such as the deposition of Mr. Raines, 

it may be appropriate to have more than one. 

But for this particular deposition, it lasted for 2 days. Fannie 

Mae advanced the legal fees for a total of six attorneys, two for Mr. 

Raines, two for Mr. Howard, and one for Ms. Spencer, and one for 

Mr. Mudd, who, while not a party directly to this lawsuit, is a 

party to other lawsuits for which discovery is being conducted at 

the same time. 

And Fannie Mae itself was represented by two attorneys, one of 

whom became ill during the first day and was replaced by a different person. In fact, Ms. Spencer sought advancement for two attorneys, and we declined that. 

So the suggestion that we paid for 13 attorneys to attend this 

deposition is just not accurate. I don’t think Attorney General 

DeWine would know that. He may know how many people actually 

showed up, but he doesn’t know how many actually got paid. And 

we know how many got paid, and 13 did not get paid. 

Mr. POSEY. Mr. Chairman—how many got paid that day? 

Mr. MAYOPOULOS. The number who got paid was a total of seven 

for the individuals—two for Mr. Raines, two for Mr. Howard, one 

for Ms. Spencer—I am sorry, that is five—and two for Fannie Mae, 

one of whom became ill during the course of the deposition. So in 

effect, six or seven if you count the one who fell ill. 

Mr. POSEY. Okay. And we will continue to advance—pay legal 

fees until there is some adjudication of their guilt. Is that correct? 

Mr. MAYOPOULOS. That is correct. 

Mr. POSEY. And there is no limit on the future, correct? 

Mr. MAYOPOULOS. All the parties, I think, are trying to bring this 

matter to a close. In terms of how long the case is going to last, 

I will say that there have been over 120 depositions in the case. 

A hundred of those were noticed by the plaintiffs, not by the defendants, but by the plaintiffs. The plaintiffs took 100 depositions. 

So of course, the defendants must show up to appear at those depositions and to examine those witnesses. 

17 

So this case has gone on for 6 years, but it is the plaintiffs who 

have alleged 1,500 pages of accusations; between their complaint, 

the Paul Weiss report, and the OFHEO report, there are 1,500 

pages of allegations. They have done very little to try to winnow 

the case down. 

And frankly, the plaintiffs are the parties who added the three 

defendants we are talking about. The plaintiffs are not going to collect $9 billion from Mr. Raines, Mr. Howard, and Ms. Spencer. I 

don’t know them, but I doubt that they have $9 billion. It is unclear to me why the Attorney General of Ohio has even named 

those parties as defendants since the only entity that could actually 

pay the $9 billion that the Attorney General says he is seeking 

would be Fannie Mae, and, in effect, not even Fannie Mae, but the 

U.S. Treasury. 

Mr. POSEY. Just a quick response. I would probably fault the 

agency more than the plaintiffs if they have 1,500 pages worth of 

allegations. I don’t think that is the plaintiff’s fault. I think, in all 

likelihood, there is something that the defendants did wrong that 

resulted in them coming up with 1,500 pages in accusations. 

Mr. DEMARCO. If I may, Mr. Posey, this matter is in litigation. 

There is a presiding judge. And whether people were right or 

wrong is something that will be determined through the judicial 

process, respecting the rights of all those involved. These are very 

difficult matters, and I appreciate the concern about the legal expenses, but there are various rights here. And I think we are all 

striving to respect them. 

Mr. POSEY. We are trying to respect the taxpayers, too, obviously, and that is who gets left out of the equation, usually. What 

steps are you taking to protect the assets of the people who are accused of wrongdoing? In the event they are found guilty of wrongdoing, what steps are you taking to get the greatest amount of reimbursement possible? 

Mr. POLLARD. We have no authority to freeze any of their assets 

or to limit that. What I would say is, in the indemnification agreements that they signed, they have to agree to restore any funds 

given to them if an adverse decision is made. That would mean all 

of their assets are at risk. In terms of controlling or limiting those 

assets before such determination, we do not have the authority to 

do that. 

Mr. POSEY. But you have a plan? With the indemnification agreement, you have a course of action that you would take? 

Mr. POLLARD. Yes. In order to be advanced fees, they sign an 

agreement that, if they are found to have violated those fiduciary 

duties, they will repay the funds. And if they refuse to do that, you 

can go after them to the maximum of all their assets. 

Mr. POSEY. And it would appear that they probably don’t have 

the assets to do that. Is that what you are telling me? Did I read 

that between the lines earlier? 

Mr. POLLARD. I personally don’t know the size of their assets and 

what the final fees would be, so I don’t know. 

Mr. POSEY. Thank you, Mr. Chairman. 

Chairman NEUGEBAUER. Mr. Miller? 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. I 

am glad that I attended this hearing just to hear a Republican say 

18 

that, if a plaintiff brought a civil lawsuit against the defendant, the 

defendant must have done something wrong. 

Mr. DeMarco, I have been greatly interested in how Fannie and 

Freddie—how FHFA handles the litigation that may very well affect—will undoubtedly affect taxpayers’ ultimate expense for the 

conservatorship of Fannie and Freddie. 

But my questions today are about another topic that will affect 

taxpayer exposure as much or more, and that is the manner in 

which mortgages within Fannie and Freddie’s control are being 

handled, the way they are being modified or not modified, proceeding to foreclosure or not. What I have heard from those who 

are working directly with homeowners facing foreclosure is that 

Fannie and Freddie are more infuriating to deal with than the private label securitizers, or the servicers for PLS mortgages. 

And it is hideously expensive to foreclose. There are obviously 

many occasions when it clearly would be much wiser to enter into 

a sensible modification. It appears, from our history, that we have 

done it successfully in the past. That is what the Homeowners 

Loan Corporation did during the New Deal, and 20 years later 

when the program wrapped up, it had made a slight profit and 

probably saved the middle class. 

The former Mac statute provides, by statute, for loss mitigation 

procedures, for who qualifies for modification, when, and what the 

modification will be. Those who work in this area say they understand there is a standing order from Fannie and Freddie not to reduce principal. And it is almost impossible to get any kind of information about Fannie and Freddie’s loss mitigation practices. 

Is there such a standing order? What are the criteria, and why 

do we know so little about it? 

Mr. DEMARCO. Thank you, Congressman. There are a number of 

questions in there, so let me see if I can work my way through 

them. 

First of all, FHFA is required to file a monthly report to this 

committee, and so I will make sure that this gets directly to your 

office. We report monthly on the activities of Fannie Mae and 

Freddie Mac with regard to foreclosure prevention. This is a requirement of law. It is our Federal property manager’s report. 

And I would like to share with you a few sort of general numbers 

to demonstrate that, in fact, Fannie Mae and Freddie Mac are vigorously working on loss mitigation activities. That is the top priority that FHFA has as conservator of the Enterprises, is to see 

that the delinquent mortgages that they own or guaranty are resolved at the least cost method to the conservatorship, and with all 

appropriate attempts to avoid foreclosure both for the good of the 

company and for the borrower. 

