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BAILOUTS AND THE FORECLOSURE CRISIS: REPORT OF THE SPECIAL INSPECTOR GENERAL

FOR THE TROUBLED ASSET RELIEF PROGRAM

[SIGTARP]

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JANUARY 26, 2011

Serial No. 112–1

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on January 26, 2011 ......................................................................... 1

Statement of:

Massad, Tim, Acting Assistant Secretary for Financial Stability and Chief

Counsel, U.S. Department of the Treasury; and Neil Barofsky, Special

Inspector General for the Troubled Asset Relief Program ........................ 4

Barofsky, Neil ............................................................................................ 17

Massad, Tim .............................................................................................. 4

Letters, statements, etc., submitted for the record by:

Barofsky, Neil, Special Inspector General for the Troubled Asset Relief

Program, prepared statement of .................................................................. 19

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 109

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of the American Bankers Association .... 86

Maloney, Hon. Carolyn B., a Representative in Congress from the State

of New York, American Banker article ....................................................... 43

Massad, Tim, Acting Assistant Secretary for Financial Stability and Chief

Counsel, U.S. Department of the Treasury, prepared statement of ......... 7

Norton, Hon. Eleanor Holmes, a Delegate in Congress from the District

of Columbia, article dated January 24, 2011 .............................................. 80

Quigley, Hon. Mike, a Representative in Congress from the State of

Illinois, prepared statement of ..................................................................... 114

(1)

BAILOUTS AND THE FORECLOSURE CRISIS:

REPORT OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF

PROGRAM [SIGTARP]

WEDNESDAY, JANUARY 26, 2011

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 9:35 a.m., in room

HVC–210, Capitol Visitor Center, Hon. Darrell E. Issa (chairman

of the committee) presiding.

Present: Representatives Issa, Platts, Turner, McHenry, Jordan,

Chaffetz, Mack, Walberg, Lankford, Amash, Buerkle, Gosar, Labrador, Meehan, DesJarlais, Walsh, Gowdy, Guinta, Farenthold,

Kelly, Cummings, Towns, Maloney, Norton, Kucinich, Clay, Lynch,

Connolly, Quigley, Davis, and Welch.

Staff present: Kurt Bardella, deputy communications director

and spokesman; Michael R. Bebeau and Gwen D’Luzansky, assistant clerks; Robert Borden, general counsel; Will L. Boyington,

Drew Colliatie, Kate Dunbar, and Nadia A. Zahran, staff assistants; Molly Boyl, parliamentarian; Lawrence J. Brady, staff director; Sharon Casey, senior assistant clerk; Steve Castor, chief counsel, investigations; Katelyn E. Christ, research analyst; Benjamin

Stroud Cole, policy advisor and investigative analyst; John

Cuaderes, deputy staff director; Adam P. Fromm, director of Member liaison and floor operations; Linda Good, chief clerk; Tyler

Grimm and Tabetha C. Mueller, professional staff members; Peter

Haller, senior counsel; Christopher Hixon, deputy chief counsel,

oversight; Hudson T. Hollister, counsel; Seamus Kraft, director of

digital strategy and press secretary; Justin LoFranco and Cheyenne Steel, press assistants; Mark D. Marin, senior professional

staff member; Laura L. Rush, deputy chief clerk; Jeff Wease, deputy CIO; Dave Rapallo, minority staff director; Carla Hultberg, minority chief clerk; Susanne Sachsman Grooms, minority chief counsel; Lucinda Lessley, minority policy director; Davida Walsh, Brian

Quinn, and Donald Sherman, minority counsels; Amy Miller, Alex

Wolf, and Jill Crissman, minority professional staff members; Mark

Stephenson, minority senior policy advisor/legislative director;

Chris Staszak, minority senior investigative counsel; Steven Rangel

and Jason Powell, minority senior counsels; Jenny Rosenberg, minority director of communications; and Eddie Walker, minority

technology director.

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Chairman ISSA. Good morning and welcome to our first hearing

of the full committee of the 112th Congress. Today’s hearing is on

the bailout and the foreclosure crisis, and specifically the report of

the Special Inspector General for the Troubled Asset Relief Program, SIGTARP.

This is the first hearing for both Chairman Issa and Ranking

Member Cummings, so I ask all of your indulgence as we go

through a number of first-time mistakes that undoubtedly I will

make.

The Chair notes that pursuant to the rules, there will not be

opening statements. However, Members may have 7 days to submit

opening statements and extraneous materials for the record.

We will now recognize our panel.

Mr. CUMMINGS. Mr. Chairman.

Chairman ISSA. Yes.

Mr. CUMMINGS. Parliamentary inquiry, Mr. Chairman. I know

this is our first meeting, and I just want to make sure we are clear.

We had a lengthy discussion on opening statements——

Chairman ISSA. Would the gentleman state his purpose?

Mr. CUMMINGS. I am trying to do that. We had a lengthy discussion yesterday with regard to opening statements and I thought we

had reached a wonderful agreement where the chairman had said

that he would provide us notice with regard to opening statements,

whether we were giving them or not. And this is our first hearing

and some of the Members and, of course, I am just wondering exactly why we are not having opening statements and, two, we were

given notice just about half an hour ago or so that there would not

be opening statements. I am just wondering.

Chairman ISSA. I thank the gentleman. The Chair is waiving

opening statements, including my own, and, as I said, all Members

will have 7 days in order to place their opening statements into the

record.

On a very personal note, I felt that it was most important on this

first hearing to start off by listening to the witnesses as though

this—and I know that the Special IG, this is his 20th visit. However, for the purpose of all of us, including the freshmen, I wanted

to start off by listening first. I recognize that tradition is that we

hold the witnesses here for sometimes an hour through opening

statements.

That is a tradition that I intend to break. That doesn’t mean that

there won’t be opening statements in the future, but for this first

one I wanted to make it perfectly clear, if you will, that we are interested in listening to our witnesses first. And I appreciate the

gentleman’s problem.

Mr. CUMMINGS. Mr. Chairman, further parliamentary inquiry.

Pursuant to what you said yesterday—and I have the transcript—

will you be giving us more notice with regard to that? I mean, I

thought we were very—we had a gentleman’s wonderful discussion

yesterday where you said you would give us proper notice, and I

was just wondering what should we expect in the future, and that

is all.

Chairman ISSA. As I said, we will intend to give notice to all

things. In this case, we only organized yesterday, less than 24

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hours ago. In the future, I would expect there would be greater notice. And I appreciate the gentleman’s question.

Mr. KUCINICH. Would the chairman yield? Would the chairman

yield for a question?

Chairman ISSA. At this time I am going to introduce the witnesses.

Mr. Timothy——

Mr. KUCINICH. Mr. Chairman.

Chairman ISSA. For what purpose is the gentleman seeking recognition?

Mr. KUCINICH. An inquiry of the Chair with respect to procedure.

Chairman ISSA. The gentleman will state his inquiry.

Mr. KUCINICH. I have been in the Congress for 14 years and I

have never, it is just unprecedented that the ranking member not

be permitted to give an opening statement or for a chair to dispense with opening statements.

Chairman ISSA. Does the gentleman have a parliamentary inquiry?

Mr. KUCINICH. I didn’t make a parliamentary inquiry. I would

ask——

Chairman ISSA. Then the gentleman is no longer recognized.

We will now introduce——

Mr. LYNCH. Mr. Chairman.

Chairman ISSA. We will now introduce——

Mr. LYNCH. On a point of order.

Chairman ISSA. Yes, a point of order.

Mr. LYNCH. I certainly understand if the chairman has decided

that he has nothing to say, but can you cite one example, any single example in the history of the Congress, if you would, where a

minority ranking member has not been afforded, not been given the

respect of an opportunity to make a brief opening statement?

Chairman ISSA. The Chair will respond for the record with an

appropriate list of the times in which opening statements have

been waived or ranking members have not been able to——

Mr. LYNCH. But you can’t think of one right now.

Chairman ISSA. The gentleman is no longer recognized.

We now turn to our witnesses. Mr. Timothy Massad is the Acting

Assistant Secretary of the Treasury Department’s Office of Financial Stability and Chief Troubled Asset Relief Program. Mr. Massad

assumed the title of Assistant Secretary on September 2010, after

Herbert Allison stepped down from the position. Before that, Mr.

Massad served as the Chief Counsel and Chief Reporting Officer

for the Office of Financial Stability. Prior to starting his government work, he worked at the onset of the 2008 financial crisis. Mr.

Massad was a partner at Cravath, Swaine & Moore, where he had

a diverse international corporate practice with an emphasis on security offerings and bank financing, counseling underwritings and

security issues. Mr. Massad received an B.A. degree magna cum

laude from Harvard College in 1978 and his J.D. magna cum laude

from Harvard Law School in 1984.

Mr. Neil Barofsky, no stranger to this committee, was sworn into

the office on December 2008 as the Special Treasury Department

Inspector General to oversee the Troubled Asset Relief Program.

Prior to that, Mr. Barofsky was a Federal prosecutor in the U.S.

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Attorney’s Office for the Southern District of New York for more

than 8 years. In that office, Mr. Barofsky was the senior trial counsel who headed the mortgage fraud group. Mr. Barofsky also has

extensive experience as a line prosecutor leading white collar prosecutions during his tenure as a member of the Securities and Commodities Fraud Unit.

Mr. Barofsky also led the investigation that resulted in the indictment of the top 50 leaders of the Revolutionary Armed Forces

of Colombia [FARC], as it is better known, on narcotics charges, a

case described by the then attorney general as the largest narcotics

indictment filed in U.S. history. Mr. Barofsky received his B.A.

from the Wharton School of Business and is a magna cum laude

graduate of the New York University of Law.

Pursuant to the committee rules, all witnesses will be sworn in

before testifying. Please rise, raise your right hands.

[Witnesses sworn.]

Chairman ISSA. Thank you. You may please be seated.

As is the custom of this committee, we would ask that your full

written statements be placed in the record and that you limit your

opening statements as close as possible to 5 minutes.

As was the custom of my predecessor, you will see three lights.

Green means continue to go, yellow is the warning that you should

not run through our intersection, and red in all 50 States means

stop.

Thank you, Mr. Chairman.

The normal rule of committee is that we go in order of rank. Mr.

Massad, I believe you would, by protocol, be first.

STATEMENTS OF TIM MASSAD, ACTING ASSISTANT SECRETARY FOR FINANCIAL STABILITY AND CHIEF COUNSEL,

U.S. DEPARTMENT OF THE TREASURY; AND NEIL BAROFSKY,

SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET

RELIEF PROGRAM

STATEMENT OF TIM MASSAD

Mr. MASSAD. Thank you, Mr. Chairman. Chairman Issa, Ranking

Member Cummings, members of the committee, thank you for the

opportunity to testify today about the Troubled Asset Relief Program [TARP], as it is commonly known. I am the Acting Assistant

Secretary for Financial Stability at the Treasury, which means I

am responsible for overseeing the program on a day-to-day basis.

I recognize that TARP has not been popular. There is good reason for that: no one likes using taxpayer dollars to rescue financial

institutions. Nonetheless, sitting here today, more than 2 years

after a bipartisan Congress passed the legislation that created

TARP, it is clear that the program has been remarkably effective

by any objective measure.

First and foremost, TARP helped prevent a catastrophic collapse

of our financial system and our economy. In the fall of 2008 we

were staring into the abyss. Lending by banks had practically

stopped, our credit markets had shut down, and countless financial

institutions were under severe stress. This was a crisis not only for

Wall Street, but also for Main Street. Simply put, we were at the

risk of going into a second Great Depression.

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Today people no longer fear that our major financial institutions

or our financial system is going to fail. Banks are much better capitalized and the weakest parts of our financial system no longer

exist. The credit markets on which small businesses and consumers

depend, for auto loans, credit cards, student loans and other financing, have reopened. Businesses are able to raise capital and mortgage rates are at historic lows.

Of course, the economy has not yet fully recovered and there is

still much work to be done. Unemployment is unacceptably high

and the housing market remains weak. But the worst of the storm

has passed.

Second, we will not use all the money Congress made available

for TARP, and we are existing our investments and the private sector far faster than anyone thought possible. Let me briefly summarize a few key facts. Congress originally authorized $700 billion for this program. We will spend no more than $475 billion. And of the money spent to

date, much of it has been repaid, approximately $270 billion. We

still have about $166 billion invested in various institutions and I

am hopeful that we will recover much of that over the next 2 years,

depending on market conditions.

Finally, the ultimate cost of TARP will be far less than anyone

expected. The total cost was initially projected to be approximately

$350 billion. That number, however, has steadily declined over the

past 2 years. According to the most recent estimates from both

Treasury and the nonpartisan Congressional Budget Office, the

overall cost of TARP will be in the range of $25 billion to $50 billion. And the direct fiscal cost of TARP, as well as all the other

interventions to address this crisis, is far less, as a percentage of

GDP, than the cost of resolving the S&L crisis in the 1980’s.

In addition, the TARP cost will be primarily attributable to what

we spend on our housing programs and our efforts to help responsible American families keep their homes. We expect that all the

other TARP programs and investments, when considered as a

whole, will result in very little or no cost to the American taxpayers, and possibly a profit.

In all of these efforts, TARP has been subjected to unprecedented

oversight. When Congress created TARP, it also directed four different oversight bodies, including the Special Inspector General for

TARP, Mr. Barofsky, who is sitting with me today, to carefully review all of our programs. In addition, TARP has been subject to

vigorous congressional oversight by this committee and several others. We welcome this oversight. Individually and collectively, it has

helped us to develop, implement, and constantly improve our TARP

programs. And we have strived to be transparent by providing a

wealth of information about the program to the public.

