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111TH CONGRESS

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MEETING ON 

PRIORITIES FOR THE NEXT 

ADMINISTRATION: USE OF 

TARP FUNDS UNDER EESA 

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JANUARY 13, 2009 


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" ! COMMITTEE PRINT 

111TH CONGRESS

1st Session 

COMMITTEE

2011

Print 111–D 

MEETING ON 

PRIORITIES FOR THE NEXT 

ADMINISTRATION: USE OF 

TARP FUNDS UNDER EESA 

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JANUARY 13, 2009 


Congress.#13
(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

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 

DENNIS MOORE, Kansas 

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 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS MCCOTTER, Michigan 

KEVIN MCCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIC PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Meeting held on: 

January 13, 2009 .............................................................................................. 1 

Appendix: 

January 13, 2009 .............................................................................................. 83 

WITNESSES 

TUESDAY, JANUARY 13, 2009 

Blankenship, Cynthia, Vice Chairman and Chief Operating Officer, Bank 

of the West, on behalf of the Independent Community Bankers of America 

(ICBA) ................................................................................................................... 59 

Bovenzi, John F., Deputy to the Chairman and Chief Operating Officer, 

Federal Deposit Insurance Corporation ............................................................. 17 

Calhoun, Michael, President and Chief Operating Officer, Center for Responsible Lending (CRL) ............................................................................................. 64 

Kohn, Donald L., Vice Chairman, Board of Governors of the Federal Reserve 

System ................................................................................................................... 15 

Mayer, Christopher J., Senior Vice Dean and Paul Milstein Professor of 

Real Estate, Columbia Business School ............................................................. 65 

McMillan, Charles, CIPS, GRI, 2009 President, National Association of Realtors (NAR) ............................................................................................................. 62 

Murguia, Janet, President and Chief Executive Officer, National Council of 

La Raza (NCLR) ................................................................................................... 54 

Robson, Joe R., 2008 Chairman-Elect of the Board, National Association 

of Home Builders (NAHB) ................................................................................... 61 

Taylor, John, President & Chief Executive Officer, National Community Reinvestment Coalition (NCRC) ................................................................................. 56 

Yingling, Edward L., President and Chief Executive Officer, American Bankers Association (ABA) .......................................................................................... 58 

APPENDIX 

Prepared statements: 

Green, Hon. Al .................................................................................................. 84 

Jenkins, Hon. Lynn .......................................................................................... 85 

Blankenship, Cynthia ....................................................................................... 90 

Bovenzi, John F. ............................................................................................... 100 

Calhoun, Michael .............................................................................................. 119 

Kohn, Donald L. ................................................................................................ 135 

Mayer, Christopher J. ...................................................................................... 142 

McMillan, Charles ............................................................................................ 152 

Murguia, Janet ................................................................................................. 160 

Robson, Joe R. ................................................................................................... 168 

Taylor, John ...................................................................................................... 182 

Yingling, Edward L. ......................................................................................... 200 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Written statement of the Credit Union National Association (CUNA) ........ 232 

Written statement of the National Association of Federal Credit Unions 

(NAFCU) ........................................................................................................ 235 

Jenkins, Hon. Lynn: 

Letters from various constituents ................................................................... 237 

Page

IV 

Peters, Hon. Gary: 

Article from Crain’s Detroit Business ............................................................. 241 

Thompson, Hon. Bennie G.: 

Letters to Hon. Ben Bernanke, Hon. Timothy Geithner, and Hon. Henry 

M. Paulson, Jr. .............................................................................................. 244 

Yingling, Edward L. 

Additional information provided for the record in response to questions 

from Representatives Foster and Scott ....................................................... 250 

(1) 

PRIORITIES FOR THE NEXT 

ADMINISTRATION: USE OF 

TARP FUNDS UNDER EESA 

Tuesday, January 13, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 2:04 p.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Kanjorski, Waters, 

Maloney, Watt, Ackerman, Meeks, Moore of Kansas, Capuano, 

Clay, McCarthy of New York, Baca, Lynch, Miller of North Carolina, Scott, Green, Cleaver, Bean, Moore of Wisconsin, Hodes, Ellison, Klein, Wilson, Perlmutter, Donnelly, Foster, Carson, Minnick, 

Adler, Kilroy, Driehaus, Kosmas, Grayson, Himes, Peters, Maffei; 

Bachus, Castle, Royce, Paul, Manzullo, Jones, Biggert, Hensarling, 

Garrett, Price, McHenry, Bachmann, Posey, Jenkins, Lee, Paulsen, 

and Lance. 

The CHAIRMAN. This gathering will come to order. We will have 

probably a full complement of members. Now the microphone 

seems to be on. 

Mr. BACHUS. Yes, mine is on. 

The CHAIRMAN. All right. They are on when you don’t want them 

to be and then they are not on when you want them to be. 

This is a gathering of the membership of the Financial Services 

Committee. We have not yet been formally constituted as a committee by action of the House, but the membership has been completed, I believe, on both sides. So this is the membership. I will 

say that the ranking member and I were unsuccessful in our effort 

to reduce the size of the committee. We mean no disrespect to our 

newer members, but we are the second-largest committee in the 

House, and it is unwieldly. And I apologize to all members on both 

sides. It takes longer to get to people in terms of questions. We try 

to accommodate that. If we get any bigger, we will have no spectators at all, because membership is eating into the public sector. 

We regret that. 

I did want to reassure people the ranking member and I tried 

very hard, but it is a committee that people wanted to serve on, 

so here we are. 

This meeting is to discuss legislation to set conditions with regard to the second $350 billion of the rescue plan that we adopted 

last fall. When we adopted that, we put into it that there would 

2 

be a two-part operation: that the Administration could in fact with 

a signed declaration access $350 billion; but before they could access the second $350 billion there would have to be a period during 

which they notified Congress, waited 15 days, and any Member of 

Congress could then bring a resolution to the Floor to disapprove 

this. There were people who at the time said that this was mere 

window dressing. It is clear that they were wrong. 

This restriction on the second half has turned out to be very important, and I think helpful, because there was a great deal of dissatisfaction in the Congress, reflecting dissatisfaction in the country with the way in which the first $350 billion was spent. 

The question now is: Why are we acting at this point? I have received a letter from members of the Minority, including the ranking member, saying that they wanted to hold off. But here is the 

problem. President Bush, at the request of President-elect Obama, 

triggered a 15-day period yesterday. The House has 6 days before 

a resolution must come to the Floor; a resolution of disapproval, because we wrote into this bill very powerful rules that allow any 

Member of the House to get a bill to the Floor. The Senate I think 

has an even shorter period of time. 

I think it is important that at least the House of Representatives 

be able to express its views on this before a resolution of disapproval comes up. Members will have a right to vote on the resolution of disapproval. There will be no effort, I am sure, to stop it; 

and no such effort, if it came, could be successful because of the 

way we wrote this bill. 

There is one issue. As I read the law, apparently we may have 

to vote on Sunday. I think we might be able to get some agreement 

so we don’t have to vote until Wednesday. It said within 6 days. 

And there will be conversations going on with the leadership. So 

there will be a vote. Many of us believe that before voting yes or 

no, we ought to be able to say ‘‘yes but.’’ And that is what this bill 

is. I take it back. Not ‘‘yes but,’’ but ‘‘yes if.’’ The incoming Administration believes strongly that this $350 billion will be helpful. 

Having given $350 billion to the Bush Administration, I believe 

it is reasonable to make it now available to the Obama Administration, but with much more in the way of restriction. 

It is probably the case that we will have a hard time getting a 

bill signed into law. The legislation that we intend to bring forward 

does not confer new powers on the Administration. It does mandate 

that they do things within the existing powers. That is, everything 

in the bill could already be done if they were ready to do it. 

It reminds me of what Harry Truman said: ‘‘Being President of 

the United States means trying to get people to do what they 

should have done in the first place on their own if they had any 

brains.’’ And that is what we are trying to do with the TARP. We 

are trying to get an Administration to do what it should have done 

in the first place. We believe that if these conditions are met, that 

will make it a very useful thing. 

What we expect is that—and I would hope that before we in the 

House voted on a motion of disapproval, we could pass a bill that 

tells the Administration what we think is necessary, and that we 

get a commitment from the new President of the United States 

that he will abide by it. I have a good deal of confidence in the new 

3 

President of the United States. But we are putting the bill forward 

because I have also learned from a prior President of the United 

States, who in turn learned from the head of the Soviet Union— 

and I am of course referring to Ronald Reagan’s wisdom he passed 

along for Mikhail Gorbachev—trust but verify. This is the trustbut-verify bill with regard to the Obama Administration and the 

TARP. 

But let me give you an example, and my time is running out, and 

I am going to hold everybody to the time. If we do not get the second $350 billion, I do not see any way that we can get substantial 

foreclosure relief. If we get the second $350 billion, I believe it 

should be conditioned upon the Administration promising us very 

substantial foreclosure relief, improving HOPE for Homeowners, 

building on the work of FDIC Chairman Bair, acting as Secretary 

Preston, the current Secretary of HUD, says we should do in buying up home mortgages. 

I also believe that we can get to a situation where the larger 

banks having gotten money, we can now advance money to the 

smaller banks, the community banks, under conditions that will 

make sure that it is used appropriately, and in most, although not 

every single case, re-lent. 

We will therefore be proceeding in this manner. We will do what 

the rules allow, which is to have 20 minutes of opening statements 

on each side. I will be holding members very strictly to a 5-minute 

rule. 

And I now recognize—or within the 20 minutes, I now recognize 

the gentleman from Alabama for such time as he—he says 2 minutes, he wants? 

Mr. BACHUS. Mr. Chairman, before I start, I wanted to advise 

our members that we will all be doing 2 minutes, those who have 

requested time. 

The CHAIRMAN. All right. That makes it easy for the timekeeper. 

So, 2 minutes for each of the Republican members. 

Mr. BACHUS. Mr. Chairman, you and I agree on one thing, which 

is that the $350 billion second affirmation is very important. In 

other words, before we can spend the second half of the money, it 

has to get congressional approval. And if you will recall, the purpose of this relief plan or rescue plan, as the chairman is saying, 

or bailout as the American people call it, the purpose was to stabilize the financial system. We were presented with a doomsday 

scenario that the markets were going to melt down and our financial system was going to collapse. And as a result of that, this bill 

passed. 

What confuses us is, in a letter to House Republicans just this 

past week, Chairman Paulson said this: ‘‘We have in fact met our 

original stated objectives, which were to immediately stabilize the 

financial system by strengthening financial institutions, arresting 

the wave of financial organization failures, and establishing a basis 

for recovery. 

If you all recall when this passed, six major institutions had collapsed over a short period of time. The markets were going up and 

down a thousand points. That is no longer the case. And Secretary 

Paulson says he has accomplished the purposes of the program. 

4 

Having done that, and prevented maybe a doomsday scenario 

perhaps, we are seeing something else very different. We are seeing 

now this thing transition, if we approve this second half, into a 

grab bag where people can just reach in and get taxpayer money. 

And as most of you know, people are lining up to get this money. 

But today we are asked within about a 72-hour period—we are 

going to go to the Rules Committee at 5 o’clock with very few specifics—we are being asked to vote about a bill we know nothing 

about; we have not been told why we need it, we have not been told 

what we are going to do with it. We are not informed. We don’t 

have the facts. But we are told that we need to pass it. And we 

are not informed. That is not the way to do legislation. We understand Americans are struggling, that people are out of work, but 

that is no excuse to rush to judgment and really take $350 billion 

from the very people that we are concerned about. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman consumed 2 minutes and 52 seconds, so we will make an adjustment. 

Next, for 21⁄2 minutes, Mr. Kanjorski. 

Mr. KANJORSKI. Thank you, Mr. Chairman. Mr. Chairman, I 

have a prepared statement I will submit for the record. I just want 

to say that we know that ultimately this bill will not become forceful, but it is a message being sent to the incoming President. And 

I think it is a good message, that there has been disappointment 

on behalf of this Congress. I think it is bipartisan disappointment. 

I, for one, worked very hard for the passage of the original TARP 

bill. And I feel that there has been less than openness on the part 

of the present Administration to indicate to the American people 

exactly what the funds were used for, and primarily to stimulate 

positive activities on the part of banks to constitute an increase in 

the lending and moving out of the frozen nature of our credit system. 

That all being said, it seems to me very important that we real- ize that this was a commitment of $700 billion. It still is a commitment. But most of all, it is not because it is a commitment, it is 

because to date we do not have an affirmation that the system has 

worked. It has worked insofar as we have not collapsed into total 

meltdown, but it is still in the process of ‘‘working.’’ And it seems 

to me that in this nature it behooves all of us, this Congress and 

the American people, to adopt a plan. And as we originally recognized with the Secretary of the Treasury and the President, some 

mistakes will be made, some moneys will be lost, but this is too important a problem for the American people, that we cannot stop 

halfway through the course. 

So I highly support the message sent in this bill to the new Administration that we will be watching them. We expect them to adhere to the principles set forth in the bill. But also, we have to send 

a message to the American people that we have faith in the system, that the program will work, and that we are going to stay 

with it as a Congress. 

So on that behalf, Mr. Chairman, I offer my support for the 

chairman’s bill. I yield back. 

The CHAIRMAN. The remaining time will be 1 minute and 55 seconds for each of the Republicans to stay within the allotted time. 

5 

And the gentleman from Delaware is recognized for 1 minute and 

55 seconds. 

Mr. CASTLE. Thank you, Mr. Chairman. Thank you for calling 

the meeting to begin this dialogue on the final $350 billion tranche 

of the Treasury’s TARP funds. As I indicated at the last TARP 

oversight hearing, I remain very concerned that we do not have an 

accurate accounting of how each institution receiving TARP funds 

is spending this money. In fact, to me it seems to become fungible 

rather quickly, and it is very hard to follow the bouncing ball in 

this area. 

This program was intended to free up credit and stabilize our financial system. Today, we have achieved a level of stability. But 

many mortgages and mortgage-backed securities remain unchanged, despite our efforts directing the Treasury to adjust these 

important economic symptoms. 

Further, we do not have a complete accounting of how the first 

tranche of taxpayer money has been used by the institutions that 

now possess these funds, which is unacceptable. 

I support the idea put forth by Mr. LaTourette, and I applaud 

the chairman for his support of that amendment. We need to understand whether or not institutions receiving TARP funds have increased lending. 

I have offered legislation on safe legal harbor, which has recently 

become a law, and is already incorporated in this legislation, which 

would incentivize loan servicers to work with borrowers and investors and renegotiate loan terms. However, I am disappointed that 

many struggling homeowners remain unable to refinance their 

loans. 

I see in the chairman’s proposal he has revisited this issue, and 

I look forward to working with him and the committee on that very 

important matter. Before any additional funds are released, we 

need to ensure that these matters are fully addressed. I yield back, 

Mr. Chairman. 

The CHAIRMAN. The gentleman from Massachusetts, Mr. Capuano, for 21⁄2 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. Mr. Chairman, again 

I want to state very clear and very strong support for this general 

proposal. I wish we could have done it the last time, but the last 

time we had this bill before us we had a President who said you 

either do it my way or you have a veto, leaving people like me with 

a choice of either voting yes or letting the economy possibly go 

down the tubes. I wish we could have had these things the last 

time. 

I also hoped that even without them specifically in law, that we 

could have taken people at their word, that they would have actually done some of the things that we are now saying in this bill 

that they have to do. I don’t think these are very difficult things. 

Individual reporting of what happens when we give money to a 

specific bank. How is that difficult? How is that impossible? Yet we 

had administrators who said they weren’t going to do it. That is insane. It was never set in the law, and anybody who says they 

wouldn’t do it I think is being misfeasant, malfeasant, and every 

other feasant I can think of. 

6 

I personally think that this particular bill is very good. It is a 

step in the right direction. I am looking forward to the new Administration hearing us. My hope is that this bill is part of the disapproval or approval of the next funds. I hope they are not separate. I really think that this bill has a lot of things in it that we 

should have had, that I think will serve our taxpayers well and will 

help this economy, and will get us the reporting that we need to 

make wise decisions in the future. 

With that, Mr. Chairman, I yield back the remainder of my time. 

The CHAIRMAN. The gentleman—I lost my place here—the gentleman from California, Mr. Royce, for a minute and 55 seconds. 

Mr. ROYCE. Thank you, Mr. Chairman. I would just point out 

that thus far, if we look at Congress’ track record on addressing 

foreclosures, it has not been that impressive. If we compare that 

to the private sector and with the HOPE NOW Alliance, we have 

made significant progress there. We have had in 2008 alone, 2.2 

million foreclosures that were prevented by the HOPE NOW Alliance. And I think Mike Castle, had his legislation gone through 

earlier, stemming some of those class-action lawsuits, we could 

have had more of those foreclosures prevented. 

I want to say that I am encouraged that the chairman has included the provisions building on Mike’s work in terms of the loseor-pay provision in H.R. 384. I think that will further protect loan 

servicers and make sure we have more workouts. But the second 

$350 billion tranche, frankly, is a continuation of a bailout policy 

that I believe has done little good. And I think the ultimate destination of this bailout trend should give us all pause. 

With the near certainty of future deficits approaching 6 or 7 percent of GDP, with the Fed’s balance sheet expanding nearly $2 trillion, with the promise of another stimulus package nearing another 

$800 billion, we are becoming increasingly dependent upon our rescuers: the American taxpayers and U.S. debt purchasers. And eventually, bondholders will begin to reconsider purchasing U.S. debt. 

While such an occurrence would be catastrophic, avoiding such a 

scenario would require us to take a step back from where we are 

and eliminate unnecessary spending. 

Another ill effect of the bailout trend is the rapidly increasing 

role of the government within financial firms. And if you look at 

the December 17th Wall Street Journal, they ran a story entitled, 

‘‘U.S. Ratchets Up Citi Oversight,’’ in which they described the active role regulators are playing in the day-to-day operations of 

Citigroup. So it should come as no surprise that Citigroup has now 

announced it would support legislative efforts to allow bankruptcy 

judges to rewrite mortgage contracts, a provision they have historically opposed. 

The CHAIRMAN. The gentleman from California, Mr. Sherman, is 

recognized for 21⁄2 minutes. 

Mr. SHERMAN. Thank you, Mr. Chairman. If we reject the $350 

billion second tranche—and I doubt that the Senate will do so— 

that is not the end but is, rather, a beginning to try to write a better program. But I think it is better to try to improve the existing 

program before we have to vote on the second $350 billion on January 21st. 

7 

Chairman Frank has a bill that would improve the program. 

Frankly, I think at this stage it is insufficient. I hope that the bill 

is improved by both managers’ amendments and other amendments on the Floor. Unfortunately, the chairman’s bill will not be 

law on January 21st. The Senate is unlikely to act that quickly. So 

I hope that the Obama Administration will give us an explicit, 

unequivocable, and morally binding commitment to follow the 

House-passed bill, and hopefully also to follow some of those 

amendments that would have passed the House had they not been 

blocked by the Rules Committee, if indeed the Rules Committee 

blocks some important amendments. 

So I think members need to know how the Obama Administration is going to carry out this bill, and we need to know not just 

statements of principle, but what they are willing to bind themselves morally to do. These should deal with dividend and stock repurchases by companies holding TARP assets. We should deal with 

warrants. And I know the chairman’s bill already deals with warrants. I think the manager’s amendment, as I understand it, will 

make those provisions stronger and better. 

We need to deal with executive compensation. We need to deal 

with salaries and deal explicitly with stock options, not just focus 

on cash bonuses. And we need to focus on perks. And this would 

include—and this is a minor point, but one of importance to my 

constituents at least—not only leased and owned luxury aircraft, 

but also chartered luxury aircraft. 

So I look forward to working on the House Floor and working 

with the transition team so that on January 21st, those of us who 

were skeptical of the first bill can see sufficient improvement to 

vote to release the second $350 billion. I yield back. 

The CHAIRMAN. The gentleman from Texas, Mr. Paul, for 1 

minute and 55 seconds. 

Dr. PAUL. Thank you, Mr. Chairman. This continued debate that 

has gone on about our rescue programs that we have been devising 

is confirmation, I believe, that there is very little understanding as 

to how we got into this mess. And as long as we continue to do the 

wrong things, I don’t see any solution. But if we got here by spending too much money, borrowing too much money, inflating too 

much money, the Federal Reserve being too involved in central economic planning through manipulation of interest rates, and Congress passing too many regulations, as long as we think that is benign and has nothing to do with it, then I guess it seems very logical that we come up by spending more money, borrowing more 

money, printing more money, and writing more regulations, and 

thinking that we are going to get different results. But we don’t. 

It seems to me today that the big argument is who the central 

economic planner is. Is it the Treasury or is it the Congress, is it 

the FDIC, is it the Federal Reserve? Believe me, central economic 

planning doesn’t work. That is why we are in this mess. And that 

is why we have all the malinvestment, all the bad debt. If we are 

looking for a solution, we have to have liquidation of debt. We don’t 

want to prop up the bad debt. The problem was created by bad policy. But as long as you delay the liquidation of debt and the malinvestment, the longer the agony will be. 

8 

But to now devise a system where we are going to buy up these 

bad assets, these worthless assets, and dump them on the American taxpayer is absurd. It makes no sense whatsoever. What we 

need is a little bit of confidence that a market economy works, and 

get away from this central economic planning, and quit arguing 

over who is going to be the central economic planner. Believe me, 

it doesn’t work. It has been tried. The 20th Century was supposed 

to have proven that it doesn’t work. But here we are, we are giving 

up on it; more government, more spending, and more debt. 

The CHAIRMAN. The gentleman from California, Mr. Baca. 

Mr. BACA. Thank you very much, Mr. Chairman, for holding this 

important meeting. I too support the proposal or legislation, and 

hopefully, with some additional amendments. 

Families in my district and throughout America are struggling to 

meet their needs. They need help. Just look at the unemployment 

rate. It stands at 7 percent. In my district, it is at 20 percent, and 

by the year 2010, it is going to be at 12 percent, and the plight of 

8,000 families that are foreclosing on homes each day. In my district, the San Bernardino-Riverside area, we have the fifth-highest 

foreclosure rate in the Nation. And in my area, the credit unions, 

Arrowhead Credit Union just closed four branches. 

The original TARP laid out certain requirements to make sure 

that underserved communities and homeowners received assistance. Why didn’t they? That is a question we have to ask ourselves. 

Unfortunately, the Treasury decided to do its own thing with capital infusion. We have to change that. There has to be accountability. There has to be oversight. 

I thank the chairman for moving fast to draft H.R. 384, which 

creates necessary reform, and I state necessary reform that wasn’t 

there to correct the TARP programs. I hope the chairman will also 

consider additional provisions which I think will help put the 

Treasury back on the right path, such as: tenant protection to ensure renters don’t become homeless if their landlord is foreclosed; 

the inclusion of regional public-private partnerships in the loan 

modification program; and the clarification existing in statutes to 

ensure credit unions have access to TARP funds. 

I look forward to working with the chairman. I yield back the 

balance of my time. 

The CHAIRMAN. We will now do a couple of Republicans in a row 

because of the way the allocations are. We are out of balance. 

The gentleman from Illinois, Mr. Manzullo, for a minute and 55 

seconds. 

Mr. MANZULLO. Thank you, Mr. Chairman. Unfortunately, all the 

plans submitted dealing with bailing out people’s mistakes and 

using taxpayers’ dollars to buy out bad loans, that is called a trickle-down theory of bailout. Let me give you a trickle-up that will 

work, that only will cost $75 billion, a lot less expensive than the 

trillions we are throwing at it. 

In 2007, 17 million new cars were sold. That dropped to 10 mil- lion. That means that we lost $175 billion directly in the economy. 

That comes out to a trillion dollars by the time you extrapolate 

that through economic control. 

Second of all, when cars and trucks start selling, it moves inventory from dealers and factory jobs, pays salaries of dealers’ employVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
9 

ees, refurbishes local and State sales tax funds, restarts manufacturing, the economy begins to boom, people pay the mortgages, and 

they start buying houses. Third, by offering a tax credit or voucher of $5,000 for a brand 

new automobile, we could restore the auto industry in this country 

from the bottom up, put people back to work, and get everything 

going again. 

Nobody is talking about remedies, we are just talking about 

patchwork, throwing money in from the top. That won’t do any 

good. Ford now needs money because it doesn’t have enough sales. 

This is so simple. We have to restart manufacturing in this country 

to come out of this slump. Don’t knock on my door asking for a 

bailout. Let me give you a voucher for $5,000 to buy a brand new 

car, and you could buy a brand new Patriot, made in my district 

for a little over $200 a month for 5 years. 

Mr. Chairman, we have to restart the economy. Restoring manufacturing is the only way. Everything else simply wastes time and 

it wastes money. And I have had enough lobbyists knocking on my 

door wanting their fair share. I yield back. 

The CHAIRMAN. The gentlewoman from Illinois, Ms. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman. We passed the Emergency Economic Stabilization Act in October, and we did that after 

we had first had not passed it because we were concerned about 

the fact that it was not vetted; we didn’t have the time to look at 

it. And here we are again looking at the tranche for another $350 

billion. 

With all due respect, Mr. Chairman, I think that you believed 

that your HOPE for Homeowners program would help 400,000 

homeowners refinance. To date, HOPE for Homeowners has only 

had 373 applications and 13 loans closed. 

We also had never looked at the insurance, which was part of 

what the Secretary of the Treasury was to use. And we never have 

seen any of the purchase of those toxic assets by the Treasury, as 

the bill called for. Instead, we have had the purchase of—or putting 

cash equity into the banks so that they could make loans, which 

they are not making. 

What has happened here? The Government Accountability Office 

faults the Administration for not tracking what the banks are 

doing with the money. There are no answers to that. And now we 

are supposed to take on another bill that is going to cost us $350 

billion. How can we go ahead when we haven’t seen it? Process is 

important. It is important that we have the opportunity to really 

vet this bill. We have already made so many mistakes. There are 

so many mistakes that have been made by the Administration that 

we really need to have more time. I yield back. 

The CHAIRMAN. The gentleman from Georgia, Mr. Scott, for 21⁄2

minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. We are at a 

critical point in our economy. We have 15 days in which to either 

approve or disapprove of President Obama’s request through President Bush for these funds. But I think that we have no choice in 

this matter, the economy is in such dire shape. Nowhere is it in 

as much dire shape as in the foreclosure and the getting help to 

homeowners. And I believe that if we are successful in moving forVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
10 

ward on this $350 billion, it is very critical that in these 15 days 

we move simultaneously to make sure Chairman Frank’s bill 

moves at the same time. If not, we will be making the same mistake that we made, or the Administration made, with the first $350 

billion. They moved it, they moved it out, but they didn’t have the 

accountability there. They didn’t have the transparency there. They 

didn’t put the chief inspector general in place. We didn’t have the 

oversight committee in place. 