Let me say that, for calendar year 2010, combined, the two companies completed close to 600,000 loan modifications, and yet their 

total foreclosure prevention actions, meaning a range of home retention plans like loan modifications, repayment plans, forbearance, as well as foreclosure alternatives, such as short sales and 

deeds in lieu amounted to about 950,000 finished transactions. 

That is just for last year. 

Since the establishment of the conservatorship, there have been 

close to 1.5 million loans that have either been modified, have had 

19 

some other home retention action taken, or have gone through a 

short sale or deed in lieu in order to avoid foreclosure. That is 

nearly 1.5 million loans in about 21⁄2 years on a book of business 

of about 30 million loans. 

So I would say that FHFA and Fannie Mae and Freddie Mac 

have been aggressive and have been leaders in the marketplace 

with respect to helping loan servicers to undertake appropriate and 

rigorous loss mitigation activities. This is essential for what we are 

trying to do as conservator, and I view this as essential to our responsibility to mitigate losses for the very reason, Congressman, 

that you said, is that where it is achievable to do a loan modification or some other sort of foreclosure alternative, that is generally 

going to be less costly to the enterprises than to go through foreclosure. 

You asked about principal forgiveness, and there has been very 

little or no principal forgiveness activity as—to date as part of loss 

mitigation because the focus has been on loan modifications and 

these other activities, and because we have not determined or have 

found a particular principal forgiveness approach that, in our judgment, would result in a lower cost outcome or higher rate of success than the alternatives that we are pursuing. 

What we are pursuing right now with respect to the range of 

modification and foreclosure prevention actions requires a great 

deal of interaction with mortgage servicers, and it is complex 

enough, and we are working very, very hard to make this work. 

And as I say, close to 1.5 million completed transactions since the 

establishment of the conservatorships. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Renacci? 

Mr. RENACCI. Thank you, Mr. Chairman. 

And thank you, gentlemen, for being here. I have two questions. 

First, I am going to go back to indemnification, just a simple question. 

With the indemnifications that these gentlemen signed, was that 

a standard practice for all employees when they were hired? And 

then the next question would be, was this indemnification changed 

at any time during their employment? 

Mr. DEMARCO. It was standard as part of our regulation. I will 

have my counsel provide further detail. 

Mr. POLLARD. The bylaws of the corporation address this, and 

the individuals had contracts. Ms. Spencer did not have a contract 

but agreed to an indemnification repayment contract, which was a 

standard contract in 2004, so this dates back to that time. They 

have not been modified. 

Mr. MAYOPOULOS. That is correct. All officers and directors receive indemnification and advancement contracts currently, and 

that has been the practice since 2004. 

Mr. RENACCI. Thank you. Next question, we are going to go back 

to reasonableness, because, quite frankly, reasonableness is in the 

eyes of the payer. And my biggest concern is, going forward—and 

it is really I am looking, going forward, is how we make sure we 

mitigate and minimize taxpayers’ expense. 

If Mr. Raines was here today, I would really ask him if he would 

be willing to voluntarily pay his legal fees, going forward, because 

20 

then we would really determine what reasonableness was or 

wasn’t. But since he is not here, I am going to ask the question of 

you. And I know you have talked about a panel outside of your organization as to—the panel is who you look to for reasonableness. 

But the question is reasonableness, again, is in the eyes of the 

beholder, the eyes of the payer. So my question to you is, what are 

the guidelines that this panel was looking at when it comes to reasonableness? Quite frankly, as a business owner for the last 28 

years, I pretty well have determined what unreasonableness is in 

a courtroom when you see 10, 12, 14 attorneys on the other side. 

So is there reasonableness standards that were given, or are you 

relying 100 percent on what this panel says? 

And I would ask this next question as a follow up. As the director of the organization, you could also determine reasonableness 

and overrule their opinion. I would ask that question, too. 

Mr. DEMARCO. Yes, sir. So I will begin, but others may want to 

contribute. 

As you noted, the first line of defense here, the first test of reasonableness, the first level of review is the outside firm retained by 

Fannie Mae with expertise in this area to review line-by-line the 

submissions that are made for advancement fees. 

The next line of review is the Fannie Mae legal department itself 

overseeing the activities and the expenses that are involved. 

The next line of review is FHFA’s legal department that is monitoring this activity and is doing so with the benefit of our own outside counsel, who is aware of the ongoing major litigation activities. 

So those are the various reviews that are in place. 

But I will say, in fairness to this hearing—and I think that this 

hearing that the chairman is bringing is raising important questions, and I respect that. And I will say that FHFA is committed 

to redoubling its efforts of review here even though I am not aware 

of any evidence that there have been unreasonable payments made. 

There are reasonable questions being asked, and we will take additional steps to monitor this. 

And as I have already said in response to a question from a previous member, I intend to file with the judge in the particular case 

my testimony so that he is aware of the concerns that have been 

raised here. 

Mr. WILLIAMS. Yes. Congressman, we take this very seriously, 

our responsibility to manage the expenses of the company, and including the legal fees. I would like to actually ask Mr. Mayopoulos 

to walk through the process and what the expectations are as it relates to these expenses. 

Mr. MAYOPOULOS. Congressman, we retain a company called 

Legal Cost Control, which is, frankly, the leader in this space. It 

is really one of the most respected invoice and audit firms in the 

country, with over 20 years of experience. They were selected by 

the bankruptcy court in some of the largest matters in history, including Enron, WorldCom and Adelphia to review the legal fee applications of lawyers in those cases. They analyze over $60 million in monthly billings for corporations such as Microsoft and Pfizer and Walmart, and so they are 

very experienced at this. They have a set of guidelines that they 

have developed with us that are 13 pages long and quite detailed. 

21 

They distribute those to all the law firms involved, require them 

to acknowledge that they have received them and read them and 

that they will abide by them. And then they review each one of 

these invoices line-by-line and raise questions where they think 

that the fees are not appropriate, that it is in line with what similar lawyers charge for similar matters. 

I think in the context of this matter, the question of reasonableness doesn’t mean that we always end up with a small number, 

okay? We clearly are spending quite large amounts of money on 

this matter. But this is a case that involves billions of dollars of 

potential liability, billions of dollars. And I have been doing this 

kind of work myself for 25 years now in my career. 

And when you look at what it costs to defend a case, such as a 

WorldCom or an Enron or an Adelphia, or this matter, the amounts 

of money we are talking about are comparable in terms of what you 

see. These are enormously expensive, time-consuming matters with 

very complex legal issues. The lawyers who get paid get paid a lot 

of money for their skills and experience and expertise in these matters. 

