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OVERSIGHT OF THE FEDERAL HOUSING 

FINANCE AGENCY 

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 

DECEMBER 1, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–88 

( 

(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 

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 

STEPHEN LEE FINCHER, Tennessee 

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 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEPHEN LEE FINCHER, Tennessee 

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: 

December 1, 2011 ............................................................................................. 1 

Appendix: 

December 1, 2011 ............................................................................................. 35 

WITNESSES 

THURSDAY, DECEMBER 1, 2011 

DeMarco, Edward J., Acting Director, Federal Housing Finance Agency .......... 7 

Haldeman, Charles E., Chief Executive Officer, Freddie Mac ............................. 6 

Williams, Michael J., President and Chief Executive Officer, Fannie Mae ........ 9 

APPENDIX 

Prepared statements: 

DeMarco, Edward J. ......................................................................................... 36 

Haldeman, Charles E. ...................................................................................... 46 

Williams, Michael J. ......................................................................................... 57 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Neugebauer, Hon. Randy: 

Written statement of Federal Housing Finance Agency Inspector General 

Steve A. Linick .............................................................................................. 68 

Fincher, Hon. Stephen: 

Written responses to questions submitted to Edward J. DeMarco .............. 75 

Written responses to questions submitted to Charles E. Haldeman ........... 76 

Written responses to questions submitted to Michael J. Williams .............. 77 

(1) 

OVERSIGHT OF THE FEDERAL HOUSING 

FINANCE AGENCY 

Thursday, December 1, 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 2:55 p.m., in room 

2128, Rayburn House Office Building, Hon. Randy Neugebauer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Neugebauer, Fitzpatrick, 

Pearce, Posey, Renacci, Canseco, Fincher; Capuano, Waters, Miller 

of North Carolina, Himes, and Carney. 

Also present: Representatives Miller of California, Garrett; and 

Green. 

Chairman NEUGEBAUER. This hearing will come to order. We will 

have opening statements by each side. We remind all Members 

that their entire written statement will be made a part of the 

record. 

Also, I ask unanimous consent that Mr. Garrett and Mr. Miller 

be allowed to sit in with this subcommittee. They are not members 

of this subcommittee, but they are members of the full Financial 

Services Committee. If there is no objection, then so ordered. 

We will start with opening statements, and I will begin. This 

hearing is really about, I think, three things. One is stopping any 

wasteful spending that might be going on in the Enterprises, because about 3 years ago and about $170 billion ago, the American 

taxpayers inherited the opportunity to own two mortgage companies, and they weren’t willing investors. And so, one of the things 

that we want to make sure of is that we are being good stewards 

of their money and their investment; and more importantly, in the 

future, of making sure that down the road, we get the taxpayers 

out of the mortgage business so that they are not on the hook. 

The second thing is a part of what is going on within the Enterprises to begin to shrink the footprint that these two Enterprises 

have, because as long as these Enterprises, along with the FHA, 

dominate the mortgage market, it is going to be extremely difficult 

to bring private capital back into the mortgage market. In fact, 

today the American taxpayers basically dominate, are on the hook 

for almost every mortgage that is originated in this country. And 

quite honestly, I think the American people find that an area that 

they are not very interested in. 

2 

I think the third thing, too, is what kinds of things are going on 

corporately within the entities that would begin to shrink that footprint so that we do create the space they need, but, more importantly, looking forward towards an exit strategy, because long 

term, I think it has been indicated by both the Administration and 

other Members of Congress that we don’t think it is in the best interests of the American taxpayers to be in this business long term. 

We are going to hear testimony today from the two CEOs as well 

as their conservator about what is going on inside the entities. 

There are some troubling things that have surfaced, and we want 

to have an opportunity to discuss that, and expenses that some 

people feel are extravagant. Some people feel that at this time, 

where these entities are bleeding and losing money and having to 

have infusions by the American taxpayers, there ought to be a very 

frugal attitude within the Enterprises. 

Also, I think we want to learn more about the relationship between the conservator and the two entities and how that interaction is taking place, and the coordination, and, more importantly, 

what kinds of plans and measures are in place so that we begin 

to ascertain if we are, in fact, making progress in this area. 

So I think this is a very important hearing for the American taxpayers, and I look forward to hearing from the witnesses in their 

various testimonies. I appreciate their coming today. With that, I 

now yield to the ranking member, Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman, and I want to thank 

the gentlemen for being here today and enlightening us on a few 

of these issues. 

I want to be clear. From my perspective, I think that the original 

missions of Fannie Mae and Freddie Mac are absolutely essential. 

I cannot envision an America going forward without something to 

take that place, either by the same name or a different name. But 

I am talking about the original mission, not the mission that ended 

up getting us in trouble. I don’t see them as profit-making centers. 

I don’t see them doing anything other than simply helping the middle class afford to get into homeownership. That is all they were 

meant to do. They did it successfully for a long time, and then they 

lost their vision, as far as I am concerned. Basically, bottom line, 

they got greedy, and they got sloppy, and the oversight people got 

greedy or allowed greed and got sloppy. 

My hope is that you are rectifying that, but some of the things 

that I have seen during this period have troubled me. And for me 

my interest is, yes, the short term of it, what is going on now, but 

I don’t want to give those people who never liked the concept of 

Fannie and Freddie the ammunition in order to be able to kill the 

middle class going forward. 

So for me, the transition is pretty important. I have been vocal 

on certain things that have happened, and I may be vocal again 

today. But I want to be clear as to what my interests are. My interests are making sure that when we get out of this mess: number 

one, we don’t repeat it; and number two, we have something left 

standing in some category that will be able to ensure that the middle class will be able to continue to afford a home. 

With that, I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

3 

I also want to ask unanimous consent that the gentleman from 

Texas, Mr. Green, be allowed to participate in this hearing. We appreciate his attendance as well. 

I now recognize Mr. Fitzpatrick, the vice chairman of the subcommittee, for 2 minutes. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. Thank you for the 

hearing, and thanks to the panel as well. 

Recent media reports and subsequent work from your office and 

the subcommittee have brought to light some practices that deserve, I believe, the subcommittee’s scrutiny here today, and I look 

forward to expanding some of the facts. There is documentation of 

some rather shocking expenditures at Fannie Mae and Freddie 

Mac. 

While we certainly understand the need to be able to operate effectively and to staff the GSEs with talented individuals, I am sure 

you recognize that our constituents are on the hook for hundreds 

of billions of dollars. There is some justifiable outrage when they 

read about lavish parties, hefty compensation packages, and conferences costing hundreds of thousands of dollars, so there are a lot 

of questions that need to be answered. 

As you may know, I have introduced legislation to statutorily cap 

the amount of money the GSEs can get from the Treasury. I believe it is necessary because the American taxpayers deserve assurance that there is an end to this line of credit. But for the time 

being, of course, it is their money that is being spent sponsoring 

these events and buying these meals. 

If there is justification for these expenses, I think that the taxpayers are willing to consider that. I suspect, however, that this 

may just be business as usual, and unfortunately, after requiring 

an almost $200 billion bailout, business as usual is just not acceptable anymore. So I look forward to the testimony to get a better 

understanding of the matter. 

With that, Mr. Chairman, I yield back. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now the gentleman from Texas, Mr. Canseco, is recognized 

for 11⁄2 minutes. 

Mr. CANSECO. Thank you, Mr. Chairman, and thank you for calling this very important hearing. 

Despite the false narrative told by the majority party of the previous Congress as to the roots of financial crisis, more and more 

Americans are coming to realize just how big of a role Fannie Mae 

and Freddie Mac played in the economic boom and bust that we 

all still are trying to recover from. 

Today, taxpayers have been forced to bail out Fannie and Freddie to the tune of $170 billion, and some project that amount 

could at least double. Before 2008, many Americans were unaware 

of the incredible risk that was building up on the balance sheets 

of these two entities, but since hearing about recent extravagant 

bonuses being paid to executives and legal fees to former executives 

being put up on the taxpayer tab, it has become very clear to the 

American people that Fannie and Freddie all along have played by 

a very different set of rules. 

To be sure, FHFA and Acting Director DeMarco are to be commended for many of their efforts, including resisting AdministraVerDate Nov 24 2008 18:42 Jun 01, 2012 Jkt 072629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\72629.TXT TERRIE
4 

tion pressure to further politicize the GSEs and doing all that they 

can to limit taxpayer losses. Yet, there is still room for improvement, as a recent FHFA Inspector General report highlighted that 

too much deference has been given to Fannie and Freddie decisionmaking. 

We must recognize the GSEs function only by reason of the 

American taxpayers, and that current compensation practices and 

legal fee reimbursements are an inappropriate use of taxpayer 

money. I look forward to today’s hearing closely examining FHFA’s 

oversight of Fannie and Freddie, and listening to our witnesses on 

this very important matter. Thank you. 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, the ranking member of the Capital Markets Subcommittee, Ms. Waters from California, is recognized for 2 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman, for convening this hearing. I think it is important that this Congress continues to conduct robust oversight on both the GSEs and their conservator, the Federal Housing Finance Agency. I am sure that Mr. 

DeMarco is a little tired of coming before us at this point, but I appreciate him again joining us here today. 

I understand that the main focus of this hearing is administrative expenses at the GSEs, executive compensation, the fact that 

Fannie and Freddie were sponsors of a Mortgage Bankers Association conference a few months ago. These things, of course, are important for Congress to scrutinize in the course of our oversight 

over the GSEs, but I think by focusing so heavily on these issues, 

we run the risk of playing ‘‘gotcha’’ and neglect to focus on bigger 

issues; for example, whether the Enterprises are for loan modifications that are consistent with FHFA’s statutory mission to maximize assistance to homeowners in order to minimize foreclosures. 

As you know, Mr. DeMarco, I have talked with you quite a bit 

about principal write-downs, which I consider just absolutely essential to getting a handle on stabilizing our housing market, not just 

because they could provide the most sustainable modifications to 

borrowers, but because significant research suggests that they 

could actually, again, as I said, stabilize the wider economy and 

provide better long-term returns to taxpayers. I hope that we have 

a chance to discuss this again in more detail. 

I also think that this committee should pay increased attention 

to buy-back settlements entered into between GSEs and the banks 

who originated and sold them loans. We need to be sure that the 

Enterprises are getting the best possible deal for the taxpayer and 

not leaving money on the table in order to maintain business relationships with banks, as one FHFA Inspector General report recently suggested. I would also applaud Mr. DeMarco for the nearly $200 billion 

lawsuit against 17 financial institutions for alleged violations of 

Federal securities laws and common law in the sale of private-label 

MBSs to the Enterprises. I appreciate his rigor in trying to recoup 

losses borne by the taxpayer, and ultimately I think that pursuing 

these claims will result in lower losses to the American public. 

So I look forward to hearing particularly from Mr. DeMarco 

today, and I thank you, Mr. Chairman, and I yield back the balance of my time. 

5 

Chairman NEUGEBAUER. I thank the gentlewoman. 

And now, the gentleman from California, Mr. Miller, is recognized for 2 minutes. 

Mr. MILLER OF CALIFORNIA. Chairman Neugebauer, I want to 

thank you very much, and Ranking Member Capuano, for allowing 

me to be part of this hearing today. I think this is a very important 

hearing, and it is very timely. And I think we need to look at facts 

when we are debating any issue of importance, especially the financial sector of this country and the housing sector specifically. 