What this measure will do, Chairman Frank’s bill will put the 

accountability, the transparency there, and most significantly, will 

put the foreclosure relief in place and a plan. I think one of the 

most important parts about this bill is Title II, the Foreclosure Relief Plan. To be able to get a plan in place, get it up to $100 billion,that is what is needed. 

And it is about time that we give money to the American people, 

to get the American people involved in this, and no better way we 

can do this than to help them to stay in their homes. And I believe 

if we are able to put this plan together with up to $100 billion set 

aside in which we could move, working with the FDIC, with Chairman Bair and that plan that has been laid out, we will go a long 

way to establishing this. 

This appealed to the Obama Administration. We not only need 

the Obama Administration to come and ask for the money, we need 

for them to come and ask for the accountability and the transparency that goes with it. If they come and just work for the $350 

billion and try to move this bill out without having the chairman’s 

bill along with it that brings the transparency, that brings the accountability, and, most importantly, the money to be able to get the 

homeowners so that they can stay in their homes. 

This is what needs to be done. Ladies and gentlemen, this economy can no longer sustain 6,300 homes being lost to foreclosure 

every day. This bill will help solve that. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Texas, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. If government could 

spend its way out of the financial crisis, we would probably already 

be out of the pickle that we find ourselves in. We have $7 trillion 

to $8 trillion of taxpayer exposure liability on the books already. 

And we have a potential $1 trillion stimulus plan coming down the 

pike, although most economists agree the last stimulus plan didn’t 

work. 

Now we are looking at the second tranche of $350 billion, and we 

may be faced with a number of lousy options. One option is to hand 

the money over carte blanche. I must admit I find it somewhat 

ironic that those who have become the biggest critics of the legislation, frankly, had a lot to do with writing it and voting for it in 

the first place. And I think it underscores again that haste can 

make waste. As important as it is for us to act quickly, it is more 

important for us to act smartly when it comes to $350 billion of the 

taxpayers’ money. 

I appreciate the fact that the chairman has put a plan on the 

table. And certainly when it comes to institutions receiving funds, 

accounting for how they spend the money, I am in accordance with 

him. I think that is an important provision. 

11 

But I am worried about several aspects of the plan. Number one, 

I fear it may put us on the road to picking winners and losers with 

the express language dealing with the auto industry. I want to 

know how the people in the Fifth District of Texas—they want to 

know are their employers going to get bailed out or is it just select 

employers who get bailed out? 

Second of all, this government putting observers in the boardrooms, it may start out observing; soon they will be suggesting, and 

next they will be mandating. That is no way to run a railroad. The 

institution that brought us the single-largest deficit in the history 

of mankind all of a sudden is now going to tell American free enterprise how to run their business? No thank you. With that I yield 

back, Mr. Chairman. 

The CHAIRMAN. The gentleman from in New Jersey, Mr. Garrett. 

Mr. GARRETT. Thank you, Mr. Chairman, and Mr. Ranking Member, for holding this important hearing. And I would like to at this 

time introduce an op-ed by financial institutions and monetary policy consultant Bert Ely, that appeared in the Wall Street Journal 

entitled, ‘‘Banks Don’t Need to be Forced to Lend.’’ It provides a 

very useful explanation of the role that capital plays in our financial institutions, and I recommend it to all members. Take the time 

to read it. With no objection. 

President-elect Obama said Sunday on This Week with George 

Stephanopoulos: ‘‘I, like many, are disappointed with how the 

whole TARP process has unfolded. There hasn’t been enough oversight. We found out this week in a report that we are not tracking 

where the money is going.’’ 

I believe that the President-elect is exactly right, and that these 

are concerns that many of us voiced early on, prior to the passage 

of the chairman’s original bill. If we had taken the time to carefully 

review, hold hearings, and conduct a markup over TARP, perhaps 

we could have foreseen certain problems and included provisions to 

ensure they do not occur. 

Now it appears that we are heading down the same road all over 

again with the chairman’s next bill, a bill, by the way, the chairman I believe indicated he does not anticipate becoming law. When 

Congress originally debated and passed TARP, I believe a number 

of the problems that we have experienced could have been prevented had we taken the normal order. However, his original legislation was simply cobbled together and rushed through the process. 

Unfortunately, it appears we are heading down the same road 

again today. Chairman Frank released his draft this past Friday, 

and now less than a week later, we are considering that exact bill 

on the Floor this week. So I was pleased to join the ranking member in writing a letter to the chairman asking him to put this 

through regular order so we don’t make the same mistakes that we 

did last time. 

I was also pleased to join the ranking member when I say that 

we have not seen a compelling case to release the second tranche 

of the TARP funds. In fact, I have seen no case made as to why 

it is necessary to release the other $350 billion of taxpayer funds. 

I have also not seen any evidence that it was the original $350 billion that has achieved its original purpose of our Nation’s financial 

12 

system. Rather, it was actions by the Fed and private marketplace 

that helped in that regard. I yield back. 

The CHAIRMAN. The gentlewoman from California, Ms. Waters. 

Ms. WATERS. Thank you very much, Mr. Chairman, for arranging 

today’s hearing. From the beginning of this financial crisis, I have 

been vocal about the link between the housing crisis and the financial crisis we are facing. The economy will not recover without immediately addressing the housing crisis. In fact, the housing crisis 

is the main reason why I initially supported the Emergency Economic Stabilization Act. However, the mismanagement of the first 

$350 billion has led to banks receiving funds without mandates to 

provide loans to consumers or mortgage loan modifications to 

struggling homeowners. 

The use of TARP funds for unintended purposes has shaken the 

confidence of this Congress. We intended for TARP to remove toxic 

assets and nonperforming loans from the marketplace, modify 

mortgages, and increase the availability of credit. To date, no 

TARP funds have been directed to systematic loan modification or 

increased lending. This is especially shocking given the fact that 

the housing market remains in a free fall. Credit Suisse estimates 

that 8 million homes, representing 16 percent of all mortgages, will 

be in foreclosure in the next 4 years, with 1.7 million foreclosures 

in 2009. According to Case & Shiller, housing prices have fallen 18 

percent in the last year, and the bottom is nowhere in sight. 

The need to address the foreclosure crisis head-on is why I introduced H.R. 7326 in the last Congress and H.R. 37 in this Congress, 

legislation to enact Federal Deposit Insurance Corporation Chairwoman Sheila Bair’s loan modification plan into law. This systematic approach has been successfully implemented at IndyMac Federal bank, and has resulted in over 5,000 IndyMac borrowers avoiding foreclosure. 

Mr. Chairman, I want to thank you. And I am pleased that you 

have included my legislation, H.R. 384, the TARP Reform and Accountability Act that the House will soon vote on, because it is 

clear that the economy cannot recover without the recovery of the 

housing market. The housing market must be repaired through our 

efforts with TARP. 

And Mr. Chairman, let me just say for the record, I will be giving 

to you a copy of information that has been released by the voluntary program HOPE NOW, leading people to believe that they 

have done 2 million mortgages. That has not happened. That is 

why it is so important that this bill passes, so we can do some real 

loan modifications. 

The CHAIRMAN. The gentleman from Georgia, Mr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. Today, we are once again 

examining an important issue that says a lot about what we believe the role of government to be. We are being asked to entrust 

Treasury with the authority to spend an additional $350 billion, a 

huge sum of money, and allow them to take on additional risk to 

the taxpayers by pursuing modifications that have not proven a 

wise investment. 

We can all agree that the oversight of the TARP program has 

been wanting. Treasury has failed to answer basic questions, strugVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
13 

gled to track the billions of taxpayer dollars, and seems to have no 

way to measure the success of the program. 

When Secretary Paulson initially approached Congress with an 

urgent request for funding and broad authority to stabilize the 

economy, a representative from Treasury admitted that the Department was arbitrarily asking for a number that would be so large 

that it would undoubtedly calm the markets. In fact, when asked 

how they came up with the $700 billion they said, ‘‘We needed a 

really big number.’’ Not very encouraging. 

There have been no indications that the last tranche of funding 

is needed to further stabilize the economy. There have been no 

emergency meetings to explain why this money is necessary and 

how it would be used effectively to justify the release. In fact, just 

a few days ago, on January 8th, Mr. Kashkari described our financial system as ‘‘fundamentally more stable’’ than when EESA was 

passed. 

Ultimately, we have seen through the failures of the TARP program and HOPE for Homeowners that the government is not the 

solution to all our problems. We have seen bailout after bailout, yet 

there doesn’t seem to be any relief for our constituents. It is because of the hasty passage of TARP that we are now in a position 

to consider sweeping changes to the program. 

Regular democratic process would ensure that all Members of 

Congress can make their voice heard on this important issue. To 

say that there isn’t time to have a markup is disingenuous and not 

true. We should take the time necessary to ensure that we are 

truly acting in the best interests of the American people. Perhaps 

if we had taken that time to allow markup the first time, we 

wouldn’t be in the situation we find ourselves now. 

Rather than entrenching our government in $350 billion of additional debt, I think it is time we start considering a positive solution that embraces American principles, American values, and 

American vision, none of which appear in the current bill. 

The CHAIRMAN. The gentlewoman from Minnesota, Ms. Bachmann. 

Mrs. BACHMANN. Thank you, Mr. Chairman. Today this com- mittee is meeting to discuss the detailed ways in which the $350 

billion of TARP might be spent, but yet we have not held one single 

hearing on the merits or necessity of releasing this second tranche. 

The committee is proceeding as if the decision has already been 

made to release this second $350 billion without holding any substantial debate on whether or not it is necessary to stabilize the financial markets. 

When the original bailout was passed, we were told that $700 

billion was a big number, as the previous Congressman had said, 

picked out of thin air, needed for one purpose, to calm the markets. 

We were not told that the U.S. Treasury must spend every penny 

of it. 

I am concerned, Mr. Chairman, that the committee is moving forward with undue haste. Is it necessary to release the second 

tranche for the state of our financial markets? While I agree that 

TARP does have serious flaws and we should look at ways to address them, Congress should not rush to vote on this bill in the 

very next few days. In fact, I think it is highly ironic that today’s 

14 

discussion will focus on legislation that supposedly implements 

more transparency and oversight of a government program, and yet 

Congress is once again moving away from those principles upon the 

very consideration of this bill. Congress owes it to the hardworking 

taxpayers of our country to take a careful look this time rather 

than repeating the mistakes of last October. And I yield back. 

The CHAIRMAN. The gentleman from Texas, Mr. Green, for 21⁄2

minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I will be submitting a 

statement for the record. I will be as terse as possible with my oral 

statement. 

Mr. Chairman, this bill is necessary, and I am grateful that you 

have introduced it, because the public is concerned about two 

things primarily. One, how has the first tranche been utilized, how 

has that money been spent; not what banks did it go to, not what 

financial institutions received it, but how was it utilized within the 

financial institutions? This bill addresses this. 

The second thing that the public is concerned about is foreclosure 

relief. This bill addresses foreclosure relief. We were under the impression that we would get some help for the toxic assets in the 

first tranche. Not enough has been done in this area. This bill addresses the toxic assets. If we don’t address the toxic assets, as 

Congresswoman Waters, Chairwoman Waters has indicated, we are 

not moving forward on the reason that many persons supported the 

first piece of legislation. 

I absolutely, Mr. Chairman, endorse what you are doing. I support it. And I beg that we move as expeditiously as possible, because the foreclosure crisis has not gone away. It is being exacerbated by our failure to act on the foreclosure crisis. And I will submit the remainder of my statement for the record, and yield back 

the balance of my time. 

The CHAIRMAN. I thank the gentleman. We have a minute and 

a half remaining on our side, which I am going to use to say that— 

a couple members said we should not be making the decision to release the TARP. We are not. I know people don’t always read what 

they voted for, but I would have thought they might have had 

somebody read it to them after the fact rather than wait for the 

movie. George Bush decided to release this yesterday. 

The bill that members here debated, and which we put in as a safeguard, said the President could ask for the second $350 billion, 

and Congress would then have 15 days within which to consider 

legislation. So when I am asked, why are we moving now—because 

George Bush, a person for whom members on the other side used 

to have some regard—I understand that they don’t like it now 

when we bring him up and they cannot dissociate themselves from 

him quickly enough, but he is the President still. And he triggered 

it yesterday. He did it at the request of the new President. We are 

now in this situation— 

Mr. BACHUS. Mr. Chairman? 

The CHAIRMAN. If the gentleman is asking me to yield, I yield. 

Mr. BACHUS. A point of procedure. Is this part of our opening 

statements? 

The CHAIRMAN. I said, if the gentleman had been listening, that 

we had a minute and a half left. And I was using it. 

15 

Mr. BACHUS. I apologize. 

The CHAIRMAN. Several other members on this side yielded back 

time. And I will give myself an extra 10 seconds for that. 

Mr. BACHUS. I think an extra 20 seconds. 

The CHAIRMAN. The point is that George Bush said he wants this 

spent. If we do nothing, if we follow the timetable members of the 

other side want, by the time we do anything it would be moot; i.e., 

it would be irrelevant. We are acting now, and we started this process last week in anticipation of this happening. So that is the reason for the legislative schedule. 

The bill that passed the Congress and was signed into law set 

a timetable of 15 days, after which congressional action will be irrelevant, and George Bush has triggered that. 

Mr. GARRETT. Would the chairman yield? 

The CHAIRMAN. Yes. 

Mr. GARRETT. Just on a clarification—and I may be wrong—was 

it not President-elect Obama that requested President Bush to— 

The CHAIRMAN. Not only was it, I said that. I understand. I am 

sorry. I guess I am having a harder time with my diction than 

usual. Because I said— 

Mr. GARRETT. Because a second ago, you just said it was President Bush who wanted to spend. It is Obama who wanted to spend 

it. 

The CHAIRMAN. I will take back my time. And the gentleman is 

very much in need of clarification. I said in the statement I had 

just finished, President Bush did it at the request of the Presidentelect. The President-elect, I didn’t say his name, that is Obama, the 

President-elect. So when I said it was done at the request of the 

President-elect, I made exactly the point the gentleman just made. 

Yes, but George Bush did do it. He is still the President. And the 

timetable is controlled by that. 

We have 6 days from yesterday within which time the House has 

to vote. We could just do nothing and have an up-or-down vote. 

Many of us would rather have a chance to say what we think ought 

to be in there and get the new President’s response before the upor-down vote. 

The witnesses will now begin. We have two witnesses from the 

financial regulatory area. We will begin with Vice Chairman Donald Kohn of the Board of Governors of the Federal Reserve. Mr. 

Kohn. 

STATEMENT OF DONALD L. KOHN, VICE CHAIRMAN, BOARD 

OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. KOHN. Thank you, Mr. Chairman. I will read a shorter 

version of my testimony, and I ask that my full testimony be submitted for the record. 

Chairman Frank, Ranking Member Bachus, and other members 

of the committee, I appreciate this opportunity to review some of 

the activities to date of the Treasury’s Troubled Asset Relief Program, or TARP, and to discuss how additional funding could be 

used to strengthen our financial system and promote economic recovery. A well-functioning, stable financial system is essential for 

healthy economic growth. Unfortunately, as you know, the financial 

crisis that began more than a year ago intensified considerably in 

16 

September of last year, and manifested in many countries that it 

had not yet touched. And this led to grave concerns about the stability of the global financial system itself. 

Although the economic impact of the worsening crisis has been 

severe indeed, an international financial collapse, which seemed a 

real possibility in early October, would unquestionably have led to 

economic outcomes far worse even than those we are currently experiencing. The existence of the TARP allowed the Treasury to 

react quickly by announcing on October 14th a plan to inject $250 

billion of capital into U.S. financial institutions. Although the Capital Purchase Program has been in place less than 3 months, many 

banks, both large and small, have applied for and received capital 

from this program. 

The Treasury’s actions were complemented by the Federal Deposit Insurance Corporation’s expansion of bank liability guarantees and by the Federal Reserve’s measures to increase liquidity 

and support the functioning of key credit markets. Together, these 

actions helped to bolster confidence in our lending institutions, enabled them to access funds, and make loans. 

As contemplated by the legislation, TARP funds have also been 

used on a targeted basis to prevent potentially disorderly failures 

of systemically critical financial institutions, failures that would 

have had highly adverse consequences for the system as a whole. 

These actions, together with similar measures in other countries, 

have brought greater stability to our financial system. 

Moreover, injections of new capital are moderating the powerful 

pressures on the financial institutions that received the injections 

to deleverage by selling assets and pulling back from new lending. 

The Federal banking regulators, pursuant to their joint November 

12th statement, are working to help ensure banks that they are 

fully meeting the needs of creditworthy borrowers. Bank lending to 

creditworthy borrowers is good for the economy. It is also good for 

the profitability of banks and supports their safety and soundness. 

Regarding the future, the remaining TARP funds will play an essential role in further strengthening the financial system and restoring normal credit flows. 

An important use of these funds will be to step up efforts to 

avoid preventable foreclosures. Preventable foreclosures harm not 

only the affected borrowers and their communities but also through 

their effects on the housing market, the broader economy, and the 

financial system. Although a number of efforts are underway to address the problem of preventable foreclosures, more needs to be 

done, and it needs to be done quickly. 

In my written statement, I outline several possible approaches 

that appear promising. A second broad use of new TARP funding, 

besides foreclosure mitigation, would be to support programs to 

help restart key credit markets. The Treasury and the Federal Reserve recently announced such a program, the Term Asset-Backed 

Securities Loan Facility, which is designed to stimulate 

securitization activity in the market for asset-backed securities 

collateralized by a range of consumer and small business loans. If 

the program is successful, it could be increased in size or expanded 

in scope to provide financing for additional types of securities such 

17 

as commercial mortgage-backed securities, for which the markets 

are currently distressed. 

Finally, I would expect the bulk of the remaining TARP funding 

to be devoted to strengthening financial institutions, thereby supporting the normalization of credit markets and the flow of new 

credit. Some of this support might take the form of additional capital injections, both to offset credit losses and to further expand 

lending capacity. In addition, prudence requires that funds be held 

in reserve as needed to address urgent contingencies, such as 

averting the disorderly failure of a systemically important institution. And the Treasury may also wish to consider whether to supplement injections of capital with steps to reduce the uncertainty 

about values of assets held by financial institutions. As these resources are committed, it is important that the rationale for the 

commitment be provided and agreed upon. 

History clearly shows and recent experience confirms that because of the dependence of modern economies on the flow of credit, 

serious financial instability imposes disproportionately large costs 

on the broader economy. The rationale for public investment in the 

financial industry is not any special regard for managers, workers, 

or investors in that industry over others but, rather, the need to 

prevent a further deterioration in financial conditions that would 

destroy jobs and incomes in all industries and regions. The public 

is entitled to demand that a full and appropriate range of accountability mechanisms be put in place to protect the public interest 

and promote the intended objectives of the program. 

In addition, concrete actions should be taken to ensure we do not 

face a similar crisis in the future. Thank you. I would be pleased 

to take your questions. 

[The prepared statement of Vice Chairman Kohn can be found on 

page 135 of the appendix.] 

Mr. KANJORSKI. [presiding]. Thank you very much, Mr. Kohn. 

The next presenter will be Mr. John Bovenzi, Deputy to the 

Chairman and Chief Operating Officer of the Federal Deposit Insurance Corporation. Mr. Bovenzi. 

STATEMENT OF JOHN F. BOVENZI, DEPUTY TO THE CHAIRMAN AND CHIEF OPERATING OFFICER, FEDERAL DEPOSIT 

INSURANCE CORPORATION 

Mr. BOVENZI. Thank you, Congressman. My thanks to Chairman 

Frank, Ranking Member Bachus, and the members of the committee. I appreciate the opportunity to testify today. 

Despite many positive efforts in recent months to stabilize the 

Nation’s financial markets and to reduce foreclosures, credit remains tight and rising foreclosures continue to push down home 

prices in communities across the Nation. Troubled assets continue 

to mount at insured commercial banks and savings institutions, imposing a growing burden on industry earnings and restricting lending. Returning the economy to a condition where it can support 

normal economic activity and future economic growth will require 

a number of strategies. 

As you know, the FDIC has implemented the Temporary Liquidity Guarantee Program (TLGP) to help stabilize the funding structure of financial institutions and expand their funding base to supVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
18 

port the extension of new credit. The program has had a positive 

impact. There is a high level of participation, and it has significantly reduced credit spreads for participants. 

In addition to the TLGP and other Federal Government efforts, 

the additional funds for the Troubled Asset Relief Program, with 

appropriate safeguards, would also provide important and necessary support to assist financial institutions in making loans 

available to creditworthy borrowers and create incentives to avoid 

unnecessary foreclosures. For example, the FDIC believes that addressing the problem of troubled loans and other assets continues 

to be vitally important. 

Uncertainty about the potential losses embedded in balance 

sheets is constricting lending to consumers and businesses, and discouraging investors from providing fresh capital. A program to address the problem of troubled assets would help build the foundation for a greater flow of credit and the investment of new private 

capital into the financial system. 

A program to address troubled assets should meet three main 

principles: accountability; transparency; and viability. It should be 

a standardized approach that establishes a fair and transparent 

program, with clear benchmarks for measuring performance. 

In addition to these strategies, it is critically important that 

there be a nationwide program for modifying loans to prevent unnecessary foreclosures. Minimizing foreclosures continues to be essential to the broader effort to stabilize financial markets in the 

U.S. economy. If we do nothing, we estimate there will be another 

4 to 5 million foreclosures over the next 2 years and the very real 

possibility that home prices could overcorrect on the down side. 

They are already down 25 percent since their peak in 2006. 

There is a strong business case for modifying loans. When a borrower is able to continue making payments after restructuring, investors and lenders are better off than having to deal with a foreclosed property. This is especially true when the housing market 

has declined sharply. 

In previous testimony, Chairman Bair outlined our plan for a nationwide loan modification program. We believe the program could 

prevent as many as 11⁄2 million foreclosures on owner-occupied 

homes. It would set standards for loan modifications based on our 

experience at IndyMac Federal Bank. It also includes the defined 

sharing of losses on any default by modified mortgages meeting 

those standards. This would allow unaffordable loans to be converted into mortgages that are sustainable over the long term 

when the value of the modified loan exceeds that of foreclosure. 

While we believe this approach will be successful, we recognize 

there is no silver bullet to address the foreclosure problem, and are 

willing to work with others in the assistance of the implementation 

of programs that result in affordable, sustainable loans. 

In conclusion, the incoming Administration will face a number of 

serious economic challenges that require a variety of approaches to 

successfully restore confidence in the financial system. The additional TARP funds are essential for financial stability. The FDIC 

supports the request for additional TARP funds. We look forward 

to working with this committee to address the significant challenges facing the economy and the American people. 

19 

I will be pleased to answer any questions the committee might 

have. Thank you. 

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

100 of the appendix.] 

The CHAIRMAN. I want to thank both of you. I want to be clear 

that throughout this, we have been working on a cooperative and 

bipartisan basis with the Administration. You represent, obviously, 

two of the major regulators of our banking system. 

I would like to emphasize one point which you made. Some of 

those who have been critical have said we shouldn’t have the release of the second $350 billion—this bill doesn’t do that—have 

made what seem to me to be contradictory arguments. Not everybody has made both arguments, but some have: one, it was never 

needed in the first place; and two, that it has worked—that there 

was never a problem, but it has solved the problem that they earlier said didn’t exist. 

If we had not enacted the original $700 billion, Mr. Kohn, what 

in your judgment would be the situation today? 

Mr. KOHN. If you had not enacted that bill, Mr. Chairman, I 

think we would be in worse shape today. I think the financial system was in those weeks, late September and early October, on the 

way to seizing up in a much more fundamental way than it had 

already done. 

There was a palpable loss of confidence across a broad array of 

investors and lenders, and I think that it was absolutely necessary. 

If that had continued and intensified, the lending issues that we 

still see in the economy would be even worse. Businesses and 

households would have even less access to funds. 

The CHAIRMAN. Thank you. Mr. Bovenzi, particularly from the 

standpoint of a bank regulator, you are probably the bank regulator with the broadest range because of the deposit insurance, 

what would the state of the banking industry and the system, what 

would that be like if we had not passed this $700 billion? 

Mr. BOVENZI. To me, it is clear that the state of the banking industry would have been in far worse shape without the passage of 

the funds and the additional programs put in place by the Federal 

Reserve and the FDIC. They all contributed to helping substantially. Nevertheless, there are still significant problems. 

The CHAIRMAN. I appreciate that. And that is part of the problem 

politically. No one has ever gotten elected to office by going to the 

public and saying, look, things are lousy but, boy, would they have 

been lousier if it hadn’t been for me. That is the situation that 

those you administer are in. 

My own view is it could have helped more. Now that President 

Bush, at the request of President Obama, has decided to trigger 

this, we have a short window in which we, the Congress, can speak 

out as to what we think ought to be there. 

I think there are two major concerns. There are others. One was 

that money given to the banks, not given but infused into the 

banks as capital, people did not see relending and did not see any 

assistance on that. We think going forward we have a better approach. But the single biggest one obviously is the absence of foreclosure, and the bill clearly talked about foreclosure. It was a major 

part of getting support for it on both sides. 

20 

My question has two parts: one, the reason for foreclosure, and 

I think it is important I guess to say, and maybe I will make it 

just one part, I don’t want to go over my time, there are those who 

say those people took out the loans and they weren’t wise and they 

shouldn’t have done that. What is the argument that says foreclosure diminution is just charity for people who got themselves 

into trouble in the first place and we ought to stay out of it? What 

is the broader economic argument for it? Mr. Kohn? 

Mr. KOHN. Mr. Chairman, I think foreclosures are contributing 

to problems in the housing market and the broader economy. Foreclosures impinge on values in the community at large, even for 

those people still owning their homes and paying their mortgages. 

When there are foreclosed homes in the community, they see values go down more broadly. And the decline in values, the decline 

in home values results in more losses for banks and other lenders 

and it causes them to tighten up credit more broadly. 

So I think foreclosure prevention would be helpful in ameliorating the issues in the housing market. It is not a cure-all. 

The CHAIRMAN. Let me ask Mr. Bovenzi, because you and Chairman Bair work at an agency whose statutory role primarily is the 

stability of the banking system. Is it just charity that leaves you 

and Chairman Bair to be so concerned about foreclosures? Not that 

it is a bad thing. You could be nice people. 

Mr. BOVENZI. Foreclosure mitigation is going to help the economy 

overall. Foreclosures put a downward pressure on price. If we can 

create sustainable, affordable mortgages, it helps put a floor under 

those home prices which will help the overall economy. 