And so I don’t mean to suggest by saying that—while we think 

that the fees that have been paid are reasonable—we are happy to 

pay them. We clearly would prefer not to—but they are consistent 

with what lawyers who do this kind of work in this kind of matter 

get paid. And that is really the test that Legal Cost Control is applying as it goes through this process. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. DeMarco, you had, I think, pretty clearly outlined the difficulties you have in defending what could be taxpayer payout if 

you lose it. But you also indicated by that, raised a question to me 

that you may have significantly different interest in this lawsuit as 

a defendant than do these three individuals, or other individuals 

that are involved. 

Have you attempted to split out the cases and to say, look, we 

will defend our stuff and take the hit, but these three guys, their 

interests are different than the interests of you and your agency. 

Have you attempted to split up the case? 

Mr. DEMARCO. Mr. Capuano, as FHFA, we are not a defendant 

in this case. As conservator, we stand in the shoes of the Boards 

of Directors and senior management of the firm as conservator. So 

there is no separation there with regard to we are here and someone else is over there. The suit is against the firm and the activities of the firm. One of the counsels here may be able to better explain it than I can, but that is the situation. I don’t believe— 

Mr. CAPUANO. It certainly strikes me that, in theory, if these individuals acted badly, the company is a victim as much as anybody 

else. And therefore, the interest of the defendants may not be the 

same, and I would argue that the interest at one table should at 

least overlap significantly, and it strikes me just on the face of it 

that it may not. 

Mr. Mayopoulos, or Mr. Pollard, I would like to hear from you 

on this. 

22 

Mr. MAYOPOULOS. I think one of the challenges, Congressman, is 

that while there are some potentially different interests here, the 

fact is that, if these individuals did things that violated the law, 

the company is liable for that whether the company was a victim 

or not. That is just the nature of corporate liability. 

But there are potential differences in the defenses here. Fannie 

Mae did acknowledge that its accounting was not correct and it restated its accounting. But the individuals have never admitted to 

any improprieties whatsoever. They didn’t do that in the OFHEO 

special examination, and they didn’t make any admission in connection with the SEC matter. In fact— 

Mr. CAPUANO. So you don’t think it is possible to split it out? 

Mr. MAYOPOULOS. I don’t think—the case that has been brought 

has been framed by the plaintiffs. The plaintiffs chose to sue all 

these defendants together, and that is what we have been dealing 

with. 

Mr. CAPUANO. I get it. So you don’t think it is worth trying to 

split it? 

Mr. MAYOPOULOS. I think it is because there are differences of 

interest that all these individual defendants are entitled to their 

own legal defense, but I don’t think that we on the defense side can 

actually split the case up in any way that will be productive. 

Mr. CAPUANO. Mr. Pollard, do you agree with that? Okay. 

Have any of you asked the court if there are any actions you 

might be able to take, going forward, relative to securing your potential liability from these individuals, going to them and saying to 

the court, look—actually, Mr. DeMarco, you say you are going to 

submit something to the court. I would ask you to submit this 

hearing to the court and tell them that we are concerned about getting this money back if and when this case is finally determined. 

I get that. Maybe they could find a way to allow some sort of lien 

or some sort of surety or some other such activity again that may 

never be paid. If they are found innocent and not a problem, we 

get it. But if they are, I am also concerned with getting our money 

back, and maybe the court could help you find a way to secure that 

future ability. Do you think that is a reasonable approach? 

Mr. DEMARCO. Mr. Capuano, I have already committed that I 

will file with the court my statement and that the court will be 

made aware of this proceeding here. But in terms of the particulars, because this is a matter in litigation, it is with the judge, I 

am not feeling comfortable with sort of further expanding in the 

line of— 

Mr. CAPUANO. All I am asking you to do is to ask the court if 

they can help. 

Mr. DEMARCO. Yes, sir. 

Mr. CAPUANO. That is all I am asking. 

Mr. DEMARCO. And I have said that we would bring this to the 

court’s attention, yes. 

Mr. CAPUANO. So you will ask them, in a positive manner, if you 

can help you find a way to do that? 

Mr. DEMARCO. Yes, sir. 

Mr. CAPUANO. Mr. Williams, Mr. Mayopoulos? 

Mr. MAYOPOULOS. Congressman, I would note that the indemnification contract has a specific provision in it that no surety or 

23 

collateral will be required of a party receiving advancement of legal 

fees. So to do what you are suggesting, while I understand why you 

are suggesting it, seems to have been anticipated in the contract, 

and— 

Mr. CAPUANO. I respect that, but—I don’t mean to be disrespectful. Isn’t that what courts are, to determine what the contract actually says? All you have to do is ask. Let them say no. You might 

be right, but you might be wrong. 

Mr. MAYOPOULOS. Yes, that is what courts are for, is to determine where there are differences. With respect, having looked at 

this issue, I believe, sir, that this one is pretty clear. 

Mr. CAPUANO. I respect that, but I guess what I am trying to say 

is you guys don’t seem to get it. The difference between this and 

everything else that has ever happened, this is taxpayer dollars. 

This is not Enron. This is not WorldCom. We are not shareholders. 

We are taxpayers. And all I am trying to do is—yes, it is unique. 

Yes, it is unusual. 

What I am asking you to do is get a little aggressive on behalf 

of taxpayers even if you lose. There is no dishonor in losing if you 

are doing the right thing. But to sit there and presume that you 

cannot even try to do the right thing because you think the answer 

might be no, that is not an acceptable answer, not to me, it is not. 

Make the fight. If you lose, fine. But what if you are wrong and 

you win, and you get a judge who says, ‘‘You know something? This 

is a little unusual.’’ Take the shot. Taxpayers deserve it. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Grimm? 

Mr. GRIMM. Thank you, Mr. Chairman. 

Obviously, there is a lot of passion in the room, and that is for 

good reason. Everyone here is frustrated, and I think you are frustrated as well, because the answer to almost every question is, we 

have to play the hand that we are now dealt. So rather than beat 

a dead horse, I am going to see—looking for the future, is there a 

way that we don’t get dealt this hand again. 

So I have two questions for you. First of all, one of the reasons 

why I believe we are in this boat that the taxpayers, quite frankly, 

are paying for is because the individuals who are spending this 

much money on defense have entered into a settlement whereby 

they had no admission of guilt. So the first question is, could we 

have avoided that by not entering into that settlement? 

And second, who made the decision to go with conservatorship as 

opposed to a receivership? And can you explain what boat we 

would be in now had we been in a receivership and not a conservatorship? 

Mr. DEMARCO. With respect to your first question, Congressman, 

the determination to reach a settlement agreement with the three 

former officers was something that was—a decision that was made 

by the then-director of OFHEO. It was done based upon the facts 

and circumstances in which he was operating at this time. And 

that was not my decision, but I believe he had solid grounds for 

his determination at that point, but that was done at that time. 