Before 2007, GSEs were consistently profitable. Nobody wants to 

talk about that. Fannie Mae had not reported a full-year loss since 

1985, and Freddie Mac never had a loss once they became shareholder-owned. And GSE default rates have always been lower than 

the private sector’s. 

Now, much of the debate is about people worried about taxpayer 

exposures to the mortgage finance system that includes any kind 

of a government backstop or government guarantee. But let us look 

at what the problem is today. When we lent banks money with the 

first part of TARP, we charged them 5 percent interest. We are 

charging Freddie and Fannie 10 percent interest. And much of the 

losses in Freddie and Fannie today are paying that 10 percent interest to the government today. 

But if you look at the data on mortgage default rates, it is very 

clear what went wrong. Everybody messed up: 38.7 percent of 

subprime ARMs are seriously delinquent; 26.5 percent of subprime 

ARMs are seriously delinquent; 5.4 percent of jumbo primes are seriously delinquent. On the GSEs, 4 percent of Fannie Mae loans 

are seriously delinquent, and 3.5 percent of Freddie Mac loans are 

seriously delinquent. That is bad, but they are still outperforming 

the private sector regardless of how bad it is. Now, to say let us 

throw the baby out with the bathwater, and let us blame them for 

all the losses is unreasonable. Let us go back and say, what did 

they do wrong, and how do we fix it? 

It is a huge problem, but to say we are just not going to deal 

with them at all is unreasonable. A large number of foreclosed 

properties are putting pressure on the marketplace today. If we 

could stop the foreclosures from being placed in the market today, 

you wouldn’t have market values plummeting like they are today. 

I have introduced a bill to deal with that. In fact, I introduced 

a bill this last year that Barney Frank, and Chairmen Bachus and 

McCarthy all cosponsored, allowing the banks and GSEs to hold 

those foreclosed properties, lease them up to 5 years, and let them 

go slowly on to the marketplace rather than forcing downward 

pressure on a marketplace like we are today. 

So before we make any drastic moves and recommendations, let 

us say what went wrong, how do we fix it, and who is performing 

the best? Have Freddie and Fannie made mistakes? Absolutely, 

without a doubt, but they are still outperforming everybody else. So 

that has to be part of the debate. You can’t say, they are awful, 

let us get rid of them, when they are the best performers in the 

marketplace. If you are going to deal with the worst out there, let 

us make subprime ARMs illegal, let us make prime loans illegal, 

let us make subprime loans illegal, because they are performing 

6 

worse than Fannie and Freddie. But that is unreasonable. That is 

the private sector. 

We do need to make sure the private sector dollars come in to 

take the market share of the economy and to take the risk out 

there, and the goal is to get market share to the private sector. But 

let us not say that the conduit for those private markets dollars are 

Fannie and Freddie and they should just be put aside without an 

alternative. They need to go, but there needs to be an alternative 

for them that takes them back to their original goals and guidelines. 

But I am looking forward to the testimony today, and thank you, 

Mr. Chairman, for allowing me the time. 

Chairman NEUGEBAUER. I thank the gentleman. 

And I will remind all Members again that if you have an opening 

statement, you can submit that for the record. 

Now, I would like to introduce our panel: Mr. Charles Haldeman, 

who is CEO of Freddie Mac; Mr. Ed DeMarco—and it says in my 

script here that you are Acting Director, and I am going to take 

out the ‘‘Acting’’ part, Ed, because after 3 years, I think you are 

the Director—Director of the Federal Housing Finance Agency; and 

Mr. Michael J. Williams, president and CEO of Fannie Mae. 

Gentlemen, thank you for being here. I ask you to limit your 

opening remarks to 5 minutes. Your full testimony will be made a 

part of the record. 

Mr. Haldeman? 

STATEMENT OF CHARLES E. HALDEMAN, CHIEF EXECUTIVE 

OFFICER, FREDDIE MAC 

Mr. HALDEMAN. Chairman Neugebauer, Ranking Member Capuano, and members of the subcommittee, thank you for inviting me 

to speak with you today. My name is Ed Haldeman, and I am the 

CEO of Freddie Mac. 

I recognize the importance of this hearing. With a country living 

through the worst housing crisis since the Great Depression, I understand why the oversight of Freddie Mac is so important. 

Let me be clear. Freddie Mac is mindful of the taxpayer support 

we have received, and we take very seriously our obligation to use 

the support prudently and efficiently. With this in mind, I will discuss with you how we are running the company under conservatorship. 

Let me begin by saying that the Freddie Mac of today is a new 

company. We have a new management team. The management 

team running Freddie Mac today is not the one we had 

preconservatorship. For example, I became CEO in August 2009, 

almost a year after Freddie Mac entered conservatorship, and 14 

of our 18 management committee executives have been changed 

during my tenure. We have a new emphasis on strong credit standards. We focus on safety and soundness and responsible lending, 

purchasing higher-quality loans with lower loan-to-value ratios and 

higher credit scores. 

We have a new approach to expenses. We take seriously our obligation to reduce spending responsibly wherever possible. We 

project that by the end of 2011, we will have reduced annual genVerDate Nov 24 2008 18:42 Jun 01, 2012 Jkt 072629 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\72629.TXT TERRIE
7 

eral and administrative spending by more than $150 million below 

2009 levels. 

We have a new approach to the retained portfolio. We reduced 

the size of the retained portfolio by almost 25 percent, which is beyond what is required of us. We have a new approach to executive 

salaries. We reduced overall compensation by 40 percent for the top 

10 percent of our officers. We have an enhanced focus on assisting 

families in need, helping 575,000 families avoid foreclosure since 

2009. Finally, we have a new culture, one that emphasizes leadership and accountability. 

All of this has contributed to significantly improved results in 

our new book of business. Our preconservatorship business has 

generated the vast majority of our credit expenses. In contrast, our 

book of business since 2009 has generated income well above credit 

expenses. The improvement in quality is dramatic. Our serious delinquency rate for the 2006–2007 book of business is approximately 

10 percent. In contrast, the serious delinquency rate of the new 

2009–2011 book of business is about one-fortieth of that, or approximately one-quarter of 1 percent. We have achieved all of this 

while providing more than $1.1 trillion in critically needed mortgage liquidity, financing homes and rental housing for more than 

5.8 million American families since 2009. We also enabled over 4 

million homeowners to refinance, saving them collectively about 

$10 billion during the first year alone. 

Clearly, we could not have achieved these results without support from FHFA, Treasury, and the American taxpayer. But I want 

to make clear that the ultimate beneficiary of that support is not 

private shareholders, but homeowners, renters, and the housing finance system. In all these ways, since conservatorship, we have a 

new set of priorities and a fundamentally new company. 

In closing, as CEO of Freddie Mac, I believe strongly that one of 

the most important things we can do for the housing market is to 

clarify the future of the secondary mortgage market. That clarity 

is important to investors, important to lenders, and important to 

families who own or hope to own a home. That clarity also will help 

achieve our shared goal of attracting more private capital to the 

mortgage market. Without that clarity, it will become increasingly 

difficult to maintain the stability of our company. This, in turn, 

will make it increasingly difficult for our company to play its important role in maintaining the stability of the housing market. For 

all of these reasons, I hope that Congress will resolve this important issue sooner rather than later. 

Thank you again for this opportunity to speak with you today. 

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

46 of the appendix.] 

Chairman NEUGEBAUER. Mr. DeMarco, you are recognized for 5 

minutes. 

STATEMENT OF EDWARD J. DEMARCO, ACTING DIRECTOR, 

FEDERAL HOUSING FINANCE AGENCY 

Mr. DEMARCO. Thank you, Chairman Neugebauer, Ranking 

Member Capuano, and members of the subcommittee. Thank you 

for having me here. 

8 

As requested, my written statement provides updates on a range 

of topics regarding FHFA’s oversight of Fannie Mae and Freddie 

Mac, or the Enterprises as I will refer to them, and the Federal 

Home Loan Banks. I would be pleased to discuss any of those 

issues with you. 

In the few minutes that I have, though, I would like to provide 

you with a general overview of how the conservatorships have 

evolved over the past 3 years. FHFA placed Fannie Mae and 

Freddie Mac into conservatorship less than 6 weeks after the Agency itself was created, and before FHFA had any meaningful opportunity to build its own infrastructure or implement its new authorities granted in the legislation that created FHFA. 

While conservatorship is meant to be short term, it has turned 

into a multiyear event. I would like to recap it in the form of a 

multichapter story, a story we are still writing. Importantly, however, the final chapter of this story needs to be written by Congress. 

Chapter one was the establishment of the conservatorships themselves in September 2008, with the Treasury support agreements, 

the Board and executive management changes, and the effort to assure employees and market participants alike that the companies 

were open and operating so that America’s housing finance system 

would continue to operate. From day one, FHFA made clear it was 

entrusting day-to-day operations to the new company management, 

but reserving for itself key strategic and critical business decisions. 

The next chapter began in earnest in early 2009 with the effort 

to establish a uniform, robust loan modification program to assist 

borrowers in troubled, mostly nontraditional mortgages. Development of both the HAMP program and the Enterprises’ proprietary 

modification programs continued throughout the year. These activities are fundamental to various aspects of FHFA’s conservatorship 

mandates, including mitigating losses on the Enterprises’ 

preconservatorship book of business. 

The last half of 2009 and the first half of 2010 were dominated 

by the actual implementation of these programs, working through 

the backlog of delinquent mortgages and trying to provide people 

with the capacity and the desire to stay in their homes the opportunity to do so. 

In the next chapter, attention turned in the second half of 2010 

to emerging issues in mortgage servicing, and especially foreclosure 

processing. This year, FHFA made a significant advancement in 

the cause of addressing these issues by implementing its Servicing 

Alignment Initiative, thereby improving the clarity, simplicity and 

consistency of Enterprise mortgage service and standards and responding to the identified deficiencies. 

Most recently, we announced major refinements to the Home Affordable Refinance Program, or HARP, in an effort to reduce the 

credit risk on the Enterprises’ preconservatorship book of business 

by enhancing the opportunity for underwater borrowers in seasoned loans to refinance at today’s lower rates. 

Unlike these chapters, each of which is focused on working 

through the preconservatorship book of business, the next chapters 

will be more forward-looking. As we go into 2012, I anticipate 

FHFA building on the steps we have already begun to improve the 

9 

future mortgage finance system. Several of these steps are described in my written statement, but there will be more to come 

to actually implement these and other changes. 

In closing, I would like to reiterate that the final chapter is for 

Congress and the Administration to write. The ultimate resolution 

of the conservatorships and the future legal framework for the 

country’s housing finance system needs to be determined by lawmakers. 

Mr. Chairman, thank you again for this opportunity, and I look 

forward to responding to the committee’s questions. 

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

36 of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

And now, Mr. Williams, you are recognized for 5 minutes. 

STATEMENT OF MICHAEL J. WILLIAMS, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, FANNIE MAE 

Mr. WILLIAMS. Chairman Neugebauer, Ranking Member Capuano, and members of the committee, thank you for inviting me to 

speak with you today about FHFA’s oversight of Fannie Mae, the 

company’s current condition, and our financial outlook. 

I understand why Congress is interested in these issues, and I 

appreciate the importance of these issues to both Congress and to 

our country. As CEO, I am responsible for ensuring that we fulfill 

our important mission and act as good stewards of the taxpayers’ 

unprecedented investment in the company. 