For those who look at it and ask why folks are getting a benefit 

that they are not, there are certainly other programs in place, and 

steps have been taken to reduce mortgage rates. Many people are 

looking to refinance their mortgage rates and reduce their repayments through those means. The program we have at IndyMac is 

also designed to help reduce interest rates to make sustainable, affordable mortgages. 

The CHAIRMAN. Thank you. The gentleman from Alabama. 

Mr. BACHUS. I appreciate the gentleman’s testimony. 

To follow up on the foreclosures, as this housing crisis has unfolded, it seems we have had an evolution in the reason for foreclosures. Originally, we were all concerned about the adjusting interest rates on the ARMs. As housing prices then fell, we began to 

be concerned about negative equity, which is a different problem. 

Recently, I think we have a third problem which I think is much 

harder to address and I want to ask you to address it, and that is 

the economy, the loss of jobs, and the unemployed. How do we address—when you are talking about default and foreclosures among 

the unemployed, is it possible to address that situation, Mr. Kohn 

and Mr. Bovenzi? 

Mr. KOHN. Congressman, I think the major way to address that 

situation is through macroeconomic policy that promotes jobs 

growth. And I think growth in jobs and the prevention of further 

unemployment will depend on a number of things that we can do. 

Fiscal policy is important, what the Federal Reserve is doing by 

lowering interest rates essentially to zero and moving on the credit 

fronts. And I think the TARP money to help stabilize the banking 

21 

system and get credit rolling again to households and businesses 

will also be helpful in limiting the amount of unemployment and 

turning the economy around. 

Mr. BOVENZI. I agree. No one solution can solve this financial 

and economic crisis, and loan modifications to make them affordable can help where there is no income. However, other fiscal policies, programs, and measures are necessary. 

Mr. BACHUS. I am not sure. I guess that is my point. When you 

are talking about the unemployed, foreclosure modification or these 

programs are not of much use, would you agree? How would the 

TARP money be used to help people? 

Mr. KOHN. But I think a lot of foreclosures are occurring for people who are still employed. 

Mr. BACHUS. I am talking about the unemployed, and that is the 

growing problem. 

Mr. KOHN. That we can move against. I agree, it is very, very 

difficult, as Mr. Bovenzi said. 

Mr. BACHUS. You have heard Mrs. Bachmann and Mr. Price. 

This number, $700 billion, was a really large number. You spent 

$350 billion and Secretary Paulson says that it has stabilized our 

financial markets and it has restored confidence. You said that 

today to a great extent. Tell us how you are going to use this other $350 billion. I think 

we have a right to know. 

Mr. KOHN. I think it is really up to the Treasury Department, 

who will be charged with spending this, the incoming Treasury Department, to say that. I think I laid out a number of suggestions 

in my testimony: foreclosure prevention; further extension of credit; 

credit help; capital to financial institutions. 

Mr. BACHUS. But you just laid out several broad possibilities. As 

a Congress, it is pretty difficult for us just to say, here are some 

possibilities. As you said, the next Administration will have to 

make those decisions. But this Administration is asking for money 

on behalf of the next Administration which is kind of a—and I 

don’t think I ever thought I would see this day when an Administration that hasn’t told us they need it is asking on behalf of an 

Administration that may need it, but has yet to tell us what they 

need it for. Can you see our difficulty with that? 

Mr. KOHN. I think the country is in a difficult transition period. 

And therefore, lines of authority are in the process of being shifted. 

I think the two Administrations are working together, the incoming 

and outgoing, very, very well. 

Mr. BACHUS. Would you not agree that you spend $350 billion, 

that adds to the deficit, and a deficit that is already at a trillion 

dollars a year, does that concern either one of you gentlemen? 

Mr. KOHN. I think you need to ask what you are spending it for 

and whether you are getting value for that spending. And I think 

reinforcing and stabilizing the financial system is good value for 

that spending. 

Mr. BACHUS. The Secretary of the Treasury made a statement 

last week that he thought the financial system is stable. 

Mr. KOHN. I think it is certainly more stable than it was before. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. BACHUS. Thank you. 

22 

The CHAIRMAN. Mr. Kohn, I want to take 10 seconds, and I believe in your testimony you pointed out that the $350 billion is not 

all going to be expended, that a substantial part will be returned 

to the Treasury? 

Mr. KOHN. That is right. You are buying assets. 

The CHAIRMAN. The gentleman from Pennsylvania. 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

I am going to do something that is exceptional, and that is to 

give my friends on the Minority a little credit for raising the question. I think it is a legitimate question, and that is, did we have 

the time the first time around to go through regular order and consider all of the aspects of the legislation? 

The answer in my estimation is ‘‘no.’’ We had to make a very 

quick decision because the Secretary of the Treasury and the Federal Reserve Chairman informed us that we were on the road to 

meltdown without it and had a very limited time to act. The Congress, unfortunately, and this committee waived some of its regular 

rules and procedures. As a result, we did not write the best bill in 

the world, taking into consideration everything we probably should 

have. 

That being said— 

Mr. BACHUS. If the gentleman will yield just for one second, I 

think I was referring to this time we are not in a meltdown, and 

we should go in regular order and have committee hearings. 

Mr. KANJORSKI. I think when you are winning your point, you 

should stay silent. 

That was the state of affairs. I wish this time we had more time 

to go through regular order and write a bill that would be more 

representative of the thinking of Congress and the American people. Unfortunately, we are restricted, as the chairman has indicated, with the 15-day period, and that is it. So we have an opportunity now to inject the additional $350 billion with some indications as to where Congress thinks this action should be taken and 

how, or to take no action, do nothing, and let the incoming new 

Secretary act in accordance with any way they wish. 

I do not think we can correct that very much. But I would suggest that we are also going to be going into a situation to write a 

new stimulus bill, and that also will have time constraints to it. Already, the President-elect has asked to have that in his possession 

by the middle of February, I think the Speaker has indicated her 

desire to do that, and I think it is essential that speed be used. 

However, may I suggest that I am also one who thinks that we 

should have regular order, and to get that bill before Congress and 

to get the additions from both sides of the aisle in the form of 

amendments and otherwise is very important. 

So I would urge my leadership, if I may, to move as quickly as 

possible to bring that bill to the various committees of jurisdiction 

so that we can work our input as the American people like. 

I humorously have indicated over the last several weeks that I 

have no intention of becoming the chairman of the Potted Plant 

Caucus. But sometimes I am getting the idea we may belong to 

that caucus around here. It is important that the House of Representatives and this committee take back its prerogatives. That 

does not mean that every time we get an issue like this, by kneeVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
23 

jerk reaction, the Minority or the Majority have to take positions 

that are just obviously not credible positions but are really incredible insofar as they do not serve the purposes intended. 

So I urge my members on the Minority side to work along with 

us and cooperate with us. Let us reassert the prerogatives of Congress, and the House in particular. 

Do you believe that this Administration, and indeed the next Administration, could just do a better job of informing the American 

people, and Congress for that matter, as to how these funds are intended to be used, will be used, and are used? In this day and age 

of the Internet and the Web and everything else that we deal with 

for the use of public relations and how to get information out, it 

seems to me we are doing an awfully poor job. The average constituent that I talk to is asking me, ‘‘What did they do with the 

money? What can we expect them to do with the additional money, 

and is it really important?’’ 

Mr. Kohn and Mr. Bovenzi? 

Mr. KOHN. Congressman, I agree with you, the Administration, 

outgoing and incoming, can do a much better job explaining the 

strategy behind what they are doing, have it coherent, how it adds 

up, and inform the public what they have done and monitor the effects that is having. I think improvements are required possibly all 

around. 

Mr. BOVENZI. I would agree. The principles in the bill before the 

committee—transparency and accountability—are critically important. 

Mr. KANJORSKI. I yield back the balance of my time. 

The CHAIRMAN. The gentleman from Delaware. 

Mr. CASTLE. Thank you, Mr. Chairman. 

Isn’t that a two-way street? Are we hearing enough from the institutions about what they are doing with the money? It is confusing to me in watching all of this. You talk about capital acquisitions, but occasionally they go out and buy things and their lending 

doesn’t seem to increase. I am not sure we as a Congress understand what these institutions have been doing. It seems to me that 

report is very important as we consider these various proposals. 

Am I correct about that, or am I just missing the writing on the 

wall? 

Mr. KOHN. I think we need to do a better job monitoring what 

is going on out in the institutions and getting reports from them 

that then the Treasury and the regulators can forward on to the 

Congress and the American people to give them a better sense 

what is going on and to make sure that the funds that are being, 

as best we can, the funds that are being allocated are being used 

for the purposes intended. 

Mr. CASTLE. Maybe we can start by demanding that they account 

more themselves and then we review whatever that accounting is. 

Mr. KOHN. Exactly. We need to be monitoring. A principal way 

of monitoring would be to have them report to us what they are 

doing. 

Mr. CASTLE. Mr. Bovenzi, looking at your testimony on page 9, 

you talk about the original intent of the TARP funds, which was 

to purchase troubled assets in the original economic stabilization 

bill. You speak pretty strongly about that. 

24 

One question, how much of the $350 billion should be used for 

that, if you have a number? And are you, by making that suggestion, being critical of the capital acquisitions and the other things 

that the money was used for instead of the troubled asset purchase 

program that is stated in your testimony, and a lot of us thought, 

was what was the original intent of the legislation? 

Mr. BOVENZI. The point I am trying to make is that there are 

still assets in the balance sheets of banks and thrifts with uncertain value that are causing disruptions in the market system. They 

require some form of government guarantee or assistance to help 

stabilize the markets before government can step out of the picture. I don’t have an exact number for what amount of the $350 billion 

should be used for such a program. My point is to demonstrate that 

there is still an issue with financial institutions. 

Mr. CASTLE. My concern is we didn’t do that originally, and now 

do we have sufficient dollars to put into this program to do it now 

to be really of help? I am not sure that you can answer that. It is 

a concern we all need to have since it would be shifting gears if 

that were to happen. 

Changing subjects for a moment, Mr. Kohn, as I understand it, 

the Federal Reserve is a member of the HOPE for Homeowners 

Board of Directors. I don’t know your direct involvement in that, 

but obviously that program has not lived up to expectations. The 

original projections we heard were 400,000 troubled borrowers 

would be helped by this, and it is a de minimis fraction of that. 

Can you give us your assessment of that program as it was intended and why it has not worked and what, if anything, should 

be done to help with that? 

Mr. KOHN. I think there were a number of issues there. It was 

not sufficiently appealing to both borrowers and lenders. They felt 

it had a lot of troublesome aspects in terms of the requirements, 

the operational requirements to engage in the program. It was relatively expensive, they felt, relative to the values they would get 

out of it. Now the HOPE for Homeowners board has made some 

changes to try to make it more attractive for lenders to participate. 

Whether that is sufficient to get participation up, I think, is a very 

open question. 

Chairman Frank has in his bill some more efforts to really put 

in essentially public money more into that program to make it 

more attractive, and I think they could be successful. 

I think it is conceptually a good way to proceed or a good aspect 

of foreclosure mitigation, to help people with the principal 

writedowns, and then reinsure through the Federal Government 

the loans after that. But we need to simplify and we need to make 

it less expensive. 

Mr. CASTLE. Thank you. I yield back. 

The CHAIRMAN. The gentlelady from California. 

Ms. WATERS. Thank you very much. I would like to thank our 

panelists for being here today. 

Basically, we have been struggling with how to deal with the 

foreclosure crisis. Again, I think that Chairman Bair of the FDIC 

has shown us how you can be successful in getting the homeowners 

to come in, in the way that you talk to them and the letters that 

you send, and I like the idea that she has inserted into her proVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
25 

gram the writedown of interest. I think that is extremely important 

to modifications. 

And also, I like the HOPE for Homeowners program that allows 

the bank to write down the mortgage 10 percent and to help funnel 

those homeowners into refinancing with FHA. I think these two 

programs are very solid and they make a lot of sense and are a 

good way to modify or refinance. 

What is the difference between these two programs and what 

Fannie Mae and Freddie Mac are doing? 

Mr. BOVENZI. I can talk a little bit about the IndyMac program 

versus Fannie and Freddie. They are very similar in a lot of ways. 

I think at IndyMac what we did— 

Ms. WATERS. I know what you did at IndyMac. What is the 

Fannie and Freddie program? How is that different? 

Mr. BOVENZI. They are looking to write down interest rates as 

well. They have started from the premise of looking at loans that 

were 90 or more days past due, whereas at IndyMac we started 

looking at loans 60 or more days past due. You still have to do a 

net present value analysis to see if a modification is worthwhile. 

But that is one difference between the two programs. 

Ms. WATERS. I have concerns about having to be 60 to 90 days 

delinquent. What if Mr. Jones comes in? He is current on his mortgage, but there has been a change in income, as I have witnessed 

in talking with some of the people who are in potential trouble, and 

his fixed income is reduced by the increased cost of living. His 

automobile insurance has gone up, his utilities have gone up, and 

he comes to you and says, look, I have been doing well with my 

payments, but now I can’t afford them in the same way because my 

income has not increased but my expenses have, because I have to 

pay more for automobile insurance and these other things; what 

can you do for me? 

Mr. BOVENZI. Let me talk about two different situations. At 

IndyMac, there were some loans that the institution owned directly, and so the FDIC took ownership of those loans. There were 

other loans that IndyMac serviced for other investors or owners, so 

we would need the consent of those owners in order to modify a 

loan. 

It is more difficult to show the investors on a loan that is performing why it should be modified. That becomes a more problematic solution for what you are suggesting. 

For the loans that are owned directly by the group that is doing 

the servicing, where they have the financial interest, they can look 

at the kind of situation you talked about and say, yes, this borrower’s income has gone down, and make an assessment. If it looks 

like they won’t be able to continue to afford the same payment, 

then they can make a decision whether to modify the loan or not. 

So there is greater flexibility. 

Ms. WATERS. Are you telling me that an investor, that we have 

a loan, where we have a willing citizen who will pay, and all you 

need to do is stretch that loan out to 30 or 40 years or slightly reduce the interest rate, that they would not be willing to participate 

in keeping that homeowner in their home and not losing any 

money? 

26 

Mr. BOVENZI. In some circumstances, they may be willing. And 

in others, they may look at the loan and say it is performing asis. If I have an obligation to maximize the value to the different 

investor groups, why should I reduce the value by stretching it out? 

It becomes a more complicated situation when there are servicers 

and other investors involved than when it is just owned directly. 

Ms. WATERS. Thank you. 

Mr. Chairman, I think that is a problem and we should be willing to take this warning and work with people in ways that do not 

cost the government or anybody else a dime just by rearranging 

and modifying that loan. 

Mr. KANJORSKI. [presiding]. Thank you, Ms. Waters. 

I yield 30 seconds to the gentleman from Alabama. 

Mr. BACHUS. Mr. Chairman, Mr. Jones is yielding back 41⁄2 minutes, and I am going to take 30 seconds of his time. Can I do it 

now? 

Mr. KANJORSKI. Yes. 

Mr. BACHUS. I remember a time when it was the banks who 

loaned money to people and not the other way around. Now it appears that the people are loaning money to the banks. Do you think 

it would be better to get back to the old way of doing things? 

Mr. KOHN. If what you are referencing is that in the old days, 

in previous times, there wasn’t as much securitization of the debt. 

Mr. BACHUS. The banks loaned money to the people instead of 

the taxpayers loaning money to the bank. 

Mr. KOHN. I certainly would like to get back to where the taxpayers weren’t loaning money to the banks. 

Mr. BACHUS. It certainly would be better the other way around? 

Mr. KOHN. It certainly would be. 

Mr. BACHUS. I would like your commitment that we get back 

there as soon as we can. 

Mr. KOHN. I think we all share that commitment. 

Mr. BOVENZI. I think we recognize the extreme circumstances 

that came about this past fall leading to this situation, and we all 

desire to get back to a normally functioning market as soon as possible. 

Mr. BACHUS. I believe we would be better off if we were there 

right now. I think the taxpayers really would prefer, instead of 

loaning their money to the banks, to have the banks loan them 

money. Thank you. 

Mr. KANJORSKI. Thank you, Mr. Bachus. 

Five minutes to Mr. Royce from California. 

Mr. ROYCE. Mr. Chairman, I would like to ask Mr. Kohn a question. It goes to an opening statement I made here where I mentioned the ill effect of this bailout trend and the rapidly increasing 

role of government that it is playing in these U.S. financial institutions, playing in board rooms in this country. I will go back to that 

December 17th article in the Wall Street Journal where they ran 

that story, ‘‘U.S. Ratchets Up Citi Oversight.’’ And in that story, 

they describe the active role that regulators are playing in the dayto-day operations of Citigroup. 

Yesterday in the paper we had a headline focused on the effort 

by U.S. banking regulators to encourage Citigroup to shake up its 

board and to replace the chairman of its board. Win Bischoff is the 

27 

chairman there. And the effort, as the government says, is to restore confidence in the beleaguered financial giant. 

Being a little concerned about replacing market forces with political pull, one leading candidate, as the story mentions, is Richard 

Parsons, Time Warner’s chairman, and a member of Citigroup’s 

board, who happens to be a member of President-elect Obama’s 

Economic Advisory Board. Additionally, you have the other coincidental change or about face at Citicorp as Citigroup changes its position and supports legislative effort to allow bankruptcy judges to 

rewrite mortgage contracts. For years, there has been concern in 

the financial services sector that such a cram-down provision would 

have the effect of increasing interest rates for everybody who got 

a home loan if this should happen. 

So here we have a change, coincidentally, that comes with the 

$45 billion of U.S. Government money that goes into the corporation and the increasing bureaucratic manipulation, as reported by 

the press, that is going on inside the financial institution, inside 

the firm. 

A major reason that we are in the dire financial straits that we 

are in right now is the market distortions that have occurred. And 

some of that, a great deal of it, has been caused by bureaucratic 

and regulatory manipulation of quasi-public entities to begin with. 

Fannie and Freddie are a case in point. And with those two institutions, as we know, for years they took on excessive risk. They were 

encouraged to leverage 100 to 1. When the Fed came forward and 

asked for legislation to deleverage them in the interest of safety 

and soundness or systemic risk to be able to deleverage, those two 

quasi-public entities lobbied this Congress and killed the bill that 

the Fed wanted, killed legislation which I and Chris Shays had offered in order to do that. 

In the meantime, we have these quasi-public entities that were 

encouraged to purchase mortgage-related products tied to Alt-A 

loans, what we now call liar loans. That was an initiative by the 

Congress. The 10 percent, the goal should be 10 percent, should be 

in these Alt-A and these other loans in order to encourage affordable housing. So you get a sense of why some of us would be concerned given the fact that the impact of political pull rather than 

market forces in the past, once Congress has given itself the ability 

to influence these decisions and replace decisions which would be 

made in the market, because nobody would have bought those 

Countrywide or those subprime loans except for institutions like 

Fannie and Freddie that needed to purchase them to meet their 

goals and take on that excessive risk and leverage 100 to 1. And 

the consequences, of course, were the cascading effect that we are 

now dealing with now when the mortgage-backed securities market, of which they were the dominant player, went belly up. 

So, Mr. Kohn, do you think that these events are linked in any 

way? Do we risk replacing the forces of the market with the influence of political pull and political bullying, and we have seen a lot 

of political bullying, whether it is CRA or others like Fannie and 

Freddie, that came back to haunt us and hurt the very people that 

we intended originally to help. 

28 

This will probably not lead to, what was the term you used a 

minute ago, a normally functioning market. That is my concern. I 

ask for your observations, Mr. Kohn. 

Mr. KOHN. I think, Congressman, there are a lot of reasons why 

we are in the fix we are in. As you noted, the Federal Reserve supported reform of Fannie and Freddie for a long time. But I don’t 

think they are the main or the only reason we are here. A lot of 

private institutions made some very poor decisions, didn’t understand the risk they were taking, and probably because they were 

complacent about the kinds of risk, about house prices, and so a 

lot of folks made some bad decisions. And the regulators were not 

sufficiently on top of the situation to stop this from happening. 

The CHAIRMAN. The gentleman’s time has expired. We have a lot 

of members, and we need to move on. 

The gentlewoman from New York. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman. 

Congress is considering a very strong stimulus package, but 

many economists believe that a fiscal stimulus alone will not be 

enough to support our economic recovery. Therefore, many of us 

are supporting President-elect Obama’s request and President 

Bush’s request to relieve and put forward an additional $350 billion 

in TARP money. But one of the problems that we have with the 

TARP money is the problem from the very first proposal, is that 

no one knows what the troubled assets are worth. So some of my 

constituents are requesting that part of this program require a 

clear indication of the difference between what price Treasury 

would be buying stock or assets of financial institutions and the 

market price of those securities. Some assets are highly illiquid, as 

we know, and may not have a current market quote. But many others could be mark-to-market via comparison with other clearing 

prices of other assets or through a modeling of an independent 

third party firm so that the disclosure of the true price would give 

the American taxpayers a far clearer indication of the premium 

they are paying to the financial institutions and help us to determine if the benefits of this particular program of buying the troubled assets justifies the cost, as there are many other routes that 

we could take. 

I would like to mention one proposal that has been submitted to 

Treasury and to the Federal Reserve from the New York State Insurance Department which calls for a modest expenditure of TARP 

money of $5 billion to get the municipal bond market moving. As 

you know, the structured finance products have basically frozen 

that market and governors and mayors have called for leadership 

from the Federal level to get this moving again. That proposal is 

before you. It basically would restructure the municipal only insurance companies with Treasury’s investment and establish a market 

acceptance of the insurers for the benefit of municipal insurers, 

and it would be a relatively small investment into new muni-only 

subsidies of Ambac and MBIA. 

This proposal is before you, and I would like you to get back to 

me or you can comment on it now, but specifically the question of 

taking steps to determine what the troubled assets are worth and 

if you could comment on the proposal put forward by the New York 

State Insurance Department and other proposals that have been 

29 

put out there to get credit out in the community through community banks, through the regional banks, other ways that we can do 

it. I applaud the chairman’s proposal to bring more transparency 

oversight to help people stay in their homes. But if you can talk 

about the requirements so that we can understand the true value 

of these troubled assets and comment on the other alternatives 

that we can do to get our economy moving again and more stabilized, specifically on the proposal from the New York State Department of Insurance. 

Mr. KOHN. Congresswoman, I am not familiar with that specific 

proposal. I do know that the Federal Reserve, working with the 

Treasury and other regulators, has been taking a hard look at the 

municipal market and whether there is a way to utilize the TARP 

money should it be made available to help get that market moving 

again. I am sure that is one of the proposals they are looking at. 

If I can get back to you on that. 

Mrs. MCCARTHY OF NEW YORK. They believe if we had a municipal-only insurance company there would be a market for it. It is 

when it is these structured products that pulls it down. 

Could you comment on the steps to understand the true value of 

the troubled assets? 

Mr. KOHN. I think it is a very difficult problem because the market values of these assets are often—are affected by very large liquidity and risk premiums. They are trading at prices below what 

they would trade at if they were held over a long period of time. 

Using models is one way to try to do it, but there is no good way 

to establish values for some of these assets. That is one of the 

issues that needs to be confronted if we implement in the second 

stage of TARP lifting these assets off the balance sheets. 

But I completely agree with you that the government needs to 

be very transparent about how it is doing it and what criteria it 

is using and how it is working. 

One of the original ideas behind TARP was to reestablish markets for these assets, and I think this would be helpful in doing 

that. 

Mrs. MCCARTHY OF NEW YORK. But there may not be markets 

for these assets, and money may be better spent in other avenues 

to stabilize our economy and get loans out to the public. 

As the GAO report said, we have no idea how they spent the 

money. They won’t tell us, and why should we give them more 

money if they won’t tell us what they did with the first $350 billion? 

Mr. KOHN. I agree, we need to use the money across a broad 

front of various attempts to unstick these credit markets because 

I don’t think any one is going to be successful in and of itself. 

Mrs. MCCARTHY OF NEW YORK. Thank you. My time has expired. 

The CHAIRMAN. The gentleman from Texas. 

Dr. PAUL. Thank you, Mr. Chairman. 

I have a question for Mr. Kohn. Last week, we were scheduled 

to have this hearing on Wednesday and it was canceled. And we 

were told—at least I was told—up until yesterday that Mr. 

Bernanke would be here. How long has it been that you knew you 

would have to appear? 

Mr. KOHN. Late last week. 

30 

Dr. PAUL. We weren’t notified. Not that it is all that crucial, but 

in looking at the schedule, we do know that Chairman Bernanke 

had a speaking engagement in London that was scheduled a long 

time ago. It has been a month. And he had a scheduled meeting 

in Basel, Switzerland, yesterday. So it seems like we could have 

been told about that. 

These hearings I agree are very important, and I think it is vital 

that we have them. And Chairman Bernanke’s speech today was 

very important. The world listened closely to what he had to say. 

One thing that we don’t know is what happened in Basel, Switzerland, at the Bank of International Settlement because he was 

meeting with other central bankers. I am interested in as much 

transparency as possible and I am trying to figure out what is 

going on. Is that a meeting that we can get the information on and 

know what transpired and what the agreements and discussions 

were? Is that something that should be available to us here in the 

Financial Services Committee? 

Mr. KOHN. If there are agreements reached. It is basically a 

forum for exchanging ideas and for finding out how other central 

bankers see their economies developing and what issues they see, 

or giving them a chance to ask us questions and us to ask them 

questions. It is not a forum for reaching agreements that are binding on particular central banks. If we were to reach an agreement 

with other central banks to do something, obviously we would tell 

people about it. 

Dr. PAUL. That sounds plausible. But we also know when we ask 

the Federal Reserve and we ask the Federal Reserve Board Chairman where the funds go that they allocate, we really don’t get the 

answers. And there are trillions of dollars worth of credit that are 

injected into the economy and we are not privy to exactly what is 

going on. So there are a few people who get suspicious and wonder 

what really goes on in these discussions because you don’t have 

minutes, and you don’t have really any access. As a matter of fact, 

those kind of meetings are exempt from our oversight by law. They 

are exempt. We are not even allowed to have that, if information 

isn’t given to us voluntarily. 

I want to ask another question dealing with the process. It seems 

like we have two vehicles. One, we have where the Congress is involved and we debate and we interject our beliefs and we appropriate money, and we give it to the Treasury and the Treasury does 

certain things. And then we allow them too much license and then 

we are unhappy. We have that approach. 

The other approach is the Federal Reserve, and there is essentially no oversight of what the Federal Reserve does and we don’t 

know how that occurs. It seems like the Federal Reserve, in my understanding of the law, has a great deal of license to do whatever 

it wants. It seems like they can bail out anybody, buy up any assets. I am just wondering why the line is drawn where the Fed is 

involved in trillions of dollars where we have no oversight, but then 

we come over to the Treasury and we insist that it goes through 

this process and almost like we are really in charge. But do you 

see a line drawn? Why do we have to appropriate money sometimes 

and other times we totally ignore it? 