With respect to the decision of conservatorship versus receivership, I believe that that has been described at some length by the 

participants who were involved in that decision at the time. That 

24 

would be principally Secretary Paulson and FHFA Director 

Lockhart about the determination of what form of intervention the 

government would take with Fannie Mae and Freddie Mac being— 

removing from the market and having their access to the capital 

markets rapidly being withdrawn. 

The issues there are far broader than the immediate matter that 

we are talking about here today regarding certain litigation. And 

the determination was that it was necessary for—the goal was appropriate to provide government support in using the vehicle of 

conservatorship because there were grounds to appoint a conservator, and there was a public policy goal of assuring that the country maintained a functioning secondary mortgage market right at 

the point that the whole U.S. financial system was teetering on the 

brink. 

And so that was a determination made at that time. I believe it 

was the right one, and it was done for reasons that are far broader 

and have far more—more far-reaching implications than the particular matters of litigation that we are discussing today, sir. 

Mr. GRIMM. Understood. But it still leaves—one of the problems 

that we have here is that, overall, this is the exact reason why the 

general public doesn’t trust the government and doesn’t believe 

that we ever have their interest at heart. 

What we have here are three individuals that we know have abdicated their fiduciary responsibilities, at a minimum, and in doing 

so caused a tremendous amount of harm to the markets and to the 

taxpayers. And because they were able to enter into a settlement 

where they didn’t have to admit any guilt, the taxpayer bears the 

second burden. 

That frustration is overwhelming, and I have to believe there is 

a better way. And there has to be a mechanism that, when we look 

at these types of settlements, and when we decide whether—and 

I understand it is a very complicated issue between conservatorship 

versus receivership. I understand that. But when you break it all 

down and get past all the legal jargon, I have to believe there is 

a better way than leaving the taxpayers constantly holding the bag. 

So I leave you with the thought that, when we are entering into 

settlements, in this very unique situation where there is almost unlimited liability for the taxpayers, that has to be part of the decisions process when entering into these settlements. 

Thank you. 

Chairman NEUGEBAUER. The gentleman from Texas, Mr. 

Canseco. 

Mr. CANSECO. Thank you, Mr. Chairman. 

Let me, first of all, ask you this question. Prudence would dictate 

that if you, indeed, represent Fannie and Freddie and making sure 

that the mortgage market continues to function when you took on 

the conservatorship, that you really represented the American people. Yet it seems to me that your act in extending this indemnity, 

that you were no longer representing the American people, that 

you were representing the defendants in this particular case. 

Wouldn’t it have been more prudent to allow the defendants to 

sue the conservatorship for indemnity than to go ahead and honor 

the indemnity agreement that was in place? 

25 

Mr. DEMARCO. Thank you, Congressman. I am going to ask my 

counsel to respond to that question. 

Mr. POLLARD. Congressman, the difficult decision that you have 

posited is one of a lawyer looking at the situation at hand, which 

is someone being indemnified, and what would happen if, in fact, 

we had repudiated the contract. What would happen in that situation, my best estimation as a lawyer advising the agency, was that 

the defendants would sue us. Our repudiation of contract is specifically authorized and in HERA in 2008 to authorize them—anyone 

to challenge that. Therefore, they could sue us, as provided by the 

statute, for which they would be advanced legal fees. 

The predominant court cases that I have looked at is that, at a 

time when they were being advanced fees, when there was no final 

action, that they would in fact have a chance, and a very strong 

chance—understanding what Mr. Capuano has asked us about taking that chance—that they had a very strong chance of prevailing 

and that we could be in extended litigation on this matter with a 

set under Delaware law that is very, very strong. 

And let me make this point. I think the question— 

Mr. CANSECO. Understood, but— 

Mr. POLLARD. —I am just trying to say, advancement of legal 

fees is actually accorded even greater strength at times than indemnification. That is really the challenge. 

Mr. DEMARCO. But there is an important other concept here if 

I may, Congressman, and maybe secondary, but it is nonetheless 

critical, and I would call the subcommittee’s attention to it, which 

is that when we place these companies in conservatorship and we 

place the American taxpayer support behind the operations of 

Fannie Mae and Freddie Mac in conservatorship, that support is 

backing $5.5 trillion worth of securities that are trading in global 

financial markets. 

We need, in the conservatorships, there to be talented, capable 

professionals who continue to operate the day-to-day operations of 

these companies, and we needed to replace a number of senior officers and the entire Boards of Directors of both companies. 

If FHFA was to take an action that would have called into question the reliability of the government’s affirmation of indemnification to these folks because it saves—and we are going to back out 

from it, we would not have been able to attract and retain the talent that we brought in post-conservatorship, as well as the existing 

managers and staff that were there to do their important job. 

These individuals are subject to lawsuits today. They are subject 

to a wide array of government investigations. And it is incumbent 

on us to provide the standard protections of indemnification and 

advancement of legal fees that are available. 

Mr. CANSECO. I appreciate your comments on that, but my time 

is a little limited here. And my comment on that is you would have 

had an opportunity to at least question the size of the legal fees 

and the quantity of the legal fees and at least put into issue the 

fact that you were doing it under protest because, after all, your 

main client is the taxpayers of this country and not the people that 

you are indemnifying. 

Now let me go off into something else, if I may. Mr. Williams and 

Mr. DeMarco, in the timeline leading up to the May 23, 2004, signVerDate Nov 24 2008 11:47 Apr 01, 2011 Jkt 064553 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\64553.TXT TERRIE
26 

ing of the comprehensive indemnification agreements with Franklin Raines and Tim Howard and Leanne Spencer and Fannie Mae, 

on the 17th of July of 2003, the Director of OFHEO, Armando Falcon, announced that OFHEO would conduct a special accounting 

review of Fannie Mae in testimony before the Senate Banking 

Committee. By January of 2004, press reports and market analysis 

began to call into question Fannie Mae’s accounting practices. 

The indemnification agreements were then signed on May 23rd 

of 2004, less than 4 months before the release of OFHEO’s first report on Fannie’s noncompliance with accounting rules. The September 17, 2004, report of findings, the date of the special examination of Fannie Mae, stated that Fannie’s management culture 

made noncompliance with accounting rules possible—‘‘The problems relating to these accounting areas differ in their specifics, but 

they have emerged from a culture and environment that made 

these problems possible. Characteristics of this culture included’’— 

and it goes on. 

These facts call into question the timing of the signing of the 

comprehensive indemnification agreements. To the best of your 

knowledge, did Fannie Mae executives request new indemnification 

agreements because they feared their accounting misdeeds would 

soon be exposed by OFHEO investigation? Do you know that? Do 

you have an answer to that? 

Mr. WILLIAMS. Congressman, yes, let me answer that. The Board 

of Directors at the time had undertaken a review of the indemnification agreements and had decided to re-issue a standard 

agreement for all officers. Mr. Raines, Mr. Howard and Ms. Spencer already had indemnification agreements in place, Mr. Howard’s 

from 1987, Mr. Raines’ from 1991, and Ms. Spencer from 1993. 