Let me begin by discussing how we work with FHFA to operate 

the company effectively in conservatorship. When Fannie Mae was 

placed in conservatorship, FHFA replaced the CEO and the Board 

of Directors, who then recruited a new management team. FHFA 

delegated responsibility for running the day-to-day operations to 

management with oversight from the Board. In turn, FHFA retained key responsibilities as conservator. 

As we managed the company in the interests of our primary investor, the taxpayer, we have taken actions to strengthen Fannie 

Mae and limit losses on the legacy book of business: first, we are 

funding the market and building a strong new book of business; 

second, we are making strategic investments to minimize losses; 

and third, we are substantially reducing our expenses. These are 

exactly the actions that will enable us to achieve the goals of conservatorship and protect the taxpayers’ interests. 

As the leading provider of funding to the mortgage market, 

Fannie Mae’s role has never been more important. We have helped 

6 million homeowners to refinance into a safer, lower-cost mortgage; we have enabled 1.7 million homeowners to be able to purchase a home; and we have provided financing for nearly 1 million 

units of quality, affordable rental housing. 

We are building a new book of business with appropriately conservative underwriting standards that will enable sustainable 

homeownership. The new book is now almost half of our overall 

book of business, and these are high-quality loans that we currently expect to be profitable over the life of the loan. 

In addition to funding the mortgage market, we are reducing 

credit losses. The substantial majority of the company’s credit 

10 

losses are attributable to single-family loans purchased or guaranteed from 2005 through 2008. It is important to understand that 

we cannot reverse past decisions with respect to these loans. We 

will, however, continue to manage them aggressively to limit taxpayer exposure, and we have made measurable progress. 

We built one of the Nation’s largest foreclosure prevention operations to help families avoid foreclosure, stabilize neighborhoods, 

and limit credit losses. We made a prudent decision to hire 1,800 

people, many in our Dallas loss mitigation operation, and dedicated 

them to these activities. As a result, we have helped nearly 1 million families to avoid foreclosure. 

When foreclosure is the only option, we help stabilize communities by maintaining and improving the properties we acquire and 

selling them to new owners. We pay careful attention to expense 

control. Our core administrative expenses, which exclude these investments in loss mitigation, are down 16 percent this year. Our 

personnel costs are also down 14 percent, and we have eliminated 

positions at all levels of the company. These are examples of decisive actions we have taken to manage Fannie Mae responsibly in 

conservatorship. 

Finally, let me address the company’s financial outlook. According to FHFA’s October 2011 report, we may have positive net income as early as 2013. This is before the payment of the dividend 

to the government. This is largely the result of actions we have 

taken to reduce credit losses while building that strong, new book 

of business. 

However, our current annual dividend obligation is $11.3 billion. 

That exceeds the company’s annual net income for any year in its 

history. While we expect to return to operating profitability, we do 

not expect to earn profits in excess of our annual dividend obligation to the Treasury. 

In closing, I am confident that we are making sound business decisions that protect the interests of the taxpayers and will assist 

struggling homeowners. We are reducing costs where appropriate, 

and we are investing where necessary to achieve the goals of the 

conservatorship. 

Thank you, and I look forward to your questions. 

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

57 of the appendix.] 

Chairman NEUGEBAUER. I thank the gentleman. 

Also, I would ask unanimous consent that—without objection, 

that we submit the written testimony from Inspector General Steven Linick of FHFA. Without objection, it is so ordered. 

And now, for the question period. 

One of the things that I think, Mr. Williams, that you mentioned 

is that you have had a reduction in your payroll expenses of about 

16 percent. Did I hear you say that? 

Mr. WILLIAMS. Yes, Congressman, this year. 

Chairman NEUGEBAUER. Is that overall, or is that one particular 

area in which you have had a reduction in 16 percent? 

Mr. WILLIAMS. We have reduced our core administrative expenses, which exclude those credit loss mitigation activities by 16 

percent, Congressman. 

11 

Chairman NEUGEBAUER. But I believe if you look at your numbers in the two Enterprises, total payroll is actually up in both Enterprises. You are saying in one area you are reducing them, but 

in other areas you are increasing them; is that right? 

Mr. WILLIAMS. Congressman, we made strategic investments in 

loss mitigation because we felt that was in the best interests of the 

taxpayer to reduce credit losses long term. 

Chairman NEUGEBAUER. I just want to be careful because I don’t 

want—one of the accounting methods that we use around here is 

if we decrease in one area and we increase the other, we always 

just want to talk about the areas that we are decreasing; we don’t 

necessarily want to talk about the areas where we are increasing. 

But one of the things that I think is troubling to many of us is 

when we look at, for example, the budget here, and the fact that 

we would—I think in Congress we expect under conservatorship, 

particularly the word ‘‘conserve,’’ and to begin to look at ways to 

minimize additional advances from the Treasury, because, as you 

pointed out, they are kind of expensive. But, the little things here 

that lead me to wonder what is going on in the bigger picture is 

that I see that we have in your budget $5.1 million in meals and 

social activities for employees. And I think for those kinds of things 

to show up in the budget, it would appear to me that the Enterprises are being a little bit tone deaf to exactly what is going on. 

You are on the front line of understanding how a lot of families 

across this country are going through some hard times. And then 

we look at some of the other activities, and I think some of my 

other colleagues are going to talk about that, but really what— 

that, I believe, is a symptom to me, and I am hoping it is only a 

symptom, that the Enterprises really feel like what is in order here 

is business as usual. 

Now, I am impressed, and I wouldn’t expect anything other than 

the asset quality for your new origination to increase. It should. 

But one of the things that concerns me is as we have this businessas-usual mentality, is that it basically continues to crowd out, I 

think, the ability for the private sector to come in. And quite honestly, one of the reasons that your numbers are getting better is 

because of the sheer volume of business, because basically the Enterprises are getting a majority of the business. I believe if you 

were getting more traditional levels of business, the advances 

would have been much higher. 

So, Mr. Williams, what do you say to the American people that, 

yes, we are being stewards of your money, but the evidence in some 

cases points otherwise? 

Mr. WILLIAMS. Congressman, we do believe we are being good 

stewards of the money. We have consciously gone out and reduced 

expenses, gone after other areas where we can reduce losses, where 

we can reduce our expenses and cut costs. We have taken our compensation level for executives down by 50 percent. We have reduced 

the number of senior officers by 30 percent. We are going through 

all areas of the company where we can reduce our expenditures 

and do this in a timely fashion. We do believe it is important to 

invest in our loss mitigation areas so that we can continue to help 

homeowners and reduce our long-term credit losses. 

12 

Chairman NEUGEBAUER. So do the Enterprises have a conservator plan; in other words, this is how we are going to operate, 

these are things we are going to do in our loss mitigation area, this 

is the way we are going to reduce our footprint, this is our overall 

strategy? And how do you interface with Mr. DeMarco in executing 

that plan? 

Mr. WILLIAMS. Congressman, we interface with Mr. DeMarco 

quite frequently, I can assure of you of that. We meet regularly. We 

are aligned on the goals of the conservatorship, which is to stabilize 

the companies, to make sure we provide the needed liquidity to the 

market that is needed at this critical time in our country, and also 

do everything that we can to help homeowners and reduce credit 

losses going forward. 

Chairman NEUGEBAUER. I just want to—you have answered part 

of my question. The first part of the question was, do you have an 

actual conservator plan that you are operating under so that we 

have specific goals and objectives of what you are trying to accomplish? 

Mr. WILLIAMS. We have a number of initiatives that we are 

working on. 

Chairman NEUGEBAUER. Initiatives—I want to know if there is 

a plan, a written plan of your mission and your goals and the direction you are headed with this Enterprise? 

Mr. WILLIAMS. Congressman, we do have goals and objectives 

that are completely aligned with the conservator’s— 

Chairman NEUGEBAUER. Is there a written plan? 

Mr. WILLIAMS. A written plan? 

Chairman NEUGEBAUER. Yes. It is a yes-or-no question. 

Mr. WILLIAMS. I cannot tell you there is a written plan. 

Chairman NEUGEBAUER. So there is no written plan. 

Mr. WILLIAMS. There are goals and objectives that are aligned 

with the conservator’s plan. 

Chairman NEUGEBAUER. I thank the gentleman. 

Ranking Member Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. Haldeman, you have been doing this for a while, and you 

come to it with a fair amount of experience. I would like to ask you, 

10 years from now, after we do whatever we do, and when this is 

done, do you envision this country having some entity that plays 

the role that Fannie and/or Freddie play currently in the mortgage 

industry? 

Mr. HALDEMAN. By your introductory comment that I have been 

doing this for a while, you didn’t mean at Freddie Mac? 

Mr. CAPUANO. You are familiar with the industry. 

Mr. HALDEMAN. Yes, the financial services industry, absolutely. 

I have been with Freddie Mac since August of 2009. It is—I talk 

to our employees a great deal about the future, because as you can 

imagine, they have a lot of uncertainty, insecurity, and anxiety 

about the future, and what I say is, I can’t imagine our country 

without a secondary mortgage market. Could you imagine us going 

back to the time when the originator holds the mortgage for 30 

years? I certainly can’t. I think we will not go back to those times. 

I think we will always have a secondary mortgage market. And 

what I say to employees is that we have talent, we have expertise, 

13 

we have infrastructure, we have technology, we have relationships, 

and I think the country should find a way to use that in the secondary mortgage market. 

Mr. CAPUANO. Mr. DeMarco, do you agree with that, again, looking in your crystal ball 10 years from now, based on your knowledge and experience? 

Mr. DEMARCO. Yes, Mr. Capuano. Clearly, a country that has a $10 trillion or $11 trillion single-family mortgage market is going 

to need plumbing that will allow local lenders that are making 

mortgages of an average size of, let us say, $200,000, but that aggregates up across this country to $10 trillion or $11 trillion—it is 

going to need plumbing, it is going to need the infrastructure to 

connect global capital markets to be able to get that size and capacity down to local lenders. 

Mr. CAPUANO. Mr. Williams, do you agree or disagree with that? 

Mr. WILLIAMS. Yes, Congressman, I do agree. 

Mr. CAPUANO. The reason I ask is because in the final analysis, 

the day-to-day activities, what you are doing, we are going to talk 

about that today, but when everything is said and done, as I said 

in my opening statement, I am interested in making sure that the 

next generation of middle-income people can afford to buy a home 

in a reasonable way. Again, hopefully they will hit good scores and 

everything else, and reasonable people will be able to buy a reasonable home. 

I will tell you that some of the activity that has happened doesn’t 

help that. And it is not about the specifics of what you have done 

within the Agency, but you understand you are no longer operating 

in private companies, you are now operating in the public world. 

And I would like to ask you, Mr. Haldeman, do you know the 

total salary and bonuses paid to your highest-paid employee this 

past year? I am not looking for a name, just a number. 

Mr. HALDEMAN. Highest paid, you mean the top paid, top— 

Mr. CAPUANO. Just one. Who made the most money? 

Mr. HALDEMAN. At Freddie Mac? 

Mr. CAPUANO. Yes. 

Mr. HALDEMAN. Yes. It was me. 

Mr. CAPUANO. Other than you. 

Mr. HALDEMAN. Yes, I know. 

Mr. CAPUANO. How much? 

Mr. HALDEMAN. Other than me, it was approximately—it was 

somewhere between $3 million and $3.5 million. 

Mr. CAPUANO. Between $3 million and $3.5 million. 

Mr. Williams, do you know, again other than you? 