31 

Mr. KOHN. I think there is a lot of oversight of the Federal Reserve. The fact that I am sitting here, and Chairman Bernanke 

comes to this committee frequently is an important part of this 

oversight. We publish a great deal about our facilities, what we are 

lending, the uses that the funds are being put to; is it being lent 

for commercial paper, is it being lent to banks for lending. We publish on a weekly basis that material. 

Dr. PAUL. Of course, then we get the information that you want 

us to have. I have been on the Financial Services Committee for 

a long time. Would you invite me to the FOMC meeting? That is 

something we get the minutes later on. 

Mr. KOHN. You get the transcript after 5 years, and you get the 

minutes after 3 weeks. I think opening the Open Market Committee to the public would greatly inhibit the discussion in that 

committee meeting. I think that it would promote financial speculation and would impinge on making good decisions. 

The CHAIRMAN. Thank you. I am going to take 10 seconds to announce that we have spoken to Mr. Bernanke. There will be an 

oversight hearing on the Federal Reserve’s lending of these trillions 

of dollars in February. So we have asked for a hearing. That is a 

fairly new phenomenon at that level. So in February, we are trying 

to clear the date now, we will have an oversight hearing specifically on what the Federal Reserve has said. 

The gentleman from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. 

Mr. Kohn, I have in my BlackBerry an e-mail that I received 

dated September 20, 2008, at 4:27 p.m. It was a Saturday afternoon, and it was the first proposal that we received from Mr. 

Paulson regarding the bailout. It was one page long. And by an 

hour later, at 5:42 p.m., even though I was watching a football 

game, I had responded to my staff that we should add a provision 

that made one of the criteria to the maximum extent feasible avoiding foreclosures and providing homeowners with mortgages on 

their homes, opportunities to amortize their mortgages and stay in 

their homes. Some version of that was put into the original bailout 

bill, although not quite as direct as that. And then Mr. Paulson appeared here and said they didn’t have the authority to do what the 

FDIC had done—as proposed, rather—because that wasn’t the purpose of the original bailout. 

We finally have from FDIC a proposal that would do something 

similar to what I proposed within an hour of receiving the original 

proposal, and I am reasonably satisfied with that part of it. But it 

seems to me that ever since then we have been engaged in an effort 

to try to define how much to micromanage the use of this money. 

We took that one page that Mr. Paulson proposed that Saturday 

afternoon and converted it to 164 pages, I think the original TARP 

bill was, and now we are back trying to add some more 

conditionalities, and one of the concerns I have is—and we all have 

had—is that we have not wanted to micromanage the use of this 

money. 

So there is a provision in the chairman’s mark that has been put 

out that would require the Secretary to reach agreements between 

the depository institution and whatever the Federal banking agencies to which they report on benchmarks that the institution is reVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
32 

quired to meet in using the funding so as to advance the purposes 

of this act, to strengthen the soundness of the financial system and 

the availability of credit to the economy. 

One of the concerns that everybody has had is this money has 

gone out and been used for purposes. Can you tell me what some 

of the benchmarks might be that we could evaluate on the second 

half of the money to determine whether it is being effectively used 

to really unfreeze the credit and keep people from calling me, businesses from calling me, saying I am just getting unreasonable demands from lenders or refusals to even consider loaning to me 

when I have been a good customer of theirs throughout the last 10 

years? What would be some of the benchmarks we would look for? 

Mr. KOHN. Congressman, that is actually a very difficult question 

to answer. I don’t think there are going to be any easy metrics by 

which to gauge whether the program is freeing up loans. There are 

a couple of problems here. One is you don’t know what the counterfactual is. You don’t know what would have happened if you hadn’t 

put in the money. So loans, in my view, if that $250 billion hadn’t 

been put in, the situation would be much worse. But that is very 

hard to measure. 

I think the second thing that is hard to measure— 

Mr. WATT. You can’t give me one benchmark? We are not talking 

about unfreezing credit, we are talking about actually making 

loans available. What would be a benchmark? 

Mr. KOHN. We can look at the terms and standards that banks 

are—on which they are making credit available to businesses and 

households to see whether they are reasonable in the situation. 

We can look at the amount of loans they make, although that 

may be difficult to interpret. We can certainly ask the banks what 

they are doing and why they are doing it. And I think the combination of all of these things will give us insight into what the disposition of these funds are. But there is not one thing. 

The CHAIRMAN. The gentleman from North Carolina, Mr. Jones. 

Mr. JONES. Thank you, Mr. Chairman. 

Along the lines of my colleague from North Carolina who just 

spoke, this was in the Raleigh, North Carolina, paper: ‘‘I am the 

president and CEO of Carolina Finance, an automobile finance 

company. I started in 2000. This is the point I want to make. We 

borrow our capital from Bank of America which has pretty much 

stopped lending despite having been given $15 billion to help small 

companies. Further, I have 50 employees in North Carolina and 

Virginia I care about. I do not believe the bank bailout funds are 

being used as intended.’’ 

Now I want to go to another business owner, and then I will get 

to the question: 

‘‘The government began to buy ownership in banks by pumping 

$300 billion into these coffers. We were told this was the only way, 

and that this would free up funding. It didn’t happen. They were 

not even required to lend the funds out. They kept the funds in 

their banks to improve their own balance sheet. Then they began 

to tighten up their own credit standards by squeezing their customers. By squeezing their customers. The bank I have been dealing with for 31 years basically told me that they wanted my children to personally endorse all loans.’’ 

33 

Mr. Kohn, this is the problem. I do care about the homeowners. 

I care about those who are having to give up their homes just as 

much as anybody else. But these two companies, one has been in 

business for 30-some years with the same bank, primarily, and now 

they are changing the rules and regulations. And this poor man 

with 50 employees in Virginia and North Carolina, he can’t even 

get a loan. 

I would like very much to bring those situations to your attention 

because I don’t know how these banks are getting by with fattening 

their profits because they are in trouble. We gave them money, the 

taxpayer did, and yet the taxpayer who has a business, small or 

large, can’t even get a loan. If this country is in trouble, it is in 

trouble because all of a sudden we are bailing people out and we 

are saying to those people, you keep the money and you don’t have 

to give credit to anybody. That is not going to help this country. 

Mr. KOHN. I don’t think that is what we are saying. We are saying we are giving you the money and we want you to lend to households and businesses and municipal governments where you can 

make safe and sound loans. We are working with the supervisors 

of those banks to ask them what they are doing, and for the supervisors to make sure and to work with the banks to keep lending 

on a safe and sound basis. 

I think you are right, we need to keep working along a number 

of fronts to open up these credit spigots because they have closed. 

But if we were not to make the next money available, I would be 

concerned that people would get even more concerned, and the 

banks would be more concerned and they would tighten up even 

more. 

Mr. JONES. The issue is if this next $350 billion is allocated out 

and these small businesses, they won’t be around to complain to 

their Congressmen. They will be gone. 

I will bring one to your attention, and I would appreciate very 

much if you would get back to me because this is absolutely, I sign 

a contract with you, and now you come back to me and say, I want 

to change the contract. In fact, I want your children to contract. 

They are 25 and 30 years old; they are not kids. But it is destroying this country, what is happening right now. 

Mr. KOHN. I would be willing to answer your question and inquiry. I would also point out that the Federal Reserve through its 

credit facilities is trying to help restart the securitization and small 

business loans. That is one of our objectives, and we are moving 

along that track although we are not there yet. It is a problem, I 

agree. 

Mr. JONES. Thank you. I yield back the balance of my time. 

The CHAIRMAN. Before I turn to Mr. Meeks, I am going to make 

a request. We couldn’t get started earlier today because of Members’ travel plans. We have a 6:30 set of votes. I would like to get 

to the second panel. It is a very good panel. I am getting tired of 

the first panel. It is not their fault, but there is a certain repetitive 

nature as to what they are being asked. I would like to get to the 

second panel, so any member on the Democratic side who is willing 

to forgo asking questions of the first panel, we will begin with 

those people for the second panel. Think about it. Please notify a 

member of the staff because I would like to get the benefit of the 

34 

second panel. That is obviously an option open on the other side, 

but I am not in charge of them. I am not in charge of you either, 

I am asking. 

And now the gentleman from New York, Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman, and I, in trying to deter- mine what we need to do for this, the next $350 billion, I have a 

quick question about something that the Feds, so, Mr. Kohn, I 

would ask you, has done already and whether or not and the participation, and that is dealing with the, when the Federal Reserve 

announced it would initiate a program to purchase the direct obligations of housing-related Government-Sponsored Enterprises, with 

the Freddie Mac and Fannie Mae, and I know that there were purchases of up to $100 billion in GSE direct obligations in the program and that there were auctions being, not auctions but competitive bids, that were going out to various individuals to purchases 

of up to $500 billion in MBS, and various asset management, etc. 

My question is, given that there is a series of requests for proposal that were issued by the Fed, I would like to know if you could 

tell me what level of involvement of qualified minority- and 

women-owned businesses, if any, have participated in the aforementioned Fed endeavor? 

Mr. KOHN. I don’t know, Congressman. I will have to get back 

to you on that. 

Mr. MEEKS. Could you please get back to me because some of the 

concerns I think that were articulated by Congresswoman Waters 

and before, and we had talked about purchasing the illicit assets, 

it was to make sure that we had a more diversified pool of individuals who would also be involved, because to me, when you have a 

diversified pool, you also reduce your chances of losing your fund 

when more people are investing the money. 

But let me go to Mr. Bovenzi. Did I pronounce that correctly? 

Mr. BOVENZI. Yes. 

Mr. MEEKS. Now currently, and I know that in the chairman’s 

mark, there is a provision in there looking to include the FDIC on 

the TARP oversight board, and I was wondering, I don’t know if 

I stepped out and you indicated before, but whether or not you 

think that the FDIC could play a very meaningful role on that 

board and whether that we should therefore move forward and try 

to do something statutorily in that regard? 

Mr. BOVENZI. I think the FDIC would play a meaningful role on 

that board. Clearly, there is a desire to increase loan modifications, 

and the FDIC, under Chairman Bair, has been leading an effort to 

try to promote loan modifications and do it on appropriate standards. In that area alone, the FDIC could play a meaningful role. 

Mr. MEEKS. Let me just ask another quick question that has to 

do with many of the taxpayers’ investments and many of the banks 

through the Capital Purchase Program, and what I think that you 

are hearing from a lot of Members is that because of taxpayers’ 

money going in, they want more accountability, and they want individuals to make sure that the individual institutions are doing 

business in a more equitable fashion, etc. And in that regard, I am 

looking at ways that we could include more people involved in the 

process. And a perfect example of how inclusion could be increased 

relates to a more, in my estimation, equitable distribution of the 

35 

underwriting liability and fees associated with TGLP debt insurances. And to date, the banks that have benefited from the FDIC 

backing have issued bonds to maintain their liquidity in uncertain 

markets. 

My question is, it seems as though that, unfortunately, business 

as usual has continued to take place even though there is taxpayer 

money that has been involved in this, and the vast majority of fees 

associated with the government guaranteed bond issuances and 

this manner of operation I think is inconsistent with trying to diversify and be more equitable with practices that enable a larger 

range of firms to benefit from the government’s activities in connection with the financial crisis. So my basic question is, my time is 

running out, is does it make sense for those same banks to also 

earn the lion’s share of the fees that are to be earned in connection 

with the issuance activity? 

Mr. BOVENZI. The FDIC has been very supportive of extending 

programs to all banks of all sizes so they can benefit people around 

the country. There are two parts to our Temporary Liquidity Guarantee Program. First, there is debt issuance. About 6,900 companies have signed up for the guarantee program in that regard. It 

includes small banks and large banks. Second, there is the protection for non-interest-bearing transaction accounts that is available 

to banks and thrifts. 6,700 banks and thrifts have signed up for 

that program, which represents a vast majority of the roughly 

8,500 or so banks. In terms of capital investments from Treasury, 

we are very supportive of that being made available to banks of all 

sizes and have been working in that regard as well. 

Hopefully, I addressed some of your questions. 

The CHAIRMAN. The gentlewoman from Illinois. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

Yesterday, I held a roundtable with some of my not-for-profit 

groups in one of my counties. These groups are counselors who are 

working with mortgagors to try and keep them in their homes. 

Mr. Kohn, in your testimony, you stated that the Federal banking regulators, pursuant to their joint November 12th statement, 

are working to help banks ensure that they are fully meeting the 

needs of creditworthy borrowers. Banks lending to creditworthy 

borrowers is good for the economy, but it is also good for the profitability of banks and supports their safety and soundness. 

Does this square with an additional $350 billion bill? Because 

this is not happening. These not-for-profits said that they are working with the mortgagors. They cannot get the banks to return their 

calls. And if they do, finally, they will talk to somebody, and then 

they will be sent to somebody else, and this person says, I haven’t 

seen that; you will have to fax it to me. And it goes on and on. And 

maybe somebody is at the point where they haven’t defaulted, but 

by the time the banks even get around to bothering with them, 

they are already in default. 

I don’t understand why this is happening. Is this something that 

Fannie and Freddie have requested that banks not do? Is this 

something that banks are just so overworked that they don’t have 

enough people? We have the counselors, and these counselors are 

even ones that are provided under statute. They are really having 

to raise some money themselves to work with these clients. This is 

36 

a community service. So I don’t understand why there is isn’t more 

money for counselors. And if the lenders don’t answer the calls for 

help, I think it is time that they did respond. 

Mr. KOHN. The Federal Reserve has worked closely with nonprofit groups across the country helping them to put lenders and 

borrowers in touch with each other, to inform them of the rights 

and options and alternatives they have if they are facing problems. 

I think the lenders, to some extent, are overwhelmed by the scale 

and size of the problem. And they are, the servicers and lenders, 

are working hard to catch up. 

But I also think, as I said in my testimony, that we need to do 

more on foreclosure mitigation. We need programs that can be 

scaled up more rapidly to address more problems. And that would 

be one of the uses for TARP money. 

Mrs. BIGGERT. The problem is that we have talked about this 

now since we started working on the TARP, and the bill passed in 

October, and we did the housing bill, which was done last summer 

to take effect on October 1st. We are not seeing the results. We are 

not seeing it with the homeowners where there have only been 373 

applications, and only 13 of those that have any closure on this. So, 

I don’t know how—if we are going to throw another $350 billion 

into this, how is that going to help? 

Mr. KOHN. I think it can be used to encourage lenders and borrowers, lenders in particular, to rewrite loans to make them more 

affordable, both in the interest rate, the term, to some extent writing down the principal under something like an enhanced hope for 

homeowners— 

Mrs. BIGGERT. But the banks aren’t doing that. And that was in 

that original bill. We have already done that. 

Mr. KOHN. I think more needs to be done, and it needs to be 

done now. I agree with you, Congresswoman. 

Mrs. BIGGERT. I yield back. 

The CHAIRMAN. The gentleman from Kansas—no, the gentleman 

from Kansas is passing on this round. He is resting on his laurels 

of saving the airline industry, which he did in the bill. 

The gentleman from Missouri. 

Mr. CLAY. Thank you, Mr. Chairman. 

May I inquire of the two witnesses? 

The CHAIRMAN. Yes. 

Mr. CLAY. All right. Thank you. Let me start with Mr. Kohn. We 

have seen the first $350 billion of the TARP directed towards rescuing financial institutions and the whole of the financial sector. 

Now the Congress had very little control of those funds. I pray that 

they are well spent. And requests are now being made for the other 

$350 billion. Let me just ask you some simple questions. Is this not 

taxpayer money? 

Mr. KOHN. Yes, it is. 

Mr. CLAY. We agree with that, then. 

Mr. KOHN. Yes. 

Mr. CLAY. Then why can’t we direct this to the rescue of the taxpayers who are really on the front line of all of this? They are getting hit with the devaluing of the 401(k). Some of them have lost 

30 and 40 percent. Some of them are already retired and have lost 

quite a bit of value in that. Would you all be interested—would you 

37 

entertain legislation that would actually help them and put some 

value back into those 401(k)s and retirement plans? 

Mr. KOHN. I think the TARP money is intended to unfreeze the 

credit markets and help the financial markets and build confidence. And to the extent that the TARP and the Federal Reserve 

policies and the fiscal stimulus coming put a floor under the economy; they will help the financial markets and help those 401(k)s. 

I think it is, to be sure, the money from TARP is flowing into the 

financial institutions, but the intent is to help households and businesses, and I think you are right; we need to do a better job monitoring how well it is doing that. 

It is an indirect way, but it is absolutely essential when the contract markets, part of what is going on, one reason the financial 

markets and the economy is in as bad a shape as it is, is that the 

credit markets are frozen up. People aren’t getting loans that need 

to get loans. This is depressing the economy, and that is putting 

downward pressure on asset prices of all sorts, houses and equities. 

Mr. CLAY. Really, the initial $350 billion was the bailout for Wall 

Street, correct? We gave Citigroup $45 billion. 

Mr. KOHN. It was an injection of capital into financial institutions, and the government has preferred stock in those financial institutions. 

Mr. CLAY. Sure. And the stock is worth what? How much? 

Mr. KOHN. It yields a certain amount for a few years and more 

for a few years after that. So there is a return on the stock. It is 

not traded on the market. 

Mr. CLAY. What do we have in value today in Citigroup? What 

can we put up, tell the taxpayers they own in Citigroup or in AIG? 

Mr. KOHN. I think what the taxpayers have is an implicit share 

of Citigroup. But more important than measuring what they own 

in Citigroup, I think, is the very difficult to measure financial stability that you are, that we are seeking in exchange for these. 

Mr. CLAY. Okay, did the $350 billion helped? 

Mr. KOHN. I think it helped, yes, sir. 

Mr. CLAY. Has it turned it around? Has it freed up credit? 

Mr. KOHN. There are some sectors of the market that look like 

they have improved some. But the market is still looking very bad. 

So I think it stabilized the situation, improved it a little, but it is 

still not a good situation. 

Mr. CLAY. Let me ask Mr. Bovenzi really quickly, how much 

funding do you think would be necessary to use in TARP money 

to reduce foreclosure? 

Mr. BOVENZI. I don’t have the specific number for what amount 

should be used to reduce foreclosures. Chairman Bair had talked 

about one variation of a loss-sharing proposal on loan modifications 

that might cost $25 billion. The bill has numbers from $40 to $100 

billion. I think it is important to have some money allocated and 

get started on the process. 

Mr. CLAY. Thank you very much. 

The CHAIRMAN. The gentleman from New Jersey. 

Mr. GARRETT. I thank the chairman. 

And I still thank the panel. I am still interested in the first 

panel. 

38 

I find a couple of the questions from the other side intriguing. 

Mr. Watt, I believe it was, made the comment with regard to 

benchmarks, which I think is a legitimate question to try to be able 

to set a barometer of going from the past and going forward as 

well. 

Some might have said that a barometer would be the stock markets and their confidence in the whole credit situation and the like. 

And prior to the first bill passage, people said if you don’t do this, 

the stock market is going to go down by 500 or 1,000 points, and 

lo and behold, of course, we did do it, and the rest is history. So 

that is one barometer and bench market. 

Ms. Waters also asked a question, and it just hit my memory 

when she was asking, gave the example of a constituent coming to 

a bank having not-so-great credit history but being on time. I actually had a constituent who came and said she called up her bank; 

she has always been on time; and she is a good credit risk. And 

she said she hears all of this stuff going on, on TV. So she called 

up her specific bank and said hey, what are you going to do for me? 

Can you lower my rate or my length of my term of my contract or 

my mortgage and what have you? And of course, the bank basically 

hung up on her. But there is the rub, of course, is that we have 

a moral hazard here, is that those people who do everything right 

are the ones who have been penalized, and those people who extended themselves more than they ever should have are the ones 

who are being benefited here. 

Changing the thought here for a second, looking at the Fed’s balance sheet, it is extraordinary as you look over a 5-month period, 

I figure roughly in my head right here, roughly about 150 percent 

increase. 

Mr. KOHN. More than that. 

Mr. GARRETT. The same timeframe I am looking at, August 1st, 

you had $874 billion, and you go up to $2.1 trillion. So if you go 

back further, of course, it is larger. And that is extraordinary. And 

the question as to who is responsible and where—responsible as far 

as the end of the day for the liabilities on there versus the assets 

on there, and that goes to Mr. Paul’s question and some other questions as well. GSE debt on the old balance sheet, prior to August 

1st, you would see zero. On September—January 7th, it is up to 

$19 billion, and now has potential to go up to $600 billion, I think. 

The question on the other side of the aisle, which is a legitimate 

one, was why did we—if you are able to basically, through that 

mechanism, I think you go through primary dealers in order to buy 

debt, basically buy assets, toxic assets, I don’t know, but assets 

nonetheless, obviously the Fed has the ability to set up a mechanism to buy assets. Do they have the ability to set up a mechanism 

to buy toxic assets as well? 

Mr. KOHN. No. Our ability to buy assets outright is very limited 

under the Federal Reserve Act. Basically, we can buy Treasury and 

agency assets. We can make loans against any collateral as long as 

we are collateralized to our satisfaction, but we cannot go out and 

simply buy assets if they are not agencies and Treasuries. We can 

simply— 

39 

Mr. GARRETT. Basically, you can do that, then, can’t you? Simply 

set up a fictitious company and make loans to that company in 

order to buy those assets? 

Mr. KOHN. We need to be—you, the Congress, has told us we 

should be collateralized and secured. And we take that very seriously. And that is what we are doing. 

Mr. GARRETT. What is the collateral then under Maiden Lane 

Corporation and that situation? 

Mr. KOHN. There were a variety of mortgages and other assets 

there. There was— 

Mr. GARRETT. This could be collateral as well through—the assets that we would have bought through this program could have 

been collateralized here as well, could it not be considered adequate 

collateral? 

Mr. KOHN. Right. I think what a system that looks like I hope 

will work is one like we are setting up to begin in early February, 

in which we are setting up a vehicle that can use Treasury capital 

to absorb the risk while the Federal Reserve— 

Mr. GARRETT. I will ask you some of the details on that. I only 

have a second of time. When you do do those things going forward, 

will you have the requirements that are set forth in the chairman’s 

bill here as far as all the other restrictions here that we are applying to Treasury on anything that the Fed— 

Mr. KOHN. If funds from TARP are involved— 

Mr. GARRETT. No. No. No. If the funds, just through the Fed, the 

activity of the Feds, with Fed dollars, will you apply the same restrictions that we wish to apply, at least the chairman wishes to 

apply, to the TARP dollars, will you apply them to— 

Mr. KOHN. We have not in the past applied those sort of restrictions to ordinary well-collateralized loans from financial institutions and— 

Mr. GARRETT. And I am not suggesting that you are, but you can 

see the distinction that some Members obviously make in this situation between restrictions that I think he is appropriately making 

here and that we don’t have the control over. 

The CHAIRMAN. If the gentleman will yield, I did say we are 

going to have a hearing on exactly that. 

And I will say, maybe the Fed should volunteer, there were some 

restrictions I believe imposed on AIG when it was non-TARP; AIG, 

they did impose some restrictions in compensation I believe on AIG 

when it would still be the Fed. But the gentleman’s general point 

is correct. 

Next, we have the gentleman from California, Mr. Baca. 

Mr. BACA. Thank you very much, Mr. Chairman. First of all, I 

appreciate the question that Mr. Clay asked, and hopefully, we can 

find a remedy for the devaluing of the 401(k) retirement plans because throughout all of our districts, people are asking what is happening and what can be done, so hopefully we will find some kind 

of a remedy. 

But my question to note is that I notice that there is no one from 

the National Credit Union Association invited to testify here. But 

the credit unions in my district are telling me they can’t access 

TARP funds, and they need assistance. The largest credit union in 

40 

my district, Arrowhead Credit Union, just closed four branches and 

reduced operating budget by 10 percent. 

If you look at the original recovery bill language, Congress intended for credit unions to receive TARP funding and included 

them to be amongst the eligible institutions. Unfortunately, Secretary Paulson decided to take a different route. 

Credit unions make a huge impact on our local communities and 

need all the tools we can get to help them afloat. My question 

would be, what can we be doing to help credit unions access TARP 

funds? 

Mr. KOHN. I don’t know what the particular restrictions are. I 

think it is difficult when you have essentially a cooperative institution. So, remember, the TARP funds are going in as preferred stock 

in publicly— 

Mr. BACA. But remember that it was included in the original language. And Secretary Paulson decided to take a different route. So 

what can be done if it was supposed to be in there? 

Mr. KOHN. I think we should be looking at that. 

Mr. BACA. Will you look at it? 

Mr. KOHN. Yes, with the Treasury Department. 

Mr. BACA. And will you make sure that it is included in that? 

Mr. KOHN. We need to talk to the Treasury Department that is 

in charge of the program. 

Mr. BACA. I would appreciate that very much. 

And what is the Federal Reserve doing to help credit unions? I 

would point out that they are statutorily prohibited from accepting 

outside forms or capital so they don’t benefit at all from the Capital 

Infusion Program. So again, what is the Federal Reserve doing to 

help credit unions? 

Mr. KOHN. They are eligible to borrow from the discount window 

if they hold, if they are subject to certain requirements, and I believe credit unions do borrow from the discount window. So to the 

extent that we have facilities that are open to depository institutions, they are open to credit unions on the same terms. 

Mr. BACA. Do you know that they do? Or do you believe that they 

do? 

Mr. KOHN. I will get back to you for certain, but I believe that 

they do. 

Mr. BACA. I would like to get an answer on that. 

Thank you very much. 

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

you. 

The CHAIRMAN. We have seven members left for this first panel, 

so we are going to get to the second panel at 5 o’clock. 

The next is Mr. Posey. 

Mr. POSEY. Thank you, Mr. Chairman. Out of respect to your request to get to the second panel, I will accept your offer. 

The CHAIRMAN. Thank you. I appreciate that. Thank you very 

much. 

Then the next one is Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman. I will be brief. 

Mr. Bovenzi, based on some of the testimony we have heard with 

Congress now encouraging banks to lend more freely through the 

capital infusions that have occurred, while at the same time, it 

41 

sounds like there are regulators that are, certainly through the 

FDIC and otherwise, that are urging them to be a little more cautious; is there any concern that banks are getting mixed signals 

here simply to shore up their balance sheets and hold onto the 

money? What assurances does Congress have or the taxpayers have 

that the money is actually going to make it out into the system? 