Mr. CANSECO. So all you did was just renew them in this short 

period of time? 

Mr. WILLIAMS. The Board of Directors—I was not on the Board 

at the time, but the Board of Directors wanted to re-issue standard 

indemnification agreements. They have been custom or unique to 

each individual in one standard agreement. 

Mr. CANSECO. And it just seems odd that these new indemnification agreements were signed less than 4 months before the regulator issued a report blaming senior management for mismanaging 

earnings statements, given the questions about the motivation of 

Raines et al. to seek new indemnification agreements. Do you still 

believe that it is appropriate to advance fees for these individuals, 

given their egregious conduct? 

Mr. WILLIAMS. Congressman, the agreements have been in place 

since 2004, and as both Mr. DeMarco and I have said, we have to 

advance the fees under the agreements. 

Mr. CANSECO. Thank you, sir. My time has expired. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Garrett? 

Mr. GARRETT. And I thank you. 

I guess I will go to Mr. Williams, and I am going to go down a 

totally different road, although it is tangentially related. It is related to the issue of what we have heard before with regard to legal 

fees and the payments and the like. It goes to the issue of when 

Fannie purchases loans originated in names of persons other than 

27 

a seller, and specifically taking a look at the situation with various 

credit unions, specifically Picatinny Federal Credit Union. 

And if you are familiar with this situation, this is where there 

is legal action pending, where Picatinny Federal Credit Union has 

52 loans with a total outstanding balance of around $13 million 

that were sold to Fannie without Picatinny’s knowledge or authorization. To date, my understanding is Fannie has not offered 

Picatinny more than basically in the settlement discussions, 23 

cents on a dollar in settlement, and even that offer, I understand, 

had a number of conditions attached to it. 

So, I have a couple of questions here on this. First, is that a 

meaningful settlement, from your perspective? And second, can you 

tell me how much it is costing—or we should say us, or Fannie— 

what it is costing to continue with the settlement negotiations, the 

investigation, and defending the claims brought by them and the 

other credit unions in this matter? Let me just stop there and go 

on. 

Mr. WILLIAMS. Thank you, Congressman. As you know, this was 

a fraud that was brought upon both Fannie Mae and the credit 

unions, and I would like to ask Mr. Mayopoulos to discuss the nature of the settlement. 

Mr. GARRETT. Sure. 

Mr. MAYOPOULOS. Congressman, as Mr. Williams has indicated, 

this is a fraud that was perpetrated on both the credit unions and 

on Fannie Mae. And basically, the question in the litigation is, who 

bears that loss? Is it the credit union that originally bought the 

mortgages and sold them to Fannie Mae or is it Fannie Mae? 

There are—my recollection, I don’t remember precisely—my 

recollection is there are about two dozen credit unions who had a 

similar set of issues, all victims of the same fraud. And we have 

reached settlements with the vast majority of them. There are a 

handful, including Picatinny, with whom we have not reached settlements. We have sought to do that. And the terms on which we 

have sought to reach a settlement with Picatinny are essentially 

the same as they are with the other credit unions, and the vast 

majority of the credit unions have accepted that settlement. 

Mr. GARRETT. Do you have an answer, though—I appreciate that. 

Do you have numbers at your fingertips with regard to what it is 

actually costing us with regard to defending the claim, all the investigations and all that that goes on, at least with regard to this 

credit union—or all the credit unions out there? 

Mr. MAYOPOULOS. I am sorry, Congressman, I don’t have those 

numbers at my fingertips. We can— 

Mr. GARRETT. You can provide that? 

Mr. MAYOPOULOS. —work—we can get those for you. 

Mr. GARRETT. That would be great. And also, along the same 

lines, I used to be with law firms, and I always thought that small 

ones were better than the big guys. I know we were certainly 

cheaper than the big guys. The Picatinny has hired one of those 

smaller ones, and I think it is connected with—I should say that. 

Fannie Mae has retained, I guess, Latham & Watkins, I guess one 

of the bigger guys in the entire country. Can you also—you probably don’t have it at your fingertips—just provide us also at the 

28 

same time what that is costing us, the rates and the billing and 

proceedings on that? 

What we are dealing with—and I appreciate you both making 

the same comment. You started out with your comment that this 

is basically a fraud not just on the GSEs, on Fannie, this is also 

a fraud that was against credit unions as well, Picatinny, right? 

Yes, I appreciate that, because basically what you have here is 

when—I could basically come to Fannie and say I want to sell some 

loans to them, and Fannie buys them, and the owner of them 

doesn’t know a thing about it. That is really what we are talking 

about here, correct, and that is where the fraud is engaged? 

Mr. MAYOPOULOS. Yes. My understanding of the fraud here was 

that the person who sold these loans from credit unions to Fannie 

Mae appeared to have authority to do that, and the law firm on 

the side of the credit unions now say that no, that person didn’t 

have the authority. So the question is, who bears that risk? 

Mr. GARRETT. Right. And so, because I only have 45 seconds left, 

what is done, as far as from Fannie’s perspective, in order to see 

whether that individual maybe in that situation, that hypothetical, 

had the authority to do it? You notify the borrowers at some point 

in time that Fannie holds these loans at this point in time, right? 

So do you also notify the—would you have also notified the seller, 

which case would it be the credit unions at the same time? So what 

steps are taken to make sure that they are really the rightful owners, and do you notify them when they are secured at the same 

time? 

Mr. MAYOPOULOS. We don’t typically notify sellers of loans that 

they have sold loans to us. They—in this case, the person in question actually appeared to have apparent authority to do that, and 

in fact, if I recall the facts correctly, had in fact been authorized 

to sell some loans on behalf of Picatinny. 

So this is a person that Picatinny brought to the situation, gave 

authority to to sell at least some loans, and then apparently this 

person sold loans beyond what he had authority to sell. 

Mr. GARRETT. And one last question, in the hearing, it is said 

that—it was understood that you continue to purchase loans from 

sellers who the principal owners are subject to criminal indictment 

or mortgage fraud, until the fraud has been judicially determined 

or discovered to have been committed upon Fannie Mae. Basically, 

you will, or have, continued to purchase loans from people even 

though they are indicted and there are fraud allegations against 

them, even until that is actually adjudicated in the court. Is that 

correct? 

Mr. MAYOPOULOS. I am sorry. I am not familiar with that, Congressman. 

Mr. GARRETT. Okay. Then that will be one of the other points you 

can get back to me on. 

Thank you very much. I appreciate the indulgence of the Chair. 

Chairman NEUGEBAUER. I thank the gentleman. 

That concludes the questions for our first panel. I think you can 

tell by the questions that these members have asked that we are 

very concerned about this process and that when you look at some 

of the authority of the conservatorship, it in some ways emulates 

some of the same authority that FDIC has in certain actions. 