Mr. WILLIAMS. Yes, Congressman. 

Mr. CAPUANO. How much would that be? 

Mr. WILLIAMS. It would be between $2.8 million and $3 million. 

Mr. CAPUANO. So, in the $3 million range. 

And do you understand that after what Freddie and Fannie had 

been through—it was before your watch, I am not trying to lay this 

on you—do you understand the outrage that the American people 

feel when we are looking at an agency that has gotten us to the 

brink of difficulties—gotten us in difficulties, beyond the brink— 

and has gotten a lot of taxpayer funding? And it is awfully hard, 

for me it is impossible, to understand why an individual working 

14 

for an entity such as yours, not a private company, has to make 

that kind of money. 

I am not against people making money. God bless them. But go 

into the private market. It is almost impossible for us to understand. I had to vote for a bill the other day to limit these kinds 

of things because, honestly, I am outraged, and not about the individual. That is why I don’t want names; I am not looking to lay 

it on anybody. But in this situation, that kind of activity, the kind 

of activity—$5 million on meals and entertainment. I think meals 

and entertainment, within the normal course of events, is a reasonable business expense. You should be able to serve coffee at your 

breakfast meetings. That is fine by me. But it is outrageous to my 

constituents and to me when I turn around and I defend the purposes of the agencies every day, and I will continue to do so. 

And I will agree with my other colleagues that you didn’t do anything worse than anybody else, but you did—not you, but your 

predecessors did it, and we now have to dig you out of it; it is our 

obligation to society. But I guess what I am saying is in order for 

people like me to be able to help meet that vision—not help you 

or your current employees, although I am not against anybody, 

that is not my goal. My goal is for the next generation to have 

someone like you doing what you try to do now, and you are making it tougher. 

Mr. HALDEMAN. Congressman— 

Mr. CAPUANO. Go ahead, Mr. Haldeman. 

Mr. HALDEMAN. I totally get the outrage. I get the outrage about 

executive compensation in total; I get the outrage about compensation at Freddie Mac in particular. I understand exactly what you 

are saying, and I struggle with it all the time, too. 

Let me tell you about the dilemma, and maybe you can help me 

resolve the dilemma. I came here in August of 2009, and there was 

not a CEO of Freddie Mac, there was not a chief operating officer, 

and there was not a CFO. It felt to me that the right thing to do 

was to do everything we can to try to keep the machinery together, 

to keep it operating, to keep it functioning well, to not have mistakes and not have it go down the drain. 

And there are many, many functions that have to be performed 

at Freddie Mac that require very specialized expertise where we 

have to get a CFO who is capable of running any complicated bank 

in the country. We have to have investment people who can run a 

$700 billion portfolio. If you are running a $700 billion portfolio, 

and you make a mistake that is one-tenth of 1 percent, it costs you 

$700 million. So these are very sophisticated things, very complex, 

and I felt we needed to pay that kind of compensation, which troubles me and troubles you, in order to get people so that we wouldn’t 

have those kinds of mistakes. 

Mr. CAPUANO. I appreciate it, and if I could just finish up, because I know I am over my time. 

That is a fair and reasonable explanation, but if you were to 

make that decision, it would have helped and would help going forward for you to present to us and the general public not just your 

thinking, but also backing up as to determining so that I can sit 

here and say, do you know what? Like it or not, that is what a person in this position makes across the world. There are plenty of 

15 

companies that can do that or not, or they don’t. So as opposed to 

simply picking a number and being outraged at a number, I will 

then be able to say, well, it is in the ballpark, everybody in those 

positions makes this kind of money, and at least it is defensible. 

At the moment, it is nothing more than a number in an agency 

that has caused this country a lot of trouble. 

And for me, the most important thing to come out of this hearing 

is that you walk away knowing that you live in a fishbowl now, and 

you have to act as if there is a fishbowl if you want the end that 

we have all discussed. 

And I apologize for going on, Mr. Chairman. Thank you for your 

indulgence. 

Chairman NEUGEBAUER. Now, the chairman of the full Financial 

Services Committee, Chairman Bachus, is recognized. 

Chairman BACHUS. Thank you, Mr. Chairman. 

Mr. DeMarco, I do believe you may have the toughest job in 

Washington. And I realize that the reasons for that have been beyond your control and really to a certain extent beyond the control, 

Mr. Haldeman, of you and Mr. Williams. 

You work for the two GSEs that were recipients of the largest 

bailout in the history of the country; maybe AIG is close. And there 

is outrage at the failure of Fannie and Freddie and a lot of outrage 

about the activity that went on. Gretchen Morgenson’s book outlines many of the problems. 

I also recognize that as I saw the case with that new AIG president and the General Motors president, they took a lot of slings 

and arrows for what their predecessors did. And so, I do have sympathy for you. 

I think we all have to realize, though, that the world has 

changed, and Members of Congress are realizing that on many occasions, and altering our behavior. And I think that is a good, positive thing because we have to restore the confidence of the American people. And my legislation, I believe, does that. Now, does it 

have a negative of making it more difficult to hire capable people? 

It probably does. 

I do say this: I think that anyone considering a top management 

or executive position at either one of the firms would have to think, 

do I want all the baggage that comes with that? Because they are 

going to forever have on their resume that they were at Fannie or 

Freddie. People are not going to pay attention to the dates or the 

facts or any of that. And I had a discussion with Mr. DeMarco yesterday where he pointed out to me that many people are not taking 

these jobs because they are concerned about liability issues. Why 

take a job for $200,000 if you might have an exposure to $5 million 

worth of legal expenses or lawsuits or even criticism which damages your reputation? And I told him that I think this Congress 

ought to work with him. 

So I apologize to you and to the employees who are there at 

Fannie and Freddie that in many cases, you are being sacrificial 

lambs for those who came before you. 

But as far as compensation, I think we are just going to have to 

change our ways. I think we are just not going to be able to—as 

highlighted in today’s paper, we are not going to be able to go to 

16 

Chicago and spend two-thirds of a million dollars at a reception 

even if it benefits the business. 

I thought one of the most unfair criticisms was when we criticized the presidents of Ford and General Motors for flying here in 

their corporate jets and wanted to know why they didn’t get in 

their cars and drive here from Detroit, Michigan. And the next 

time, they drove here from Detroit, Michigan. Now, that is going 

too far. I thought that was ridiculous, and I still do. 

So I will promise you, but I will say this, and I will close with 

this, some of the salaries are for people, and they are good people, 

they have been there, but they were there before, and they are still 

there. And at a certain point, I think that the decision just had to 

be made, do they want to stay on for these new—whether we pass 

this legislation, do they want to stay for that? And I am hopeful 

we will get good public servants. 

But we will work with you on the liability issues and other issues 

because those do need to be addressed, and I, for instance, would 

not take a job for $200,000 that had a legal exposure of millions 

of dollars, particularly with the grief that would come with working 

at your companies right now for things that went on long before 

you agreed to come in and try to fix things. 

So I would hope all members of the committee will not—their 

outrage needs to be able taken out on the failure of this Congress 

years ago not to beef up regulation. And it is up to this Congress 

if we want to limit salaries to do so, and that is why I filed this 

legislation. It is not up to you to refuse salaries for your employees 

and potential employees. So thank you very much. 

Chairman NEUGEBAUER. The Chair recognizes Ms. Waters from 

California for 5 minutes. 

Ms. WATERS. Thank you very much. 

Mr. DeMarco, I mentioned that I wanted to talk about principal 

write-downs. I want to talk about REO and the REO pilot program 

that was in the papers today, but I have to get to something else 

first. 

In August, Fannie Mae paid $500 million to Bank of America to 

purchase the servicing rights to more than 400,000 mortgages in 

its portfolio. According to your staff, Fannie initiated the purchase 

to allow it to transfer the servicing of the mortgages to another, 

presumably better servicer, to improve borrower outcomes and minimize losses to Fannie going forward. To be honest, I understand 

that Fannie had a contract with Bank of America, and that it 

would be more expensive to sue them for poor performance, but I 

am not happy that Fannie had to purchase the servicing back from 

a company that was doing such a poor job. 

My question is this: Does Bank of America continue to get service business from Fannie and Freddie, and, if so, why would the 

GSEs give businesses to a company whose servicing has been found 

to be so problematic that Fannie had to buy back loans in order 

to properly service them? 

Mr. DEMARCO. I am not too happy about it either, Congresswoman, but it was respectful of the existing business contracts that 

were in place. It was a prudent market transaction that was made, 

and it did get to exactly what you said. It was designed to both 

minimize or reduce potential losses to Fannie and Freddie, and imVerDate Nov 24 2008 18:42 Jun 01, 2012 Jkt 072629 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\72629.TXT TERRIE
17 

prove borrower outcomes by getting these high-risk mortgages in 

the hands of a servicer that had a better demonstrated capacity to 

work with these kinds of difficult situations to get the borrower 

into a better outcome. 

And so it met our mandate of trying to minimize foreclosures, 

and maximize assistance to borrowers, and also reduce our credit 

losses. It did reflect existing contractual arrangements at the time, 

and this is something that we are—I can assure you we are looking 

at those sorts of contract terms on a go-forward basis. 

Ms. WATERS. Are they still getting new business from you? 

Mr. DEMARCO. Bank of America is still a major originator of 

mortgages and seller of mortgages to Fannie and Freddie, so yes. 

Ms. WATERS. There is some kind of contradiction in that, isn’t 

there? 

Mr. DEMARCO. There are some difficulties here. 

Ms. WATERS. So why do you continue to give them business? 

Mr. DEMARCO. They are a significant originator, and we are 

dealing with the problems with the mortgage servicing part 

through the business terms that exist today with regard to servicing contracts. 

Ms. WATERS. I am concerned about the servicing business. As a 

matter of fact, we were beginning to focus, and I have been focusing for a long time, on services. They are at the crux of this problem that we have, not just with you, but with everybody. But I 

want to know why they are still doing the servicing. Just because 

they are the originators? 

Mr. DEMARCO. That is something that they own. They have 

those servicing rights, and those servicing rights have been transferred. There has been a tremendous amount of work done by both 

companies to go into Bank of America, work with Bank of America 

on enhancing the way they go about doing the servicing. And we 

have an important initiative that we have, the servicing alignment, 

is to get greater clarity not just to Bank of America, but all 

servicers about the steps that they are supposed to follow in order 

to provide remediation when a borrower goes delinquent. This is 

not just a single-institution problem, this is an industry problem, 

and we are all very challenged by it. 

Ms. WATERS. I agree. But I spent some time getting permission 

from some of my constituents to help work with them to try to get 

loan modifications, and it just so happens that Bank of America 

was the servicer. And I spent hours on the telephone. I can’t tell 

you what I went through. So I do understand that. 

Quickly, before my time is up, the REO pilot programs. You told 

me you got the ideas back. You told me we were going to go out 

to bid. I like the idea of the financing part of this, but I hope you 

are not going to be financing speculators to come in and get big 

blocks of REO properties, are you? 

Mr. DEMARCO. We are really focused on doing this in a way that 

is targeted at individual geographic markets. We want to make this 

as competitive as possible so that local investors can also be meaningful participants. That is important to us as conservator, because 

I think the more competitive we can make these transactions, the 

greater value that we will realize for taxpayers. And by inviting 

and creating an environment in which local equity participants and 

18 

people with local market knowledge participate, I think that helps 

to give a greater probability that we are going to have folks who 

are really dedicated to seeing good outcomes in those local communities. And it also gets that local community knowledge into the 

game. So that is all part of what we are trying to build into our 

review of these. 