Mr. BOVENZI. Banks have many objectives in what they are trying to achieve. And if we have, as a supervisor, a weak or a problem institution, there is going to be an expectation that they get 

themselves into a healthy state. But the vast majority of banks 

who are well capitalized can focus on lending activities with the 

new funds that they are getting. We have recently issued a letter 

to those institutions telling them that we expect them to be able 

to tell us how they are using the government programs to promote 

lending to creditworthy borrowers. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

I know as we hear more stories of others lining up to access 

these funds, there will be a concern for those who do want to shore 

up their balance sheets. 

And I yield back, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman. 

And next, we have my colleague from Massachusetts, Mr. Lynch. 

Mr. LYNCH. I will be brief, under the circumstances. 

I do want to ask the witnesses, however, one of the concerns I 

have right now and one of the difficulties that we keep running 

into is the difficulties with the bond insurance companies. And 

looking forward, there is a sizable package that has been talked 

about in terms of a stimulus plan, and yet many of our municipalities are just hogtied right now because of the bond insurance situation. Either they don’t have access or the premiums are 40 percent 

of what they normally should be. 

Would you—and in many cases, they are going to be the ones to 

facilitate a lot of this stimulus going forward. Is there any way or 

would you recommend some type of assistance from TARP for some 

of our bond insurers to sort of, to unclog that system? 

And I will yield back with the answer. Thank you. 

Mr. KOHN. I think we ought to be taking a serious, and we are 

taking a serious, look at what will help unclog the municipal market. One possible route is through those insurers, but it is not the 

only route. And I think we need to just keep pursuing that because 

it is a serious problem. But I don’t know if that particular way is 

the best way to do this. 

Mr. BOVENZI. I have nothing to add. 

Mr. LYNCH. I yield back. Thank you very much, Mr. Chairman. 

Mr. CHAIRMAN. Thank you, Mr. Bovenzi. That does not always 

stop people from talking. 

The gentleman from Illinois. 

Mr. MANZULLO. Thank you, Mr. Chairman. 

I, in my opening statement, talked about how nobody in the government is even thinking about how to solve the problem. What 

you are doing is not solving it. You are all assuming that at some 

time in the future, the economy is going to recover itself and that 

everybody will be in a position to pay back the banks. 

42 

Take a look at the Federal Reserve. Mr. Kohn your organization, 

agency, had the authority for years to govern instruments, to set 

underwriting standards. And you did nothing. You did very little. 

In fact, when Dr. Bernanke was here in the middle of July, you 

said we did a top-to-bottom study of underwriting standards, and 

we are not going to require that you have to have proof of your employment before you can get a mortgage. Wow. That is astounding. 

He said, but that won’t take place until October 1st of 2009. And 

that was a statement that sucked the oxygen out of the air. And 

you could have said, no more teasers, no more 2/28s, and the FDIC 

had the authority, the implicit authority, all along to step in immediately and to increase insurance at institutions. But the FDIC sat 

back, and a bunch of us were screaming, saying you have to get 

in there and plug the holes, and then the run came on the banks. 

And the two agencies that were in the best position to do something, anything, did nothing. 

And now, you are back with all the answers again. We will just give $350 billion to Treasury. Let them come up—I hope that you 

guys stick around to listen to the second panel, to the people who 

are on the streets, people like Cynthia Blankenship, who was here 

a couple of months ago. You didn’t mention once FAS 157 and the 

impact that has on community banks. Once they assign a mortgage 

and they agree to service the loan, did you know that market to 

marketing goes in even as to the servicing requirements and can 

suck up hundreds of thousands of dollars if not millions of dollars 

on their balance sheets? I don’t know if you know that. No one 

seems to care. The Europeans solved market to marketing. They 

come up with their own way. What do we do? We do nothing. You 

fellows have no solutions. You just—a giant bridge, a financial 

bridge to nowhere, just assuming the economy is going to recover. 

My biggest city is at 12 percent unemployment. And you know 

what? It will probably get worse because very few people here have 

the answer. And the answer is simple. You have to get people 

starting to buy again. The homeowners are back. They are desperate. You can have all the fixes that you want on foreclosures 

and helping people up, but if people don’t have jobs, it doesn’t do 

any good. They will fall behind again, and what I propose is something so simple. You give a $5,000 voucher to anybody to wants to 

buy a new car, you go to the dealer, you can buy a brand new car 

for sometimes 25 percent off, money has always been out there. Did 

you ever ask the community bankers 2, 3 months ago if they had 

money for cars? 

Mr. Kohn, did you do that? 

Mr. KOHN. We talked to community bankers quite a bit about 

their needs and how they are making loans. 

Mr. MANZULLO. Right. They have had money, haven’t they? 

Mr. KOHN. To some extent. 

Mr. MANZULLO. Stick around for the second panel. They have always had money for those cars. And so have the credit unions. But 

you guys participated in the big scare going on around here. And 

we had people going into the car dealers back home saying we understand there is no money. And the Cynthia Blankenships out 

there and all these community bankers are just totally frustrated 

that the government steps in, that caused the problem, and now 

43 

you guys have the solutions that won’t work. Why don’t we do 

something very, very simple? Why don’t you sit down and decide 

what can you do to get people to start buying more automobiles? 

Once that happens, the economy restarts itself. The community 

banks have money. Credit unions have banks. Local branches of 

national banks have always had money to loan. And I just don’t 

understand it. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Thank you. 

Mr. Kohn, under the TARP program, it was allowed for companies who receive TARP funds to continue to pay dividends and to 

do stock repurchases. Can you think of any reason why the TARP 

program would have worked worse if we had prohibited basically 

taking the firm’s extra money and giving it to the shareholders of 

the common stock rather than repay the TARP loans? 

Mr. KOHN. Now the companies were prohibited from increasing 

their dividends with the TARP loans. 

Mr. SHERMAN. And even that was not in the statute. It was a 

practice the Treasury usually followed. But what if there was an 

absolute prohibition on dividends and stock repurchases until such 

time as the Federal Government is repaid? 

Mr. KOHN. I think what is critical here, Mr. Sherman, is to not 

only to make the government money available but to bring private 

money in as well. 

Mr. SHERMAN. You could certainly exempt newly issued shares. 

But why should the people who bet on the bad management, who 

are holding shares, get our money before we get it back? 

Mr. KOHN. And many of the banks that took the money weren’t 

themselves troubled, but they were being strengthened so that they 

would be resilient against future trouble. The dividend of the regulators, the supervisors have dividend policies that need to be enforced. Banks shouldn’t be paying out dividends from things that 

are not earning and particularly troubled institutions that come 

into the Federal Government and get— 

Mr. SHERMAN. But, to interrupt, you seem to think it is necessary that we give our money to those who then turn it around 

and give it to their existing common shareholders in part to encourage people to take our money or because the common shareholders deserve dividends and stock repurchases before the American taxpayer should receive the money back? 

Mr. KOHN. No, I don’t think the common shareholders deserve 

that. I think the common shareholders don’t deserve any more than 

the bank is able to earn on a sustainable basis. And banks 

shouldn’t be taking taxpayer money and recycling it into dividends 

that they otherwise wouldn’t pay. I agree with that. 

Mr. SHERMAN. But if they are taking our money and not giving 

it back to us, should they be paying dividends? 

Mr. KOHN. I think they need to look very carefully at how they 

can bolster their capital, raise their capital, and get out and repay 

the taxpayers as quickly as possible. 

Mr. SHERMAN. Does paying dividends on existing common shares 

bolster capital or deplete capital? 

Mr. KOHN. Taken alone, it wouldn’t bolster capital. 

44 

Mr. SHERMAN. It would deplete capital, correct? 

Mr. KOHN. But if it is part of a package that helps them raise 

capital— 

Mr. SHERMAN. You could obviously issue a new class of common 

shares and pay dividends on that, or you could exercise the political power to squeeze money out of taxpayers and to deliver it to 

management and existing shareholders. They, obviously, have 

taken the latter course. 

Likewise, we were told not to put really strict executive compensation limits in TARP and that maybe we were going too far 

with what I thought were extremely modest limits. Do you know 

of a single banking firm that turned down Federal dollars because 

they wouldn’t live with whatever executive compensation limits 

there are in the existing TARP bill and program? 

Mr. KOHN. I am not aware of any. 

Mr. SHERMAN. So we could certainly go a little higher with the 

executive compensation limits since the ones already in place have 

not deterred a single dollar of TARP investment. 

Mr. KOHN. Right. 

Mr. SHERMAN. I would like to comment on what Mr. Manzullo 

said earlier, twofold. One, as to auto loans, the credit unions in my 

district say they have plenty of money except for the most marginal 

borrowers. And I don’t think we are ever going to go back to the 

people who were barely able to get loans last year being able to get 

loans in the future. 

The second thing I will point out is that the greatest failure was 

Wall Street as a unit gave triple-A to Alt-A. It is one thing to say 

well maybe people will tell you the truth when you ask them their 

income. But when you turn to people and say, it will cost you $300 

on your mortgage not to document, and they choose not to document, you know you are making liars loans. 

I yield back. 

The CHAIRMAN. I thank the gentleman. 

Let me ask unanimous consent to put into the record letters from 

a group of institutions about commercial lending; from several of 

our colleagues, Mr. Donnelly, Mr. Thompson, and Mr. Souder, 

about manufactured housing; and from the National Association of 

Federal Credit Unions and the Credit Union National Association 

supporting the inclusion of credit unions in TARP funding. 

I ask unanimous consent that they be put in the record. 

And the gentleman from North Carolina, I believe, is next. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

And thank you all for your testimony today. 

Mr. Bovenzi, we have had some evolution in the reasons for defaults and foreclosures. Initially, the reasons for the spike in foreclosure was pointed to ARMs. And that soon evolved, and we had 

negative equity as the next reason for foreclosures and defaults. 

But as this economy is weakened, and we have entered this recession, the reason now, as it has evolved, is high unemployment, people losing their jobs, which of course is sort of the historic reason 

for people losing their homes is because they have lost their jobs 

and they are not able to simply afford it. 

45 

How should the government address this? How should the government address these increases in defaults and foreclosures, and 

how does your program apply to this? 

Mr. BOVENZI. I certainly agree that there has been an evolution 

in the reasons for default, and there are many different reasons for 

default. A loan modification program can address some of those 

reasons, but it can’t address all of them. It would be one part of 

a package that has other measures as well. The loan modification 

proposals can help in situations where an individual’s income has 

gone down, they are in a mortgage they can’t afford, and they have 

gone into a default. It can be restructured at a lower interest rate 

in a monthly payment that they can afford and sustain, if indeed 

that gives a greater value than would be the case in foreclosure. 

In this kind of market, foreclosure results in an enormous cost on 

financial institutions. So, a great many mortgages can be modified 

successfully. 

But you are right, it does not work in a situation where the borrower has no income because of unemployment. In this case, other 

measures are needed, generally some kind of fiscal stimulus to try 

to encourage job creation and employment. 

Mr. MCHENRY. So do nothing for the unemployed, in essence? 

Mr. BOVENZI. A loan modification program is not the right solution for somebody who has no income. We need other kinds of stimulus measures to create jobs. 

Mr. MCHENRY. It is a solution they cannot simply access because 

they have no income. Is that fair to say? 

Mr. BOVENZI. It is fair to say that loan modifications don’t work 

successfully for all cases. But, they can work for a great many 

cases. 

Mr. MCHENRY. In a recent OCC release of data, this last month 

it shows that after 6 months of these loan modifications, ‘‘they 

seem to not be working.’’ After just after the first quarter of 2008, 

those numbers were released last month, and it shows that these 

modification programs are not working for a number of reasons, 

one of which is that the biggest problem is that the servicers aren’t 

participating in the program. So how is your program going to really change that initial go at it and actually effectively get the 

servicers to participate? 

Mr. BOVENZI. I would make a few points about that. Clearly, 

foreclosures are going up at a faster rate than loan modifications— 

Mr. MCHENRY. You can give me a bunch of that. I don’t have 

much time. Just cut to the chase. 

Mr. BOVENZI. That is part of the reason why it is talked about 

as part of the TARP funding. I think the study you are referring 

to discusses re-default rates being high and talks about all kinds 

of loan modifications. Some of these may be very minor adjustments and payments to those like the IndyMac program the FDIC 

put in place, which lowers monthly payments enough to make them 

affordable and sustainable. Thus, the right kind of loan modification program can drastically lower re-default rates. That said, 

there will be re-defaults. Some people will go back into defaults. 

Mr. MCHENRY. With all due respect, you still have not answered 

my question, and my time is limited here. How do you get servicers 

46 

to effectively participate in this program? Because the fact is, unless they participate, it is not going to get out to the market. 

Mr. BOVENZI. I think you need to align incentives appropriately. 

In the programs we have had to date, we have worked to show how 

the modification will improve net present value, so it is in the interests of the investor and thus the servicer. Things that do help 

the servicer are cost intensive and align their financial incentives, 

which can be beneficial as well. 

The CHAIRMAN. The gentleman from North Carolina. 

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

I did not really intend to ask questions about what caused the 

subprime crisis or the Community Reinvestment Act, but I do want 

to address what Mr. Royce had to say earlier. 

Mr. Kohn, the Federal Reserve Board recently published a study 

that 6 percent of the subprime loans in the 2004–2006 period were 

by CRA lenders, banks or thrifts with federally insured deposits in 

neighborhoods that were CRA assessment areas, the neighborhoods 

where CRA encouraged lending. Is that right, 6 percent? 

Mr. KOHN. I think that is correct, Congressman. 

Mr. MILLER OF NORTH CAROLINA. There was also a recent study 

by the Federal Reserve Board of San Francisco, I think, that compared CRA loans to loans by institutions not subject to the CRA, 

independent mortgage companies, Option One, New Century, 

Countrywide, in the very same neighborhoods that showed that 

CRA loans were performing substantially better, that the foreclosure rate was twice as high in those same neighborhoods for 

lenders not subject to CRA. Is that correct? 

Mr. KOHN. I think it is correct that they weren’t substantially 

worse. I am not sure they were substantially better. But there was 

no difference in similar loans made in and out of the CRA— 

Mr. MILLER OF NORTH CAROLINA. I am talking about loans in the 

CRA assessment areas by CRA institutions and non-CRA institutions, the foreclosure rate was twice as high for the non-CRA institutions. 

Mr. KOHN. I am not familiar with that result, but I am not entirely surprised in some of the non-CRA institutions where those— 

Mr. MILLER OF NORTH CAROLINA. Chairman Bernanke and Governor Kroszner have both said that CRA has played no substantial 

role. Are you aware of any facts that support an argument that 

CRA played a substantial role that is not patently ridiculous? 

Mr. KOHN. I think the thrust of all the studies that you cited and 

some others are that CRA did not play a substantial role in this. 

Mr. MILLER OF NORTH CAROLINA. The questions I wanted to ask 

today are more about how this first $355 million has been spent. 

I don’t expect perfection. I have a very realistic view of politics and 

government. I hold my nose a lot, as I did in October. But I do object to living in a kleptocracy. I am, Mr. Frank, Chairman Frank 

said he wanted, expected a substantial amount of the $350 billion 

to come back to us, to get it back. I don’t want to get a substantial 

amount of it back; I want all of it back. And there is very little in 

the way it has been run that makes me think that is going to happen. You said we are getting preferred stock. The legislation also 

called for warrants. 

Mr. KOHN. And we got warrants— 

47 

Mr. MILLER OF NORTH CAROLINA. I have a question about the 

warrants we got. There was an article in Bloomberg in the last 

week or two that said all 174 capital infusion agreements were 

identical; that we made a $10 billion capital infusion in Goldman 

Sachs in October. The month before that, Berkshire Hathaway, 

Warren Buffett, had made a capital infusion of half of that amount 

and got 4 times the warrants. And if we had gotten the same deal, 

we would have a 21 percent stake in Goldman Sachs, and instead, 

we have less than a 3 percent stake. If we had gotten the same 

deal for the top 25 institutions, we would have warrants worth, I 

think, about $130 billion. Instead, it is a little less than $14 billion. 

Do you know of an explanation for why we got such a bad deal? 

Mr. KOHN. I think we got a pretty good deal, Congressman, and 

remembering that we were trying to encourage people to participate. 

When Goldman went to Berkshire Hathaway, it needed that capital very badly because of the situation it was in. We were trying 

to encourage, to shore up the system, rather than individual banks, 

we were trying to encourage participation. If we make the conditions too stringent, we won’t get the foreclosure mitigation. We 

won’t get the credit flowing because people won’t want to participate. So it is a difficult balancing act. 

I agree the taxpayers should get some substantial reward for 

making the investment, but we don’t want to discourage people 

from, discourage the banks from participating because it is that 

participation— 

Mr. MILLER OF NORTH CAROLINA. Joseph Stiglitz, the Nobel Economic Laureate, said that the argument that we need to make it 

attractive to banks is code for giving the money away. It seems like 

if we are getting one-tenth of the upside potential, the warrants, 

that we have a lot of room for making it attractive to banks without—or making it something that they are willing to do and still 

protect borrowers, still protect taxpayers. 

Mr. KOHN. As I say, I think we are trying to balance those factors. 

The CHAIRMAN. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much Mr. Chairman. I would like to 

hit two issues right quick if I may. 

First, let me ask you, Mr. Kohn, you are a vice chairman of the 

Federal Reserve system, and as such, let me put this question to 

you: Why not open up the Federal Reserve liquidity facilities to 

State and local debt securities, especially as we move to address 

the issue of stimulating this economy in the area of jobs? We have 

facilities, airports, infrastructures ready to move with shovel-ready 

operations. Why not open up the Federal Reserve liquidity? 

Mr. KOHN. We are looking very carefully at whether there are 

ways that we, together with the Treasury perhaps, can open up 

that municipal market and make that credit flow. So that is under 

very serious consideration. 

Mr. SCOTT. How serious, Mr. Kohn? Are you just saying that to 

me to give a nice response or— 

Mr. KOHN. No. 

Mr. SCOTT. This is a very, very serious critical situation we are 

in. 

48 

Mr. KOHN. I agree. 

Mr. SCOTT. And the two most critical things we need to deal with 

are keeping people working and in their jobs and in their homes. 

Let me ask you this as a part of our bill that we have, are putting 

forward, that Chairman Frank is guiding us with, in section four, 

regarding municipal securities, it says that we wish to clarify 

Treasury’s authority to provide support to issuers of municipal securities, including through the direct purchase of municipal securities or the provision of credit enhancements in connection with any 

Federal Reserve facility to finance the purchase of municipal securities. 

Mr. KOHN. Right. So I think these are options that we should be looking at, particularly when the next $350 billion is available to 

the Treasury. 

Mr. SCOTT. May I encourage you to make sure that we open up 

these Federal Reserve liquidity facilities to help facilitate this because there are projects to do that? Particularly help us stimulate 

the economy and create jobs. 

The other issue, Mr. Bovenzi, I would like to talk with you. I am 

so afraid that we are going the make the same mistake that we 

made with this first $350 billion, unless we pass this measure that 

Chairman Frank has put forward. The biggest concern I have, I 

voted against the first bailout, the first time around. Chairman 

Frank asked us to go and put a plan together to address my major 

concern, which was we didn’t do anything to help with this foreclosure crisis. We have in this legislation, in title II, the TARP foreclosure mitigation plan. 

Mr. Bovenzi, the FDIC is going to be very instrumental in carrying this out. I want to get your response to this plan of taking 

up to $100 billion—we haven’t put that figure; we are saying no 

less than $40 billion, no more than $100 billion. My hope is that 

we get it closer to the $100 billion level because it is about time 

that we try to get some money into the mainstream, into the average American’s hands, that will help them where they need the 

help most. We have already given it to the banks. And we are 

going to give them more. But I am concerned that unless we get 

it in writing, it won’t happen. 

I was on the Floor trying to work on this bill the last time. They 

said we couldn’t even put—the very same thing we are trying to 

do now in Mr. Frank’s bill was what we were trying to do then, 

and they said we couldn’t write it. We couldn’t put it in. Now we 

have it. And I want to get your response because we have some 

deadlines in here and some date requirements, that not only did 

we put that in, that we have the plan in place by March 15th, that 

you have a plan that the Treasury and the FDIC have a plan in 

place by March 15th; that it gets approval by the first of April; and 

that the funds are committed, began being committed, by May 

15th. 

Can you give me your assessment on this? Is this agreeable with 

the FDIC? 

Mr. BOVENZI. From the FDIC’s point of view, we have put forward a plan. We recognize that it is not the only plan. There can 

be variations that can work as well, and we are willing to work 

with the new Administration and Treasury to finalize a specific 

49 

plan to get in place within those kinds of timeframes. The FDIC 

is ready to work with the appropriate parties to try to get such a 

plan in place. 

The CHAIRMAN. Remaining, now we have some of the freshmen 

members who will go in order, through the first and second panel. 

Mr. Grayson. 

Mr. GRAYSON. Mr. Bovenzi, you mentioned several times today in 

your testimony the importance of transparency. Can you explain 

why that is important? . 

Mr. BOVENZI. I think the committee has talked about that several times. It wants to see a strategy for how money is being spent, 

understand how it is being spent, and have reporting back from institutions to indicate whether it is being used for the purposes desired. In order to give assurances to Congress and to American taxpayers that it is being used for appropriate purposes, we want 

greater transparency and accountability. 

Mr. GRAYSON. Is it fair to say that when hundreds of billions of 

dollars of the taxpayers’ money is being spent, the taxpayers have 

a right to know how? 

Mr. BOVENZI. Yes. 

Mr. GRAYSON. Mr. Kohn, how much has the balance sheet of the 

Federal Reserve increased since September 1st? 

Mr. KOHN. It has increased from around $800 billion to about $2 

trillion. 

Mr. GRAYSON. And what was that money spent on? 

Mr. KOHN. That money was lent. It was lent to banks, investment banks. It was spent on lending through the commercial paper 

market. And it was lent to foreign central banks that lent dollars 

to their banks to take pressure off the U.S. dollar market. So it 

wasn’t spent. It was lent. 

Mr. GRAYSON. Which institutions received it, and how much for 

each institution? 

Mr. KOHN. I don’t know which institutions, which specific institutions received it, but, by categories of institutions, that is captured 

in our balance sheet that we publish each week. 

The CHAIRMAN. We would like that in writing, Mr. Kohn, for the 

hearing record. 

Mr. KOHN. I am sorry, what in writing, Mr. Chairman? 

The CHAIRMAN. The answer that you didn’t have right off the top 

of your head to that question. 

Mr. KOHN. But I think I would, you are going to hold a hearing 

on this, Mr. Chairman, and I think I would be very, very hesitant 

to give the names of individual institutions. In fact, I think it 

would be a very bad idea because I think it would undermine the 

utility of the facilities that we are giving. But I think we should 

say more about the categories of the institutions. 

Mr. GRAYSON. Mr. Kohn, you just said that $1.2 trillion has been 

lent or spent, as the case may be, that is $4,000 for every man, 

woman, and child in this country. Don’t Americans have the right 

to know how you spent that money? 

Mr. KOHN. Yes, they have every right to know the purposes for 

which we spent it, the types of spending, the types of lending that 

is going on, how, the types of collateral we are taking and what we 

expect to accomplish with that. 

50 

Mr. GRAYSON. Specifically, I would like to know how much was 

given to Credit Suisse, and how much you go in return; how much 

was given to Citibank, and what you got in return. If you put out 

$50 billion to Credit Suisse, the taxpayers need to know about it. 

Mr. KOHN. I would be very concerned Congressman that if we 

published the individual names of who was borrowing from us, no 

one would borrow from us. The purpose of our borrowing is not to 

support individual institutions but to support the credit markets. 

Mr. GRAYSON. Has that ever happened? Have people ever said, we will not take your $100 billion because people will find out 

about it? 

Mr. KOHN. We have never—we have always said we will not publish the names of the borrowers so we have no test of that. 

Mr. GRAYSON. What gave you the authority to say that? Isn’t 

that something that we should be deciding, not you? 

Mr. KOHN. I think you gave us the responsibility in the Federal 

Reserve Act to oversee the stability of the financial system through 

our lending facilities to be the lender of last resort, and we are trying to execute that to the best of our abilities. 

Mr. GRAYSON. And you are saying that entitles you to keep secret the expenditure of $1.2 trillion, $4,000 for every man, women, and 

child in this country? 

Mr. KOHN. I don’t think we are keeping it secret. I think we are 

releasing a lot of information about it, but I would personally—I 

would personally be very, very reluctant to release the individual 

names of the borrowers. 

Mr. GRAYSON. What do you think might happen if people knew how their $1.2 trillion had been spent? Do you think they might 

be angry? 

Mr. KOHN. No. I don’t know, obviously. I think that they can 

judge how the money is spent from what, how the money is lent 

from what we are telling them and whether it is having an effect. 

And I think it is having a positive effect in a number of markets. 

We have seen the commercial paper market, interbank market, 

etc., so I think it has been effective. But we need to do more. 

Mr. GRAYSON. Mr. Kohn, we are talking about secret payments of $1.2 trillion. I think you need to rethink your approach here. By 

the way, were these assets mark-to-market? 

Mr. KOHN. Some of them were. Some of them were loans. 

Mr. GRAYSON. Why not mark these assets to market and let people know the current value of this $1.2 trillion that you have 

spent? 

Mr. KOHN. The ones that have market values are marked to 

market. 

Mr. GRAYSON. So how much of them don’t have market values? 

How much of them are worthless? 

Mr. KOHN. None are worthless. 

Mr. GRAYSON. Then why don’t you mark them to market? 

Mr. KOHN. We are marking the ones—we are marking the ones 

to market that have market values. 

Mr. GRAYSON. My time is up. Thank you. 

The CHAIRMAN. As I said earlier, this is for people to understand, 

this goes under, the authorities, as I understand, came from a statute passed in the Depression. It was fairly dormant, at least as we 

51 

knew it, for a while. We were told in September, Mr. Bernanke 

summoned a meeting of the congressional leadership committee as 

well and announced to us with Mr. Paulson in September that they 

were going to advance $80 billion to AIG. I said, somewhat surprised, to the Chairman of the Federal Reserve, do you have $80 

billion? He said, I have $800 billion. He obviously was low-balling 

what he had. Maybe he made some money in the future. That was 

in September. I don’t think the program has been active before. 

Clearly, a lot has happened, and as I announced earlier, I spoke 

to the Chairman last week. We have a hearing that we are setting 

up. Mr. Bernanke will be up here, and we will be having a hearing 

specifically on this program, and I say that the question the gentleman raised is a question we will be considering. And I think, at 

an appropriate time, we will be looking at that statute. I think this 

is probably not the time with turmoil in the market to be amending 

it. But the subject the gentleman raised will be the subject of an 

entire hearing in February. 

The gentleman from Connecticut, this panel or the next one. 

Mr. HIMES. Thank you, Mr. Chairman. 