In particular, I look forward today to discussing Mr. Barofsky’s

most recent quarterly report. I am pleased that the report concluded that TARP helped, as he put it, head off a catastrophic financial collapse and that the program’s financial prospects are

today far better, as he says, than anyone could have dared to hope

just 2 years ago.

The other oversight agencies have reached similar conclusions.

The report also raises a number of concerns about the HAMP proVerDate 11-MAY-2000 11:45 Jul 14, 2011 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\67062.TXT KATIE PsN: KATIE
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gram and the so-called too big to fail issue, and I am happy to discuss those as well.

Mr. Chairman, TARP succeeded in what it was designed to do:

it helped stabilize the financial system and lay the foundation for

economic recovery. It was not designed to solve all our problems,

and we recognize that many Americans are still suffering. Nonetheless, thanks to a comprehensive strategy and decisive action, our

economy is far stronger today than it was 2 years ago. Both political parties deserve credit for these achievements. Congress enacted

the program at a time when the financial system was falling apart.

In that moment, leaders from both parties stood up, stood together

and did what was best for this country.

Thank you again for providing me the opportunity to testify here,

and I welcome your questions.

[The prepared statement of Mr. Massad follows:]

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Chairman ISSA. Thank you.

Mr. Barofsky.

STATEMENT OF NEIL BAROFSKY

Mr. BAROFSKY. Chairman Issa, Ranking Member Cummings,

members of the committee, it is a privilege and an honor to appear

before you once again and to once again present to you our most

recent quarterly report to Congress.

This past quarter has marked the 2-year anniversary of both

TARP and SIGTARP. For SIGTARP, we have made great progress

in striving to meet our goals of transparency, oversight, and enforcement. With this, our ninth quarterly report, along with 13 separate audits, they have helped to shine a light on some of the darkest areas of the financial crisis and the Government’s response.

They have also included important recommendations which, when

implemented and adopted, have resulted in great savings for the

taxpayer and preventing waste, fraud, and abuse.

Our Investigations Division has been similarly busy. We have

been able to secure civil or criminal fraud charges against 45 different individuals, 12 different companies and, to date, 13 criminal

convictions. We have also been able to either recover or prevent

from loss of fraud more than $700 million, thereby assuring that

SIGTARP as an agency will more than pay for itself. And with 142

ongoing criminal investigations, including those into executives at

64 different banks that either applied to or received TARP funds,

we still have a lot more work to do.

For Treasury and TARP the results have been more mixed.

While it is certainly good news, as Mr. Massad noted, that the estimates of TARP costs have declined, and significantly, it is not the

whole story. And too often Treasury, in its statements and in its

testimony, has too much of tunnel vision focus on the financial

costs and the decline of those, obscuring the very significant and

very real non-financial costs that will arise out of the Troubled

Asset Relief Program.

First, it ignores the very significant wholesale damage to government credibility that has arisen from Treasury’s mismanagement of

parts of the TARP program. Too often these programs have been

marked by loose compliance, failures in transparency, and questionable decisionmaking. And it is those very avoidable failures, as

much as anything else that Treasury may point to, that account for

some of the deep unpopularity of TARP.

The second cost is perhaps the most significant of TARP’s legacy,

the continued existence and the moral hazard associated with institutions that are still deemed too big to fail. When Secretary

Paulson, in 2008, and then Secretary Geithner, in 2009, spoke to

the financial markets and assured that they would not let any of

our largest financial institutions fail and would use TARP to be

backstop them, they did more than just reassure troubled markets;

they sent a powerful message that these companies, these banks,

would not be left to suffer the consequences of their own folly.

And as a result, and notwithstanding the passage of Dodd-Frank

last summer, these institutions still enjoy an advantage over their

smaller rivals, with enhanced credit ratings and cheaper access to

credit and capital, as a result of that implicit Government guarVerDate 11-MAY-2000 11:45 Jul 14, 2011 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\67062.TXT KATIE PsN: KATIE
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anty. Indeed, in many ways TARP has helped mix that same toxic

cocktail of implicit guaranties and distorted markets that led to the

disasters at Fannie Mae and Freddie Mac.

TARP has also had mixed success in meeting the goals set for it

by Congress, goals that were designed to address Main Street as

well as Wall Street. And while I agree with Treasury that they

have met the Wall Street goals, financial, they did help prevent a

collapse of the financial markets, and that undoubtedly had a benefit not just for Wall Street, but for Main Street, TARP has not met

the goals set for it by Congress for Main Street. And perhaps the

most significant and specific Main Street goal of preserving home

ownership, its failures there have had some of the most devastating consequences.

That effort, the Home Affordable Modification Program, has to

date been a failure. With estimates that over the life of this program we are going to see probably well in excess of 10 million foreclosure filings on 10 million different families during the life of

HAMP, when compared with the congressional oversight, a panel’s

recent estimate that no more than 700,000 or 800,000 permanent

sustained modifications, hope is slipping away.

And Treasury’s administration of this program gives little cause

for optimism. They continue to refuse to adopt even the most basic

metrics and goals and benchmarks to measure success. They appear to be afraid to rein in or impose penalties on the mortgage

servicers, who everyone can agree performance on this program has

been nothing short of abysmal. And, as a result, we continue to see

spiraling downward participation quarter after quarter after quarter.

Mr. Chairman, ranking member, members of the committee, I

thank you for this opportunity and I do look forward to answering

any questions you may have.

[The prepared statement of Mr. Barofsky follows:]

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Chairman ISSA. I thank the gentleman and I thank him for his

pinpoint accuracy of 5 minutes.

I now recognize myself for 5 minutes.

Mr. Massad, since you are here on behalf of Treasury as the person most knowledgeable, can you explain to us the Secretary’s

statement on December 2010, on the subject of TARP and related

bailouts, when he said in the future we may have to do exceptional

things again if we face a shock that large. You just don’t know

what is systemic. I repeat, you just don’t know what is systemic

and what is not until you know the nature of the shock.

Does that mean that the Secretary expects that if a housing crisis occurs again, or some other shock—we are not talking about an

external force, but some other shock to the community—that we

still have systemic risk, too big to fail, and the Government will

come in and bail out the large and allow the small to fail?

Mr. MASSAD. Mr. Chairman, what the statement means, in my

view, what I believe the Secretary was saying, was that we cannot

predict what the future issues will be in terms of risks to our system.

Chairman ISSA. But isn’t that exactly what Dodd-Frank and all

these other legislations have done? We were supposed to eliminate

too big to fail; systemic risk was supposed to be managed by an

analysis, if you will, a vetting of whether entities were robust

enough now and in the future; and it is the reason that some companies are still around and some were folded. Isn’t that true?

Mr. MASSAD. You are correct, Mr. Chairman, that is DoddFrank’s purpose, and that is what we are implementing. DoddFrank, after all, was passed 6 months ago. There is a lot of work

to do to implement it, and it gives us the tools to——

Chairman ISSA. Right, but the Secretary said this well after

Dodd-Frank. For example, we have had Bank of America here before us on multiple occasions. We have rolled Countrywide into B

of A; we have rolled Merrill Lynch into B of A. I am not for breaking up companies or taking a heavy hand, but if Bank of America

is too big to fail, then shouldn’t we be insisting that they be, and

I am not suggesting this, but shouldn’t we be suggesting that they

find a way to not be too big to fail in whatever kind of divestitures

they need, rather than putting them in that category, as the IG

said, who enjoy less expensive costs of assets because, in fact, they

are effectively back-staffed by the Federal Government?

Mr. MASSAD. I think Dodd-Frank gives us the tools to regulate

any financial institution, regardless of its size, that poses systemic

risks and it gives us the tools to shut down such financial institutions. So I think it gives us precisely the tools you are talking

about.

If I can respond more broadly, I think the concerns that Mr.

Barofsky raised are obviously those that animated the Congress in

passing Dodd-Frank. Those are the very issues that Congress debated in passing Dodd-Frank.

Chairman ISSA. Well, as somebody who was on the conference for

Dodd-Frank and somebody who has been there all along, DoddFrank was not altogether that bipartisan, as you can imagine. And

I appreciate the fact that it can shut down entities after the fact;

it has a heavy hand to determine who is a financial entity. Perhaps

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the next time General Motors gets in trouble, we will shut them

down as a financial entity rather than save them as somehow a

bank.

Moving on to HAMP, as the IG report says pretty thoroughly, we

cannot score success by simply getting our money back from what

was essentially loans to solvent companies; we have to look at the

money we won’t get back and the suffering of people who won’t get

a loan modification if they can’t afford a home or an elegant exit

that will not destroy the neighborhoods as we seek somebody who

can afford it.

I have December 31, 2010 results, and I would like you to comment on them, Mr. Barofsky. The goal of HAMP, three to four million loans; permanent modifications as of that date, roughly half a

million, $521,000; modifications canceled almost $800,000. Would

you please give me your view of HAMP based on those figures and

a trend that continues after multiple hearings?

Mr. BAROFSKY. It is remarkably dispiriting. This was the program that was supposed to help Main Street. I mean, when TARP

was originally enacted, when you, the Congress, gave Treasury the

$700 billion, the original idea was that Treasury was going to buy

toxic assets, which were largely mortgage-related assets. And the

idea of including a goal of preserving home ownership in the statute was to address the fact that Treasury was going to own so

many of these mortgages that they be able to do these modifications themselves, being able to have that impact on Main Street.

Instead, we have a program, and the numbers that you just indi- cated, it is just not working. Out of the $50 billion originally allocated, now about $45 billion, only $1 billion has been spent. And

I hesitate to use the word only and billion in the same sentence,

but the numbers are—we are running out of hope. There is no way

we are going to ever get close to the three to four million that was

the original expectations of this program.

But even more frustrating is that Treasury will not give us its

expectations. They must know what their run rate is, what they expect the total number to be. They must have a goal. And if they

don’t have a goal, well, they need to have one. We can’t fix this program until we have very specific benchmarks as to what the program is trying to accomplish of keeping people in their homes. Not

people who get trial modifications that fail, which was one of the

benchmarks that have been used; not the number of people who get

offers for trial modifications. How many people are going to get

modifications that are truly permanent and keep them in their

homes?

Chairman ISSA. I thank the gentleman. My time has expired.

I recognize a member of this panel who has a deep interest in

those modifications becoming permanent, the ranking member, Mr.

Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. Massad and Mr. Barofsky, the title of today’s hearing is Bailouts and the Foreclosure Crisis. On the first issue we have some

encouraging news today on TARP and its outlook for American taxpayers. The SIGTARP report issued this morning has increasingly

favorable assessment of TARP’s financial successes, is that right,

Mr. Barofsky?

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Mr. BAROFSKY. That is absolutely correct.

Mr. CUMMINGS. And here is what it says,‘‘On the financial side,

TARP’s outlook has never been better. Not only did TARP funds

help head off a catastrophic financial collapse, by estimates of

TARP’s ultimate direct financial costs to the taxpayer have fallen

substantially. While Treasury’s ultimate return on its investment

depends on a host of variables that are largely unknowable at this

time, TARP’s financial prospects are today far better than anyone

could have dared hope just 2 years ago.’’

This is great news for the American taxpayer, but the report correctly warns that there is still hard work ahead, and it is important that we continue strong oversight. I have long demanded

stringent oversight of the TARP program, a program proposed by

President Bush in 2008 and enacted after significant improvements

by Congress. I previously requested, gentlemen, that SIGTARP

audit the hundreds of millions of dollars AIG expended on bonuses.

I also led 26 of my colleagues in requesting that SIGTARP audit

the payments made to AIG’s counterparties.

That said, I am very concerned about the serious allegations of

abuse by the mortgage service industry. Today’s SIGTARP report

calls their performance abysmal and describes nearly daily accounts of errors and more serious misconduct. The SIGTARP report

also says this, ‘‘Anecdotal evidence of their failures has been well

chronicled, from the repeated loss of borrower paperwork—and my

constituents tell me about that—to the blatant failure to follow program standards, to unnecessary delays that severely harm borrowers while benefiting servicers themselves. Stories of servicer negligence and misconduct are legion.’’

Mr. Chairman, we cannot do a comprehensive examination of the

foreclosure crisis without hearing from the industry. That is why

I sent a letter on December 21st asking you to hold the committee’s

first hearing on the widespread utilization of flawed and fraudulent

practices throughout the mortgage industry. This has been my No.

1 priority, as you said, and I assumed that we would move forward.

It is the same reason I sent you another letter on Monday asking

that you add an industry witness. I understand that you were not

prepared to do that at this time and I understand that.

So, Mr. Chairman, and to our witnesses, let me go to you, Mr.

Barofsky. The servicers, what are you all doing about them? I

mean, Government has a role, the servicers have role, and I am

just wondering what is happening with that.

And I ask you the same thing, Mr. Massad. And be brief.

Mr. BAROFSKY. Well, at SIGTARP we exercise our jurisdiction as

we can, and our one area of jurisdiction over the servicers is, one,

to investigate them if there is any criminal conduct, and we do

have ongoing investigations in that area. The second thing we can

do is use our audit function to do reviews of the servicers, and we

have that ongoing as well; we are doing a review of their performance under the net present value test and other aspects of their

performance.

What we cannot do is what Treasury can do, which is wield a big

stick, as well as the carrots that it offers the servicers, and impose

significant, tough financial penalties, because that is where we will

hit them where it hurts. We have to keep this program from being

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voluntary not just in participation for the servicers, but in compliance as well.