Ms. WATERS. Thank you very much. 

And we want to work very close closely with you to understand 

the program so that we can articulate it in our communities that 

have been so devastated by these foreclosures, and people want to 

participate. So we will work with your people. 

Thank you very much. I yield back the balance of my time. 

Mr. DEMARCO. Thank you, Congresswoman. 

Chairman NEUGEBAUER. Now, the vice chairman of the subcommittee, Mr. Fitzpatrick. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

I know that we all appreciate the efforts that the Enterprises 

have made so far to reduce expenditures. Hopefully, we can agree 

that there is still more to be done. Chairman Bachus was mentioning earlier in his remarks about—I think he was referring to 

a New York Times article or column, Morgenson’s column—it 

might have been in today’s paper—entitled, ‘‘Fannie and Freddie, 

Still the Socialites,’’ which reviewed, as this subcommittee also reviewed, Enterprise expenditures relating to an industry conference 

that was held in October in Chicago. The conference was only 2 

days long, but the tab was pretty hefty. 

According to the article, the Enterprises spent, combined, about 

$700,000 at the 2-day conference, including $74,000 in dinners 

alone. Freddie Mac spent nearly $50,000 on just two dinners, and 

Fannie Mae spent nearly $25,000 on two dinners. 

So my question is for Mr. Williams and Mr. Haldeman. Given the 

extraordinary taxpayer support that has already been received, 

about $170 billion, how do you justify these expenses to my constituents in Bucks County or to the taxpayers of the United States 

generally? 

Mr. HALDEMAN. Maybe I will start. And, Congressman, I think 

we have to begin by saying, you are right. We can do a better job. 

But let me talk about top-line spending before I get to the individual line item because it was where the chairman started. 

As I indicated, I came to the company in August of 2009, and one 

of the things that I started to talk about right away was that we 

needed to consistently bring down our total spending of the company year after year after year. And that is precisely what we have 

done at the top line. If you take our total spending to run Freddie 

Mac for 2009 and compare it to where we are now, we have reduced that top line of spending by $150 million a year. That is almost 10 percent, and that is not one subset, Mr. Chairman, or one 

line item, it is the total spending of the company. And we brought 

it down in 2010, and we are bringing it down in 2011, and we are 

going to do the same thing in 2012. And that is how I have managed the company at the top. 

Within that, we have division budgets, and I monitor those. But 

there is some ability of managers below me to make decisions on 

spending, and I don’t think we did as good a job as we should have 

19 

on that MBA program. Do I think it is a legitimate business expense and it was good that we sent a lot of people there? Absolutely. And it is a very, very efficient way to interact with and educate a broad range of seller servicers. Literally, every seller servicer 

in the country comes to that one location in Chicago, and it is the 

most efficient way I know of to make sure that we can educate 

them about our credit policy and what we expect from them on the 

servicing side. 

Mr. FITZPATRICK. Do you understand the outrage of the taxpayers when they read that in the newspaper? 

Mr. HALDEMAN. I do. Yes. 

Mr. FITZPATRICK. It is one thing to attend a conference. It is another thing to sponsor a conference which you do with taxpayer 

dollars 

Mr. HALDEMAN. And we did not do it perfectly. Since I have been 

there, each year when we have done—we have attended the Mortgage Bankers Association, and we have brought our spending down 

year by year. I think we have to do it faster. And there were some 

things that were done that we are going to take care of next year. 

Mr. FITZPATRICK. I appreciate it. 

Mr. Williams, given that Fannie Mae is in conservatorship, do 

you have discretion as to how to spend those dollars, the dollars 

that I am referring to on the conference? And were these dollars 

budgeted? 

Mr. WILLIAMS. Congressman, I do appreciate your concern as 

well as the committee’s on the topic. We have taken this seriously. 

In fact, we have, since conservatorship, reduced sponsorship and 

attendance at these conferences by over 50 percent. 

Why we felt this was a good business decision was that this was 

a conference that was going to be attended by over 3,000 industry 

participants. It gave us the opportunity to hold over 200 meetings 

with industry players that would allow us to address the important 

issues facing not only the industry, but are also important to the 

conservatorship, such as servicing alignment, the rollout of HARP 

2, servicing compensation, increasing guarantees and many other 

strategic issues. 

Mr. FITZPATRICK. Could Fannie Mae have held those meetings 

and accomplished those meetings without spending $74,000 on dinner in 2 days? Could you have gone to Chicago without the dinners 

and held the meetings? 

Mr. WILLIAMS. Congressman, we held many meetings during the 

course of those days. The dinners were, too, part of it in which it 

gave us an opportunity to meet with industry players. We will do 

a better job, but we felt this was a very good business decision. 

Mr. FITZPATRICK. Mr. DeMarco, do you believe spending $74,000, 

as we have talked about here this afternoon, does that advance the 

interest of the conservatorship? 

Mr. DEMARCO. Mr. Fitzpatrick, attendance at the conference certainly did. Certain individual expenditures probably could have 

been done away with and still met the essential business proposition of meeting with the entire industry and conducting a tremendous amount of business and business education in one place. So 

attendance and being an active participant was certainly meeting 

20 

the conservatorship goal. I wouldn’t want to say that every individual expense was necessary, no, sir. 

Mr. FITZPATRICK. Okay. Thank you. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. Miller is recognized. 

Mr. MILLER OF NORTH CAROLINA. Mr. DeMarco, you and I have 

discussed on many occasions Fannie and Freddie’s or FHFA’s policy 

of not reducing principal in modifying mortgages. And I provided 

you two economic studies, one by the New York Fed, the other by 

Amherst Securities, that examined the arguments and reached different conclusions. They concluded that foreclosures usually resulted in a 50 to 75 percent loss of principal, that reductions in 

principals of 10 to 40 percent to get an underwater homeowner 

back to even usually resulted in better-performing loans, and I provided you those studies. They concluded that it makes good economic sense for the creditor to reduce principal to get an underwater homeowner back above water. And you have said that your 

private analysis reached a different conclusion. 

Given the importance of this question, why have you not made 

that private analysis public? 

Mr. DEMARCO. I think I will be making it more public on this 

point, Mr. Miller, in response to continued inquiries from you and 

others. But if I could address these two studies that you raised. 

The first, the Amherst study, when I first started reading it, I 

started to get a concern, well, wait a minute, maybe there is something going on here. Then as I went through it, I realized that 

what was meant by ‘‘principal forgiveness’’ there wasn’t just writing off principal, it also included principal forbearance, and that 

was actually part of what was going on there. 

Mr. MILLER OF NORTH CAROLINA. Mr. DeMarco, that is not true. 

The study actually says specifically that principal reduction is— 

this is a quote from the study: ‘‘It is reasonable to think that the 

success rate on principal forgiveness would be better than forbearance, as the borrower is closer to being re-equified.’’ That is not a 

word you hear very often. 

So it does appear that the study does specifically address the differences between forbearance and—it may not have statistics that 

could distinguish it, but they concluded that actually principal reduction would more likely result in a performing mortgage than 

forbearance. 

Mr. DEMARCO. I have in front of me here the results on our 

modified loans and the redelinquency rates, and this also goes to 

the— 

Mr. MILLER OF NORTH CAROLINA. Isn’t it like 44 percent? 

Mr. DEMARCO. The redelinquency rates? Let me tell you for— 

Mr. MILLER OF NORTH CAROLINA. According to Freddie’s reports, 

the mortgages from 2 years ago that were modified, 44 percent are 

now 3 months past due. Is that incorrect? 

Mr. DEMARCO. That is incorrect. I am looking at 9 months after 

modification, we have 60-day delinquency rates of 15 percent. That 

means 85 percent of these loan modifications are still performing 

9 months after they were made permanent. This is down substantially. It used to be up in the 40 percent range, sir. You are quite 

right about that, Mr. Miller. It used to be up in the low forties at 

21 

9 months later, but it has dropped from that all the way down to 

15 percent. Right now, what we have for loans that were originated 

in the first quarter of 2011, 6 months later were down to less than 

10 percent redefaults. 

Mr. MILLER OF NORTH CAROLINA. The last time you were here, 

I asked you about the settlement by—it was actually by the Bank 

of New York Mellon as the trustee for Bank of America mortgages, 

essentially put back claims, and the provisions in that requiring 

that Bank of America refer out the servicing of those mortgages. 

It is hard to conclude from what you said earlier and from this settlement that anyone regards Bank of America as doing a very good 

job of servicing. And you said that the agreement did not actually 

require principal reduction, which is correct. But it does specifically 

say, does it not, that servicers must consider all loss mitigation options, including principal reductions? 

Mr. DEMARCO. It may, Congressman. I don’t recall the precise 

wording. I did recall correctly, I am glad to hear you say, that it 

did not mandate that. 

Mr. MILLER OF NORTH CAROLINA. It doesn’t mandate it, but it 

says it doesn’t consider anything to reduce their losses, including 

modification. There have been stories in the last couple of days at 

the OCC’s required self-audits by the various OCC banks that they 

are servicing, and approximately 5,000—close to 5,000 appear to be 

of servicemembers in violation of the Servicemembers Civil Relief 

Act. Do you know if either of those were Fannie or Freddie mortgages? 

Mr. DEMARCO. I don’t know, but I do know this has been an important issue, Congressman. And it is one that we have worked on 

with Mrs. Petraeus at the CFPB and with the Department of Defense, and Fannie and Freddie have provided updated clarity and 

communication to their seller servicers regarding that. And their 

standards actually were already quite satisfactory to the CFPB and 

to the Defense Department. But it did appear as though there was 

confusion on this point, and we have already acted to get improved 

communications. I don’t know whether Mr. Haldeman or Mr. Williams want to comment more on that? 

Mr. MILLER OF NORTH CAROLINA. Mr. Chairman, I know that the 

light is red, but, Mr. DeMarco, you said that we would shortly be 

hearing more on the subject of principal modification and your own 

analysis. Are you going to be providing your study to the public, 

and if so, when? And why have you not done it already? 

Mr. DEMARCO. I have certainly explained this numerous times in 

committee hearings, and I have provided written communication 

before to quite a number of Members of Congress on it, including 

you. I just this week got yet another much more detailed request, 

and we are evaluating that request. It has quite a number of components to it, and we have tried to be responsive to all Members 

of Congress when they request information from us. 

Mr. MILLER OF NORTH CAROLINA. But your analysis has to be in 

writing. You don’t just talk about this over the water cooler. You 

have this in writing. 

Mr. DEMARCO. We have done the analysis, Mr. Miller, and we 

will get it out to folks. 

22 

Chairman NEUGEBAUER. The gentleman from New Mexico, Mr. 

Pearce, is recognized for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

Mr. Haldeman, you had talked, on page 2 of your testimony, 

about helping families avoid foreclosure. Can you kind of expand 

on what you are doing there? 

Mr. HALDEMAN. Yes. Since 2009, we have worked—helped, benefited 575,000 families, and that would be all inclusive of all the 

various tools that we use to try to help families. So it would be traditional modifications, HAMP modifications, forbearance plans, 

short sales, deed in lieus, a whole range of tools that we use to try 

to keep people in their homes. 

Mr. PEARCE. Thank you. 

Mr. DeMarco, on page 5, you mention that you are bringing a 

lawsuit against 18 institutions to recover certain losses, and you 

are bringing those lawsuits because you feel that the institutions 

did not act fairly in the relationship; is that correct? 