I have a question directed to Mr. Kohn. I read with interest and 

heard with interest your testimony that the Treasury may consider 

methods to reduce the uncertainty about the value of assets held 

by financial institutions. This objective could be accomplished in 

several ways, including by directly purchasing troubled assets. I 

note no irony in that considering the way the TARP was initially 

set up and designed to do. 

But my question is—I am concerned by the fact that we have 

taken limited or no steps to date to truly separate troubled assets 

from the balance sheets of our financial institutions. So my question is twofold: one, do you believe that we will achieve stability in 

the banking sector without separating those assets from the balance sheets of our financial institutions; and two, you outlined two 

methods by which that might be accomplished, but you are silent 

on whether there might be a market-oriented method. Have we 

reached a level of stability where we might count on market players to both value and purchase in quantity those troubled assets? 

Mr. KOHN. Right. I think purchasing or isolating the downside 

risk of those troubled assets from the banks would be an important 

aspect to stabilizing the banking system, restoring confidence, and 

bringing private capital back in. I don’t know exactly how to do it. 

I think there are, as I noted, a variety of ways to do it, including 

keeping them on the balance sheet but writing an insurance policy 

against really adverse consequences for the banks. 

I think valuing the assets is very difficult. To the extent that 

they have markets and are at market value, I think that ought to 

be the default of the value they would be purchased at by the government or by the special bank or the insurance. I think the other 

assets are the loan assets, which aren’t on the market, have reserves against them, and that ought to be taken into account. And 

they are much more difficult to value. But— 

Mr. HIMES. But do you believe that we have reached a point of 

stability that we could count on the distressed debt players and 

other market entities to actually purchase the bulk of these distressed assets, or do we need to look to a government solution? 

52 

Mr. KOHN. I think the government probably still, unfortunately, 

needs to be part of the solution. I don’t think we are yet at a place 

where the private sector is ready to come in and start buying those 

distressed assets. I don’t think—we hear a lot about money on the 

sidelines waiting to come in. But through this whole crisis over the 

last 18 months it has come in from time to time, and then the crisis has gotten worse. And I think people are still very, very concerned about that. I wish that were not the case, but I am afraid 

it is. 

Mr. HIMES. Okay. One other question to either of you, Mr. Kohn 

or Mr. Bovenzi, the chairman’s bill contains at great long last a 

provision for a national program for foreclosure relief. We don’t 

hear much, nor do we see much, about the nonmortgage debt that 

American households are carrying. Are we going to hear more 

about that? 

And should Congress right now be thinking about programs or 

other measures we might take to relieve American households from 

nonmortgage debt, a very substantial amount of nonmortgage debt 

that they carry? Do you see that as a risk and therefore something 

that we should be addressing? 

Mr. BOVENZI. I think Vice Chairman Kohn has talked about 

some of the Federal Reserve programs to try to help in some of 

these other areas of consumer credit and free up securitization 

markets. That is a very positive step. 

Mr. KOHN. The most important thing we could do is get that 

credit flowing again to households, to consumers; and we are looking at a variety of ways to do that. 

Mr. HIMES. Thank you. I yield back the balance of my time. 

The CHAIRMAN. Mr. Peters, this panel or the next one? 

Mr. PETERS. This panel, please. 

The CHAIRMAN. Go ahead. 

Let me say, when Mr. Peters is finished, we are through with 

this panel. I will ask people to leave quickly, and we will seat the 

new panel. 

Because I have to go to the Rules Committee, we will take 5 minutes. We want to hear from you. Don’t thank us. Don’t tell us how 

wonderful your organization is. Don’t tell us what we already 

know. Get right to the point, because we don’t have a lot of time. 

The gentleman from Pennsylvania will take over for me, and I 

hope he will be very rude. 

Mr. PETERS. I will be very brief. Many of my questions have already been answered. 

I will be fairly brief, because I have been hearing from my community bankers. We have heard much about community bankers 

here but in particular in Michigan, being a very hard-hit area with 

the auto industry. In fact, there was a front-page story in Crain’s 

Detroit Business just a few days ago which was headlined: ‘‘Michigan Banks are Getting the Short End of TARP.’’ In fact, I will put 

this in the record but read a few parts of it. 

With the deadline of the Federal approval fast approaching, a 

summary of Michigan banks that have received funding from the 

U.S. Treasury as part of TARP is getting the short end. In fact, in 

the first round of TARP, according to the figures here in this article, only two of the banks of the 208 banks nationwide that reVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
53 

ceived money were in Michigan, and none in southeast Michigan, 

which works out to about 2/10ths of 1 percent of the TARP funds, 

which is a figure that is easily surpassed by Puerto Rico right now 

for us in Michigan. 

According to the article, many large and regional banks have 

branches in Michigan that have been approved, but analysts expect 

lending in the State based on TARP money to be extremely limited. 

In fact, our community bankers have gone so far as to say Michigan is currently being red-lined as a result of the troubles in the 

auto industry and the fact that the economic troubles in the State 

have gone on much longer than other parts of the country. 

So I would like to have you comment on that and any advice you 

have of what we need do in this TARP to make sure that particularly hard-hit areas like Michigan get the help they need. 

I will quote from the article, though, a regulator who is quoted 

here, before you answer, the regulators aren’t going to talk about 

it. What they are going to say is—I know this because I was a regulator—we treat all our children the same. We apply the metrics 

fairly. It is the same old baloney. 

The truth is, I don’t hold out much hope for our community 

banks getting much TARP money because of the auto crisis. The 

regulators won’t say it publicly, but they are saying it privately, 

and I know they are. How would you respond to that and what 

should we be doing? 

Mr. BOVENZI. It is certainly a concern that community banks 

have not received the same participation in the Capital Purchase 

Program to date. When the program started out, it focused on publicly traded companies, but it is evolving to cover all institutions, 

including small community banks. However, there have been a few 

complications along the way. 

Many small community banks are Subchapter S corporations, 

which take a different type of capital investment. Also, mutual 

ownership creates other complications. Those are things that we 

are working with the Treasury to resolve so we can have greater 

participation by smaller institutions in the Capital Purchase Program. 

Mr. PETERS. How about specifically in Michigan? Do you see 

there is a problem with the fact that only two banks have received 

any funding out of TARP in the State of Michigan? 

Mr. BOVENZI. That certainly seems like a concern that there are 

only two banks there. I am sure there are other States where participation has not been to the extent that perhaps it should be. So, 

we are trying to broaden the program as soon as possible. 

Mr. PETERS. And if we can keep close tabs on that, I would like 

to have further conversations with you. 

And, finally, the one last point, too, which is very important for 

us in Michigan in the auto industry and moving to sell automobiles, we know that stimulating consumer demand is very important. One step that would help is have the FDIC approve some 

pending applications for both Ford and Chrysler that would allow 

their financial ARMs to become ILCs. If you could comment on 

what is holding this application up at the FDIC. 

Mr. BOVENZI. There are a number of applications at the FDIC 

that are still under review, including those. We have received quesVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
54 

tions in a number of situations asking if the process is getting 

slower and when decisions are going to be made. A number of applications have been approved for new bank charters, and there are 

still many we are looking at. 

Market conditions have gotten tougher, so we are taking a more 

careful look at applications. But, we are trying to be as responsive 

as possible. We will try to get back to people as soon as possible 

on specific applications. 

Mr. PETERS. But would you agree that providing this for Chrysler and Ford, knowing that money would be put in the hands of 

consumers almost immediately to purchase the automobiles and 

get the economy moving? 

Mr. BOVENZI. I don’t really want to comment on an individual application. My comments were meant to be more general about the 

process. 

Mr. PETERS. Okay. Thank you. 

Mr. KANJORSKI. [presiding]. Thank you very much, gentlemen. 

Thank you very much. And in accordance with Mr. Frank’s instructions, good-bye. Thank you. 

Will the next panel please be seated? 

We are going to have Ms. Janet Murguia, president and chief executive officer, National Council of La Raza; Mr. John Taylor, 

president and chief executive officer, National Community Reinvestment Coalition; Mr. Edward L. Yingling, president and chief 

executive officer, American Bankers Association; Ms. Cynthia 

Blankenship, vice chairman and chief operating officer, Bank of the 

West, on behalf of the Independent Community Bankers of America; Mr. Joe Robson, chairman-elect of the board, National Association of Home Builders; Mr. Charles McMillan, 2009 president of 

National Association of Realtors; Mr. Michael Calhoun, president 

and chief operating officer, Center for Responsible Lending; and finally, Mr. Chris Mayer, senior vice dean and Paul Milstein Professor of Real Estate, Columbia Business School. 

Ms. Murguia? 

STATEMENT OF JANET MURGUIA, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NATIONAL COUNCIL OF LA RAZA (NCLR) 

Ms. MURGUIA. Thank you. 

Good afternoon, everyone. My name is Janet Murguia, and I am 

president and CEO of the National Council of La Raza. NCLR has 

been very committed to improving the life opportunities of the Nation’s 44 million Latinos for the last 4 decades. It is our 40th anniversary. Thank you all for bringing attention to this very important 

issue. 

The Pew Hispanic Center released a report this week that nearly 

one in ten Latino homeowners missed a mortgage payment last 

year. One in six say there have been homes foreclosed on in their 

neighborhood. These are staggering figures that call for a very bold 

response. 

When Congress approved $700 billion in recovery funds last year, 

it was definitely a bold move. Unfortunately, TARP has not lived 

up to expectations. With more than half the funds committed, millions of homeowners have been left out. It is time for Congress and 

the Administration to apply the same boldness to struggling famiVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
55 

lies. Unless we intervene, millions will lose their home and their 

financial safety net. 

My written statement makes the case for a national foreclosure 

strategy. It describes how TARP has fallen short and shares recommendations. 

In my brief time today, I just want to share with you a couple 

of stories of families impacted by the foreclosure crisis. I testified 

early last year that 2009 and 2010 would be the peak years for 

foreclosures in the Hispanic community. Now that 2009 is upon us, 

I am sincerely concerned that a significant number of our community will lose their homes. 

The situation facing Latino families has become infinitely more 

complicated. Not only are their loans unaffordable, they are losing 

their jobs, their home values are plummeting, and the cost of daily 

expenses are going up every day. Meanwhile, their chances of getting help have not improved. Servicers are still taking months to 

approve modifications. They routinely offer workouts that are simply unaffordable. 

One of our counselors in Los Angeles has been working to secure 

a modification for a family who had their work hours cut, but they 

have been getting the runaround since October. This week, the 

servicer told them they could not approve any workouts until their 

own merger is complete. 

In Detroit, a counselor had to get the State Attorney General involved to save her elderly client’s home from foreclosure. The modification requested was working its way through the proper channels. However, the servicer sent the file to foreclosure before a determination could be made. 

There are stories like this one after the other. Making matters 

even worse, families in the position to purchase are being shut out. 

So we are getting hit on both sides. Access to lending is not happening. 

In Phoenix, one of our counselors was approached by a local 

judge who wanted to refinance his home. He owes less than 80 percent of his mortgage, has excellent credit, and has never missed a 

payment. Despite being a great candidate, he still can’t get a loan. 

TARP had two key goals that could have helped the Hispanic 

community: reduce foreclosures; and increase lending activity. 

From where we stand, working with hundreds of thousands of families every day, TARP has failed these goals. Period. 

We are also deeply troubled that there has been no public disclosure of how TARP money is being spent. We must have more accountability. 

We are in dire need of a national foreclosure prevention and recovery strategy. The impact of TARP’s shortcomings falls squarely 

on the shoulders of hardworking families. Before approving any additional funding, Treasury and Congress must ask how recipients 

will ease the impact and burden of foreclosures. 

NCLR makes three simple recommendations: First, require 

Treasury to implement a systemic loan modification program. 

NCLR has long supported the FDIC approach. Second, require 

banks to use a portion of TARP funds to increasing lending to communities. And third, report the uses and impact of TARP funds on 

a quarterly basis. 

56 

All of these are reflected in Chairman Frank’s legislation that 

addresses them quite straightforwardly. The bill mandates a foreclosure prevention program and gives Treasury several models to 

choose from. It includes incentives to jump-start lending and requires key public disclosures. NCLR strongly supports the minimum $40 billion targeted for 

modifications, which represent a mere fraction of the investment 

made in private institutions overall. We won’t be able to get our 

economy back on track until we get average families in a position 

to pay their mortgages. It is that simple. We look forward to working with all of you toward that goal, and we endorse Congressman 

Frank’s legislation. 

I would be happy to answer any questions. Thank you. 

[The prepared statement of Ms. Murguia can be found on page 

160 of the appendix.] 

Mr. KANJORSKI. Thank you, Ms. Murguia. 

Mr. Taylor? 

STATEMENT OF JOHN TAYLOR, PRESIDENT & CHIEF EXECUTIVE OFFICER, NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC) 

Mr. TAYLOR. Yes. Thank you. 

Honoring the chairman’s request, I am going to skip the amenities and the information about NCRC except to say I am John 

Taylor from— 

Mr. KANJORSKI. We love you all. 

Mr. TAYLOR. Wonderful. But I wasn’t going to—okay. 

First, we think additional TARP funds should be prioritized in 

the most effective manner that serves homeowners and stems the 

foreclosure crisis. 

NCRC is also pleased that the chairman’s TARP reform bill provides significant financing of up to a hundred billion dollars for 

foreclosure mitigation, addresses many of the barriers frustrating 

loan modifications, and institutes reforms in the Federal Housing 

Administration’s HOPE for Homeowners Program. 

NCRC recommends that a significant portion of the remaining 

TARP funds be used to address the foreclosure crisis. Financial 

markets will not stabilize and the economy will not rebound until 

the foreclosure crisis is addressed by the implementation of a largescale loan modification program. 

Moreover, substantial intervention is necessary to respond to the 

contagion effects of the foreclosure crisis. Failure to address mounting foreclosures continues to drive home prices down, which results 

in a wider range of problems for the financial system and the overall economy. Thus, NCRC recommends the investment of the remaining TARP funds in an economic recovery program that promotes infrastructure projects and small business and micro-enterprises that create jobs and rebuilds communities. 

Finally, considering the magnitude of the current financial crisis 

and its potential long-lasting effects, immediate action is needed to 

address the problems that caused this crisis, which are unfair and 

deceptive practices that led to the undermining of the national 

economy. I will begin with the need to use TARP funds to address 

foreclosures. 

57 

To date, TARP funds have been spent on efforts that have only 

marginally contributed to the stabilization of the financial system. 

The first $350 billion were used to inject liquidity into the markets 

through cash investments into financial institutions and emergency 

loans to the automotive industry. However, the financial markets 

remain unstable, as preventable foreclosures continue to weaken 

the national economy and devastate local communities. Recently, 

the second report of the oversight panel criticized the U.S. Treasury Department for failing to use any of the first $350 billion to 

mitigate the foreclosure crisis. 

Moreover, as detailed in our written testimony, while helpful, 

Federal programs and voluntary efforts to stem the foreclosure crisis do not address the breadth and the depth of arresting this crisis. Immediate solutions are needed to restore the health of our financial system and overall economy. Therefore, NCRC recommends 

that a significant portion of the remaining TARP funds be invested 

in a large-scale loan modification program that will assist homeowners. 

In January 2008, NCRC proposed the establishment of a national 

loan modification program called the Homeowners Emergency Loan 

Program, or HELP Now. NCRC believes that HELP Now is the 

type of loan modification program needed to address the magnitude 

of the current crisis. It would authorize the Treasury Department 

to buy troubled loans at steep discounts, equal roughly to the current write-downs by financial institutions from securitized pools. 

This will result in a relatively low cost to taxpayers. The government would then arrange for these loans to be modified through existing entities and sell the modified loans back to the private market. 

It should be noted that a number of legal scholars have suggested that there are legal impediments regarding the complexity 

of selling loans held in securitized pools. Further, we all now know 

voluntary actions on the part of investors and servicers have 

proved minimally successful. Therefore, NCRC recommends the alternative approach of using eminent domain with the HELP Now 

proposal to immediately purchase these loans from investors and 

servicers. 

The current economic crisis would justify the government’s use of 

eminent domain laws for a compelling public purpose. 

In addition, eminent domain would overcome several barriers. 

Through compulsory purchases of troubled loans, reluctant 

servicers, investors, and lenders would not need to be persuaded to 

participate. 

In addition, as a supplement to a loan modification program such 

as a HELP Now, judicial loan modification should be strongly considered. Judicial loan modification would assist borrowers facing 

foreclosures that a TARP program may not reach because of the 

scale of the crisis. Allowing struggling borrowers to access bankruptcy protection would enable up to 600,000 families to seek immediate help to avoid foreclosure, again at no cost to the taxpayer. 

In addition, included in this effort should be funds to support 

Legal Service attorneys to represent borrowers of modest means. 

This would ensure that modifications are adhered to and redefaults 

minimized. 

58 

Recently—I will skip this piece here. 

While a loan modification program such as HELP Now would 

help stabilize the U.S. economy, substantial intervention is necessary to respond to the contagion effects of the current crisis. 

NCRC believes that economic recovery programs that promote infrastructure projects, and small business and micro-enterprises 

that create jobs are essential to rebuilding communities. 

Mr. Chairman, I see that my time is up, so I want to simply ask 

that I be allowed to also enter into testimony two statements, one 

from the Association for Enterprise Opportunity, which represents 

micro-enterprise organizations, to speak about their perspective on 

use of TARP funds, and also from another NCRC member, an organization in St. Louis that deals with fair housing matters, and to 

submit that to give you a local perspective of use of TARP funds. 

Thank you very much, sir. 

Mr. KANJORSKI. Without objection, it is so ordered. 

[The prepared statement and attachments of Mr. Taylor can be 

found on page 182 of the appendix.] 

Mr. KANJORSKI. Mr. Yingling, you are recognized for 5 minutes. 

STATEMENT OF EDWARD L. YINGLING, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICAN BANKERS ASSOCIATION 

(ABA) 

Mr. YINGLING. I am pleased to testify on behalf of the ABA on 

the future of TARP. 

The ABA sees this hearing and the legislation that is being proposed as an opportunity for a new beginning. Everyone is frustrated about the current confused situation. The public, the Congress, and I can assure you traditional banks, are all frustrated. 

Strongly capitalized banks that never made one subprime loan and 

that are the foundation for an economic recovery find themselves 

lumped together with failing institutions and even institutions that 

helped cause this crisis. We are committed to work with this committee to clarify once and for all the purpose of the Capital Purchase Program, to target remaining TARP money to where it will 

do the most good and to provide the transparency needed to restore 

public confidence. 

As our written testimony shows, the nonbank credit markets are 

not working. All roads point to traditional regulated FDIC-insured 

banking as the foundation for a solid recovery through the expansion of bank lending and, as the chairman has stated, through applying bank-like regulations to other sectors of the financial services industry. It is time to put together a plan that will get the job 

done and that has the clarity to restore public confidence. In that 

regard, ABA has four recommendations. 

First, the confusion should be addressed. The various components of TARP should be clearly separated within the overall TARP 

program. For example, the Capital Purchase Program for healthy 

banks should be separated from the program to support failing institutions. These are different programs, with different goals, with 

different costs and require different policies. Unless the programs 

are more carefully defined, Congress cannot do its job of setting 

policy, having effective oversight, and measuring costs and results. 

59 

The bank Capital Purchase Program, or CPP, is now constantly 

confused with other uses of TARP, such as the use of funds to support automobile companies, yet they are different and in many 

ways opposites. The CPP is only for healthy banks, not for troubled 

institutions. The CPP was not sought by the FDIC-insured banking 

industry, while troubled institutions have sought TARP help. The 

CPP is designed to enable the banking industry to be a strong 

source of credit going forward when other sources, such as 

securitization, have closed down. And, finally, there is little doubt 

the government will make billions of dollars on the CPP, while investments in troubled institutions might in some cases cost the 

government billions. I reiterate that the CPP is very different from 

programs designed to help troubled institutions. Our second recommendation is that the original $250 billion allocated to the CPP be made available and made available equally to 

all FDIC-insured banks. We are not asking for additional funding 

for the CPP, just that the original program be fulfilled. As it 

stands, the current $250 billion allocation has in effect been overpromised. In addition, thousands of banks are not currently even 

eligible to subscribe solely because of their ownership structure. 

This is unfair to those banks, but, most importantly, it is unfair to 

their communities, which will not have the same opportunities to 

have credit made available. For example, many New England communities are served primarily by mutual institutions, and yet 

mutuals are not yet eligible for CPP funding. I do note that the 

Treasury today announced that it is going to make the program 

available to Subchapter S banks, and that will be a big help. 

Our third recommendation is that some TARP funds be allocated 

for foreclosure prevention. The housing crisis is still central to our 

economic problems, and foreclosures are devastating families and 

communities. We support using the FDIC proposal as a base, and 

we have put together a group of experts to provide information to 

the Congress and the FDIC to make it work. 

Our final recommendation is that the Congress, the new Administration, and the regulators adopt a consistent approach to our industry. We recognize this is not easy. There is an inherent conflict 

in difficult economic times between lending more to help our communities and making sure lending decisions are prudent. However, 

banks are now constantly pushed and pulled, encouraged to take 

CPP capital to support lending, and virtually simultaneously told 

by regulators to build extra capital and tighten lending policies. It 

is a tough balance, but our government needs to do better. 

Thank you, Mr. Chairman. 

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

200 of the appendix.] 

Mr. KANJORSKI. Thank you very much, Mr. Yingling. 

Ms. Blankenship? 

STATEMENT OF CYNTHIA BLANKENSHIP, VICE CHAIRMAN 

AND CHIEF OPERATING OFFICER, BANK OF THE WEST, ON 

BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF 

AMERICA (ICBA) 

Ms. BLANKENSHIP. Yes. I am Cynthia Blankenship, chief operating officer and vice chairman of the Bank of the West in GrapeVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
60 

vine, Texas. I am also the chairman of the Independent Community 

Bankers Association that represents only community banks and 

has approximately 5,000 members. 

My testimony includes recommendations for changes in the 

TARP and the deposit insurance system. We applaud the chairman 

for addressing many of these issues by introducing the TARP Reform and Accountability Act of 2009, and ICBA urges its swift passage. 

I want to emphasize at the outset that community banks had no 

role in creating the financial problems we are addressing today. 

They did not engage in irresponsible subprime lending and have remained strongly capitalized. As a result, we are well positioned to 

drive economic recovery in our communities. That is why we are 

pleased that H.R. 384 directs the Treasury to quickly provide the 

TARP funds for all sizes of institutions, including Subchapter S 

banks like my bank and mutual banks. 

Mutual banks still represent about 10 percent of the banks nationwide. The Treasury’s term sheets released so far do not work 

for these institutions. And, as Mr. Yingling addressed, we understand that there will be a term sheet for Sub S published tomorrow, but still we have nothing for the mutual banks. 

Those banks play a vital role in their communities, particularly 

in the New England States, where they are the predominant small 

business lenders. While the vast majority of community banks generally have enough capital to serve their current customers, additional capital from the CPP for interested banks would help them 

serve additional consumers and businesses. We urge Treasury to 

act quickly to include all banks in the CPP. 

Additionally, we suggest that a representative of the Community 

Banking sector be appointed to the TARP oversight board to ensure 

that community banks have equal access to TARP programs. The 

TARP programs are not enough. ICBA is hearing from community 

bankers across the country about the overzealous and unduly overreaching examiners. They are in some cases second-guessing bankers and professional independent appraisers, demanding overly aggressive write-downs and reclassifications of viable commercial real 

estate and other assets. This will lead to a contraction in credit. 

Community bankers avoid making good loans for fear of examiner 

criticism. Therefore, we recommend that bank regulatory agencies 

adopt a more flexible and reasonable examination policy, particularly with respect to real estate lending so that community banks 

can meet their community credit needs. 

The chairman’s proposal changing the government foreclosure 

mitigation efforts will also benefit hard-hit communities. H.R. 384 

makes changes to the HOPE for Homeowners Program and directs 

the Treasury to use TARP funds for foreclosure mitigation, which 

should significantly enhance these efforts. 

ICBA is also pleased that H.R. 384 addresses key deposit insurance issues. Congress and the FDIC must deal with expiring deposit insurance and glaring inequities in the deposit insurance system so community banks will have continued access to local deposits, which are their main source of lendable funds. The bill makes 

permanent the increase in deposit insurance coverage from 

$100,000 to $250,000. 

61 

ICBA also supports making permanent the temporary full coverage of transaction accounts. Both of these programs are vital confidence-building measures in our communities. 

ICBA applauds the chairman for including a provision to give the 

banking industry more time to recapitalize the FDIC Deposit Insurance Fund, an idea the ICBA has strongly advocated. 

Even with these improvements, glaring inequities remain. The 

‘‘too-big-to-fail’’ institutions have a deposit insurance product that 

is far better than traditional FDIC insurance, 100 percent coverage 

for all liabilities. Congress should direct the FDIC to assess special 

premiums on these banks that are so interconnected with the financial system that the government will not allow them to fail. 

Unfortunately, short-term crisis management last fall led to the 

creation of even larger institutions. To prevent a recurrence, Congress should break up the systemic risk institutions or require 

them to divest sufficient assets so they no longer pose a significant 

risk to our economy. 

Mr. Chairman, ICBA again commends you and your colleagues 

for working swiftly to address the pressing issues of the TARP and 

deposit insurance. We appreciate the opportunity and look forward 

to working with you on the many services you will be dealing with. 

[The prepared statement of Ms. Blankenship can be found on 

page 90 of the appendix.] 

Mr. KANJORSKI. Thank you, Ms. Blankenship. 

And now, we will hear from Mr. Robson. 

STATEMENT OF JOE R. ROBSON, 2008 CHAIRMAN-ELECT OF 

THE BOARD, NATIONAL ASSOCIATION OF HOME BUILDERS 

(NAHB) 

Mr. ROBSON. Yes. I thank you for the opportunity to testify 

today. 

The National Association of Home Builders was a strong supporter of EESA and the underlying TARP program. Unfortunately, 

while the stated intent of the legislation was expanding the flow 

of credit to consumers and businesses on competitive terms, the 

home building industry continues to experience severe credit problems. Additionally, the TARP program does not adequately respond 

to the Nation’s foreclosure crisis, which must be addressed to keep 

people in their homes, stabilize home prices, and promote recovery 

of the economy. 

NAHB supports the foreclosure mitigation proposal put forward 

by the FDIC and supports the use of TARP funds to address such 

mitigation efforts. The plan is a creative approach to loan modification. It contains features including risk sharing with current mortgage holders and enhanced compensation for servicers that will facilitate a systematic process to rework the terms on troubled loans. 

NAHB believes this approach can produce a significant reduction 

in impending foreclosures. 