29 

And I think that the question here, while Mr. DeMarco was not 

the original conservator, that many of us are concerned that some 

decisions were made in the front end of that conservatorship that, 

quite honestly, weren’t in the best interest of the taxpayers. 

And while I think it is noble of you to defend these indemnification agreements, I believe that there is compelling evidence there 

that it is a little fishy. I think that we had to redo new contracts 

in 2004, but I think the other thing is that, when you look at the 

reports, that what these folks—what the entities agreed to in a 

$400 million fine is no small admission of wrongdoing. 

And so we hope that, moving forward, you will look for ways to 

minimize additional exposure for the taxpayers. We hope that you 

will review this issue, go back and look at some of the corporate 

minutes and make sure that these agreements are on solid ground 

and that, if there are things that we can do, then we would like 

to look at that action. 

I think the other question that was brought up, and that is was 

this the right structure, should this have been receivership rather 

than conservatorship, because obviously I think what Congress has 

in mind when we think about conservatorship, I think it is about 

conserving the taxpayers’ investment in these entities. 

Anyway, I thank the panel, and this panel is now excused. 

We will call up the second panel. I am going to yield to the gentleman from Ohio, Mr. Renacci, to introduce our second panel. 

Thank you. 

Mr. RENACCI. Thank you, Mr. Chairman. 

It is my pleasure to introduce to the subcommittee the attorney 

general of the great State of Ohio, Mike DeWine. Mr. DeWine is 

a native Ohioan, a former prosecutor, a four-term member of this 

chamber, and a two-term United States Senator. Mike has dedicated his entire career in public service to speaking out for the 

most vulnerable in our society, from children to the elderly to the 

unborn. 

He and his bride of over 43 years, Fran, are the parents of 8 and 

the grandparents of 13, with the 14th due any day. I have had the 

pleasure of knowing Mike DeWine for some time now, and I know 

that nothing is more important to him than family. It is because 

of his love of family and community that, when he took the office 

last month to become Ohio’s 50th attorney general, he swore that 

he would do everything in his power to seek truth and justice and 

to protect Ohio’s families. 

I am pleased to introduce my friend, Mike DeWine. 

Chairman NEUGEBAUER. Thank you. Welcome. 

STATEMENT OF THE HONORABLE MIKE DeWINE, ATTORNEY 

GENERAL OF OHIO 

Mr. DEWINE. I am delighted to be here, and I thank you and the 

committee for inviting me. I must tell you, after having spent 20 

years on your side of the dais, this is a different experience for me. 

But I appreciate the opportunity to be here. 

And Mr. Renacci, thank you, Congressman. We are proud that 

you are from Ohio, and thank you for that kind introduction. 

Mr. Chairman, members of the committee, I am here today because I represent the lead plaintiffs, the Ohio Public Employees ReVerDate Nov 24 2008 11:47 Apr 01, 2011 Jkt 064553 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\64553.TXT TERRIE
30 

tirement System and the State Teachers Retirement System in a 

securities fraud class-action filed over 6 years ago against Fannie 

Mae, against its former three most senior officers, and against its 

auditor. This class-action also includes nearly 29 million other defrauded investors from each of the 50 States. 

The defense engaged in a massive accounting fraud against the 

class to the tune of nearly $9 billion. Our case originally was filed 

in November 2004, and continues to this day unresolved. What is 

worse is that Fannie Mae and its former executives, whom Fannie 

Mae is indemnifying, have been using taxpayers’ dollars to pay for 

their defense. It is wrong, and Mr. Chairman, it is unconscionable. 

And I urge the committee and Congress to bring this absurdity to 

an end. 

We already know that Fannie Mae cooked its books. We already 

know that it smoothed its earnings. We already know that it violated 30 Generally Accepted Accounting Principles. And yet Fannie 

Mae continues to deny liability, dragging out the current litigation 

billable hour by billable hour by billable hour and bleeding Americans so far, by Fannie Mae’s own admission, of at least $132 million for its legal fees alone. And according to your calculations, Mr. 

Chairman, the total cost to taxpayers is much higher. 

But Mr. Chairman, I am not here today to use this hearing as 

a forum to try to reach a settlement. We are, in fact, quite anxious 

for this case to go to trial, and we are ready for that to happen. 

But Fannie Mae is doing everything in its power to stall. It is really easy to impede the resolution of a lawsuit when you have a bottomless coffer of taxpayers’ dollars to pay your legion of lawyers to 

engage in delaying tactic after delaying tactic. 

U.S. District Judge Richard Leon, who is the judge in this case, 

has done everything in his power to move this case forward. In 

fact, I have on this piece of paper several quotes from the judge indicating his displeasure with Fannie Mae’s tactics. And those 

quotes are, Mr. Chairman, members of the committee, in my written testimony that I have submitted for the record. 

To keep things moving, the judge holds regular conferences to 

check on the status of the litigation. Where we on our side typically 

bring 2 or 3 lawyers, the Fannie Mae defense, however, even just 

for short, routine conferences where really nothing of great substance is discussed, typically—typically—bring 35 to 40 attorneys 

and paralegals, costing taxpayers over $600 per hour for some of 

these lawyers. 

At former Fannie Mae CEO Franklin Raines’ April 2010 fact deposition, we were the only party asking questions, and yet the 

Fannie Mae defendants brought 13 lawyers—and we counted them, 

Mr. Chairman. We counted them—none of whom asked a single 

question, not a single question. They just sat there and billed the 

taxpayers for their hours. 

We are now conducting, at this stage of the case, expert depositions where the bill to taxpayers continues to mount. As the lead 

plaintiffs, we have the burden of proof, and therefore we have designated eight experts on our side. Defendant KPMG has designated 

five experts. Fannie Mae defendants, however, have designated 25 

experts. And Mr. Chairman, members of the committee, these exVerDate Nov 24 2008 11:47 Apr 01, 2011 Jkt 064553 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\64553.TXT TERRIE
31 

perts are not cheap. According to documents filed with the court, 

their billable hours are between $600 to $1,500 per hour. 

Franklin Raines has 9 experts just for himself, including 4 to say 

essentially that he fulfilled his job as CEO by properly relying on 

others to tell him what to do, and 2 experts to say that his $91 million in compensation over 5 years was in fact, justified. 

Now I fully understand an argument could be made, Mr. Chairman, and members of the committee that Fannie Mae has to defend itself and its former senior officers. But the amount they are 

spending, at the expense of U.S. taxpayers, is ridiculous. And you 

would think, Mr. Chairman, that a former CEO who made over $91 

million just might—just might—be able to afford his own lawyer. 

Mr. Chairman and members of the committee, Ohio families 

have been wronged. American families are being wronged, and it 

is time to just stop this. If I could just add one more thing, Mr. 