Mr. DEMARCO. It has to go with the securities disclosures that 

these institutions had on security instruments that were purchased 

by Fannie and Freddie. And we believe we have evidence supporting that the disclosures of what were the characteristics of the 

loans in those securities did not match what was actually there. 

Mr. PEARCE. I don’t have exact documentation, but it looks likes 

Mr. Johnson may have ended up with $100 million, $10 million a 

year for 10 years; Mr. Raines maybe $28 million. There may be indications that certain accounting techniques were used so that they 

would accelerate their bonuses. Have you brought any actions 

against previous Directors, previous CEOs? 

Mr. DEMARCO. This predates me, Congressman, but the predecessor—one of the predecessor agencies to FHFA, the Office of Federal Housing Enterprise Oversight, did bring such a civil action 

against— 

Mr. PEARCE. Did we get any return? 

Mr. DEMARCO. We did. I don’t know the numbers offhand, Congressman. This was all made public at the time. But we can get 

that to you. And, yes, there were penalties associated with that, 

with each company. 

Mr. PEARCE. Thank you. 

Mr. Williams, I should know a little bit better. I don’t, though, 

so if you would help me out. Do you have a board of directors that 

you answer to? 

Mr. WILLIAMS. Yes, we do, sir. They were installed— 

Mr. PEARCE. Can you pull your microphone up a little closer? 

So you answer to a board of directors. Are you publicly traded? 

Mr. WILLIAMS. There are shares, sir. But the real shareholder, 

all rights of the shareholders have been conveyed to the conservator, and the conservator is the person who appoints both the 

board of directors and approves the management team. 

Mr. PEARCE. How much were your losses during the last 12 

months? Roughly, just roughly. 

Mr. WILLIAMS. Roughly $15 billion. And bottom line— 

Mr. PEARCE. Did you have to go to a—did you have to float a 

bond series or something like that? Did you have to go to the bank? 

How did you make up those operating losses? 

23 

Mr. WILLIAMS. The funds that are needed to provide the net 

worth for the company are provided by the U.S. Treasury upon request from the conservator. 

Mr. PEARCE. Now that is, I think, my problem with your testimony when you declare that we are a private business. I don’t 

know any other private business that could go to the bank and get 

funds. They have a possibility of going bankrupt. If they are mismanaged, then the market takes care of that mismanagement. And 

I am not sure that the market is being allowed to take care of anything right now, which causes me to say it is acting much more like 

a government agency than a private business. So if you have observations about that, I would welcome them. But for me sitting on 

this side of the desk, it sounds like you are much more a government agency. In other words, we see agencies all the time overspend their budgets, and they just come back for more. So just that 

one clarification is critical for me. 

Mr. DeMarco, have you run tests about how you could start selling off parts of your mortgages, get private investors in there? In 

other words, when you all are taking—you are taking certain steps, 

forbearance or whatever, the help—as Mr. Haldeman suggests, 

have you compared what would happen, the costs stream to the 

agency, if you just accepted bids from the outside to take blocks of 

loans compared to what you are having to do to make those loans 

start processing? In other words, there is a lot of money out there 

that would invest, I think, at the right price. 

Mr. DEMARCO. Right. I think that is right, Congressman. I can 

say several things about that. First, both companies have been 

shedding assets. Certainly, there are retained portfolios. That is, 

what they are financing on their own balance sheet has been declining over the last few years, and there is a whole programmatic 

system in place for that to continue. There have been efforts to sell 

outside of that progression, identify opportunities to sell blocks of 

assets and realize value. 

My exchange with Congresswoman Waters about real estate 

owned is also to your point of looking at efforts to take assets off 

the balance sheets of Fannie and Freddie and get them back into 

private hands on a more rapid basis. And then finally, on a go-forward basis, we are looking at several ways of having more of the 

credit risk that Fannie and Freddie are taking on right now on a 

new business production in identifying ways to have some portion 

of that credit risk actually be financed by private capital and have 

private capital bear a portion of that credit risk. And I believe in 

the coming year you are going to see actual—more executions that 

follow that approach. 

Mr. PEARCE. I appreciate it. 

Thank you, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentleman. 

Now, the gentleman from Delaware, Mr. Carney. 

Mr. CARNEY. Thank you, Mr. Chairman. Thank you for having 

this hearing today. 

I have three lines of questioning that I would like to explore. The 

first really is just to go back to Mr. Pearce’s question about the recovery efforts on security disclosures and representations that were 

made. There was some reference to that in the Financial Crisis InVerDate Nov 24 2008 18:42 Jun 01, 2012 Jkt 072629 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\72629.TXT TERRIE
24 

quiry Commission report that was presented here some months 

ago, and in that report, they talk about moneys that were recovered through that process. Could you update us on those recoveries? 

Mr. DEMARCO. I am sorry sir. I am not familiar with the particular— 

Mr. CARNEY. Dollar amounts? 

Mr. DEMARCO. The dollar amounts or, frankly, what exactly the 

FCIC had. I can speak to the fact that we have filed these lawsuits 

with regard to certain private-label mortgage-backed securities that 

Fannie Mae and Freddie Mac have purchased where we believe 

that there are deficiencies in the securities offerings that were part 

of those transactions. We are seeing this emerging in the marketplace. There have been more and more lawsuits filed by all sorts 

of different parties regarding the securitization process for private 

labels. 

Mr. CARNEY. Does Fannie or Freddie do that separately or independently? 

Mr. WILLIAMS. Congressman, we have a separate activity that is 

based on our loss mitigation unit that goes back and looks at loans 

from that period of time, from 2005 to 2008 in particular, and looks 

at whether those loans should be repurchased because they did not 

meet our underwriting guidelines. 

Mr. CARNEY. Right. There is a warranty, right, and instrument 

that says if they didn’t meet the underlying guidelines, that they 

could be repurchased, right? 

Mr. WILLIAMS. Correct. 

Mr. CARNEY. So how aggressively are we pursuing those representations? 

Mr. WILLIAMS. Congressman, I believe we are being very aggressive. We have stood up as part of the conversation that I was having with the chairman about the growth in our loss mitigation activities. That is one of the big areas that we have grown because 

we are going back and looking at all the loans that we have— 

Mr. CARNEY. Is there a way that we can get a report on that? 

Or is there public information available on that? That would be 

helpful. You can answer that later because my time is ticking. 

You have talked a little bit about your foreclosure prevention efforts. Is there something that we can do or other programs or 

changes in existing programs that would facilitate your efforts? 

Mr. DEMARCO. I think at this point we have—a lot has changed 

with these various programs, and a lot of programs have been put 

in place. We need to give them time to work. I think things like 

the recent changes to HARP. 

Mr. CARNEY. The changes to HARP, are some of those changes— 

would they be appropriate for HAMP as well in terms of some of 

the streamlining that was in HARP? 

Mr. DEMARCO. They are really targeted at two really different 

sets of situations. 

Mr. CARNEY. I know that, but there were kind of administrative 

tightenings and changes that were put in place in HARP, as I understood it, that maybe could apply to HAMP. You don’t think so. 

Okay. 

25 

Mr. HALDEMAN. Congressman, the way that I would answer that 

would be that over the course of time, the HAMP program has become more aligned and more efficient. That was not the case in the 

spring of 2009. 

Mr. CARNEY. So that is happening as an administrative matter? 

Mr. HALDEMAN. Precisely right. 

Mr. CARNEY. Perfect. 

Lastly, I would like to ask Mr. DeMarco, I guess, what you think 

of—or it was Mr. Haldeman who mentioned that one of the big 

questions out there is to clarify the future of the secondary mortgage market. And, of course, there has been a big discussion within 

this committee and members of this committee and pieces of legislation, what to do with Fannie and Freddie, unwind them, and so 

on and so forth. Of course, we had the Treasury Secretary in here 

months ago presenting the President’s White Paper, which presented a series of options from complete privatization to some hybrid model. 

Could you share with us your opinion on what the future ought 

to look like, Mr. DeMarco? 

I will let you each have a shot at it, I guess. 

Mr. DEMARCO. I would say simply, Congressman, that I really do 

believe that this is a critical public policy matter for lawmakers to 

decide, and the essential decision point for lawmakers is out of a 

$10 trillion or $11 trillion single-family mortgage market, what 

portion of that mortgage market warrants the American taxpayer 

standing behind that set of mortgages as the ultimate credit guarantor of the mortgages? And then on the other side, that leaves the 

rest of that $10 trillion or $11 trillion single-family market to be 

financed through normal financial mechanisms, through private financial institutions, exercising private credit assessments and putting private capital at risk. 

Mr. CARNEY. How would you answer that question? 

Mr. DEMARCO. I think that the answer is that it is going to be 

a mix of both. Clearly, I don’t see the FHA program or VA—as 

credit guarantee programs will certainly exist. One of the things 

Congress could do is make determinations about adjusting the mission and the potential market scope of those programs and leave 

the rest to the private sector. Or it could go further, and it could 

say in addition to FHA/VA, there are some other portions that will 

have an ultimate government guarantee. 

My experience over time as a career civil servant is that over 

time, government credit guarantee programs get a little hard to 

manage and keep the pricing associated with the risks that are involved. So it is a challenge. But on the other hand, we certainly 

have seen that the private sector can be challenged in assessing 

credit risk as well. 

Mr. CARNEY. We saw that, didn’t we? 

I would like to hear from the other two, but I don’t have any 

time left. So I appreciate your answers to my questions. Thanks. 

Chairman NEUGEBAUER. I thank the gentleman. 

The gentleman from California, Mr. Miller. 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. 

I have often asked the question, what went wrong, and when did 

it occur? Mr. Williams, you are the first one to publicly answer that 

26 

question without being asked. You said that in 2005 to 2008, the 

bad loans were written. And if you know when they were written, 

you know what caused them, and you know how to fix them. I am 

assuming both sides have fixed the problem that occurred between 

2005 and 2008. Is that a statement of fact? 

Mr. HALDEMAN. I believe we have, and it is a different credit policy. 

Mr. MILLER OF CALIFORNIA. That has been a debate I have always tried to engage somebody in, and nobody would ever answer. 

The other question was raised by my good friend Maxine Waters 

and others, accountability on the part of lenders. I have always believed that has to be paramount. If lenders write bad loans, they 

don’t have proper oversight, use underwriting standards that are 

unreasonable, they should buy the loans back, and perhaps if they 

do that enough times, they will stop doing that. 

But one structure I have always felt was confusing and should 

never have occurred was a hybrid model of Freddie and Fannie, 

whereby the taxpayers are on the hook, and the private sector 

made the money. We guaranteed it as a government, and the private sector made all the profits. That is unreasonable. 

But I do like what I have heard, and I agree with it. There has 

to be some facility as a conduit for the flow of private sector dollars 

to the secondary market. I think that has to occur in the future. 

Probably 15 percent of the money we receive in this country for 

loans comes from other countries, and if there was not a government guarantee, those funds would not be coming to this country, 

and many of the investors who invested in Freddie and Fannie and 

bonds would not make the investment if there was not a guarantee 

on those loans. 

But a question that I have great concern over is the situation you 

are in today. And if you aren’t required to pay this 10 percent dividend, Freddie and Fannie, what would your assets be today and 

possibly in the future? What would they be? And would you still 

be borrowing from the Treasury if you weren’t required to make 

this huge payment? 