NAHB finds it disturbing that banks that have received TARP 

funds have not used the resources to expand credit liquidity. For 

the home building industry, the dramatic deterioration in credit 

availability has severely impacted the acquisition, development, 

and construction credit market. Home builders are having extreme 

difficulty in obtaining credit for viable projects. Builders with outVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
62 

standing construction and development loans are experiencing intense pressures as the result of requirements for significant additional equity, denials on loan extensions, and demands for immediate repayment. In short, the credit window has slammed shut for 

builders all over the country. 

NAHB urges the committee to encourage regulators and lenders 

to give leeway to residential construction borrowers who have loans 

in good standing by providing flexibility on reappraisals and forbearance on loans to give builders time to complete their projects. 

NAHB believes that lending institutions receiving TARP funds 

should be accountable for the use of those funds. NAHB applauds 

the chairman for including provisions for reporting, monitoring, 

and accountability within H.R. 384. Such scrutiny should focus on 

assessing how TARP funds are used to support lending, as well as 

how resources are employed to support efforts to work with existing borrowers to work out loans and avoid foreclosures. 

The FDIC has just issued a letter to financial institutions it oversees to require documentation of the use of TARP funds. NAHB 

urges the other banking regulators to take similar steps to incorporate monitoring of TARP fund use in their supervisory systems. 

Policy efforts must also address the issue of housing demand. 

Falling home values are at the core of the economic crisis, driven 

by a record high supply of existing homes. Congress must pass 

temporary and targeted incentives to encourage Americans to buy 

homes if we are to stabilize the home prices, home values, and 

market overall. 

To bring consumers back to the market, reduce inventories of 

unsold homes, and stabilize home values, NAHB is advocating for 

a temporary program to strengthen housing demand and promote 

economic recovery. An enhanced home buyer tax credit, coupled 

with a mortgage rate buydown, will help restore consumer confidence and stimulate demand for homes by creating a sudden incentive for home purchases. 

NAHB appreciates the provision in H.R. 384 directing the Treasury Department to develop a program to make interest rates more 

affordable for home buyers. NAHB believes the plan should go further by including a specific rate target. We believe that temporary 

and targeted lower rates are needed to produce a significant 

change in home buyer sentiment and stimulate home buying demand sufficient to reduce unsold inventories. 

The credit market freeze, the declines in home prices, the surge 

in foreclosures, and the reduction in the home building activity are 

historic in scope, and time for action is now. We appreciate your 

efforts in addressing the shortcomings of TARP. Then you again for 

this opportunity. 

[The prepared statement of Mr. Robson can be found on page 168 

of the appendix.] 

Mr. KANJORSKI. Thank you very much, Mr. Robson. 

Mr. Charles McMillan. 

STATEMENT OF CHARLES McMILLAN, CIPS, GRI, 2009 

PRESIDENT, NATIONAL ASSOCIATION OF REALTORS (NAR) 

Mr. MCMILLAN. Thank you, Mr. Chairman. 

63 

I am Charles McMillan, president of the National Association of 

Realtors and director of realty relations and broker of record for 

Coldwell Banker Residential Brokerage, Dallas-Fort Worth. 

There is no question today that our Nation is facing an economic 

crisis, and housing is at the core. Realtors support the TARP Reform and Accountability Act. H.R. 384 reinforces NAR’s keys to recovery and would help stimulate housing investment, mitigate foreclosures, help current homeowners, and address the problems with 

liquidity in the commercial mortgage market. 

I am here today to testify on behalf of more than 1.2 million 

members of the National Association of Realtors on the ground who 

are involved in all aspects of the real estate industry regarding priorities that we believe should be addressed when deploying the additional funds for the Troubled Asset Relief Program. 

First, we agree that low mortgage rates are key to reducing the 

supply of inventory and stemming further price declines. In November, the Federal Reserve announced that it would purchase 

debt and mortgage-backed securities from Fannie Mae and Freddie 

Mac. That helped to reduce mortgage rates by more than 60 basis 

points. It was a step in the right direction, but we can do more. 

Realtors also support the idea of a mortgage buydown, as well as 

other efforts to help reduce rates, including additional purchases of 

mortgage-backed securities. 

Second, we believe ensuring consumers can get or modify a home 

loan is key to our economic recovery. H.R. 384 would help in several ways. It requires that a significant portion of the second $350 

billion in TARP funds be used for foreclosure mitigation. It would 

protect servicers who engage in loan modifications from liability as 

long as they act in accordance with the Homeowner Emergency Relief Act. And it would improve the HOPE for Homeowners Program 

by eliminating the 3 percent upfront premium, reducing the annual 

premium, and raising the maximum loan to value for many borrowers. 

We support these measures. However, we believe regulators also 

must work with financial institutions to improve the short sale 

process, remove unreasonable underwriting guidelines, and insist 

that credit reporting agencies correct errors promptly. 

Third, Realtors believe a healthy commercial real estate market 

also is key to our economic recovery, and we thank Chairman 

Frank for including commercial provisions in your bill. We support 

efforts to clarify Treasury’s authority to provide support for commercial real estate loans and mortgage-backed securities. Another 

option would be to use the Federal Reserve’s Term Asset-Backed 

Securities Loan Facility to provide capital for new high-investmentgrade commercial loans. 

In addition to the provisions I have mentioned, we ask that Congress consider additional incentives to bring buyers back into the 

market and reduce inventory. One of the easiest ways is by making 

the $7,500 first-time home buyer tax credit available to all buyers 

and eliminate the repayment requirement. 

We also ask that the 2008 FHA and GSE mortgage loan limits 

be made permanent. As of January the first, the loan limits in 

high-cost areas fell. Regulators also have recalculated the median 

home prices for all counties nationwide, which has further reduced 

64 

the loan limits in many markets. Many borrowers are facing higher 

mortgage rates and are simply unable to secure funding. We are 

concerned, on a related note, about recent increases in lender fees 

imposed by Fannie Mae, and we ask that Congress seek an explanation for these higher costs. 

In closing, Realtors agree that by refocusing TARP on housing finance and by creating additional incentives for potential home buyers we can put our Nation’s economy on the path to recovery. We 

thank Chairman Frank for introducing H.R. 384 to help unlock the 

housing market and for including provisions to address credit problems in commercial real estate. The National Association of Realtors and our members stand ready to work with Congress and a 

new Administration on these proposals, and I welcome any questions. Thank you so much for the privilege to testify. 

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

152 of the appendix.] 

Mr. KANJORSKI. Thank you very much, Mr. McMillan. 

And now, we will hear from Mr. Michael Calhoun. 

STATEMENT OF MICHAEL CALHOUN, PRESIDENT AND CHIEF 

OPERATING OFFICER, CENTER FOR RESPONSIBLE LENDING 

(CRL) 

Mr. CALHOUN. Thank you, Mr. Chairman. 

I am Mike Calhoun of the Center for Responsible Lending. 

Time is running out to stem the flood of foreclosures and protect 

Americans from an even deeper financial meltdown. I will commend to all of you the recent report from Credit Suisse that came 

out last month. It predicts that over the next 4 years, 8 to 10 million American households will lose their homes to foreclosures. 

That is one out of six of all households in the country that presently have a mortgage. Again, one out of six families are projected 

to lose their homes to foreclosure over the next 4 years. 

These devastating foreclosures continue to increase, despite the 

existing efforts. Congress intended when it passed the original 

TARP authorization that there would be substantial new efforts to 

address these foreclosures, but, unfortunately, they have not been 

forthcoming. The challenge is that we are caught in a Gordian knot 

created by the existing securitization and servicing structure. Mortgages were fragmented into small interests, and then the critical 

servicing of these loans, which includes decisions on foreclosures 

and loan modifications, were placed into the hands of an independent party who is financially penalized if they make loan modifications. So, not surprisingly, we are not getting the results that 

we would like. 

Several recommendations for the TARP funds. 

First, a significant portion of the remaining funds must be committed to directly preventing foreclosures, at least $100 billion. I 

would note that means that less than 14 percent of the total TARP 

funds would be used for addressing the core problem of the housing 

market, these foreclosures, and that problem is driving the overall 

financial crisis in our economy. 

Second, these funds must be used effectively and efficiently, as 

they are using precious tax dollars. But if there is a lesson we have 

learned over the last year and a half, it is that there is no perfect 

65 

solution. Just as we do not fail to attack cancer because of undesirable side effects, we must also realize that the huge economic damage of continuing foreclosures far exceeds the cost of new efforts to 

address these foreclosures. 

Third, experience over the last year and a half also teaches us 

that considerable flexibility is needed with Treasury still in the use 

of the TARP funds. For example, as it has been noted, the difficulties of the HOPE for Homeowners Program when we had prescriptive structure. So the plans should include the FDIC program that 

has been mentioned today, but there are other ideas that should 

be considered as well, some of those mentioned by John Taylor 

today. In addition, purchasing service rights to gain control over 

the modification of mortgages, purchasing second liens that currently block many of the modifications, as almost half of these troubled loans have second mortgages held by different parties that 

hold the first mortgage. And there should be compensation for 

servicers who perform mortgage modifications, as now they have to 

do this at their own expense. 

Finally, payments in exchange for deferred debt should also be 

explored. At the same time that this flexibility is provided, the case 

has been made well today that increased accountability, goals and 

transparency, as demanded in the pending legislation, are long 

overdue. 

Next, we must remove legal and accounting barriers that continue to block these foreclosures. These include the prohibitions in 

many of the pooling servicing agreements on modifications, the 

FAS accounting rules that prevent sales of loans out of pools to 

make them eligible for modifications, and, as mentioned, exposure 

to investor lawsuits. 

I will mention in particular an idea advanced by Professor Michael Barr, and that is to use REMIC rules as the leverage to get 

these desirable results. All pooling and servicing agreements require that they comply with the REMIC rules. And that means 

that if going forward—the REMIC rules provide tax status on these 

pools—if going forward continued tax advantage for the pools was 

conditioned on removing these barriers, we think they would rapidly decrease. 

The final point is that I would again urge the bankruptcy reform 

that would permit judges to make limited modifications, which 

would save up to 800,000 families from foreclosure at no cost to 

taxpayers. 

Thank you, Mr. Chairman. 

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

119 of the appendix.] 

Mr. KANJORSKI. Thank you very much. 

And now, we will finally hear from Dean Chris Mayer. Dean? 

STATEMENT OF CHRISTOPHER J. MAYER, SENIOR VICE DEAN 

AND PAUL MILSTEIN PROFESSOR OF REAL ESTATE, COLUMBIA BUSINESS SCHOOL 

Mr. MAYER. All right. Thank you. 

I am Christopher Mayer, Paul Milstein Professor of Real Estate 

at Columbia Business School. 

66 

We are witnessing an unprecedented housing and foreclosure crisis. House prices are in a near free fall. More than 2.2 million foreclosures were started last year, representing 3 percent of all owneroccupied houses. And the problem will get worse without prompt 

action. Over 4 million Americans are at least 60 days late on their 

mortgages. 

We must act now. I am here to describe a two-pronged approach 

to this crisis. 

First, Columbia Business School Professor Glenn Hubbard and I 

propose that the government arrange for the GSEs to issue new 

mortgages at a rate that is 1.6 percent above the 10-year Treasury 

bond. With Treasury rates at 2.4 percent, this would immediately 

lower conforming mortgage rates to as low as 4 percent. 

I want to be clear. This is not a subsidized rate but what the 

mortgage rate would be if credit markets were functioning normally. These mortgages would be profitable for taxpayers. House 

prices have already fallen at or below where fundamentals suggest 

and may decline an additional 10 percent or more without action. 

Our plan would stimulate as many as 2 million new home purchases, helping to absorb the inventory of vacant houses and putting a floor on house prices. 

Lower mortgage rates would also allow as many as 34 million Americans to refinance their mortgages, saving an average of $425 

per month, or $174 billion per year every year. This is a permanent 

reduction in homeowners’ mortgage payments and will stimulate 

higher consumption growth than any one-time tax reduction. 

Next, Columbia professors Edward Morrison, Tomasz Piskorski, 

and I have developed a new proposal which was distributed with 

my written commentary to prevent needless foreclosures. 

Recent research shows that banks that manage their own portfolios are about a third less likely to pursue foreclosures than 

servicers of securitized mortgages. Why do securitizers opt for foreclosure? First, it is costly to modify a mortgage, and they aren’t reimbursed. Second, the servicer faces great litigation risk whenever 

it modifies a loan. Third, some securitizations even forbid modifications. 

This is an important problem. Although securitized mortgages 

represent only 15 percent of outstanding loans, they account for 

about half of all foreclosure starts. 

We propose that servicers be paid an incentive fee equaling 10 

percent of mortgage payments, for up to $60 per month. This program aligns incentives between servicers and investors and makes 

modification the cost-effective and preferred solution. If a mortgage 

is ongoing, the servicer receives a monthly fee. If it goes to foreclosure, there is no fee. 

Second, the Federal Government should eliminate restrictions on 

modification in existing securitization agreements along the lines of 

section 205 in this proposal. Explicit contractual restrictions should 

be deleted. Ambiguous provisions that should be clarified via a safe 

harbor that insulates reasonable good-faith modification from litigation if the increase returns to investors as a group. We propose 

compensatory payments to the small number of investors whose interests might be harmed. But the cost of that is less than $2 billion 

in total. 

67 

Our proposal benefits homeowners as much as servicers and investors. A homeowner is a prime candidate for loan modification 

when her income is sufficient to make payments that over time exceed the foreclosure value of your home, just as envisioned in proposed bankruptcy reforms. 

But bankruptcy reform, which is getting a lot of attention, is 

dangerous. Cram-downs raise the cost of future borrowing. If just 

1 in 12 existing homeowners decided to stop paying and pursued 

bankruptcy, we would have double the current delinquency rate 

and a catastrophe. 

This is not unprecedented. It has happened before with credit 

cards. 

In addition, servicers might actually prefer bankruptcy to loan 

modification, because typical securitization agreements reimburse 

servicers for expenses in any legal proceeding, be they a foreclosure 

or a bankruptcy, but the servicer is not paid if they modify the 

loan. Bankruptcy reform could result in millions of needless and 

damaging Chapter 13 filings, delayed resolution of the current crisis for years, and two-thirds of all bankruptcy plans ultimately fail. 

The FDIC proposal is a big step forward but has its own drawbacks. It encourages servicers to modify as many loans as possible, 

reducing ultimate payments to investors, but does not condition the 

incentive payment on successful modification. Additionally, the 

mortgage guarantee provision could cost taxpayers $70 billion and 

is unnecessary under our plan, which would encourage a similar 

number of modifications for a fraction of that price. 

The proposals I discuss today would address the current crisis at 

lower cost and more effectively than other programs. Losses for bad 

loans would remain with private investors, rather than taxpayers. 

With prompt action, I believe we can finally begin to plan for a 

housing recovery. Thank you. 

[The prepared statement of Professor Mayer can be found on 

page 142 of the appendix.] 

Mr. KANJORSKI. Thank you very much, Dean. 

I am going to pass on my questions, and I will recognize Mr. 

Moore. 

Mr. MOORE OF KANSAS. Thank you. 

I would ask Ms. Murguia, in the Congressional Oversight Panel’s 

second report issued on January 9th, the Panel said they wanted 

more information about what standards the Treasury uses to select 

which institutions are to receive TARP money. Since they are not 

here to explain the standards that they may use, what standards 

do you believe should be used to ensure the remaining TARP funds 

are spent fairly and responsibly? 

Ms. MURGUIA. Thank you, Congressman Moore. Thanks for your 

leadership on this. 

I think the legislation laid out by Chairman Frank here includes 

some of the key incentives that we need to see or the key targets, 

and that is requiring simply to implement a systemic loan modification system. We need to require that for any of our folks who 

are engaging with Treasury. Anybody who wants to receive these 

funds has to demonstrate that they are willing to come up with 

that and to show other ways in which they are increasing lending 

and putting capital out to those who need that access. And, for us, 

68 

the key benchmark is a systemic loan modification. We need to see 

that in any piece of legislation. 

There are other incentives, and you have heard from other folks 

here about financial incentives that could be added to that, but we 

can’t require on voluntary programs any more folks to come forward. That simply isn’t good enough. We have had programs like 

HOPE for Homeowners and FHA Secure that relied on folks to do 

it voluntarily, and they just haven’t been effective. We need something systemic, and it needs to be a clear incentive for folks to engage in this. 

Mr. MOORE OF KANSAS. Thank you very much. Thank you, Mr. 

Chairman. 

Mr. KANJORSKI. Thank you, Mr. Moore. 

Mr. Posey? 

Mr. POSEY. Thank you, Mr. Chairman. 

Three very brief questions. First, for the Dean, by what mechanism do you suggest that Congress practically implement lowering 

mortgage interest rates to around 4 percent, as you recommended? 

Mr. MAYER. I think this would have been an interesting question 

to have asked Mr. Kohn when he was here earlier. 

Essentially, what we are doing now is relying on the Federal Reserve to print money and use that to purchase long-term mortgagebacked securities. That isn’t really an economically viable solution, 

and it puts the U.S. Government at greater risk. What we should 

be doing instead is issuing Treasuries to offset mortgages. Mortgages are longer duration assets, and we can issue Treasuries to 

support those assets. That is a much more viable solution. It is 

much more efficient, and it doesn’t rely on broken credit markets, 

which are currently setting mortgage rates that are just too high. 

Mr. POSEY. Okay. Thank you. 

And, for Mr. Yingling, in your testimony you cite that during the 

current recession, bank lending has actually expanded 12 percent 

for business loans and 9 percent for consumer loans. In this case, 

what do you think accounts for the constriction in credit markets? 

Mr. YINGLING. I think it is important to get some facts on the 

table, because I think there is understandably a great deal of misunderstanding, particularly among the public and the media about 

this. 

We definitely have a credit crisis. But people extrapolate from 

that and think that means banks aren’t lending, like banks provide 

all the credit. Banks in recent years have provided in the traditional way about one-third of credit. Two-thirds is outside the 

banking industry. 

In our testimony, we have some very interesting charts, because 

they show what has happened to the nonbank part. And it is like 

a cliff. In the last 6 months or so—or year or so, the nonbank lending has gone down almost 90 degrees; and the nonbank credit markets are totally broken. It is interesting that the bank credit actually in 2008 expanded, as you said; and this is highly unusual. 

We have a chart in there that shows during a recession—and we 

now know we have been in a recession all during 2008—bank lending generally goes down because the demand goes down. So I am 

not saying there aren’t issues relating to bank lending, but I think 

the critical point is traditional FDIC-insured banks are in a posiVerDate Nov 24 2008 17:43 Jan 25, 2011 Jkt 063129 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 K:\DOCS\63129.TXT TERRIE
69 

tion to lend, and in fact they not only have to continue lending, 

they have to make up some of this gap from nonbank lending. That 

is why we really need to focus on FDIC-insured traditional banks, 

and we would agree with the provisions in the bill that talk about 

methods to measure that so we know what banks are doing. 

Mr. POSEY. Thank you. 

Mr. Chairman, do I have time for one more question? 

Mr. KANJORSKI. I am sorry? 

Mr. POSEY. Do I have time for one more question? 

Mr. KANJORSKI. You can have it. 

Mr. POSEY. Thank you, Mr. Chairman. 

This is for Ms. Blankenship. I have been concerned for some time 

about the delays in the Treasury’s deployment of funds to small 

community banks, including S corporations and mutuals. Your 

members are at a disadvantage because of the Treasury’s inability 

to roll out guidelines. Can you tell me what your discussion with 

the Treasury has been and what, if any, rationale Treasury has 

provided for such a lengthy delay? 

Ms. BLANKENSHIP. It has been a source of frustration, I will tell 

you that, for many community banks. And you are right. Roughly 

one-third of community banks, even as it stands today, have no access to TARP funds. And they are highly frustrated. 

In our discussions—and we have been working with Treasury 

over the last several months and made suggestions. The response 

is that because of the structure of Subchapter S and the inability 

of their tax structure to be allowed to issue preferred stock. But 

there are other ways around that. You could do phantom stock. Or 

there are other ways. We could simply allow Subchapter S banks 

to issue preferred stock. 

And the mutuals have their own issues as well. I am continuing 

to get letters from members and in particular one Subchapter S 

bank in Florida that was well capitalized. And she said, I have 

made my application, and it has been sitting for months, and I am 

highly frustrated that the big banks got their money initially. You 

need to understand that, when there is a mandate for lending, the 

community banks have nothing to do with this money but lend. 

That is all we can do to leverage it and make it. And we make 77 

percent of farm loans and 40 percent of all small real estate commercial loans. We can’t turn around and invest it. We don’t have 

investments overseas. We invest it back on Main Street. So that is 

why it is so vitally important to give this remaining one-third of 

all banks access to this. Because those banks on Main Street are 

vitally important in our communities. 

Mr. POSEY. I agree. And frustration is a very kind word. 

I thank you, Mr. Chairman. I yield back. 

Mr. KANJORSKI. Thank you very much. 

Mr. Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Ms. Murguia, thank you for being here. I was looking through 

your testimony, and on the second page you have a quote: ‘‘For the 

Hispanic community, we expect the height of the crisis will likely 

come in 2009 and 2010, when interest rates are scheduled to adjust 

on loans common among Hispanic borrowers.’’ 

70 

This would suggest what the NAACP suggested, which is that 

Hispanic borrowers were targeted for subprime loans. Do you have 

either empirical evidence or anecdotal evidence that this is in fact 

what has happened in the Hispanic community as well? Because 

we hear a lot in here about how we blame the victim. You should 

not have allowed us to rip you off. 

Ms. MURGUIA. Sure. Absolutely. And, actually, I was here I think 

a year ago testifying before this committee and talking about the 

nature of predatory lending, offering lots of statistics and stories 

about how in our community—and our organization has a network 

of at least 15—excuse me, 50 homeownership counseling sites 

through our network of affiliates, community-based organizations 

which work directly through families, trying to get them good information so that they can prevent being subjected to this exploitation. And what we have found, of course, the best evidence is 

that when these folks have access to good education, when they 

have been prepared to know how to understand the system and 

navigate that system, guess what, none of those families are in 

homes that are in trouble with loans that are in trouble. But when 

we don’t have the ability to get to those families and protect them 

and get them the information that they need and with people that 

they trust, then, obviously, we have real problems. 

And what we saw and what we are seeing now is that many of 

those subprime loans, many of the servicers that were targeting 

folks out there clearly targeted those who were most vulnerable. 

And a lot of those folks were out there. 

Of course, you always have a small fraction of folks who maybe 

should have known better. By and large, we understand that can 

happen. But, by and large, we are talking about a number of people 

who were not given the right information. The landscape just was 

not fair for them in terms of the folks who work with them. 

When they are working outside of those community-based organizations, they are just very vulnerable. And we have seen that happen through our own network and seen story after story where that 

has been the case. And, of course, now that is being proven out 

through the statistics that we are seeing here today. And we are 

going to see 2009 and in 2010 this higher peak of percentage of 

those loans that will go into foreclosure among the Latino community. 

And, obviously, it is important for us to say we can step in, we 

can still intervene and help protect some of these families from losing those homes. But it is going to require this bold effort by Congress to move on legislation like this so that we can have an intervention and so that we can have this systemic ability to have modifications tied to what families can really afford. If we can do that, 

the FDIC model, the mod in a box, we can get some progress on 

helping folks save those loans and helping financial institutions not 

inherit properties they have no knowledge of what to do with and 

no real recourse for what to do with them. 

So, obviously, we see that as a real problem. We think this legislation that Chairman Frank is offering will help us move in the 

right direction. But the key, Congressman Cleaver, is accountability. We have had all this money go out the door. And even if 

we just put some quarterly reporting here we would be able to tell 

71 

you how families could be or were being served. Right now, nobody 

can talk about that, because they can’t point to any evidence that 

Treasury has been able to come up with. So accountability really 

matters, especially now. 

Thank you. 

Mr. CLEAVER. That segues into a question for Mr. Calhoun. 

In your testimony you mentioned that considerable flexibility 

should be allowed for the Treasury. We just went through that. We 

just went through considerable and, I must add, stupid flexibility 

for Treasury. Nobody can speak for Congress, but I can almost assure you that if flexibility is built into any legislation for Treasury 

it ain’t going anywhere. I know it is bad English, but it is good politics. 

Mr. CALHOUN. When I talk about flexibility, I am talking about 

how they carry out the foreclosure prevention program. But the 

legislation I think is actually well designed, and requires that by 

March 15 there be a specific foreclosure prevention program that 

also has to be approved by the TARP oversight board and failure 

to do that cuts off all of the TARP funds. So I applaud that approach in the legislation. So I agree with you, the past experiment 

worked very poorly. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Mr. KANJORSKI. Mr. Lance. 

Mr. LANCE. Thank you, Chairman Kanjorski. 

My questions are directed at Professor Mayer. Mr. Calhoun said, 

as I understand it, roughly one in six mortgages may be in foreclosure, those who have mortgages. Those are dramatic numbers. 

You stated in your testimony that foreclosures will increase unless 

we do something quickly, and I think Congress will do something 

quickly. But you also say it is important to protect taxpayers. As 

I understand your written testimony, you believe that section 204 

can be improved and not as much money necessary as has currently been anticipated. Could you explain that in a little greater 

detail? 

Mr. MAYER. Yes. Probably the most expensive provision, and I 

think the FDIC estimates of the mortgage guarantees are about 

$25 billion. I think one could easily look at what existing loan 

modification programs have done and easily come up with estimates that are much higher than that. 

So the question is if we are going to spend what I would guess is $50 billion to $70 billion or more on mortgage guarantees, you 

would really like to know that is going to be effective. 

To our view, the barrier for servicers is not about the Federal 

Government guaranteeing mortgages, the barrier for servicers are 

really twofold. First, they are not compensated to modify loans 

properly, and they are not incented to do that. And the second is 

that they have very complicated pooling and servicing agreements. 

So under our proposal we break down both of those barriers. We 

explicitly call for change in contracts where necessary to make 

clear that servicers’ duty is to improve returns for all investors. 

Mr. LANCE. And that can be done constitutionally? 

Mr. MAYER. That can be done constitutionally, and this is co-authored with a professor at Columbia Law School who has clerked 

on the Supreme Court, Professor Edward Morrison. 

72 

And the second part of this is we believe that there are better 

ways to incent servicers. So instead of paying $1,000 for a modification, we should pay you less money up front but more money every 

month as the borrower makes payments. So the modification has 

to be successful. 

Mr. LANCE. Thank you. Then going on regarding your litigation 

safe harbor suggestion, the legal standard of servicers’ reasonable 

good faith belief, I have a concern that might be interpreted differently among the various Federal circuits, and if you would comment on that and how we might be able to resolve that issue. 