Mr. CUMMINGS. Well, that leads me right to you, Mr. Massad.

What are we doing with regard to the servicers? Because there

have been some horrendous stories about what servicers have been

doing. And what impact do they have on these numbers?

Mr. MASSAD. Congressman Cummings, I agree that the servicer

performance has been abysmal, and that is something that we have

been trying to fix. Let me first make clear this is a voluntary program. Congress didn’t give us the tools to impose fines, as Mr.

Barofsky is suggesting. What we have is the ability to withhold

payment when they enter a permanent modification. A lot of the

problem was we couldn’t get them to get the permanent modifications done. So we work with them to change their performance.

Now, there are a number of other things that are going on in

terms of the performance of the servicers. There is an interagency

task force that is looking at all the things they have done wrong

in foreclosures and there is a lot of talk of having some sort of national servicing standards, which may well be something we need.

We can’t, through HAMP, change the entire industry’s behavior;

this is a model. This is an industry that is broken. It didn’t work.

Mr. CUMMINGS. Well, can you tell me this, as my time runs out?

Is the Justice Department involved in anything that you are doing?

Mr. MASSAD. Yes, they are. They are involved in the interagency

task force, as are all the Federal bank regulators, and there is a

lot of work being done on what types of reforms are needed. There

is also work being done by the FHFA in terms of changing the

basic economic structure of the business, because they simply

weren’t prepared for this crisis and aren’t able to deal with people.

Nevertheless, I think we have to remember that HAMP has

achieved over half a million modifications. These are people that

make $50,000 a year. So to sort of write it off and say, well, it is

a failure I think is not really appropriate.

Now, the reason we haven’t reached three to four million is basically we have eligibility standards, and the pool today of the people

that are eligible is about $11⁄2 million. What are those eligibility

standards? We don’t help people who make enough money that

they don’t need Government help. We don’t help people who have

million dollar mansions. We don’t help people who have vacation

homes. So when you go through that and you realize that is the

eligible population, we have actually reached a lot of them. We are

continuing to reach a lot of them. We had 1,000 people turn out

for an event in Las Vegas.

So while we have tried to incorporate most of Mr. Barofsky’s suggestions about the program, other than perhaps the one that he

said we should fingerprint people or thumb print people before they

get a mod, which we declined to do because we didn’t feel that was

appropriate, I think the program is actually helping a lot of people.

Mr. CUMMINGS. Thank you, Mr. Chairman. I see my time has expired.

Chairman ISSA. I thank the gentleman.

The gentleman from Ohio, Mr. Turner, is recognized for 5 minutes.

Mr. TURNER. Thank you, Mr. Chairman.

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Gentlemen, thank you for being here and thank you for addressing these really important issues that we have. You know, I think

both of you get a sense of the anger, really, of the American people,

but also of the sadness of the issues that we are dealing with. You

know, when we look at the New York Times yesterday reported

that the financial crisis inquiry commission issued its report and

there is a quote in there that I think is important in the context

of what we are doing today, and it says the greatest tragedy would

be to accept the refrain that no one could have seen this coming

and that nothing could have been done. If we accept this notion,

it will happen again.

What is sad is that, as we approach this and we look at what

Treasury was doing as this crisis was unfolding, these things were

knowable. I know I and many other Members of Congress were

sounding the alarm of the mortgage foreclosure crisis, what was

happening in our neighborhoods, what was happening in our communities, and understanding that capital had to be being lost as

families were losing their economic future and their homes. And

when you look at TARP and what is happening and how it is progressing—and I can’t understand how Treasury can claim its successes when it has had so many undefined executions.

I voted against TARP, and I voted against TARP because I am

from Ohio, ground zero for the mortgage foreclosure crisis. When

they came and said they were going to be buy toxic assets and that

these were going to have value, I knew they did not because I have

walked these neighborhoods; I have talked to the families who have

lost their homes. And the short TARP bill was not defined.

As you have said, Mr. Barofsky, and I greatly appreciate, that

you not only look at what you are trying to unwind, but what they

started with. This was a very undefined bill, a very undefined process, and I think there are billions that have been lost. I am very

concerned about the HAMP program because if we look to what the

Commission had said, that this was avoidable, that means that

families were taken advantage of, and that means families were

taken advantage of and lost their financial future.

And HAMP came forward as supposedly a Government answer

that is going to help them, that is going to say we recognize that

there was a Federal issue here and as the banks, all the people

who, due to their greed, had perpetrated this, we were going to

step in and help them. But it is not helping them and, Mr.

Barofsky, I want to thank you for the detail that you provide us.

When you get these final numbers and do the division, we are

going to have spent an unbelievable amount for each of the loan

modifications that occurred while doing nothing to stop the record

foreclosures that are still occurring. So, first off, Mr. Barofsky, I

think, when we look at the ultimate numbers, we are going to want

to figure out what percentage of these people who did ultimately

get loan modifications could have gotten them in the markets,

meaning that there was no subsidy that would have been needed;

two, how many of these are going to fail anyway because those are

lost dollars also; and then what are the per unit costs in the end.

Could you speak to that for a moment, as to how we are going

to be able to then actually assess what was spent? We can already

37

tell that it is a failure, and thank you for your words of that, but

how are we going to assess the waste?

Mr. BAROFSKY. Well, I think one of the good news aspects of the

HAMP program, to the extent that there is good news, and it is reflected in CBO’s loss estimate, is that the program won’t spend

even close to the amount of money that is allocated for it. Money

only gets spent when there is actual success.

So the remarkably low numbers of modifications means that a

remarkably small amount of money will be spent. And that is why

we have only had—and, as I said, I hesitate to use the word only—

it has only been a billion dollars out of the 45 that has actually

been spent so far.

So to the extent that there is good news, it is that it will not cost

the taxpayer anywhere close to the allocated amounts. But, of

course, that distinction really bears that any type of claim of success for the remarkably modest numbers of modifications that are

coming from the program don’t match up with what was originally

intended.

And the advantage of not having any real goals, real meaningful

goals or benchmarks is you can claim success wherever you want

and say, hey, that is a success. And I do not mean in any way to

demean or say that this program isn’t very important to those people who are enjoying it and have the benefit of these important

sustainable permanent modifications in any way, but I also think

the idea that the reason why there aren’t more is because there are

millionaires living in mansions and that is why. There are a lot of

people out there who are struggling very, very hard who could benefit from these modifications.

Mr. TURNER. Mr. Massad, I believe that the mortgage foreclosure

crisis, when it is ultimately analyzed, will turn out to be the largest theft in history, and it occurred while Treasury had oversight

of both financial markets and the issues affecting these homeowners. And now we have TARP and Treasury is involved with

this, and we have the SIGTARP looking at it and saying that you

are still managing this without measurable outcomes and are not

being very forthcoming in how the program is being evolved. How

can we trust what Treasury is doing in this?

Mr. MASSAD. I am happy to respond to that, Congressman. First

of all——

Mr. TURNER. If you could do so briefly.

Mr. MASSAD. Sure. As Mr. Barofsky noted, we only pay money

if there is a permanent modification entered into, if we actually

help someone enter into a permanent modification, and we only

pay for as long as that modification continues. There is a built-in

taxpayer protection element to this.

So your question about unit cost is a very good question, sir, and,

in fact, it is structured so that it is a unit cost program here. We

won’t spend all the money if we don’t enter into enough modifications. And that money won’t be spent for anything else; it will go

back to pay down the debt. That is No. 1.

No. 2, as we said, the eligibility criteria here I think are another

way that we protect taxpayers, because we only pay for people that

we think are greatly in need.

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As to your overall question here on the mortgage crisis, obviously

there is a lot of study of this. The FDIC released its report today

and I think it noted that there is blame to go around in a lot of

places. I think we must remember TARP was just set up to provide

the resources to stabilize the system; it didn’t change the regulatory structure. We now have Dodd-Frank, which gives us new

tools to regulate the financial industry so as to prevent this type

of problem in the future.

Chairman ISSA. Thank you, Mr. Massad.

The Chair now recognizes the former chairman of the committee,

longstanding member of the committee, Mr. Towns of Brooklyn,

New York.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Let me first thank both of you for being here. You know, I get

the feeling that we are sort of blaming each other, and that bothers

me because people are losing their homes. I wish you could just

come and spend 1 day in my office and just listen to people who

are coming in and the stories that they are telling. I mean, some

of the things they are saying is the fact that they made an application, all of a sudden the application is lost; they call and they say,

no we never received your papers, when they actually presented

the papers.

And then the other one, which is really one that they are saying

that is really becoming a problem is that when they call back the

third or fourth time, the person no longer works here, so you need

to find out who you were dealing with. And, of course, if the person

is no longer there, how can you find anything?

And I noticed you indicated, Mr. Massad, that the Congress

didn’t give you the power, and I understand that as well, but what

can we do now to fix the situation that we are in? I mean, this is

a crisis, and I am hoping that—I want to join you, ranking member, in asking for a foreclosure hearing where we can bring people

in and let them tell their stories, because for some reason I don’t

think that the message is getting out in terms of the seriousness

of this situation.

Mr. MASSAD. Congressman, I agree with your concern. I think

you are absolutely right. We have tried to do what we can through

HAMP to put in a lot of borrower protections. For example, we

have required the servicers, if you are evaluating someone for

HAMP, you can’t foreclose on them. There are a number of other

protections we have put in. We have put in call centers, escalation

centers, and a lot of the calls we get actually are for people who

aren’t even eligible for HAMP, bu we try to help them.

I think in terms of the overall industry, a lot of attention needs

to be paid to this, and I think a lot of work is going on, and more

will be needed, and I am sure this Congress will need to consider

it. And a lot of people have talked about whether we should have

national servicing standards. People have noted that the basic economic model of servicing doesn’t work. Servicing works when you

have performing mortgages, the servicers collect the payments and

pass them on to the investors.

But when it comes to dealing with a crisis like this or foreclosures, they are not equipped to do it. So I think we have to look

at things like servicing standards. The interagency task force is

39

looking at a number of problems, the regulators are as well. So I

think there is a lot of activity here and we will see it in the coming

months.

Mr. TOWNS. Mr. Barofsky, what are the penalties that you are

talking about? How can we sort of look again at that? Because

something needs to be done.

Mr. BAROFSKY. Absolutely. And I think that, as Mr. Massad said,

there are discussions of national servicing standards, and I think

that Chairman Bair of the FDIC has put out some great ideas that

would be terrific for all servicers, and I think a lot of these ideas

could be adopted and brought into the HAMP program through

supplemental directives.

But financial penalties based on withholding payments to the servicers. Treasury negotiated a deal when it obligated about $30

billion to the mortgage servicers for payments, and that includes

the ability to withhold payment and impose financial penalties. To

the extent that those penalties are not strong enough or good

enough, well, that really falls on Treasury for not negotiating a better deal. This is not the most unpredictable possibility, that when

you have a program of this size and scope, that there is going to

be problems. And Treasury had repeated cited their ability to impose financial penalties as something, as a stick that they have,

and we would just encourage them to take the stick out.

Mr. MASSAD. If I can just reply to that. We are certainly conscious of that, and we may withhold amounts in the future, but

let’s remember we can only withhold the amount that we owe them

for permanent modifications. If they haven’t entered into very

many permanent modifications, there is not that much to withhold.

And there weren’t very many permanent modifications initially,

as this committee knows. People testified here in March and there

were only 170,000 permanent modifications, and a lot of people

said then the program was a failure. What we did since that time

was we had a number of remedial actions we made the servicers

take; we also diversified our programs, and I want to get into that

later. But from that date, from late last March, we have increased

the number of permanent modifications substantially now and, as

I say, we are over 500,000 and the re-default rate on those is very,

very low.

Mr. TOWNS. All right. Mr. Chairman, I see my time is up. But

I think that if there is something that we need to do, I think you

need to say it, because we just can’t continue to let people lose

their homes.

Thank you very much, Mr. Chairman.

Chairman ISSA. I thank the gentleman.

The Chair now recognizes the gentleman from North Carolina

and the subcommittee chairman of jurisdiction for this, Mr.

McHenry.

Mr. MCHENRY. Thank you, Mr. Chairman. In consultation with

the chairman, it is the intent of my subcommittee for us to have

field hearings and hear from those that have been affected from the

HAMP program. We would welcome the Treasury to invite individuals that have been helped. However, in my constituency and the

constituents I have talked with, it is easier to find those that have

been hurt by HAMP rather than helped.

40

So my question to you, Mr. Massad, is do you have adequate provision under current law to ensure that HAMP is successful, yes

or no?

Mr. MASSAD. Congressman, it depends on——

Mr. MCHENRY. Yes or no?

Mr. MASSAD. Congressman, if I can answer the question——

Mr. MCHENRY. I have 5 minutes, Mr. Massad. Yes or no? Actually, let me begin by asking do you think HAMP is successful.

Mr. MASSAD. I do.

Mr. MCHENRY. OK. So do you believe under current provision of

law you have adequate authority to ensure that HAMP is successful?

Mr. MASSAD. I cannot solve the housing crisis with HAMP alone,

if that is the meaning of your question. But I think helping over

500,000 people enter into permanent modifications, people who

would otherwise be thrown out of their homes, people who make

$50,000, and their neighborhoods would be hurt by that because

they are now living next to a home that could be vandalized; it depresses their property values, it is a drag on the economy. I think,

yes, I think those are dollars well spent.

Mr. MCHENRY. Thank you, Mr. Massad.