Chairman, and I know the light is on, the comment was made in 

the previous panel about 1,500 pages that we have filed. I do not 

apologize for filing 1,500 pages on behalf of 30 million victims in 

this country. The 1,500 pages represent not things that we did, not 

things that the victims did, but things that these defendants did. 

Let me conclude with a quote from Judge Leon, which tells you 

what he thinks about this case and the gravity of this case when 

you look at whether 1,500 page is excessive: ‘‘This is a case of monumental proportions. Indeed, it is a case unique in the annals of 

American industry and history and business at the highest levels. 

It has been regarded and referred to as the largest accounting 

fraud case in the history of the United States.’’ 

I thank the Chair. 

[The prepared statement of Attorney General DeWine can be 

found on page 44 of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

One of the things that appears to me is that the longer this goes 

on, obviously the longer the benefit to these three individuals, that 

there is not a lot of incentive out there as long as you can lawyer 

up and have all of these hearings and these depositions, and then 

you give Freddie and Fannie, and actually you give the taxpayers 

the bill for it. Is that your observation of what is going on here, 

is that this is really about, if we just keep churning here, that— 

Mr. DEWINE. Mr. Chairman, we want this case to be over. We 

want to be compensated. Thirty million victims want to be compensated. What these defendants are doing is lawyering us to 

death. They are showing up with dozens of lawyers. They are drawing this out, and I think Judge Leon said it best, if I could quote. 

He commented on the huge expense incurred by having so many 

defense lawyers, saying at a June 25, 2009, hearing that, ‘‘The lawyers are doing pretty well. I am not so sure the taxpayers are doing 

pretty well, but the lawyers are doing pretty well in this deal.’’ 

Chairman NEUGEBAUER. Yes, I think the judge makes a good 

point there. I think the lawyers are doing well indeed, looking at 

these numbers. 

And so, what could be done to begin a process to manage these 

fees and make—if they are going to continue this process, what are 

things that we could require or request that the conservator do to 

lower the cost of this process? 

32 

Mr. DEWINE. Mr. Chairman and members of the committee, I 

think that is an excellent question. I know on this—I am on this 

side and you are on that side. Ultimately, you are the ones who 

have to make this determination. 

But just since you asked, just maybe a comment, FHFA has a responsibility, it seems to me, to the taxpayers of this country. They 

have an obligation to conserve assets. They have an obligation to 

be concerned about what tax dollars are going out. 

Even if you concede—and I don’t concede this—that there is an 

obligation to indemnify Franklin Raines, Mr. Raines, who made 

$91 million, and even if we don’t think he has the money to handle 

this, and we have to put that money up out front, it still seems 

that there are ways that FHFA could control this. How many lawyers do you really need? How many expert witnesses do you really 

need? 

Now, it is not Judge Leon’s job to tell the defense that they cannot bring more lawyers to the table. The scene, if I could describe 

the scene as an amazing scene, you have in Judge Leon’s courtroom 

at these fairly routine hearings, pretrial conferences, you have a 

couple of lawyers for each who are sitting at the table, and then 

you can have a whole room full of the rest of the lawyers who are 

out there for the defense, all on billable hours, all not doing anything maybe but charging for thinking. 

So FHFA has an obligation, it seems to me, to bring some reasonableness to this, some common sense to this, cut down on the 

number of lawyers, control the number of expert witnesses. Even 

if we believe that all these defendants are entitled to lawyers, 

somebody might be entitled to a lawyer, and I guess they can have 

as many lawyers as they want, but they are not entitled to have 

someone else pay for it. 

Chairman NEUGEBAUER. So have you all requested the trial 

date? 

Mr. DEWINE. We don’t have a trial date. Judge— 

Chairman NEUGEBAUER. But have you requested—have you— 

Mr. DEWINE. We want to move forward on this as quickly as we 

can. We are now in the second phase of the depositions. We are in 

the depositions for the expert witnesses. And again, if I could explain, the problem is, when the other side comes up with 25 expert 

witnesses—and Judge Leon described it pretty well about these expert witnesses. Let me read what he said about these expert witnesses, because having 25 expert witnesses who have to be deposed 

over a period of time slows the process of the case. 

At a June 14, 2010, hearing, Judge Leon said there is absolutely 

no way that so many experts will ultimately testify—actually testify—at court, admonishing Fannie Mae defendants, ‘‘So you don’t 

need to have five experts say the same damned thing. If one good 

one says it the right way, from your perspective, that is going to 

be more than enough. You don’t need five to say it. It is not a metoo operation. So bear that in mind. Bear that in mind.’’ The costs 

are just staggering. 

Chairman NEUGEBAUER. Mr. Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. Chairman, I don’t really have any questions for the attorney 

general. I get exactly what you are saying. You have been very 

33 

clear. I don’t disagree with what your parameters are. I am not exactly sure what we can do about it. I understand what you are saying, and that is why to some extent, as one of my colleagues said 

earlier, we are trying to play the cards we are dealt as of today and 

trying to move forward. 

But I appreciate the points you raised. I agree with pretty much 

everything you have said. I am not exactly sure how we could accomplish what we want to accomplish, and I would be happy to 

hear later on at another time maybe some other ideas on how we 

might be able to do it. 

At the same time, I also want to thank you for pursuing this 

matter as vigorously as you have, and wish you the best of luck as 

you go forward, because it will be important to get this thing settled, and it will be important to get these things answered and to 

get this issue behind us so that we can address the other issues 

related to Fannie Mae and Freddie Mac. Thank you. 

Mr. DEWINE. Thank you very much, Congressman. 

Chairman NEUGEBAUER. Mr. Fitzpatrick? 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

Attorney General DeWine, thank you for your time. I know that 

all of us here appreciate the fact that you are working hard to protect your constituents, the taxpayers of Ohio. 

In the previous panel, Mr. Renacci of Ohio asked a great question to the witnesses. It had to do with the reasonableness of the 

attorney’s fees. And the underlying assumption of his question was 

that reasonableness many times is in the eye of the beholder, as 

he said, or really the capacity of the payer to pay. And I guess my 

question is, if the Fannie Mae defendants, perhaps using Mr. 

Franklin Raines as an example, if they had to pay even a portion 

of the attorneys and the attorney’s fees that were being paid on his 

behalf, do you think it would have had an impact on the number 

of attorneys who filled the courtroom the day that you described? 

Mr. DEWINE. Congressman, thank you for the question. Mr. 

Raines does, we assume, have a lot of resources, and I suppose if 

he wanted to fill the courtroom full of lawyers to be concerned and 

pay a lot of people to be thinking at the same time about his problem, he could do that. I am not sure any reasonable person would 

do that. I am not sure any defendant who has to reach into his own 

pocket, frankly, no matter how much money he or she might have, 

would have duplitive lawyers there at a fairly routine matter. 