Mr. MAYER. Not being an attorney, I will defer to working with 

my co-author and other people on this. This has been vetted by 

constitutional scholars at various other law schools as well as including at least one sitting Federal judge. 

Mr. LANCE. I do have the burden of being an attorney, and I 

would appreciate any written information you have through the 

Chair. 

I yield the balance of my time. 

Mr. CALHOUN. There is some suggestion, and some of it is incorporated in the existing legislation, of setting up a standard net 

present value test and then if the servicer complied with that net 

present value test so that it showed that the projected recovery to 

the investors was higher with the modification than with the foreclosure, then that would provide a more definite test. I share the 

burden and your same concern. 

Mr. LANCE. Thank you, Mr. Chairman. 

Mr. KANJORSKI. Thank you, Mr. Lance. Mr. Perlmutter from Colorado. 

Mr. PERLMUTTER. Thank you, Mr. Chairman. 

I am going to start with Mr. Yingling. You and I have been at 

several of these hearings starting in September, November, and 

now. Mr. Calhoun, in answering one of Mr. Cleaver’s questions, 

said that TARP has not performed well, or ‘‘poorly,’’ I think was 

your term. We have heard credit crisis, liquidity crisis, housing crisis, foreclosure crisis. Have we done anything by TARP from September until now? Have we improved the situation as we saw it 

and we were presented with information in September of this year? 

Mr. YINGLING. In some ways, yes. But there are really terrible 

problems left. 

We have a chart in my testimony that looks at the spread between LIBOR and Treasury, and I don’t want to get too technical. 

But back at that period, the international lending markets were a 

disaster. It shows how that spread had spiked up to historic levels 

and so banks around the world wouldn’t lend to each other. That 

has come down. I think it is clear there is more confidence in the 

financial markets. So we have accomplished something. 

Mr. PERLMUTTER. I think at the time the big concern was banks 

were not lending to one another. That was the testimony that we 

had, that this was like the panic of 1907 when banks refused to 

do business with each other because they didn’t know which bank 

would be left standing. Have we improved that situation? 

Mr. YINGLING. Yes, we have improved that situation. 

73 

Mr. PERLMUTTER. I have taken a lot of heat for voting for this 

bill, and I want to know whether we have made some progress 

somewhere. 

My second question, when we have had these hearings, we talked 

about stabilizing the markets, restoring confidence, and stimulating the economy. A lot of what I am hearing, Mr. Robson, from 

the Realtors, we want to stabilize real estate prices so we can start 

building again. So many people rely on the value of their homes as 

really their whole net worth. I have heard from Dean Mayer and 

I know that the Realtors are supporting kind of a refinancing 

buydown so we can start buying and selling houses. In the bill that 

we have before us, it doesn’t really give us any particulars, but do 

you see with Dean Mayer’s proposal or some other proposal how we 

can get the real estate market moving again at a 4, 41⁄2, 5 percent 

lending rate? 

Mr. Robson, I will turn to you first. 

Mr. ROBSON. I am not sure if 4, 41⁄2 percent is enough. We are 

advocating 2.99 for a short period of time, maybe go up to 3.99 percent. It is really more of a shock to the system. Certainly, mortgage 

mitigation is important. You have to keep the excess inventory 

from building up. But you also have to have some sort of stimulus 

to encourage buyers to get back in the market because they are 

staying away. They are afraid. It is the biggest investment that 

most people are going to make, and they are going to be very cautious in doing it today. 

Mr. MCMILLAN. I did not flippantly make the comment that I 

was representing Realtors and representatives of consumers on the 

ground. I think one of the things that we need is more realism in 

the workout. We speak of loan mitigation and we speak of recidivism amongst those who were mitigated. One of the things that is 

not addressed is there has not been realism. When we talk about 

loan modification, when the lender acquiesces to reduce the existing mortgage by 10 percent when the market shows that this property has clearly fallen 30 to 40 percent, they are just prolonging 

failure. 

The other thing that I see when we talk about mitigation of 

mortgages, we are only speaking of workout. We are not advocating 

that a homeowner keep their home at any expense. But the circumstances show that the homeowner is not in a position, perhaps 

they have lost their job, then we are looking at realism with respect to the short sale. And the short sale will permit the property 

to be purchased by an able and willing borrower today, many of 

which we bring to the table, with proper credit credentials and offering a reasonable price with respect to today’s market, and that 

is sabotaged by delaying tactics and others that eventually permit 

the property to go straight to foreclosure. 

Mr. PERLMUTTER. Thank you. 

Mr. KANJORSKI. The gentleman from Illinois, Mr. Manzullo. 

Mr. MANZULLO. Mr. Chairman, may I ask if there is anybody left 

in the room from the Federal Reserve or the FDIC? Anybody here 

from those organizations? Raise your hands. 

I think that is the problem; they are gone. They don’t understand 

that really there is a consensus here that you have to get people 

to start buying houses again. Pouring money to bail out crappy 

74 

loans, that is not going to do any good. That is why I encouraged 

them to read Ms. Blankenship’s testimony. No one is talking about 

the zealous over-regulators that seemingly have a mission to destroy community banks. Ms. Blankenship, what is going on there? 

Ms. BLANKENSHIP. What we are hearing from our bankers in the 

field is that in many cases you have examiners coming in and they 

have a knee-jerk reaction, if you will, from this crisis. I believe our 

system is broken in one respect in that you should have regulation 

according to risk. The banks that actually got us into the bailout, 

if you will, got the money first. 

Mr. MANZULLO. The guys who caused the problem or the people 

who caused the problem got the money. 

Ms. BLANKENSHIP. Right. We are sitting on Main Street, and yet 

we have to deal with over reaction by the examiners, reputational 

risk, lack of confidence by our own customer base, and so we have 

had to spend all this time and resources reeducating our customers 

while our business model is a basic business model and my banking business model has nothing in common with Bank of America. 

Mr. MANZULLO. When you were here a couple of months ago with 

your fellow colleague from Texas, who is the head of the Automobile Dealers Association, and we talked about the fact that 

money has been out there, has your bank ever had a crunch on 

lending money to people who want to buy automobiles? 

Ms. BLANKENSHIP. No, but we have had decreased demand because we had competitors, the GMAC and some of the other 

nonbank lenders, even the credit unions, who were able to offer 

substantially lower rates. The money is there to lend. 

Mr. MANZULLO. Somebody created the myth—no, it is not a myth 

when it gets to guys who are building subdivisions and on that 

level. But when we talked to—what is name of the lady who is 300 

miles away from you, which is across the street in Texas, but she 

said that at her Ford dealership, and as I talk to people across the 

country, people come in and say, I didn’t think I was going to be 

able to buy this car, and people are saying that probably with 

homes, and the people who got it right here are those who say the 

only way out of this mess is to empower those people who are still 

working to buy homes. That is the only thing that is going to work. 

Everything else is patchwork. You can have all of the remedies you 

want for mortgage mitigation, etc., but if people are not working, 

everybody is wasting their time and those poor folks will end up 

losing their homes anyway. 

Another example, I have a 150-year-old building in downtown 

Oregon, Illinois, population 3,500. I just got two tenants after it 

being empty for almost 2 years. When I sell it, if I resell it, there 

is a huge recapture tax. If I didn’t have to pay that recapture tax, 

I would take that right off the property and lower it a tremendous 

amount of money. But my problem is, where are the people in government who think according to free market and common sense 

principles? Anybody? Mr. Taylor, you want to use eminent domain. 

That is about as far from free market as possible, but I will give 

you a chance to answer the question. 

Mr. TAYLOR. I just want to say, it is your free market that 

brought us to this situation. It was a market that was free to cheat 

75 

and free to corrupt, it was all of those things. It is the lack of regulation. It is not overregulation that got us here. 

Mr. MANZULLO. We know that. 

Mr. TAYLOR. I agree with you, jobs are part of the answer. But 

we need to understand if we allow another 8 to 10 million foreclosures to occur, I can assure you that many of the homeowners 

in your district right now who are working will lose their job. 

Mr. MANZULLO. But if you restart the automobile industry, it is 

so easy because you will be the direct beneficiaries of that. When 

people go back to work in the automobile industry, it goes all of the 

way up the line. It is trickle up. That is how it works. 

Thank you. 

Mr. KANJORSKI. Mr. McMillan? 

Mr. MCMILLAN. Mr. Chairman, I wanted to address his commercial challenge because we represent commercial real estate as well, 

and we have many anecdotal stories from our commercial practitioners, many of them owners of high-quality commercial assets 

themselves, and have been with lenders for many years. Many of 

them have 50 percent equity and their loan is about up and the 

lenders are refusing to give them money. 

One of the things that we propose is the use of the Federal Reserve’s Term Asset-Backed Securities Loan Facility to provide capital for those new high investment commercial grade loans. 

Mr. KANJORSKI. Thank you. Mr. Ellison. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Mr. McMillan, I am going to pick up right where you left off. 

Many of my people in Minneapolis say the next shoe to drop is the 

commercial real estate market. Do you agree with that? 

Mr. MCMILLAN. Absolutely. That is our next crisis and that crisis, sir, is more imminent than we know. 

Mr. ELLISON. How did the commercial borrowers get into this 

mess? The general wisdom in the residential market is there is a 

proliferation of exotic mortgages, 2/28s, 3/27s, all of that stuff. How 

did you guys get into all this stuff? 

Mr. MCMILLAN. Sir, that is an excellent question. The analysis 

by our folks show that the majority of businesses are fueled by 

small businesses, and those are the tenants in these commercial 

buildings. As these small tenants themselves experience difficulty 

in financing, the vacancy rates begin to go higher. And we have 

seen vacancy rates in many commercial markets move from traditionally 3 percent to 10 percent, which we know is problematic 

when we begin to do our due diligence with respect to analyzing 

commercial purchases. 

Mr. ELLISON. One of the points I have tried to make to people 

is if you do the business of selling mortgages and you go into the 

market 3 and 4 times in the morning and 3 or 4 times in the afternoon, you are at an advantage with anybody, whether they be a 

residential purchaser or a commercial purchaser. Therefore, we 

need the regulation Mr. Taylor is talking about because we have 

a significant imbalance. 

Moving on, we have heard that we have a demand-side problem 

here, that unemployment income is a real issue. Mr. Calhoun, can 

you talk to me about this phenomenon of the FICO scores that are 

76 

very high being the only ones who can actually borrow money these 

days? Do you agree with that and what do we do about it? 

Mr. CALHOUN. I think everybody at the table would agree there 

is essentially no private label lending, that all of the mortgage 

lending that is occurring today is government guaranteed through 

FHA, VA, or Fannie or Freddie. They have generally imposed higher FICO score standards. 

We need to expand back through both FHA and the GSEs, more 

access to those lower FICO scores. 

Part of the problem is again we have talked about mixed messages. There has been, if you will, an overreaction of credit. Credit 

was too loose and needed to contract some, but there has been a 

substantial overreaction and the markets need to be loosened up, 

and the TARP funds—I want to make sure that my comments were 

understood before—the TARP funds have stabilized credit markets 

and eased credit in some significant ways. Their greatest failing is 

they have done little or close to nothing in terms of foreclosure prevention, which not only keeps families in their homes but it prevents a flood of inventory on the market. In markets like California, 40 to 50 percent of the real estate transactions are foreclosures and REOs and they are crowding out the home builders, 

who can’t add any inventory to that overflooded market. 

Mr. ELLISON. Mr. Taylor wants to discuss the FICO score issue, 

and I might want a house, might need a house, but if I have a 600 

score, not a 700 score, I can’t get a loan. 

Mr. TAYLOR. There is no reason that a healthy competitive banking system, this system represented by Mr. Yingling, can’t meet the 

needs of low- and moderate-income and blue-collar working class 

people. In fact, they did quite effectively up until 2003, when we 

had a steady growth in homeownership rates among low-income 

people and among minorities. There were huge jumps. In 1993 and 

1994, a 50 percent increase in new homeowners in African-American and Latino communities. Tremendous success, all prime lending. In fact, if you look at the high-cost lending that did occur, this 

predatory, toxic, usurious, free market stuff that was allowed to 

occur unregulated, less than 10 percent was to the first-time home 

buyer. Less than 10 percent to a new homeowner. Half was refinance, the other half was people expanding their house. 

Mr. ELLISON. That is an important observation. I have been singing that song myself. 

Let me say, part of the new TARP bill, the chairman’s bill, says 

there will be a safe harbor for servicers who will modify loans. This 

safe harbor is something you all support, I assume. Can you talk 

about the importance of this provision? And also if you might, how 

we need to get investors in this conversation if we are going to do 

anything more than just voluntary modifications: What are the investors going to do? 

Mr. KANJORSKI. Mr. Ellison, you have run out of time. Does 

somebody want to answer? 

Mr. TAYLOR. All these questions always end with how are we 

going to get the investors involved, and that is the problem. With 

servicers, their primary obligation is to maximize profits for the investors, for the trustees. That is their job. So, yes, we support that 

safe harbor because that will give them the security of being able 

77 

to make some modifications, but they are still going to make modifications where many are going to end up redefaulting because they 

are not going to get the investor to go along at the level that needs 

to occur. 

I wish some Member of Congress would look at the eminent domain idea because none of you strike me as having taken the time 

to have done that. Look at what that offers because that gets at 

all of the investor problems. That gets at all of the voluntary 

issues, and it brings that mortgage down to a level where we don’t 

even need a 50 percent guarantee and we could have the free market refinance these loans and taking the loss that has already been 

suffered on Wall Street. Take a look at that. 

Mr. MAYER. Our proposal does precisely that in a legal way without the mortgage guarantees, I would sort of reiterate that, and it 

does so in a legal and constitutional way without having investors 

step in and impair modifications. So I would encourage consideration of that view. 

Mr. KANJORSKI. Thank you. 

Eminent domain is primarily State law, not Federal law. Each 

State has a different process through which you exercise eminent 

domain. So what you are suggesting is that we preempt State law 

and nationalize it. I won’t argue that may be where we are headed, 

but you really want to think seriously before we usurp all real estate law at the Federal level. 

Mr. TAYLOR. I am talking about a national problem. If you want 

to wait for the States to pass legislation to try to do something, 

good luck. But the Federal Government has the authority; there is 

no question about it. 

Mr. KANJORSKI. Mr. Foster. 

Mr. FOSTER. Mr. Robson, I should say I am a little pessimistic 

about the near-term prospects of restarting the home construction 

industry when there is a big overhang. We are basically overbuilt. 

I was fascinated by your comment in your written testimony that 

there is no overhang in multi-family homes. If that is true, that 

means that is where there is hope that we could incentivize something that might restart some construction. 

Mr. ROBSON. That would be correct except nobody can get financing. 

Mr. FOSTER. Can you get some documentation for this zero overhang in the multi-family homes? 

Mr. ROBSON. It is just the vacancy rates. When people are foreclosed on, they have to go somewhere. That is the bottom line. 

There is always an offset between excess inventory in single family 

versus multi-family. The problem is there is very, very little multifamily being built now because they can’t get financing. 

Mr. FOSTER. Professor Mayer, I think this represents as good an 

example as I have seen of a semi-voluntary mortgage modification 

plan. Have you or someone scored the effect on the balance sheets 

of the big financial players, the taxpayers and so on, of each of 

these things to the best of your ability? 

Mr. MAYER. There is no way to effectively do it because you don’t 

know who owns what securities. We have put forward very detailed 

cost estimates as to what this would cost various groups, including 

taxpayers. Our estimate for taxpayers is that the total cost of the 

78 

servicer incentives is about $9 billion. The cost of making aggrieved 

investors whole is very modest at $1.7 billion. So the total cost to 

taxpayers of our program is $10.7 billion. We estimate it reduces 

at least a million foreclosures. But I will say essentially the proposal is very similar to the FDIC except that it provides higher 

powered incentives for people to modify loans than is true under 

the FDIC, and we see no need for the incredibly expensive mortgage guarantees where taxpayers were taking on half the losses because mortgage guarantees aren’t the problem, and so why should 

we spend that kind of money on something where it is unnecessary 

to achieve something that we are trying to get. 

Mr. FOSTER. In your testimony, you indicated that you felt housing prices had already fallen below what their fundamentals would 

suggest, and you have a link on your written testimony that appears to be broken, at least on my hard copy. I would appreciate 

getting that information because that again is fascinating, if true. 

Mr. Yingling, first, I have to commend you on the numbers and 

the graphs. You are right, the graphs on page 9 and following are 

tremendously interesting. And since they say they are from the 

Fed, maybe we can believe them. 

The one labeled ‘‘Bank Lending Continues To Grow’’ and shows 

that bank lending has been essentially constant or so slowly growing during all of this period, which is very different than what we 

are hearing anecdotally. Is the mix of loan types changing? If we 

are seeing a lot of the loans that are increasing are preestablished 

credit lines that are finally being exercised, and in order to cancel 

that you are actually squeezing on other small businesses, and so 

on, because this really seems like it is inconsistent with what I am 

hearing from my constituents who come to my office every week 

complaining that the banks are cutting them out in ways that they 

didn’t use to. 

Mr. YINGLING. These graphs could add 55 footnotes to explain all 

of it. I think there is a little bit of the element you just talked 

about. There is some drawing down credit lines. But let me have 

sent to you the details on all of it. 

But I think the fundamental fact is still true, that it is amazing 

that bank lending, traditional bank lending, has held up because 

if you look at the other graph that talks about during recessions, 

it almost always goes in the tank as loan demand goes down. 

I think it is true there are loans available and, sure, in individual instances credit lines have been tightened. But there is a 

gross misperception that lending is not available from banks. 

Mr. FOSTER. Do you have a breakdown of the different types? 

Mr. YINGLING. We can provide all that. We will give you a complete breakdown. 

Mr. FOSTER. Thank you. 

Mr. KANJORSKI. Mr. Driehaus. 

Mr. DRIEHAUS. As we are about to be called over to vote, I guess 

I would like to focus on one aspect of this crisis that I don’t think 

gets nearly enough attention. Mr. McMillan, you talked about 

being real and looking at the reality of this situation. It seems to 

me that TARP has to some extent thawed the credit crisis and, 

thanks to the efforts of Chairman Frank, we are going to see an 

increase in foreclosure mitigation. 

79 

But the communities I represent have been paying the price of 

this foreclosure crisis for years. And a $7,500 tax credit is just not 

going to do the job in terms of incentivizing people to go in and 

purchase homes. It is barely going to cover the cost of the copper 

pipe that was stripped out of the home in the first place. 

We have a crisis of huge proportion in these low- and moderateincome neighborhoods. My fear is that this legislation, the TARP 

legislation, isn’t going nearly far enough to help those neighborhoods recover. I waited for this panel because so many of you represent the folks on the ground, the folks in those neighborhoods. 

So while I don’t expect you to give me the answers right now, 

and we actually all have to run out of here to vote, I would encourage all of you to think about that, whether this addresses that part 

of the problem, those communities like Cincinnati and other older 

cities that are struggling over the enormity of the costs associated 

with the foreclosure crisis and how we are going to help them 

recreate the market because a $7,500 tax credit just doesn’t do it. 

I would encourage you to forward your responses in writing to 

myself and the committee. That may begin this conversation. 

Mr. KANJORSKI. Thank you very much. Mr. Maffei. 

Mr. MAFFEI. I want to thank the panel for staying so late. Given 

my position on this august committee, I have a feeling I will be 

thanking panels a lot for being here. 

I just want to follow up on something Mr. Foster was questioning 

about. Mr. Yingling, about your charts, because I think you put 

this as simple as I have heard it yet, which is that banks are continuing to lend and in fact are lending at a higher rate but the secondary market is so completely dried up. My constituents, like Mr. 

Foster’s, are experiencing this as banks lending less. They are experiencing freezing in their home equity lines of credit. They can’t 

get car loans and they can’t get student loans in some cases, and 

it is the bank that is telling them no even if it may be the secondary market. Can you explain why that is or how we can describe that better? 

Secondly, does title IV of the chairman’s bill address that at all 

when it gives additional authority to the Treasury Department for 

purchasing asset-backed securities that would help with loans for 

autos and student loans? 

Mr. YINGLING. The answer to the last question is yes. Part of it 

is just education. The media goes out and says bank lending is 

down, and it confuses people. Mr. Manzullo had an interesting comment. And I had an occasion just this week where an Ohio banker 

told me that an automobile dealership in his small town closed 

down and the automobile dealer said, it is because I can’t get credit 

for my auto loans. And then the reporter came to the banker and 

said, why aren’t you lending for auto loans? The answer was that 

he was lending. It was the captive finance company of that automobile company that couldn’t get loans out. So I think a lot of it 

is education. 

The secondary market is really a huge problem in student loans 

and credit card loans and auto loans. People don’t realize that half 

the funding of credit card loans has historically come from the secondary market. So we need two prongs. We need to support banks 

80 

around the country so they can pick up some of the slack here, and 

we need to undertake methods to unfreeze the secondary market. 

Mr. MAFFEI. My district is, according to Forbes magazine, the 

second best. This is Syracuse, New York, the second best real estate market in the country, not because our property values are 

going up but our property values are not going down and yet people 

are getting their home equity loans stopped essentially in their 

tracks. 

Mr. YINGLING. In our testimony, there are numerous government 

policies that move in the opposite direction. It is amazing to see the 

conflicting messages that banks get. Our accounting policies are a 

prime example of it. 

Mr. MAFFEI. One last question, and then I will go vote and allow 

the chairman to dismiss you. 

Would some of these smaller loans, would that be helped by easing up, and I am assuming I know your answer to this, but easing 

up for the community banks? Are they more likely to offer those 

kinds of loans, is that part of the problem, bank lending continues 

to grow but is more on the bigger bank side than the smaller 

banks? 

Mr. YINGLING. I think it is all banks. But certainly, community 

banks are a major source. Mr. Taylor talked about the fact you go 

back a little ways in history and you would find that banks did a 

lot more of it and they did it better. We talked about the foreclosure crisis and we talked about the ability to work out loans if 

you actually made the loan. So I think there is a strong reason to 

focus on the traditional FDIC-insured banks as the basis for getting us out of this mess. 

Mr. MAFFEI. Ms. Blankenship, do you have anything to add to 

that? 

Ms. BLANKENSHIP. Yes. As I stated earlier, we have to be able 

to put those loans on our balance sheet. And I haven’t seen the 

data, but I would believe the community banks have increased 

their lending simply because our balance sheets—really that is the 

biggest part of our assets, our balance sheet. Unlike some of the 

larger regional or the super large banks, they have investments 

and off balance sheet assets, but we only have liquid assets and 

primarily loans. That’s how our model works. We have to make 

those loans. 

Mr. MAFFEI. So if more TARP funds became available? 

Ms. BLANKENSHIP. Yes. 

Mr. MAFFEI. If you have any data on that, please send it to us. 

Thank you, Mr. Chairman. 

Mr. KANJORSKI. Just 30 seconds to Mrs. Maloney. 

Mrs. MALONEY. First, I would like to thank the panelists and be 

associated with the comments of my colleagues on the need for 

TARP money and focus on government programs to help Americans 

stay in their homes and help stabilize the markets, help our economy, and help individual families. 

I am pleased to see, Mr. Yingling, that more credit is getting out 

into the communities, but that certainly is not what we are hearing. The stories I hear from my constituents are that commercial 

lending they once had access to is no longer there, that the lines 

of credit for businesses with good balance sheets that have been 

81 

around for decades providing services, they are having their lines 

of credit cut and that the lending is not there. So what is the shift 

that is the problem? If banks are putting more money out there, 

then other sources of lending must be cutting back. We do know 

about the problem with the cars that my colleagues mentioned, but 

then we just put TARP money out there for GMAC to start loaning 

specifically for cars. What we hear from the economists who come 

before us is that we have to get this economy moving and the small 

loans going out there to be moving forward. 

I would say that in our TARP efforts, we have stabilized the financial markets considerably. There were many forced marriages, 

mergers, acquisitions that were in response to economic crisis, and 

that was the purpose of them. But we are now hearing that the financial institutions are now asking for a second TARP program. 

Now this second TARP program, what are you hearing that this 

should be used for? Since the institutions are stabilized, is it to buy 

the toxic assets which we have not done in the past, or in what 

specific way do you think this additional access to capital should 

be used? And first and foremost, even though your statistics are 

great that more lending is out from financial institutions than ever 

before, that is not the story we are hearing from Main Street and 

our districts. We are hearing from legitimate, respected businessmen and women that they do not have access to capital. If banks 

are lending more, where is the cutback that they don’t have it? Yet, 

they tell me that they used to get it from their bank and now they 

can’t get it from their bank. 

Thank you for your efforts to help stabilize our economy and 

move us forward in a positive way. 

Mr. KANJORSKI. Thank you, Mrs. Maloney. Who do you have that 

question directed to? 

Mrs. MALONEY. Mr. Yingling. 

Mr. YINGLING. I will be brief. 

I don’t want to say that there aren’t terrible problems still in the 

credit markets. We think if we get the rest of the CPP money, that 

is the part of the program that goes to banks that was originally 

talked about so that the community banks and others get it, that 

ought to be enough, and that the focus going forward needs to be 

on other programs and those programs with the stimulus and the 

TARP ought to be on these other areas that people talked about: 

foreclosure prevention, on getting the secondary markets opened 

up, and getting the housing started, and that we need a broad approach to lending that covers all of these types of things. 

Mr. KANJORSKI. Thank you very much, Mr. Yingling. Thank you, 

Mrs. Maloney. 

Mr. Scott, 15 seconds. 

Mr. SCOTT. With this economic crisis really challenging even 

some of our strongest financial service companies, can you tell this 

committee what role the Federal Home Loan Banks have played for 

your industry and what your recommendation for them going forward would be? I think it is important to get the Federal Home 

Loan Banks’ perspective? 

Ms. BLANKENSHIP. For many decades, Federal Home Loan Banks 

have played an important role for the community banks in particular because they provide a source of liquidity for us, a source 

82 

of funding at a time when the funding is becoming more and more 

challenging for community banks. We have to have the ability to 

gather those funds so that we can turn those funds around and 

loan them back and invest in our communities. So we need the government to understand that and we need Congress to help ensure 

that we can still have access to those Federal Home Loan Banks 

because without that we have to fall back on borrowing from other 

banks or other sources of maybe higher cost of funds, which in turn 

makes the loans higher. 

Mr. SCOTT. Do you have any specific recommendations going forward? 

Mr. YINGLING. We will provide those for the record. 

Mr. KANJORSKI. I want to thank the panel. I am sorry I didn’t 

get a chance to ask questions. Thank you all for being here and 

giving of your time here today. The committee fully appreciates it. 

This meeting stands adjourned. 

[Whereupon, at 6:44 p.m., the meeting was adjourned.] 

(83) 

A P P E N D I X 

January 13, 2009 

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