Mr. Barofsky, in your written testimony today you outlined that

there are 2.9 million homes who received foreclosure filings in

2010, up from 2.8 million in 2009 and 2.3 million in 2008. Can you

discuss your findings on the HAMP program?

Mr. BAROFSKY. Yes. I mean, again, not to diminish the positive

impact it has on those families and those that are able to stay in

the program, but you have to look at what the program was expected to do, and you have to look at it in the context of the entire

foreclosure crisis, and what this program was intended to do. And

the advantage of never actually putting out meaningful goals

means you can declare success even when you have, looking at a

total for this entire program of 700,000 to 800,000, when you originally expected to help three to four million, even when you have

only spent $1 billion of the $45 billion that you allocated.

This program, if it helps five people, that is great for those five

people. But what about all those millions of people who are not getting help, the millions of people that Treasury and the administration identified at the very beginning of this program of who they

were going to try to help keep in their homes by modifying their

mortgages to a sustainable level? And the numbers don’t lie. And

when I hear them declaring success with these incredibly modest

numbers, numbers that are so modest that they can’t even have

enough money to pay to impose financial penalties, it is heartbreaking to a certain extent because it means that they won’t recognize and make the changes that are necessary to make this a

better program, because I hear from those people as well.

Mr. MCHENRY. Thank you, Mr. Barofsky. Moving on to the small

business lending front, in your report you request that Treasury remove TARP assets and equity from the entity’s balance sheet for

purposes of evaluating its application for the Small Business Lending Fund. The intent of the Small Business Lending Fund, of

course, is to increase lending. Has Treasury been open to your proposal?

41

Mr. BAROFSKY. Treasury has rejected that recommendation.

Mr. MCHENRY. Mr. Massad, why did you reject that?

Mr. MASSAD. Because we wanted to make sure we complied with

Congress’s directives in the law. Congress provided in the law that

existing TARP recipients could refinance their loans into this Small

Business Lending Fund, and we believe we are acting in accordance with that.

Mr. MCHENRY. Sure. But it is not a provision of law how you

measure the removal from TARP into this Small Business Lending

Fund, is there?

Mr. MASSAD. We did not believe that Congress was instructing

us to basically penalize those institutions that had already received

TARP funds. Quite the contrary.

Mr. MCHENRY. Mr. Barofsky, under your reading of the law, do

they have provision to do this?

Mr. BAROFSKY. Absolutely. Congress specifically made a provision in the law that gave the Secretary of Treasury the ability to

fashion certain regulations for TARP banks to enter into SBLF.

There is nothing in the statute that gives you a matter of right, by

being a TARP recipient, that you automatically get to apply for

and—well, you get to apply for it, but that you automatically get

converted into SBLF. SBLF offers tremendous advantages to TARP

recipients who convert, and the taxpayer loses out on a lot of those,

and our recommendation is a simple one: let’s make sure that the

banks that you have taken out of TARP and put into SBLF are

adequately capitalized to meet the goals of this program.

We are not saying penalize TARP banks and say none of them

can get brought into the program. Not at all. But we do think that

it is important for Treasury to be very responsible and make sure

that those that are going to get the benefits of being in SBLF, at

taxpayer expense, are well suited to be able to do the lending, new

lending, new incentivized lending from Government capital; and,

frankly, we believe that those banks should be treated as other applicants who come into the program.

For example, when a bank applied for the CPP, they didn’t get

to take into account Government capital of whether they passed or

don’t pass; and that should be the same standard here. The fact

that these banks have the benefit of Government capital, frankly,

we don’t believe necessarily that capital should count when making

that evaluation. And if they are adequately capitalized without the

Government capital and they can fulfill the goals of this program,

great; they should be brought into the program if they meet the

other conditions.

Chairman ISSA. I thank the gentleman.

Mr. MCHENRY. Mr. Chairman, I know my time has expired, but

I would ask Mr. Massad to respond in writing to this very subject.

We are interested here in this committee, and if you have concern

that you don’t have adequate provision of law, we would like to

change that.

Chairman ISSA. The gentleman agrees to respond. I thank the

gentleman.

The Chair now recognizes the gentlelady from New York, Mrs.

Maloney.

Mrs. MALONEY. Thank you.

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First, I would like to thank the panelists for their public service

and report some good news in that the DOW just crossed 12,000

for the first time since June 2008; and that shows capital is flowing

again and is a very good sign of economic recovery in our great c

country. And, from your testimony today, TARP played a role in

moving us in this good direction. You pointed out that it not only

averted a meltdown, but laid the groundwork for economic recovery, which we are seeing today.

I must say that during the dark days I was getting phone calls

in the middle of the night and all day long from constituents who

were afraid of a collapse. There was a run on the money market

on some banks, and I personally believe that my vote in support

of TARP will historically be regarded as the right thing to do and

good public policy, although all of us who were on the campaign

trail, many of us were attacked relentlessly for having supported

this important program.

I would like permission to put in the record one of the best reports that I have seen on the successes, bipartisan, from Blinder,

a Democratic economist, and Zandi, a Republican one, on how the

great recession was brought to an end.

Chairman ISSA. Without objection, so ordered.

Mrs. MALONEY. And also an article in the American Banker

which talks about the home foreclosures and a foundation that is

working with HAMP and others to help people stay in their homes.

Chairman ISSA. So ordered.

[The information referred to follows:]

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Mrs. MALONEY. I specifically would like to respond to the two

problems that Mr. Barofsky mentioned in his testimony; first, the

cost of TARP in terms of confidence in our Government, transparency and other management mistakes, and I would like to mention that I authored a bill in response to your first criticisms on

this what would have computerized TARP in realtime so we would

know where the finances are. It passed the House backed by the

Chamber of Commerce and Labor, one of the few bills, and I truly

believe we should do it for the entire financial system. If we can

track where our package is in 2 seconds, we should be able to track

where we are in our exposure in finances. I feel it is an important

bill and one that we need to work on and revamp to the current

status.

You also mentioned the too big to fail and the fact that your concerns that we may not have done enough. So I would like Mr.

Massad to respond to this, specifically in the Dodd-Frank bill. And

I was likewise on the Conference Committee with the chairman.

We created a Financial Stability Oversight Council to monitor the

systemic risk and to set criteria to identify institutions that may

be heightened risk. I would like you to comment on the status of

where that is.

We also, very importantly, established an orderly wind-down,

similar to what we have in the FDIC, which was a huge success.

We had two choices: we could either bail out an institution or let

them fail. Neither was a good solution. We want to be able to wind

them down as we were able to do with FDIC banks so successfully.

And I want to know are the rules in shape and where does that

stand.

Third, we imposed capital requirements and leverage ratios to

ensure that large institutions aren’t taking excessive risk. I believe

those rules are coming out in July. Correct me if I am wrong. And

where does that stand? Where do you think the leverage and capital requirements will come out, in your best judgment?

Last, we called upon the SEC to come up and we gave them, actually, new powers and authority and resources to go after bad actors so that we could find the next Bernie Madoff and help protect

our system.

So I would like you to respond to where these initiatives stand.

What do you recommend, if anything else, we need to do to protect

us from too big to fail, as was pointed out in his testimony? And,

if you have enough time, could you respond to TARP as it relates

to the taxpayer? We know it was a great deal for our economy; it

was a great deal for averting economic risk. I am the daughter of

two parents who suffered in the Depression. Their stories were terrible. We averted that in our economy, but was it a good deal for

the taxpayer?

Thank you very much for your service.

Mr. MASSAD. Certainly, Congresswoman, I would be happy to respond to all those things. Let me start, perhaps, with the last

point. I appreciate that people that are still suffering from this crisis, and there are many, may not feel that TARP didn’t do anything

for them; and Mr. Barofsky also has asked what did it do for Main

Street. I think the study you pointed out, the Zandi study, makes

it——

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Chairman ISSA. I would ask unanimous consent for an additional

1 minute for the witness to respond. Without objection, so ordered.

Mr. MASSAD. Thank you, Mr. Chairman.

The study makes it very clear we would have entered into a second Great Depression. We could have faced unemployment, in their

estimate, above 16 percent; other people have said 25 percent. The

fact that we averted that is a real benefit to Main Street. The fact

that people can now borrow again, when they couldn’t as a result

of this crisis, is a benefit to Main Street. The fact that we have an

auto industry in this country and we saved a million jobs, not just

at the auto companies, but at their suppliers, is a benefit to Main

Street. So there are a number of benefits to Main Street. I don’t

think one has to look very far to realize that.

As to the progress in implementing Dodd-Frank, a lot of work is

going on. I am not responsible for that, but I am happy to tell you

what I know and to make sure that the proper officials of Treasury

give you additional information. But the Financial Stability Oversight Council has been meeting actively and developing a number

of rulemakings to address these issues, and they have the powers

to regulate systemic risk and to look at what are the emerging

trends in our financial system that need to be addressed.

So I think you will see a lot of work going on there. As to capital

ratios, they are working on that also. Those will be higher. They

are already higher. In other words, our financial system today is

much better capitalized than it was in the fall of 2008, and many

of the institutions are much better capitalized than their foreign

competitors.

The other thing I want to note is——

Chairman ISSA. If you could summarize briefly, please.

Mr. MASSAD. Certainly.

On small banks, we funded over 400 small banks under TARP,

and that is another benefit to Main Street because those banks

help local communities, small businesses, and families.

And as to Congressman McHenry’s point on the SBLF, obviously,

Treasury supported this new fund, and I think the only issue is a

minor one that Mr. Barofsky is raising, because, actually, Treasury

does make a new credit decision on whether a TARP recipient is

eligible. If a TARP recipient hasn’t paid its dividends, it is not allowed to refinance. So there is a new credit decision made. He is

just raising a particular point which we felt the statute did not

allow us to do.

Chairman ISSA. I thank the gentleman.

The Chair now recognizes the gentleman from Ohio, Mr. Jordan,

for 5 minutes.

Mr. JORDAN. Thank you, Mr. Chairman.

I want to thank the gentlemen for being with us today and, Mr.

Barofsky, you and your staff in particular for the integrity and professionalism that you bring to your job. We certainly appreciate

that. Your comments earlier were that the HAMP and the making

home affordable programs, their performance remarkably

dispiriting.

In today’s Journal there is a quote that the foreclosure efforts at

Treasury has been beset by problems from the outset and, despite

frequent retooling, continues to fall dramatically short of any

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meaningful standard of success. The article goes on to mention

about the FHA short refinance program, which started last fall and

has helped 15 people.

So I guess my question is at what point do we say, hey, this just

isn’t working, this just isn’t getting the job done? Would we be better off just discontinuing the whole program? After 3 years, three

to four million goal, a few hundred thousand in permanent modification have actually had help. The Treasury talks about now the

metric they are using is offering people help, versus actually providing it. At what point do we say, hey, this is just not working,

let’s end this program?

Mr. BAROFSKY. I continue to be a glass half full type of person.

Mr. JORDAN. Well, based on your comments on this, Mr.

Barofsky, you wouldn’t be a glass half full, you would be a glass

2 percent full, or 1 percent full.

Mr. BAROFSKY. That is true.

Mr. JORDAN. I am an optimistic guy too, we live in America, but

that is really stretching it.

Mr. BAROFSKY. Well, I think that hope is slipping away, and I

think that if Treasury doesn’t respond to some of these things in

a quick manner, your suggestion of ending the program and others’

suggestions is just going to become a louder and louder chorus, and

understandably so.

And I think the way for Treasury to respond to that is not to

keep clinging for these non-credible declarations of success, and be

straightforward and honest and say this is where we think this

program will be at the end of 2012 or at the end of 2017, when the

program is done; this is the number of people that we intend to

have sustainable permanent modifications; this is how we are going

to get to that number. Then you and this committee and the Congress and the American people can make the evaluation is it worth

it. Is it worth it to continue. I think if they fail to do so you are

probably dead-on right.

Mr. JORDAN. You have more patience than I have. In fact, yesterday I introduced, also the co-sponsorship of the chairman and the

ranking member on the committee, Congressman McHenry, we introduced legislation to end the HAMP program. We just think any

objective look at this, it doesn’t warrant continued spending of taxpayer dollars.

Now, I want to be clear on a couple things. You have jurisdiction

over the $45 billion in the TARP program that affects the foreclosure programs, HAMP being the biggest one. But there is also

$25 billion that is available to Treasury in the Housing and Economic Recovery Act. Is that accurate?

Mr. BAROFSKY. That money is money that goes to Fannie and

Freddie.

Mr. JORDAN. OK. And I understand this is not your jurisdiction,

but to the extent you know, has any of that money been applied

to or used in any way for foreclosure prevention type programs at

Treasury?

Mr. BAROFSKY. Yes.

Mr. JORDAN. And, if so, are the results similar to what we have

seen in HAMP?

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Mr. BAROFSKY. Well, actually, yes. When we are talking about

HAMP, we are really talking about both components, the GSE

money, which is not funded through the taxpayers,——

Mr. JORDAN. Right.

Mr. BAROFSKY [continuing]. And then the TARP.

And, frankly, to date, the GSE part of the program is doing better than the TARP part of the program. Of this 520,000, approximately, or 540,000 of ongoing permanent modifications, more than

half of those are attributable to Fannie and Freddie and the GSE.

It is only about 220,000, 230,000 modifications that are actually

TARP permanent modifications. So there is activity over there, and

we detail in our report, we break all these numbers down from

GSE versus non-GSE, including how much money the GSEs have

reported that they have spent on these modifications providing to

servicers.