Mr. HALDEMAN. I can refer you to an analysis that FHFA completed and published in October of 2011 where they took a look at 

the future draws, dividend payments for Freddie Mac going into 

the future, and they have three different scenarios that they look 

at tied to many things, but including house prices, how severe, 

whether we will have a double-dip recession, whether housing 

prices will go down. There are three scenarios. And under two of 

those scenarios, including the most likely or the base case, Freddie 

Mac will not need any incremental draw after 2011, and that is despite paying the 10 percent dividend that you cite. 

Mr. MILLER OF CALIFORNIA. If you weren’t paying the 10 percent 

today, what would your assets be currently? And would Treasury 

be on the hook for anything? 

Mr. HALDEMAN. Yes, they still would be, Congressman. But 

maybe one way I can say that, do the math off the top of my head, 

which is dangerous. Our draw thus far is $72 billion. We have paid 

$15 billion. These are all round numbers. We have paid $15 billion 

in 10 percent preferred dividend. If I use your interest rate, which 

I remember from your opening remarks, of 5 percent, that would 

27 

have saved $7.5 billion. So instead of $72 billion, it would have 

been $64.5 billion, I think is the math. So, we still would have been 

substantially in a draw. 

Mr. MILLER OF CALIFORNIA. If you had that $15 billion back right 

now, how much would you be drawing? 

Mr. HALDEMAN. It would be $72 billion minus $15 billion. 

Mr. MILLER OF CALIFORNIA. But what you have already received, 

would you need more funds this year or next year if you hadn’t 

paid that $15 billion back? 

Mr. HALDEMAN. I am hesitant to answer that. But even having 

paid the 10 percent interest, we are not going to have any—under 

the base case, we won’t have a draw on 2012— 

Mr. MILLER OF CALIFORNIA. So your assets would be $15 billion 

rather than considering a draw that you are not getting. So we are 

taking what liquidity you have away from you by charging you 10 

percent. 

On Fannie, the same question, Mr. Williams. If we didn’t charge 

that 10 percent that we are charging in interest today, would you 

still need to go to the Treasury right now for additional funds? 

Mr. WILLIAMS. Congressman, we have paid over $17 billion in 

dividends. Referring to the same report as Mr. Haldeman noted, as 

we move forward, payment of the dividends will be the largest part 

of our draw, but we will continue to draw. 

Mr. MILLER OF CALIFORNIA. So if you didn’t have to pay that, 

your draw might be very close to zero? 

Mr. WILLIAMS. In the future. 

Mr. MILLER OF CALIFORNIA. And that is something this Congress 

needs to consider, that we charge the banks 5 percent. We are 

charging Freddie and Fannie 10 percent, so we are almost dooming 

the failure, because every dime they take in that would be profit, 

they are giving back to the taxpayers in interest, and then we are 

making them borrow more money to charge them more interest on. 

It seems like a never-ending circle that we have caused to happen. 

But I guess the big thing is I think there needs to be some form 

of facility to do what you do, whether Freddie and Fannie is 

wrapped into a facility or whatever we do, to guarantee the flow 

of money. But if there was no facility there, Mr. DeMarco, to do 

this, is the private sector going to fill that position today? 

Mr. DEMARCO. It would take an adjustment period for the private sector to be able to do so. I do believe it could, but it would 

take an adjustment period. 

Mr. MILLER OF CALIFORNIA. Mr. Chairman, thank you for your 

time and patience. 

Chairman NEUGEBAUER. Now, to the gentleman from Texas, Mr. 

Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

And thank you as well, Ranking Member Capuano. 

And to the witnesses, I thank you. 

Do you have in the GSEs any ARMs that have not adjusted? 

Mr. WILLIAMS. As I look at our products, sir, it is predominantly— 

Mr. GREEN. I can barely hear you. 

Mr. WILLIAMS. Our products are predominantly 15-, 20-, and 30- 

year products, so I would look at it and say in terms of ARMs prodVerDate Nov 24 2008 18:42 Jun 01, 2012 Jkt 072629 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\72629.TXT TERRIE
28 

ucts, it is a small portion of what we have, and I can probably follow up and give you a number at a future point. 

Mr. GREEN. It is a small portion. Would you guess that to be 10 

percent or more? 

Chairman NEUGEBAUER. Mr. Williams, some of our Members up 

here are having a hard time hearing. If you would speak louder 

and a little clearer, please? 

Mr. WILLIAMS. Thank you, Mr. Chairman. I hope that is better. 

Chairman NEUGEBAUER. Yes, it is. 

Mr. WILLIAMS. As I was saying, Congressman, our product set is 

predominantly 15-, 20-, and 30-year products. We will be happy to 

follow up with you on percentage. 

Mr. GREEN. ARMs—I understand that you are saying fixed rate. 

Is that what you are saying? I am talking about adjustable-rate 

mortgages. 

Mr. WILLIAMS. Congressman, that was my point, that most of our 

products are fixed-rate, 15-, 20- and 30-year products. 

Mr. GREEN. Okay. Mr. Haldeman, would you respond, please, 

sir? 

Mr. HALDEMAN. Yes. ARMs are a smaller percentage of what we 

do. But if I understand your question correctly, there still would be 

some that have not adjusted yet because some of them adjust, for 

example, in the fifth year. So there would be some that have not 

yet adjusted, if I understand your question correctly. 

Mr. GREEN. And, Mr. DeMarco, permit me to ask you this: I 

know you have exhibited some frustration in terms of dealing with 

the servicers, and I appreciate your frustration. Like the Member 

from California, I, too, have had my level of frustration dealing 

with the servicers. Notwithstanding all of the laws that we have 

passed to limit their liability and encourage them to do things, 

given that we seem to be in a position to write down principal that 

is not being written down, let us put that aside and just talk about 

refinancing. What is the situation with refi? 

Mr. DEMARCO. Fannie Mae and Freddie Mac together have refinanced about 9 million loans in the last couple of years, and we 

introduced this Home Affordable Refinance Program in early 2009 

and made some major enhancements to it just a month or so ago. 

And what this program is designed to do is it is designed to help 

those borrowers who have a Fannie Mae or Freddie Mac-owned 

mortgage where they are underwater on the mortgage or near underwater, and some of these people were having a hard time being 

able to refinance. We have enhanced their opportunity to be able 

to refinance their mortgage. So we expect that this is going to contribute to some additional refinances for people who have previously been unable to do so. 

Mr. GREEN. The question has been raised as to why not refinance 

without being underwater? There are many persons who can pay 

the current interest rates, but they can’t handle the higher rates 

that they have now. And these are hardworking people who qualified, but they just can’t do it. Why would we have to wait until 

they are underwater to refinance? 

Mr. DEMARCO. Oh. Well, I am sorry, Congressman, I didn’t mean 

to leave you with that impression. For those that are not underwater, I think there are really quite ready market mechanisms and 

29 

lenders willing to refinance them. And certainly, Fannie Mae and 

Freddie Mac would be pleased to have those mortgages refinanced. 

But there is not a market impediment to them being able to exercise that right due to normal functioning of the way our markets 

work. There was an impediment for borrowers who had a current 

loan-to-value ratio above 80 percent, and we have, I believe, taken 

some pretty good steps to remedy that. But those who already have 

at least 20 percent equity in their home today shouldn’t have an 

impediment to refinancing. 

Mr. GREEN. I understand. And I have gone through the refi, and 

I know that it is not as easy as one might think. 

The point that I am making to you is this: If we know that people are currently making payments that are much higher than they 

would make if they got a refi, why would we not encourage the refi 

of these loans before they get in trouble and try to get them into 

a payment that they can afford? 

Mr. DEMARCO. Mr. Green, it is a fair question. We are certainly 

not discouraging it, and I believe we are encouraging it, and the 

opportunities are there. But if you are seeing, in your community 

or in the marketplace, impediments that we should be addressing, 

I would be happy to take a look at that, because certainly, I agree 

with you. 

Mr. GREEN. Mr. DeMarco, if I may, the equity that you called to 

our attention, that becomes an impediment. Let us assume that 

they don’t have the 20 percent equity, but a refi would allow them 

to stay in the home. Why don’t we consider simply refinancing to 

get through these loans that are creating problems for us? 

Mr. DEMARCO. The HARP program is designed to deal with 

those. But there have been proposals made, why don’t Fannie and 

Freddie simply take the mortgage; and if it is 6.5 percent, just 

cross out the 6.5 and put 4.5 or 4 percent, send a letter to the borrower saying, hey, you are now at this lower interest rate? That is 

not permissible. That would be a violation of several things. But 

creating a market opportunity for that borrower to be able to refinance is something that we have done and we are trying to encourage, because I would certainly agree with you that that would enhance both the borrower’s situation as well as Fannie and Freddie’s 

position as guarantor. 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. GREEN. Mr. Chairman, may I just ask one additional liberty? 

Chairman NEUGEBAUER. Very quickly. 

Mr. GREEN. All right. Thank you. 

In doing this—and I understand that you are separated from certain other entities that do these things—but would congressional 

assistance put you in a position so that you could do it? Would that 

create a problem for you? If you had something from Congress, 

would Congress be of assistance in this area? Could Congress be 

of assistance? 

Mr. DEMARCO. I would be happy to go back and think about it. 

Offhand, I can’t think of any particular thing. I think that what we 

have done in the HARP program is meaningful. Congress could certainly be of assistance in figuring out what the end game is with 

respect to the conservatorships. That would certainly be helpful. 

Mr. GREEN. Thank you. 

30 

Chairman NEUGEBAUER. I thank the gentleman. 

Mr. DeMarco, I want to kind of go back to this plan issue. Did 

you know that for 2011, Fannie Mae is, I think, planning to spend 

$6 million on advertising, and Freddie Mac is going to spend 

$600,000? 

Mr. DEMARCO. The specific numbers, no, sir. I do have an understanding with them, and they should speak for themselves, that 

the company’s advertising is focused on the immediate question of 

informing the marketplace, borrowers, and servicers with regard to 

the changes that have been made in loss mitigation programs, and 

to encourage the outreach with regard to loss mitigation so that 

borrowers who are in troubled mortgages know that there is a 

place to go and there is a path to follow to be able to get assistance. 

Chairman NEUGEBAUER. I think my point is one of them has 

about $2 trillion worth of business on the books, the other one has 

about $3 trillion worth of business, but a tenfold difference. I think 

what this hearing is about today is—Mr. Williams says there is 

really not a written plan. Mr. Haldeman, do you have a written 

plan on where you are going with Freddie Mac? 

Mr. HALDEMAN. We are working with our board and FHFA on a 

3-year plan going forward. 

Chairman NEUGEBAUER. But we are 3 years into this conservatorship. So I think what I want to say—one of the points of 

this hearing and one of the things from my personal perspective is 

I think it is time for the entities to come together with some strategic plan, be able to begin to look at how we are spending the 

money that we are getting, because we are going to continue to advance. I think the last report that you made, Mr. DeMarco, said 

that could go up to $230 billion to $300 billion. We are at $170 billion now. 

And I think, Mr. DeMarco, you are the boss. These guys work for 

you. And I know you have more of a hands-off approach on that, 

and you feel like you have hired capable people. But our job is— 

the people sitting up here—is to make sure that we begin to minimize to the greatest extent possible the additional money that the 

taxpayers have to put into these entities. And what I would like 

to see is for you all to have some comprehensive plans, talking 

about reducing the footprints, talking about internally, the culture 

within that, of making sure the employees understand that they 

are not on somebody else’s dime right now. They are on the American taxpayers’ dime. 