Congressman, it is one thing to go to trial and make sure you 

have enough lawyers there because you are going at it, and hard 

at it. It is something else, it seems to me, for a routine conference 

with the judge where there aren’t huge matters to be thought out 

or be worried about. So I think the answer clearly is obvious, and 

that is no person in their right mind shows up with that many lawyers if they are paying for it themselves. 

Mr. FITZPATRICK. And so, in this particular case, in your case, in 

the litigations that have been brought in Ohio, the taxpayers of 

Ohio are paying legal fees on both sides, I assume. 

Mr. DEWINE. That is right, and I think we don’t want to forget 

the fact that each one of you represents some of these victims. We 

have 50 States that are represented, 30 million pensioners. These 

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34 

yers who are working on this, why in the world are there so many 

pensioners? Why in the world so many pension systems? And the 

answer was, Fannie Mae marketed this as—and went for these 

pension systems and said, look, this is a very, very conservative investment. 

So you have pensioners, 30 million of them, who through their 

representatives relied on this misrepresentation, first of all that it 

was a conservative investment, and second, they relied on the fact 

that they were getting facts about the condition of Fannie Mae. 

And that is one thing that is so ironic about this whole discussion 

in the previous panel, Mr. Chairman. There is no dispute about the 

facts. They have not, as I understand it, admitted liability, but we 

have had two regulators who have looked at this who have come 

to the same conclusion. 

Fannie Mae settled with both of them, and in one even said we 

will not dispute in any way—we won’t admit anything, but we will 

not dispute the factual determinations that we are agreeing to. So 

there is no dispute about what really happened here or that these 

are bad actors who did bad things. 

Mr. FITZPATRICK. Thank you, Attorney General DeWine. 

I yield back. 

Chairman NEUGEBAUER. Thank you. 

Mr. Renacci? 

Mr. RENACCI. Thank you, Mr. Chairman. 

Mr. DeWine, you are representing 30 million pensioners in your 

case here. Can you tell me what your costs are approximately? 

Mr. DEWINE. This case—and I am, by the way, Congressman, 

the fourth attorney general in Ohio to handle this case, or to oversee this case. We remained as the lead plaintiff because we had 

more pensioners. We had more at stake. Our costs are on a contingent basis. So if we win, the lawyers who are representing us, who 

my predecessors retained, they will get a certain percentage based 

on a contract. 

But what is so aggravating is that, each day that goes on, we 

have a pension system in Ohio and pension systems in other States 

that are out this money. And you know, Congressman, the problems we are having, or the challenges we are having with the 

change in the market in the last few years, the down market with 

our pension system in the State of Ohio, and you know what that 

means. And we can only assume that most States who invested in 

Fannie Mae have a similar problem. 

So this is not like the days when everything was going up and 

you could have a loss like this, and it would maybe not be good, 

but it wouldn’t be as devastating. This is very tough for Ohio. It 

is tough for our pension system and the people who rely on it, the 

teachers, the firemen, and other public employees. 

Mr. RENACCI. Sure. What I was trying to get to was your actual 

costs in comparison to the number of people you are representing. 

Mr. DEWINE. I think a good way to look at it is, when we show 

up with 2 and they show up with 15, I think that is a pretty good 

indication. We try to do things in a reasonable way, and you do 

what you have to do in litigation. This is important litigation. No 

one thinks that you should not have lawyers. No one thinks that 

you shouldn’t have two, whatever it takes. 

35 

But there comes a point, anybody who has tried civil litigation, 

as I know members of this committee have, that you just reach the 

point of absurdity, and we have reached that point today. 

Mr. RENACCI. Sure. All right. Again, I would assume that your 

cost per person is a lot less than the cost— 

Mr. DEWINE. It is going to be a lot less, much, much, much less. 

It is going to be a fraction of what their cost is. It simply has to 

be just based on numbers. And that is not even getting into the 

question of how much they are paid per hour. It is just a number 

of how many there are. 

The same way with the expert witnesses. We are now—we bled 

so much. Taxpayers are bled. What this hearing—it seems to me, 

at least what my testimony, Mr. Chairman, at least in part is 

about is stop the bleeding. 

We are headed into an era, or a period of time where we are 

going to have a lot more bleeding with 25 expert witnesses that 

Judge Leon has already said he is not going to let 25 in, but he 

is not going to stop people from taking depositions and not stop 

them from putting 4 of these people as potential witnesses. And 

each one is getting paid, according to documents filed with the 

court, $600 to $1,500 an hour. 

So the lawyers are getting a lot, but these experts are getting a 

lot more. 

Mr. RENACCI. Thank you. I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Canseco? 

Mr. CANSECO. Thank you, Mr. Chairman. 

And thank you, Attorney General DeWine, for being here today, 

and thank you for taking a leadership role in representing the people of Ohio and also the people of the United States in this very 

important issue. 

Let me ask you a technical question, because I am just appalled 

at this very outrageous and egregious amount of attorneys’ fees. I 

have been a lawyer for 35 years and never in my life, not even in 

the tobacco cases, have I seen legal fees amount to such amounts. 

Is there any way that you can challenge the necessity for so 

many witnesses, so many expert witnesses, so many attorneys coming in and limit the number of attorneys who go in there, and also 

find standing to challenge the fees that are being charged? 

Mr. DEWINE. Congressman, I think that is certainly a good question. I guess my answer would be that is not something that normally counsel for one side does. I think that only goes back to 

FHFA, their oversight responsibility. I think they have some obligation, even if they believe that indemnification is correct, even if 

they believe there is no choice in this matter, which I disagree 

with, they have responsibility to taxpayers to limit this. 

And to put it back on the judge and to say that, as the previous 

panel did and to say this is something, ‘‘Well, gee, Judge Leon 

should do this,’’ he has commented on it. He has made a point 

about it. He said that he is not going to let, for example, that many 

expert witnesses testify in court because he is—this is a case that 

will go on for a long, long time, and he has every obligation to try 

to make it an efficient use of time. 

36 

But as far as a judge looking up or us looking up and trying to 

stop them from bringing in a whole bunch of lawyers, I don’t 

think—I don’t know what your experience has been, but at least in 

my experience in a practice, that is just normally not done. 

I am doing today what I think I need to do, and that is talk 

about this issue, raise this issue, and say at least, in my opinion, 

FHFA has an obligation. They have an obligation to do something 

about this. 

Mr. CANSECO. Thank you. 

Mr. DEWINE. Thank you. 

Chairman NEUGEBAUER. Thank you, Congressman. 

Mr. CANSECO. I yield back my time. 

Chairman NEUGEBAUER. Attorney General DeWine, thank you 

very much for coming today and for your testimony. 

The Chair notes that some members may have additional questions for today’s witnesses, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and to place their responses in the record. 

If there is no other business before the committee, we are adjourned. 

[Whereupon, at 4:24 p.m., the hearing was adjourned.] 

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February 15, 2011 

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