Mr. JORDAN. But the bottom line is there is approximately $70

billion that has been appropriated for this type of program, the

HAMP program. $70 billion, not $45, $70 billion, and $1 billion is

all that has gone out the door for a program that has hurt people

it is supposed to help and, in your definition, remarkably

dispiriting program, what I would call a colossal failure. Is that accurate?

Mr. BAROFSKY. Yes. And as I said, I certainly understand your

frustration, and I share your frustration. I just hope the Treasury

can hear what you are saying and hear these legislative intent, and

come up and be honest about where this program is going, if it is

going anywhere.

Mr. JORDAN. And let me just finish this, I have 15 seconds. And to put it all in context, $70 billion appropriated for this, not helping

the people it is designed to help, total failure. The guy who is

charged with inspecting it understands total failure, at a time we

have a $14 trillion national debt. At some point we have to say

enough is enough, let’s end this program.

Mr. Chairman, I yield back.

Chairman ISSA. I thank the gentleman.

The Chair now yields to the gentleman from Ohio, Mr. Kucinich,

5 minutes.

Mr. KUCINICH. Mr. Massad, isn’t it true that HAMP’s performance is dependent upon the voluntary willingness of mortgage

servicers to give distressed borrowers loan modifications?

Mr. MASSAD. Yes, that is correct.

Mr. KUCINICH. Mr Barofsky, isn’t it true that private mortgage

servicers have found creative ways to frustrate attempts by distressed borrowers to save their homes?

Mr. BAROFSKY. There have certainly been problems with mortgage servicers.

Mr. KUCINICH. Is that a yes or no?

Mr. BAROFSKY. I don’t know if it has been creative, but it certainly has happened.

Mr. KUCINICH. Since it is readily apparent that the party really

responsible for HAMP’s performance is private industry that won’t

give consumers a fair shake, I can’t understand why we don’t have

a representative from the servicing industry to explain that industry today. The minority requested that JP Morgan Chase, a major

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servicer, appear today, but the chairman refused, and I don’t know

how we can have effective oversight for Congress or the American

public, how they can really understand the Federal response to the

foreclosure crisis, which depends on the private sector, without asking the private industry to explain their actions that are impeding

this program.

Chairman ISSA. Would the gentleman yield?

Mr. KUCINICH. If the Chair will let me have my time afterwards.

Chairman ISSA. Of course. The Chair made a decision that today

would be fully involved with the Government’s side and the Special

IG’s report. We do intend on having, among others, servicers and

a review of the HAMP program. This is but the first of our discovery. And I appreciate the gentleman’s comments and yield back

and will add 20 seconds.

Mr. KUCINICH. I appreciate that.

Now, SIGTARP’s report and other reports of abuses by loan

servicers, Mr. Chairman, raises serious concerns that these mortgage providers may be engaged in a pattern of abuse.

Mr. Barofsky, I would like to request that your office conduct a

specific audit on this issue.

And I would like to, at this point, ask the Chair if you would join

with me in this request, since you are saying that you are willing

to go forward with looking at the mortgage servicers.

Chairman ISSA. I will certainly consider it. Would you give me

the request in writing?

Mr. KUCINICH. I will do that. Because what I want to point out,

thank you, Mr. Chairman, is that while the Chair certainly has the

unilateral privilege to issue subpoenas, the Chair also has the

privilege not to call certain witnesses. It is comforting to know that

you will consider calling witnesses in the mortgage service industry, especially since it is so relevant to the matter at hand.

The Chair also, as we know, has the privilege to deny documents,

the production of documents to other Members. For example, in

this case, and I am not saying this happened, but my concern

would be about that policy is that if there is any communication

with the committee and JP Morgan Chase, that the minority may

not know about it.

And I am also concerned that if, on this matter of JP Morgan

Chase, servicers not appearing today, perhaps I, myself, certainly

wanted to address that in my opening statement. I didn’t have that

privilege, nor did our ranking member. That is one of the problems

in not having opening statements.

So I hope that as we continue down the road in this committee,

we will understand the importance of tradition and procedure that

respects the rights of all Members, because I think what it really

does is it enables us to function more effectively.

Now, Mr. Massad, what is Treasury doing to retool HAMP to require improved servicer performance and do you need legislative

authority to implement an effective retooling?

Mr. MASSAD. Thank you, Congressman, for the question, it is a

very important question. Let me talk about some of the things we

have done. We have required the servicers to, if they are evaluating someone for HAMP, they cannot foreclose on that person. And

if they decide that the person isn’t eligible for HAMP, they must

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still consider other alternatives; short sales, proprietary modifications, and so forth. And it is only after they have certified that they

have done all those things that you can proceed to a foreclosure.

We have required the servicers to have a process for appealing

the decision. We have also set up our own center so that people can

come to us if they feel they have been wrongly denied, and we will

run a calculation to give them a view on that. And we have an escalation center that deals with complaints.

Mr. KUCINICH. Well, let me ask you this. Would you agree that

we will never get to the bottom of this problem or figure out how

to proactively deal with the foreclosure crisis if we don’t examine

the actions of mortgage servicers, who alone make the decision

about who may keep or must leave his or her home?

Mr. MASSAD. I would agree, Congressman, that we need to look

at how this entire industry is functioning or, rather, not functioning, and I think there is a lot of work going on. And obviously

through HAMP, which, as you have noted, is a voluntary program,

we cannot force a chance on the entire industry. But we have

learned a lot, we think, about what is——

Mr. KUCINICH. But Mr. Barofsky can examine it.

Mr. BAROFSKY. Yes, Congressman. And, by the way, we do have

an ongoing audit of the mortgage servicers, and I will make sure

that my staff meets with your staff to see if there are any specific

concerns that we should incorporate into that reveal.

Mr. KUCINICH. I think it is also important you communicate with

the Chair on that as well.

Is my time expiring or do I have 20 seconds more?

Chairman ISSA. The gentleman has 20 additional seconds.

Mr. KUCINICH. Thank you.

This is so important to my constituency because Cleveland, Ohio

has been an epicenter of the subprime meltdown. People have lost

everything they ever worked their lifetime for, and when you get

in a situation where they depend on HAMP to try to save their

homes and the mortgage servicers have a subterfuge to defeat that,

it is important we call them to an accounting. Thank you.

Thank you, Mr. Chairman.

Chairman ISSA. The gentleman is most welcome.

The Chair now recognizes the gentleman from Florida, Mr. Mack.

Mr. MACK. Thank you, Mr. Chairman.

I want to thank both of the witnesses for being here today. Recognizing that we are in difficult times, let me just say I am sure

it is not easy to sit there and take the questions, but there is a lot

of frustration.

I wanted to start off by saying this, that my observation so far

is that what we are talking about is failed government regulations

and programs, and today is what we are talking about, or some

people are talking about, is what other government programs can

we add on top of that to try to make the failed ones work, as if,

though, more government regulation, more government programs is

going to be the answer.

And I have heard a couple people from Ohio talk about Ohio

being the epicenter of foreclosures. I would welcome them to come

down to Fort Myers, Florida, to Lehigh, to Cape Coral. And I will

tell you what my constituents are telling me. They are telling me

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stop; we don’t want more of this government kind of control. We

don’t want the idea that government is going to solve all of the

problems, when a lot of people feel like government is part of the

problem.

So if you think about what has happened, government started to

push people and mortgage companies into making loans and putting people into homes that maybe weren’t fiscally able to do that,

either the company or the individual. Then, when we have a crisis,

we then turn to more government and regulating it, and what you

get is, instead of banks being able to lend, if you talk to community

banks, they are afraid to lend because exactly what Mr. Massad,

you have to think about what you said earlier. You said that we

need to incorporate some national standards. When these lenders

hear that, what they hear is more punishment. What they hear is

more changes are coming; we don’t know what the ground rules

are; we are afraid to lend. When you bail out the big banks, it disadvantages the small banks.

So when you talk about the costs of TARP or these other bailout

programs, what you are missing is the cost of potential from other

sectors. So you have the big banks that you want to claim have

done so well. I don’t know that I see it that way, but it has been

at the cost of the small banks. And now what we are seeing is lenders do not want to lend because they are afraid of statements like

now we need national standards.

So, again, what I am saying is stop. What I want to hear is not

what is the next regulation, what is the next program, what is the

next acronym that we are going to start talking about that is a failure because government can’t do it. I want to hear from both of

you, if you would, very specifically, what should we repeal. What

kind of repeals can we do that will help ignite borrowing and lending, that is going to help small businesses or that are going to help

families who are trying to put their lives back together.

Instead of talking about what new programs we are going to

pass, I would like if both of you and, Mr. Massad, I will start with

you, if you could tell me what do you think we ought to repeal.

Mr. MASSAD. Thank you, Congressman. I am happy to do that.

First of all, my responsibility is the TARP program. I am not a regulator, but what I would say is this. I am trying to get the government out of the business of owning stakes in private companies

and telling private companies what to do.

Mr. MACK. Excuse me real quick. But when you say now we need

national standards, think about what you said and think about

what people back home, think about those small banks. Think

about the people who are trying to make it every day. What they

have just heard is the rules of the game are going to change again,

and now you are saying we need national standards.

Mr. MASSAD. I was referring to national servicing standards for

the servicing of mortgages, which we already have some. This business is mostly dominated by the big banks, the small banks aren’t

really in it; the big banks represent the vast——

Mr. MACK. Well, yes, because they can’t compete because government has sided with one over the other.

Mr. MASSAD. Well, I think——

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Mr. MACK. Again, if you come down to Southwest Florida, the

community banks are so important to housing, but they have been

pushed out because government has come in and bailed out the big

banks. They can’t compete.

Mr. MASSAD. Congressman, I agree small banks are very important; that is why we funded so many of them under TARP. Again,

that is something we had to do. I don’t think it is a good thing for

the government to have to have done that, but we had to do it, and

that is why we are trying to get out of it so quickly.

But in terms of your comment on failed government programs,

I think all we are trying to do is say we still are in the midst of

a very terrible housing crisis that is a drag on our economic recovery, and the servicers——

Mr. MACK. If I could——

Chairman ISSA. The gentleman’s time has expired.

Mr. MACK. Time has expired. Mr. Chairman, if I could ask——

Chairman ISSA. I would ask unanimous consent for one additional minute. So ordered.

Mr. MACK. And I will just say this to the chairman. If you would

submit to this committee for us, please, in writing, specific things

that we can repeal that is going to help, instead of submitting to

this committee what other regulations and programs that we ought

to be performing. I would like to hear what you think we ought to

repeal.

Thank you, Mr. Chairman.

Chairman ISSA. If the gentleman would yield his remaining time.

Mr. MACK. Yes.

Chairman ISSA. As long as we are asking, Mr. Massad, would

you commit, before the next quarterly Special IG report comes out,

either to produce a revised estimate of how many loan modifications you expect HAMP to produce, along with the source material

made available to the Special IG, or, in the alternative, make available to Mr. Barofsky the source material so he can bring us an assessment?

Mr. MASSAD. Yes, sir. I would be happy to do that. We have been

working on that and I think a lot of that data is out there, but we

are happy to do it.

Chairman ISSA. We sure appreciate it. I know the committee

would appreciate that.

The Chair now recognizes the gentleman from Massachusetts,

Mr. Lynch, for 5 minutes.

Mr. LYNCH. Thank you, Mr. Chairman.

Mr. Barofsky, Mr. Massad, thank you both for your great work

and thank you for your service to our country. Mr. Barofsky, I am

more familiar with your work, especially so, sir, the work that you

have been doing. I do want to take just maybe half a minute to

really correct some of the revisionist history here on TARP.

I voted against TARP. And when it came before the Financial

Services Committee and before this Congress, the stated legislative

goal of TARP was to help Main Street, to help Main Street, the

Troubled Asset Relief Program. And when we asked Secretary

Paulson at the time, just before the vote, actually, I think it was

the ranking member on Financial Services said why don’t you just

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take money and stuff it into the banks, the $700 billion that you

wanted.

And Mr. Paulson said, no, we are not going to do that. We are

not going to do that. We looked at that and that won’t work. Then

10 days after this bill passed, TARP passed, they did exactly that,

they injected all that money into the banks. This was the bank

shareholder relief program.

And for people now to say, yes, this is exactly what we voted for,

this is not what we voted for. We voted to increase lending. That

was the goal of the Congress when TARP was put on the floor. And

many of us saw the failings of that. And to now say, oh, yes, we

supported TARP for all the right reasons, I think you have to accept the fact that TARP stuffed basically $700 billion worth of taxpayer money into big banks, helping out these shareholders. We

paid 100 cents on a dollar to Goldman Sachs because we pumped

$14 billion into AIG. It was a pass-through, it went right to Goldman Sachs. A hundred cents on a dollar on credit default swaps

that shouldn’t have been worth half that.

We also passed through hundreds of millions of dollars to AIG

FP employees who mispriced this risk as part of TARP. They got

paid off. They got bonuses from taxpayer money. How you can take

credit for that and say that was a good thing. And it was never a

question of—I know people said, well, if we did nothing. Well, we

wouldn’t have done nothing; we would have done something different. And I just think there are a lot of weaknesses in this TARP

program. I think, Mr. Barofsky, you have drilled down and got to

many of them.

But I want to take my last couple minutes to talk about the servicing industry, because so much of the servicing industry is mentioned in this report and I think it is spot on. I want to just talk

about—I will just list all the investigations that are going on right

now with the services. And we are not going after them in a meaningful way; I don’t think Treasury is.