And I would hope that we could see some fruits from that as we 

move forward, because I hope you were a little embarrassed by the 

fact that these headlines were not very flattering and don’t give a 

lot of confidence to the American people. And it overshadows 

maybe some of the better things that you are doing on behalf of the 

taxpayers. But little things matter. And right now, $10 million, $5 

million, $600 million, $600,000, those are real numbers to the 

American people. 

And so, I would hope in the future that we can see some comprehensive strategic planning, and then I think it would be very 

helpful for the three of you then to come back sometime after the 

first of the year and lay out some strategic plans so that we all 

have a vision and make sure that the conservator and the Congress 

31 

and the conservator and the entities themselves are all on the 

same page. And quite honestly, right now I am not sure that I have 

the confidence that we have that connectivity. 

Mr. DEMARCO. Thank you for those comments, Mr. Chairman. 

We will take them to heart, and I will commit to you that you will 

see a plan that outlines in a more comprehensive way where we 

are going in the next chapters with conservatorship. But I must 

hasten to add that while I will be pleased to develop that, make 

it available not just to the subcommittee, but to the public so the 

American taxpayer can see that, I will continue to make my request and state my willingness and desire to work with the entire 

Congress and the Administration to see the final chapter of this 

written so that we can bring this to an end. 

Chairman NEUGEBAUER. Thank you. 

Ms. Waters? 

Ms. WATERS. Thank you so much, Mr. Chairman. 

Earlier, I spoke with Mr. DeMarco about my concern about their 

having to pay Bank of America to take back the servicing because 

they were doing such a bad job. I have another issue here. In September, the FHFA Inspector General reported on a $2.87 billion 

settlement entered into by Bank of America and Freddie Mac. The 

IG found that Freddie only reviewed troubled loans for bank repurchase claims 2 years after origination, even though an FHFA senior 

examiner and Freddie Mac’s internal auditors noticed that the 

housing boom loans’ foreclosures peaked 3 to 5 years after origination. The IG said this shift in foreclosure patterns among housing 

boom loans means that most troubled loans are not being reviewed 

regardless of their potential for viability for repurchase claims. In 

fact, Freddie Mac has not reviewed for repurchase claims over 

300,000 foreclosed loans originated between 2004 and 2007. These 

loans have an unpaid principal balance exceeding $50 billion. 

The basic point that the IG was making was that Freddie could 

have left money on the table when it settles with banks over loans 

that weren’t originated according to their standards. Further, the 

IG said that an internal Freddie memo said that one advantage of 

pushing through the settlement was that it would improve 

Freddie’s business relationship with Bank of America. I don’t even 

know why you all want to continue to do business with Bank of 

America. 

But anyhow, what do you think of this IG report or preserving 

ongoing business relationships and appropriate criteria by which to 

gage whether a settlement is appropriate? Before this IG report, 

the Congress knew very little about the multibillion-dollar settlements entered into between banks and Fannie and Freddie. Can 

you commit to Congress that you will consistently provide the type 

of transparency that this IG report provided as you enter into future settlements? Talk to us about this, Mr. Williams. 

Mr. DEMARCO. If I may, Congresswoman, it was Freddie Mac. I 

would be happy to address this since the IG report was addressed 

to FHFA. 

Ms. WATERS. Okay. Please do. 

Mr. DEMARCO. The IG report, at the end of the day, had two recommendations to the Agency, each of which the Agency has agreed 

to carry out, neither of which go to whether there was a—one had 

32 

to do with an internal sort of policy for our supervision staff that 

we are addressing. The other had to do with something we already 

had under way, and the recommendation we agreed to was to continue that work of examining the loan review process. 

This gets into a rather technical area to try to explain what was 

going on with regard to the issues raised by the IG in this report, 

but if I may have a moment, there has been a lot of misreporting 

about this, and I would like to clarify a couple of things. And Mr. 

Haldeman is welcome to add his view. 

But FHFA had a senior examiner who raised a question regarding a subset of loans that were on Freddie Mac’s books—they were 

interest-only loans and pay-option ARMs—and whether the sampling strategy that was used by Freddie Mac corporate in doing 

quality control review of these two types of loans—interest-only 

loans and pay-option ARMs—was appropriate given the pay adjustment characteristics of these mortgages, and whether these types 

of mortgages would bear out default characteristics different from 

other types of mortgages and hence require a different sampling 

strategy. 

This was raised. It was raised. It was something that Mr. 

Haldeman was aware of when the settlement was done. It was 

something I was aware of. And it was factored into the settlement. 

So we identified that issue, signed up a potential cost or risk into 

it, and it was factored into the settlement. 

Since then, this has received a tremendous amount of scrutiny by 

our Inspector General, by our own team, by Freddie Mac’s own 

team. And I will tell you that 11 months later, almost 12 months 

later now, after all this scrutiny, if this transaction was put in 

front of me, with everything I have been able to learn subsequently, I would sign off on this settlement again today. 

There was not $1 billion of taxpayer money left on the table. This 

was a commercially reasonable settlement that was done. The issue 

that was raised by our own examiner was a legitimate issue. We 

have continued to look into it. We believe the judgment was appropriately assigned in making the settlement, and I think that while 

it is a legitimate issue to have raised, we have gone through it, and 

I am quite satisfied with the transaction that we took here. And 

it is also something that underwent a substantial amount of review 

within Freddie Mac by the management team, by the Board of Directors, by an outside firm retained by the company to review this, 

and a good deal of scrutiny by my own team in making a recommendation to me to sign off on this settlement. 

There are always things that can be learned from these processes. The IG has pointed some out, and we are taking the appropriate action based on his recommendations. 

Ms. WATERS. Okay. Fine. My question to you is about— 

Chairman NEUGEBAUER. I am sorry. I am going to have to ask 

the gentlewoman to suspend. Her time has expired. We have, I 

think, a couple more Members who want to ask quick questions, 

and they have called votes here. 

Ms. WATERS. I just want a commitment to provide transparency. 

Mr. DEMARCO. Yes, ma’am. 

Chairman NEUGEBAUER. Mr. Miller? 

33 

Mr. MILLER OF NORTH CAROLINA. I think I will do Ms. Waters 

a favor and pursue this question. I know you said that the criticism 

of Freddie’s settlement was misreported, but I didn’t just read 

press reports. At the time, I read the IG report. Now, it is not fresh 

in my mind at this time, but it was very critical. It is not that it 

was misinterpreted as being critical. I read it. It was critical. 

Mr. DEMARCO. No question about it. It was very critical. 

Mr. MILLER OF NORTH CAROLINA. It said that you settled the suit 

too cheaply, and it said that you settled too cheaply, or Freddie settled too cheaply for the wrong reason, which was to improve your 

business relationship. 

Mr. DEMARCO. I am sorry, Mr. Miller. The report did not reach 

a conclusion. 

Mr. MILLER OF NORTH CAROLINA. He quoted emails that left that 

impression. It was a very critical report. I think Ms. Waters’ question is the same as mine. There is pending litigation involving tens 

of billions of dollars for the private-label security, PLS mortgagebacked securities, the private-label mortgage-backed securities that 

you all bought. There are other put-back claims. How much conservatorship ultimately costs taxpayers may largely depend on how 

that litigation is resolved. We have an Inspector General’s report 

that is very critical of how Freddie has settled one set of claims already. 

Can the Inspector General review these claims in advance before 

the settlement is entered into so that someone can look at this and 

make sure that these are not settled too cheaply and settled too 

cheaply for the wrong reasons, as the email suggested? 

Mr. DEMARCO. Mr. Miller, that is a question for the IG, but I 

would view it as highly—I would expect the answer is the IG 

doesn’t review things before they are decided or actions are taken. 

The typical activity of an IG is to review an action after— 

Mr. MILLER OF NORTH CAROLINA. Can you get someone detached, 

someone else to look at it? 

Mr. DEMARCO. Yes, Mr. Miller. To that, yes. To that point, I believe that we will be taking a different review process to enhance 

the additional review and opinion that we get in helping us to assess the settlements. 

Mr. MILLER OF NORTH CAROLINA. And who will that be? 

Mr. DEMARCO. I don’t have that answered yet, Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. I yield back. 

Chairman NEUGEBAUER. Mr. Carney is recognized. 

Mr. CARNEY. Thank you, Mr. Chairman, and Ranking Member 

Capuano, for the additional time. 

I just want to go back to the last question that I asked. I didn’t 

have enough time to ask the two gentlemen on either end. 

Mr. Haldeman, I think it was, said that one of the important 

matters is, I guess, for us to determine the future of the secondary 

market. How would you see that? We did have the Treasury come 

in and present the Administration’s White Paper. How would you 

answer that question? 

Mr. HALDEMAN. Yes. When I took the job, they told me I couldn’t 

lobby or advocate, and I have taken that responsibility pretty seriously. And so, I really don’t want to put on the table my personal 

view. 

34 

Mr. CARNEY. Could you frame the issue for us a little bit, like 

Mr. DeMarco did? He didn’t really answer the question either, I 

don’t think. 

Mr. HALDEMAN. The issue for me is to what extent, if any, should 

the government play a role in the housing finance market? And I 

am sort of a free market kind of person, but I do think there could 

be a legitimate role for the government as some sort of ultimate 

guarantor for which a Freddie or Frannie or a participant in the 

industry could pay an insurance premium to get that kind of ultimate guarantee. The benefit of that ultimate guarantee, as Congressman Miller said on this side, would be that I think you would 

have a greater chance to get foreign capital coming into our country and coming into our mortgage market if we had that ultimate 

guarantee. But I think it is critically important that the institutions have to pay an insurance premium to get that guarantee. 

Mr. CARNEY. If there wasn’t a guarantee, do you think we would 

have a 30-year fixed-rate mortgage product? 

Mr. HALDEMAN. I worry about that. I don’t think it would be 

nearly so available to as many people as it is today. 

Mr. CARNEY. Thank you. 

Mr. Williams? 

Mr. WILLIAMS. Yes, Congressman. I think it is much like Mr. 

Haldeman noted. We are not in a position to actually advocate a 

specific solution. I think, first of all, it is very important that we 

have a responsible transition to reform to make sure that we do not 

destabilize the housing market as we go through it. 

I think, to your question, the key things the policymakers will 

need to evaluate are how do you support a 30-year fixed-rate mortgage in this market? How do you provide deep liquidity that we 

have in the mortgage market today? How do you make sure that 

low-, moderate-, and middle-income Americans have the same access to mortgage financing that upper-income Americans do? And 

how do you support balanced housing policy, meaning affordable 

rental housing as well as homeownership? And I think those are 

really the four to five key questions that policymakers need to decide as they look at the solutions that are on the table. 

Mr. CARNEY. Thank you very much. 

Mr. DeMarco, would you like to take another shot at it? 

Mr. DEMARCO. I think I am done. Thank you. 

Mr. CARNEY. Thanks very much. 

Thank you, Mr. Chairman. 

Chairman NEUGEBAUER. I thank the gentlemen, and I thank the 

panel. This has been a good hearing. 

The Chair notes that some Members may have additional questions for this panel 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. 

Again, thank you for being here, and this hearing is adjourned. 

[Whereupon, at 4:48 p.m., the hearing was adjourned.] 

(35) 

A P P E N D I X 

December 1, 2011 

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