On October 13, 2010, the Attorney General of all 50 States announced a joint investigation into whether some of the Nation’s

largest financial institutions are using flawed and forged documents to execute wrongful foreclosures. The Federal Reserve and

the FDIC and the Office of the Comptroller of the Currency are

now investigating whether systemic weaknesses in the industry are

leading to improper foreclosures.

On January 7, 2011, the Supreme Judicial Court in my own

home State of Massachusetts voided home seizures because the

folks who were foreclosing couldn’t actually prove they owned the

mortgages. The U.S. Trustees Program has a similar program. The

attorneys general of Arizona and Nevada are doing the same thing.

The Justice Department.

What are we doing about the services? How are we going to clean

up this industry and correct these problems if we are not going

right after the services? That seems to be where the problem lies.

Mr. MASSAD. I am happy to respond to that, Congressman.

Mr. LYNCH. Please.

Mr. MASSAD. Thank you for the question. You have referred to

the activity that is going on by a variety of Federal agencies, and

it is under the auspices of an interagency task force that Treasury

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co-chairs. So that is very important work and I think we will see

some results of those investigations, and I think it will help us figure out what types of reforms are needed, and potentially some of

those things will be coming before the Congress.

Let me just also, though, respond. I appreciate the fact that because this program was first announced as a means to purchase

troubled assets, and then it became a program where, at least initially, what Secretary Paulson did under the Bush administration

was to invest money in banks, people were critical of that. All I

would say to that is a couple things. One, I think, under the circumstances, we had to make that change; there wasn’t time to do

the troubled asset purchase as it was originally contemplated. No.

2, we didn’t do $700 billion, we actually spent far less than that.

Mr. LYNCH. Five hundred thirty-four billion, if you want an exact

number, that went directly to the banks. Still a lot of money.

Mr. MASSAD. Congressman, if I may——

Chairman ISSA. If you would summarize your answer, please.

Mr. MASSAD. Sure. About $250 billion went to banks, and most

of that has been recovered and we will make a profit on those investments.

Chairman ISSA. Thank you, gentlemen.

The Chair now recognizes the gentleman from Pennsylvania, Mr.

Kelly, for 5 minutes.

Mr. KELLY. Thank you, Mr. Chairman.

Mr. Barofsky and Mr. Massad, thank you for being here today.

Mr. Massad, in your opening comments you made reference to the

automobile industry, of which I am a part of. I am a car dealer and

a small business person. So while people talk about small business

and their view of it from 40,000 feet, I am actually on the ground.

I can tell you this: the Small Business Loan Fund is not working.

And most banks cannot operate out of fear. The regulations that

have been imposed on these people makes it impossible to get access to these funds.

Now, why do I say that? Because I go through it every day. Not

only myself, but the people that I am in business with. And while

I am an elected official today, in my real life I am a small business

owner. I can tell you, with somebody that has all the skin in the

game every day, I would suggest to you that while we go on with

these programs and we live in this wonderful world of acronyms

that really make sense inside this Beltway, in real America it

makes absolutely no sense to anybody, and these loans simply are

not available. So while we talk about this money that is available

to help us survive, the reality of it is that it is not available to us.

Now, what has changed? It is the rules. To me, too big to fail

means that I am too small to survive. Most of the banks that I do

business with are small banks. They are absolutely frozen with

fear. The regulations and the rules have put them in a situation

that they cannot operate with us on a day-to-day basis. Quarterly

the covenants change for me.

And as we talk about small business leading the way out of this

economic mess we are in, I will tell you it is the uncertainty that

all of us face. And I am not talking about big corporations; I am

talking about Main Street America. I am talking about the average

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person, the guy that gets up every day and worries about it not

just during business hours, but 7 days a week, 24 hours a day.

My only question to you, sir, and I don’t know what you can do

about it, but there has to be some way that we can free up these

funds to make it possible for these people to survive. The people

have lost faith in this system.

Mr. MASSAD. Congressman, that is a very good question and you

raise a lot of important points. Let me say a couple of things. One

is that what we tried to do under TARP was, in part, restart the

credit markets that help small business, the securitization markets

on which a lot of them actually depend for loans; and I think we

have succeeded there. There is still a lot of work to do to help small

business.

I agree with you 100 percent; small business has been hurt in

this crisis, small banks have been hurt in this crisis, and they

haven’t fully recovered. The small business legislation that was

passed last year, which set up not only the Small Business Lending

Fund, but also another program where the States are trying to help

small businesses directly, I think provides some help. It may not

be enough.

So I am happy to explore with you further things that should be

done in that regard, because I agree it is a problem that needs attention, and I think the Treasury and the Obama administration

have tried to pay attention to that.

Mr. KELLY. And I appreciate your comments, but I would tell you

this: time is of the essence and we really do not have—we are that

close to the ground right now; there is not a lot of free fall left. So

I appreciate you so much for being out there.

And I yield back my time, Mr. Chairman.

Chairman ISSA. And the Chair appreciates that.

The Chair now recognizes the gentlelady from Washington, DC,

Ms. Norton, for 5 minutes.

Ms. NORTON. Thank you, Mr. Chairman. As a predicate to my

question, I want to note an article from the Abilene Reporter News

describing what appears to be the Republican approach to the meltdown of homes, and I ask unanimous consent that this be placed

into the record.

Chairman ISSA. Without objection.

[The information referred to follows:]

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Ms. NORTON. Mr. Neugebauer is the chairman of the Financial

Services Committee. He is a former banker himself, and he is pretty frank. He essentially says that the initiatives aimed at cushioning the blow have all failed, and so he says let the market takeover, ‘‘Markets aren’t kind, but they’re very efficient.’’ Should we go

cold turkey and leave millions of homeowners out there to suffer

the consequences? And I would like a short answer because I have

further questions. Mr. Massad and Mr. Barofsky, who seems to just

throw up his hands often. Yes, Mr. Massad.

Mr. MASSAD. Thank you, Congresswoman. No, I don’t think we

should just go cold turkey. That is why I would disagree with some

of the comments that have been made that because HAMP has not

achieved three to four million modifications, that, therefore, we

should end it. I don’t think that makes sense. I think this program

can still help a lot of people. I think it is constructed so that we

only use taxpayer funds prudently and wisely. To the extent that

we do help people, I think it is helping the right people, people who

need——

Ms. NORTON. Let me go to Mr. Barofsky, then.

Mr. BAROFSKY. I think it is incredibly important. TARP was designed in part just as much to help the Wall Street banks as to

help struggling homeowners. That was part of the intent of the legislation. And I think Treasury bears an important responsibility to

fulfill that goal that Congress set forth of——

Ms. NORTON. So you don’t think we should go cold turkey and

just leave millions of borrowers out there——

Mr. BAROFSKY. I would like to see the program——

Ms. NORTON [continuing]. To let the market do what the market

always does. It does resolve all such crises one way or the other.

Mr. BAROFSKY. I would like to see a credible revamp of HAMP

so that it can achieve the goals that were originally set for it.

Ms. NORTON. OK, let’s talk about that, because I am essentially

remedy-oriented and, as I have seen in my own district how HAMP

has failed so many homeowners, people who work hard for their

homes, got caught up in a crisis not of their making, it does seem

that the only way out of this is to take measures that protect both

homeowners and investors.

A recent Washington Post article, January 18th, as a matter of

fact, suggested that the incentive structure for services is greatly

misaligned, ‘‘Studies have shown that foreclosure is often more

profitable for a company, known as a mortgage servicer, that collects the monthly payments on mortgages and passes them on to

investors who own the mortgages. However, it is often not the best

path for borrowers who lose their home or investors who lose

money.’’

Mr. Massad, is it true that mortgage servicers often have a financial incentive to foreclose on distressed borrowers and at times

the program, your program, actually gives them a financial disincentive to work with borrowers? And what are you doing about

it?

Mr. MASSAD. Well, what we are trying to do is give them an incentive to keep people in their homes, and I thin the structure of

the program has worked in that regard; and that is why, also, it

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has been emulated by the industry. You know, before this program

was started, we had 2 years of this crisis and nothing was done.

Ms. NORTON. Why is FHFA considering an entirely new compensation structure if this one is so fine and dandy?

Mr. MASSAD. No, no, let me make sure I am clear. I agree with

what the FHFA is doing, and Treasury has supported that. They

are looking at the basic business model of the servicers, because it

doesn’t work; it is broken. It doesn’t create right incentives. HAMP

was also trying to change those incentives with respect to the loans

we could affect, and that is, as I have said, a limited pool, it is not

the entire industry. But one thing that has——

Ms. NORTON. Do you think the FHFA measures will have a

meaningful impact?

Mr. MASSAD. Well, I certainly hope so, Congresswoman. What

they are doing is saying, look, we need to re-examine how servicers

are compensated, because what has happened is they are overcompensated for loans that are performing, but when it comes to the

underperforming loans they are not set up to deal with people, to

resolve these issues.

Ms. NORTON. Mr. Massad, if this is not a win-win, it is not going

to work. If it is a win-lose—and it appears often to be just that—

then we are going to be stuck, and that is where the borrowers and

the homeowners are stuck now.

Mr. MASSAD. Well, that is right, Congresswoman, and that is

why I have said I think there needs to be a lot of attention paid

to how this industry has failed us in a lot of ways. We have seen

a lot of problems coming out of this crisis and——

Ms. NORTON. And how your incentive structure has failed us.

Mr. MASSAD. Right.

Chairman ISSA. The gentlelady’s time has expired.

The Chair now recognizes the gentleman from Michigan, Mr.

Walberg, for 5 minutes.

Mr. WALBERG. Thank you, Mr. Chairman.

Chairman ISSA. Would the gentleman suspend?

The Chair would note that we are expecting two votes at approximately 11:10. We will work for about one more question after the

vote is called. We will leave. We will return, and as soon as there

are two people on the dais we will begin questioning again so as

to be respectful of your time.

The gentleman may continue.

Mr. WALBERG. Thank you, Mr. Chairman.

And thank you, Mr. Barofsky and Mr. Massad, for being here to

appear in front of us. I had the dubious distinction to vote on

TARP, to vote against it, I think for all the right reasons; I had

the dubious distinction to be foreclosed upon by my electorate in

the next election; and then for the last 2 years to hear the response

of people who finally awakened to the fact that, yes, there was a

problem, yes, there was a significant concern, yes, there was a

meltdown that was taking place. But, frankly, their opinion was

that it was the wrong approach to take, and it seems to have borne

out.

Mr. Massad, I would ask you, and I hope this hasn’t been asked

while I was away at another committee meeting, but what are the

plans for the obligated TARP funds which have not yet been spent?

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Mr. MASSAD. The only funds that have not yet been spent are those for the housing programs. And let me just note it is not $70

billion for HAMP. Our portion of HAMP—there is a GSE portion—

our portion of HAMP is 29. We have done a number of other housing programs. So there is $45 billion allocated for a variety of housing programs. There is still a very small amount that is committed

for the public-private investment partnership.

Basically, we are no longer making new commitments. We are no

longer doing new programs. Our focus now is getting the money

back. And we have gotten, as I say, a lot of it back, and I expect

we will get a lot more of it back. And essentially all the programs,

leaving aside the housing programs, all the programs considered as

a whole will result in very little cost or potential even of profit, because we will get all the funds back.

Mr. WALBERG. Can you make a blanket commitment here today

that those unobligated funds will not be spent?

Mr. MASSAD. Congressman, I can make a blanket commitment to

you that we will make no further commitment of funds. We do not

have that authority. But let me make clear there are funds that

are obligated that may be spent. There are no funds that are unobligated. We will not make any further obligations of funds.

Mr. WALBERG. But you will not spend them, unobligated funds?

Mr. MASSAD. Unobligated funds we will not spend. I just want

to make sure we are communicating. We no longer have authority

to make obligations. I can’t make new commitments of funds. I will

not, therefore, make new commitments of funds. I do have, we do

have some funds that have been committed but not spent, and

those we expect at least some of those will be spent, not necessarily

all of them.

Mr. WALBERG. Thank you.

Mr. Barofsky, on page 6 of SIGTARP’s report, in referencing in

comparing recipients of the Federal assistance to Fannie and

Freddie, you make this statement: ‘‘In many ways, TARP has

helped to mix the same toxic cocktail of implicit guaranties and distorted incentives that led to disastrous consequences for the Government.’’

Mr. BAROFSKY. Well, two of the big characteristics of what happened with the lead up to the conservatorship of Fannie and

Freddie was, one, the implicit guaranty they received that they had

a government backstop, and one of the legacy results of TARP is

that the market still believes that the U.S. Government is backstopping the largest too big to fail institutions; and that causes a

whole range of problems. It hurts market discipline.

Counterparties, creditors, investors, they don’t do the due diligence

that is necessary when evaluating whether to do business with one

of these banks or investing one of these banks because they believe

that any type of risk they take will be backstopped by Uncle Sam

and the taxpayer. That gives them an advantage; it gives them the

opportunity to borrow money more cheaply.

S&P recently announced that their intent to change the rating

system to make it a permanent aspect that the big too big to fail

banks will have higher ratings based on implicit government guaranty, and they say this notwithstanding Dodd-Frank and other

countries’ response to the financial crisis.

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This is a market distortion and, as a result, the executives of

those banks get back into the position where it is heads, I win;

tails, the taxpayer bails me out.

Mr. WALBERG. What recommendations might you suggest to go

away from that moral hazard?

Mr. BAROFSKY. I think that we are where we are, and what we

have is Dodd-Frank, and the FSOC, and the committee that is providing oversight, and it does have a lot of tools. They need to have

both the regulatory will and the political will to rein in the size of

these banks. They have to do two things which are going to be remarkably difficult, and Secretary Geithner, to his credit, was remarkably candid with us about the limitations of what they are

going to be able to do.

But, first of all, they have to have a system where they can

credibly resolve large financial institutions without bailing out the

shareholders, the creditors, the executives. Second, which is probably just as important, they have to convince the markets that is

actually going to happen. Because if they don’t convince the markets, if they don’t have the credibility that they will not be bailing

out institutions going into the future, it almost won’t matter otherwise because, again, those incentives will still be warped; that discipline will still be gone; and those risks, with the idea that the

taxpayer will bail out the executives, the shareholders, the

counterparties will continue a perversion of the system.

Mr. WALBERG. Thank you. In the parent world we call that tough

love. Thank you.

Chairman ISSA. I thank the gentleman.

The Chair asks unanimous consent that a statement for the

record submitted by the American Bankers Association be inserted

at this time. Without objection.

[The information referred to follows:]

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Chairman ISSA. The Chair now recognizes the gentleman from

Missouri, Mr .Clay, for 5 minutes.

Mr. CLAY. Thank you, Mr. Chairman, and thank you for holding

this meeting.

Mr. Barofsky, I understand that you have the oversight authority

to investigate mortgage service providers. I wanted to discuss one

specific example of a horrendous abuse against our active duty

service members. According to an NBC News report of January

17th, JP Morgan Chase & Co. admitted that they overcharged

thousands of active duty military families millions of dollars on

their mortgages.

They also improperly foreclosed on some of these families. They

weren’t supposed to do that because we passed a Servicemembers

Civil Relief Act specifically to protect military families from high

interest rates and foreclosure actions. We recognize the importance

of those families’ service to our country.

Mr. Massad, have you seen this report?

Mr. MASSAD. I have, sir.

Mr. CLAY. What can these families do other than seek redress

from the company?

Mr. MASSAD. Congressman, I will be happy to look into that; that

is really outside of my jurisdiction. But it was a very troubling report, I agree, and I would be happy to get back to you or get the

appropriate officials to get back to you.

Mr. CLAY. Well, and I am glad to learn that JP Morgan has acknowledged its errors and is working with the families to try and

make things right, starting by paying them back $2 million in overcharge interest. But this story makes me worry for a different reason. The victims in this case complain that the industry servicers

in this case harassed them endlessly, refused to acknowledge legitimate documentation when they presented, and essentially made

their lives miserable, all without any basis to do so.

Now, I assume banks don’t have one collection agency just for

military servicemembers and another one for everyone else. Mr.

Barofsky, have you seen similar abuses of this kind, where the

banks and their collection agencies harass people without any justification?

Mr. BAROFSKY. We have. You know, we operate the SIGTARP

hotline, where we have collected more than 24,000 contacts since

our inception, and a lot of them are complaints from homeowners

dealing with mortgage servicers, absolutely. And when we see

those, we try to direct them to the right place. If there is an allegation of criminal activity and it relates to the HAMP program, we

will take it; if it is criminal activity that is outside of our law enforcement jurisdiction, we will refer it out; we will refer it to Treasury if it is appropriate, if there is something that they can do; and

we also collect them for our review and our audit function.

Mr. CLAY. How about the real abusive servicers, can they be removed from the program?

Mr. MASSAD. I’m sorry, can they be removed from——

Mr. CLAY. Yes, can they be removed——

Mr. MASSAD. From our program, from the HAMP program?

Mr. CLAY. Yes.

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Mr. MASSAD. They could be. Again, there are some servicers that

cover a lot of the market, and if we were simply to kick them out

of the program, then we wouldn’t be able to reach the people we

would like to reach. So that is why our focus has been to try to improve the practices as much as we can.

Let me just say we will continue to be aggressive in this. We are

in the large servicer shops all the time and we will continue to

work with SIGTARP on practical suggestions as to how to get the

servicers to do a better job, because we agree that they need to do

a better job.

Mr. CLAY. Well, but if they are totally ignoring the homeowner

and ignoring the documentation, then——

Mr. MASSAD. Sure. If I may, Congressman, I wouldn’t say they

are totally ignoring the homeowner, at least with respect to our

program. I think with respect to our program we have gotten them

to pay attention. We have come a long way. When we started this,

they said we can’t do this, we are not ready; and we said you have

to get ready.

And while we haven’t achieved as many modifications as we

would like, I will admit that, I have always admitted that, but,

nevertheless, we are making some progress. We are still getting

about 30,000 new families helped a month. That is important. It

is not enough, but it is important.

Mr. CLAY. Could either one of the witnesses supply us with the

breakdown of State by State of modifications? Would that be possible?

Mr. MASSAD. Yes. We can certainly do that. We can do that for

our program, Congressman. We do produce a lot of statistics and

metrics on our program, but that only covers our program. There,

frankly, aren’t a lot of statistics on the rest of the industry in that

regard.

Mr. CLAY. OK. And of special interest to me, of course, would be

on Missouri.

Mr. MASSAD. Certainly.

Mr. CLAY. OK. I thank the witnesses and I yield back, Mr. Chairman.

Chairman ISSA. I thank the gentleman.

Our last, for this round, before we go to votes, will be the gentleman from Arizona, Mr. Gosar.

Mr. GOSAR. Thank you.

Being from Arizona and hearing the discussion in regards to

Florida and Ohio, I have to say that Arizona, which we thought

was a leveling of our problems with housing, is now all of a sudden

showing some signs of double-dipping, so this is very troubling.

And being from a very poor community from the district, we see

homeowners on the very brink of catastrophe.

My question to you first, Mr. Massad, is doesn’t the lower cost

of borrowing that results from the implicit government guaranty

partially explain the banks’ abilities to pay back TARP?

Mr. MASSAD. Yes, it is probably a factor. But I think a more important factor was the process that we implemented of the stress

tests, because what we did was we put the largest banks through

a very intensive stress test, because the market didn’t have confidence as to which institutions might fail and how much capital

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they needed. So in the spring of 2009 we implemented the stress

test process, and we made the results and the whole process very

transparent, and as a result of that, they were able to raise private

capital and we were able to get the government out.

Mr. GOSAR. So a followup question, so the success depends upon

that implicit guaranty.

Mr. MASSAD. No, I don’t think I said that. What I am saying is

that we got out of the banks’ investments, we got the money back

through this stress test and recapitalization process. If I may, I

think the thrust of your question really relates to some of the concerns Mr. Barofsky has raised on too big to fail and moral hazard,

and those are very legitimate concerns, and this Congress obviously

debated them at length when it passed the Dodd-Frank legislation.

We are still implementing that. I think Mr. Barofsky is raising

his views on that, in effect, it sounds like what he is saying is

Dodd-Frank may not have been strong enough or may not be

strong enough; maybe we should break up some of these banks,

maybe we should take more aggressive action. That is certainly an

opinion and others have voiced that opinion.

My own view is let’s give Dodd-Frank some time to work, because now we do have a lot of tools that we didn’t have. So I think

it is premature to pass judgment on Dodd-Frank. It was really the

first overhaul of our financial system in many years and it was

necessary or, rather, TARP was necessary because we didn’t have

the tools that Dodd-Frank provided.

Mr. GOSAR. Mr. Barofsky, how would you feel or would you differ

in that opinion?

Mr. BAROFSKY. I don’t think that Mr. Massad has correctly characterized my position, to put it mildly. The answer to your question, though, is yes, the implicit guaranty absolutely enabled those

banks to get out of TARP on the terms that they did. Because those

banks enjoy enhanced credit ratings from the credit rating agencies, one of the conditions that the Federal Reserve and Treasury

put for those banks to get out of TARP was to go out on the markets and raise capital, and the larger banks can raise capital more

efficiently and cheaply because of this implicit guaranty, because of

the benefits they have. So, in short, the answer to your question

is yes.

Mr. GOSAR. Thank you.

I yield back the balance of my time.

Mr. DESJARLAIS [presiding]. Thank you, Mr. Gosar.

And I am instructed that we are about to be called to some votes,

so I am very, very grateful, both Mr. Massad and Mr. Barofsky, for

your attendance to this point. I know if you can give us the indulgence as soon as we conclude the votes, I know there are some

Members who would like to continue with some questioning. So the

committee stands in recess.

[Recess.]

Chairman ISSA [presiding]. The committee will come to order.

The Chair now recognizes the gentleman frm Pennsylvania, Mr.

Meehan, for 5 minutes.

Mr. MEEHAN. Thank you, Mr. Chairman, and thank you to the

witnesses for continuing to be with us here today.

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Mr. Massad, I looked at something which is a little bit different

than what has been talked about so far today, but I noticed in my

review of the most recent report the issue of the extent where recapitalization isn’t just for the big banks, but a lot of times you are

looking at groups of other banks and communities all across the

country of various size, and some of them are looking at difficult

issues as well and coming to you for recapitalization. So they are

making application to you for recapitalization. What is your policy

with respect to when you get that notification, sharing it with others?

Mr. MASSAD. Congressman, thank you for the question; you raise

an important issue. First of all, we don’t ever provide additional

funds. I want to make that very clear. Second, our job now with

respect to those bank investments is to get as much of the money

back as we can. We still have investments in about 560 banks, and

there are a few of those situations where banks have had trouble

and have come to us because they are trying to attract private capital, and they ask us to modify our investment; and we have agreed

in a small handful of situations.

The biggest is obviously Citigroup, where we agreed to convert

from preferred stock to common stock. That one obviously turned

out very well since we will realize a $12 billion profit on our overall

investment. Most of the others have been very, very small. But we

do try to work with the banks. We have a whole process of monitoring our investments and monitoring these banks, and occasionally,

because the bank is troubled, the choice for us is, if we don’t do

anything, we might lose our entire investment because the bank

might be seized. So the question is always can we agree to some

terms that help them attract new capital and, therefore, realize as

much as we can.

Mr. MEEHAN. And there is one of the issues, though, that struck

my interest, because part of your participation with them is creating an awareness on others, in many ways, to some extent, maybe

a sign of good approval that is enticing other private investors to

make capital investments to help with that bank.

Now, one of the things that concerned me in the report was the

suggestion that simultaneously some of these banks may be having

trouble for a variety of reasons, including the potential that they

may be being looked at for fraudulent activities. So to what extent

and what timing has been your policy to report that to the IG who

may, as you saw, 24,000 reports from people—as a prosecutor, I

used to see the whistleblowers being some of the key things to us.

They have information. What are you doing to ensure that there

are not activities in which you are enticing people to invest but simultaneously they are under investigation for potential fraudulent

activity?

Mr. MASSAD. It is a very good question. We, first of all, cooperate

fully with SIGTARP in terms of when they tell us they are investigating someone and they want information, we give them all that

information that they want. I know that in the SIGTARP’s quarterly report Mr. Barofsky has raised the question of whether Treasury should notify SIGTARP at some point in that process, and that

is a recommendation that we are looking at. We have, from time

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to time, done that and that is a recommendation that we are looking at——

Mr. MEEHAN. Are you asking that SIGTARP say to you when

they begin to have somebody under investigation?

Mr. MASSAD. No, I am not asking that.

Mr. MEEHAN. That is what I am trying to understand. And I am

not being hostile on this, I am just trying to understand the timing

here, because the concern I have is that they may be sitting on information, investigative information, and simply the fact that

would be leaked would be contrary to your interests.

Mr. MASSAD. Absolutely. There——

Mr. MEEHAN. I know my time is going to run out, so I am going

to ask you this, and, Mr. Barofsky, if you could jump in at the conclusion of this, after Mr. Massad, and tell me what do you need,

what is your policy with respect to the ability to have timely notification that you may have a matter under investigation while simultaneously Treasury is encouraging people to invest in that

bank.

Mr. MASSAD. Congressman, if I may, it is a very sensitive question, a lot of complexities to it, actually, and you have touched on

many of them, and we have thought about this in connection with,

well, what if the SEC is investigating a bank, what is the Justice

Department is investigating a bank; should that knowledge be

knowledge that we have? If we have that knowledge, then what do

we do? So there are some complexities to this that we are looking

at. We are talking with Mr. Barofsky’s staff, as well as the DOJ,

about this, and I will be happy to get back to you further on it.

Mr. MEEHAN. Thank you.

Mr. BAROFSKY. I don’t think there is a great deal of complexity

with this issue with respect to SIGTARP. We are a Treasury entity

within the Treasury Department. They used to give us a head’s up

before they would do one of these recapitalizations, before they

would be publicly announced, which would give us an opportunity

to review our caseload and communicate whether there is an issue,

and we have now made a formal recommendation that process be

implemented and also that with respect to giving money in the

SBLF program, when TARP banks have an opportunity to recapitalize into the Small Business Lending Program, that Treasury

check with us. The last thing they want to do is pour more money

into an ongoing fraud.

One of our biggest successes was with Colonial Bank, which had

received conditional approval to receive $550 million in TARP

money, and Treasury and Mr. Massad and OFS did a remarkably

great job working with us to make sure that money didn’t go out

the door, and we want to have the opportunity to repeat that success.

Mr. MEEHAN. Mr. Chairman, one final——

Chairman ISSA. Ask unanimous consent for one more question.

Mr. MEEHAN. If there was a policy wherein, in the past, they

were and they are not now, what is different; why has that

changed midstream?

Mr. MASSAD. Congressman, there wasn’t a formal policy; we had

very few of these before, we did notify SIGTARP, and we are looking at what should the formal policy be, because we also have to

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be sensitive to the fact that if a law enforcement official shares information with us, we have to protect the confidentiality of that information; what position does that put us in. So, as I say, I think

there are some complexities to this. I would be happy to meet with

you and your staff to discuss it further. We are giving it very serious attention.

Mr. MEEHAN. Thank you, Mr. Massad.

Chairman ISSA. I thank the gentleman.

We now recognize the gentleman from Virginia, Mr. Connolly, for

5 minutes.

Mr. CONNOLLY. Thank you, Mr. Chairman. Talk about good timing.

Chairman ISSA. The best.

Mr. CONNOLLY. Thank you, gentlemen, for appearing before the

committee today. Mr. Massad, did the Bush administration make

a mistake in creating the TARP program?

Mr. MASSAD. No, I don’t think so, Congressman. Again, I think

it was unfortunate that we had to create TARP. It was unfortunate

that we didn’t have the tools to otherwise deal with this crisis. But

I think they were right to take the actions that they took. I am

proud of those Members of Congress from both sides of the aisle

who stood up and supported it; I think we needed this. And, again,

it is unfortunate that we had to do it, but I don’t think we had

much choice.

Mr. CONNOLLY. At the time, Mr. Massad, that TARP was created

by the Bush Secretary of the Treasury, Mr. Paulson, were there not

calls then and subsequently for the nationalization of the banking

system in the United States?

Mr. MASSAD. Yes, there were, Congressman.

Mr. CONNOLLY. And did TARP offer a market-driven private sector alternative to those calls?

Mr. MASSAD. Yes, I believe it did.

Mr. CONNOLLY. So despite heated rhetoric about big government

takeover, actually, would it be fair to say, Mr. Massad, that TARP

represented precisely the opposite?

Mr. MASSAD. I agree, Congressman, yes.

Mr. CONNOLLY. And, again, there were lots of concerns—and

maybe, Mr. Barofsky, you want to comment, feel free to—that

TARP was going to be this endless sucking sound that was going

to, of course, suck up tax dollars and inflate the Federal deficit

enormously. Is that what happened in the TARP program?

Mr. BAROFSKY. I would be happy to answer that. No, I think that

one of the areas where TARP has succeed has been in the declining

estimates of the financial costs of the program, absolutely.

Mr. CONNOLLY. And what is the net cost currently of the $700

billion that was originally allocated for TARP?

Mr. BAROFSKY. It depends on who you ask. CBO did an estimate.

We have all three estimates in the most recent quarterly report.

CBO’s most recent estimate is in the area of about $25 billion;

Treasury’s most recent estimate is in the area of about $50 billion.

OMB has a much significantly higher estimate, but it’s sort of

dated back to May 2010, it hasn’t been updated yet. I anticipate

that number will come down as well.

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Mr. CONNOLLY. But the nonpartisan Congressional Budget Office, on which this institution has historically relied, except recently when we apparently don’t like their numbers, says $25 billion net cost?

Mr. BAROFSKY. $25 billion. And I think the reason for the big difference between theirs and Treasury’s number is that CBO has

looked at the HAMP program and basically doesn’t believe that

Treasury will spend even a fraction of the amount that it has allocated.

Mr. CONNOLLY. Are there still warrants and stocks to be sold

that could yet improve that net estimate of $25 billion negative?

Mr. BAROFSKY. I am assuming that when CBO does its estimate,

it considers those factors in fashioning its estimate.

Mr. CONNOLLY. But I mean, of course, everything is about timing, when you sell the warrants and stocks.

Mr. BAROFSKY. Oh, of course. The markets could improve, which

would be losses would go down; or the markets could get worse, in

which case the projected losses would go up.

Mr. CONNOLLY. Aha. OK. You mentioned the HAMP program. I

seem to recall this committee having a hearing, I think last year,

and at that time my friends on the other side of the aisle criticized

the program, which they opposed, but they nonetheless criticized it

because it only helped 167,000 Americans. Do I now understand

that number is half a million?

Mr. BAROFSKY. Yes. I’m sorry, go ahead.

Mr. MASSAD. Yes, that is correct, Congressman. That is the direct permanent modifications, and, of course——

Mr. CONNOLLY. OK, so this failing program, nonetheless, has

managed to help more Americans.

Mr. MASSAD. Sometimes I think of it as the little train that

could; it keeps chugging along and helping people, yes.

Mr. CONNOLLY. Now, at that hearing we had testimony from

banks, and maybe, Mr. Massad, you are aware of this testimony,

in which those bankers said that even the number at that time,

which was 167, understated the reach of the program positively because a lot of banks were in fact helping homeowners because

HAMP existed and had created a standard they could follow.

Would you comment?

Mr. MASSAD. That is absolutely right, Congressman. Before we

started HAMP, the servicers really weren’t doing modifications,

they weren’t addressing this crisis. To the extent modifications

were done, they often raised people’s payments. And when HAMP

came in, it provided some standards that the servicers have now

emulated in their proprietary programs. Fannie May and Freddie

Mac also adopted some of our standards for their mortgages.

So the indirect effect has been quite great. And sometimes people

talk about the numbers of foreclosures and so forth. If you look at

the total number of modifications entered into since April 2009, either under HAMP or under other programs, it does outpace foreclosure sales, completions, if you will, by two to one. Again, it is

not enough. I am always the first to say we haven’t done enough,

but I think we are making this crisis better, at least, for——

Mr. CONNOLLY. I thank the gentlemen.

My time is up and I thank the Chair.

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Chairman ISSA. You are very welcome. The Chair now recognizes

the gentleman from Oklahoma, Mr. Lankford, for 5 minutes.

Mr. LANKFORD. Thank you I have a few questions. I want to just

be able to get some clarifications. And thank you, gentlemen, for

allowing us to be able to step out and vote and be able to step back

in as well on it.

Mr. Massad, I am aware of some of the limitations that DoddFrank has placed on TARP and the boundaries of the new programs and such on it. Is Treasury willing to be able to assure us

today that there is no plan, no intention that any TARP funds will

be used for State pension bailouts or for State government bailouts

based on the limitations of what can be used in TARP?

Mr. MASSAD. Yes, sir.

Mr. LANKFORD. Terrific. Just wanted to be able to get clarification on that. On page 1 of your report, in paragraph 4 it details

some of the numbers on it: the $410 billion disbursed to date, we

have received back $270, representing $235 billion; $35 billion additional income; approximately $166 billion remains outstanding. If

I am running those numbers correctly, we are missing about $9 billion in that figure on that, so I didn’t know if you would be willing

to be able to resubmit to us just a written update on that, where

that other $9 billion and how that fits in there on that.

Mr. MASSAD. I would be happy to do that, sir. I don’t believe it

is $9 billion, but I would be happy to do that.

Mr. LANKFORD. Terrific. Those numbers, when we add them together, the quick detail out there; and I know that is just a very

quick detail on it.

The third thing is on the auto industry financing program, what

is the plan at this point? You gave us a great statement on that.

What is the plan for exiting out? We have gone from 61 percent

ownership in stock to now 33 percent. That is terrific, that is making great progress, and thank you for that. What is the plan to

take us down to zero percent?

Mr. MASSAD. We are actively working on that. I want to be careful. Because of the securities laws, we can’t be too definitive about

a timetable, but now that we have completed the initial public offering of GM, we do have a pathway to sell the rest of our shares,

and I would expect that we would sell all those, hopefully, within

the next 2 years, market conditions permitting. With respect to our

other investments in Chrysler and Ally Financial, we are also

working toward initial public offerings of those institutions.

Mr. LANKFORD. Has Treasury set up a timetable on what they

are looking for to say, by this date certain we are going to be out,

regardless, or is this—this is going to sound pejorative—playing the

market with it to try to work it out? But is there some plan to say

by this date certain we are going to be out?

Mr. MASSAD. No, we haven’t done that because I think we do

have to be sensitive to a couple of things. One is market conditions.

Also, in the case of the companies that aren’t yet public, they really

have to be ready to go public, we can’t force them really to do that.

But I can assure you that we are trying to get out of all of these

investments as quickly as possible. I firmly believe that our purpose, which is to promote financial stability, is best served today

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by getting the Government out of the business of owning interest

in private companies.

Mr. LANKFORD. I would definitely concur on that one as well.

With that in mind, is Treasury still day-to-day in the operational

business of GM, Chrysler and Ally? Is there still someone that is

onboard there with their stockholders and such that is helping advise?

Mr. MASSAD. We monitor those investments, but we have never

participated in the day-to-day management, and we have made it

very clear that we will not do so and we do not think that is an

appropriate role for the U.S. Government.

Mr. LANKFORD. Terrific. I would agree on that one as well. Mr.

Barofsky’s report details $59.7 billion that is available, that is sitting out there, and I am sure that money may move around some

based on day-to-day operations on it. When, in your opinion, does

TARP sunset? When do we not have hearings on TARP because

TARP doesn’t exist anymore, all available funds have now been returned and there is no more TARP? What is the plan for that?

Mr. MASSAD. I would say on the investment side, again, we are

trying to get out as quickly as possible. I, again, can’t give you a

timetable, but I think, with respect to the remaining investments,

which let’s call roughly $170 billion, I think we will get most of

that back in the next 2 years. There will be some portion that we

can’t get back within that timeframe, but we will certainly, and we

are, winding down the operation and trying to get out as fast as

we can. With respect——

Mr. LANKFORD. Would it help at all to have a legislative solution

on this, to set a timetable to say the American people need some

assurances that, 20 years from now, we are still not TARPing, that

we are out there and that we have a time certain?

Mr. MASSAD. I don’t think a legislative solution would be helpful

because that could depress the value that we could get for the investments that we have. But believe me, I don’t intend to be here

20 years from now.

Mr. LANKFORD. Great. Let me give you one last quick question

on it as well. In Mr. Barofsky’s report, as well, it details out that

the five largest banks now control about 60 percent of gross domestic product; they are all 20 percent larger than what they were before the crisis on this. Obviously, we have a heavy emphasis going

in the largest of banks. I know you were talking about how the

small and medium sized banks are assisting as well, but the end

result has been the biggest banks have grown bigger, and they

seem to be even more of a systemic risk.

Mr. MASSAD. There has been increased concentration in our financial system as a result of this crisis. I think probably without

TARP that would have been even greater, because we wouldn’t

have helped a lot of institutions that have been able to weather the

storm. But the question as to whether it is too concentrated is certainly one that this Congress can take up.

And as Mr. Barofsky has properly noted, that is an issue that the

Congress may wish to consider. I think what we have right now

under Dodd-Frank are tools to try to regulate that. As the comment

was made, some people have suggested nationalizing banks; some

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people have suggested breaking them up. That is obviously policy

options that the Congress can consider.

Mr. LANKFORD. It just seems to me that we have a preference for

the largest of banks in this structure. And I understand that my

time has expired. Thank you very much.

Mr. MASSAD. Thank you.

Chairman ISSA. I thank the gentleman.

The Chair now recognizes the gentleman from Illinois, Mr.

Walsh, for 5 minutes.

Mr. WALSH. Thank you, Mr. Chairman.

Thank you both for coming in; it has been a long morning. Let

me be very brief and ask two broad, macro level questions and try

to get an answer from each of you. Like a lot of my colleagues, I

hear from community banks every day who are struggling. Like a

lot of my colleagues, I hear from community and small banks every

day who resent the fact that it seems like TARP, the Government

sided with the big banks. Broad question: Why are these community banks struggling? What is your biggest concern that you have

right now for community banks?

Mr. MASSAD. That is a very good question. A lot of the small

bankers do have loan portfolios that are more heavily weighted to

the real estate sector and, therefore, they have been hurt by that.

No. 2, they don’t have access to capital as easily as the big banks,

so those are very real concerns. And we have tried, with the TARP

program, to address some of that. You know, essentially, when you

look at the money invested in banks, about $250 billion overall

under TARP was invested. Most of that, $234 or so, around that

amount, was done under the Bush administration.

I agree with the actions that they took, but I am just pointing out that they did that. $125 billion of it went to the largest institutions in the country. When Obama came in, we have only invested

an additional $11 billion in banks, and a lot of that went to a lot

of the smaller institutions and we set up special programs to help

them. But many of them are still struggling and we are trying to

do our best to get this economy back and get an economic recovery,

get the housing market stabilized, because I think those are the

best things we can do for those banks.

Mr. WALSH. And, Mr. Barofsky, why still this persisting struggle

with the community banks?

Mr. BAROFSKY. Part of it is, as Mr. Massad pointed out, the

structure of their portfolio, but a large part of it is also the continuing existence of too big to fail; it gives an inherent advantage to

the larger banks. There is a reason why the smaller banks don’t

have the same access to capital as the larger banks; they don’t

have the access to the virtually free money from the Federal Reserve that the larger banks. A lot of what has been the result of

TARP and the related programs is it has given the opportunity for

the largest banks to essentially earn their way out of trouble, and

those are opportunities that are not available for the smaller and

community banks.

Mr. WALSH. So maybe this leads, then, to my second brief macro

level question. Each of you offer one broad level critique of TARP,

either with its implication, with its design. If you were to each offer

one broad critique of TARP, what would it be?

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Mr. MASSAD. You know, if we had to do this all over again, and

obviously I am assuming we will not have to, there are a lot of

things we could change or would change, Congressman. It is hard

to be specific. There are certain things in the housing program that

we have done later that we might have done earlier. I agree with

the comment that was made earlier that it was proposed as a purchase of troubled assets and then I think the Bush administration

wisely changed course because I think they had to, but that obviously contributed to some of the criticism.

So it is things like that. There are many others I am sure that

we would do over, but I think the key thing is hopefully now, under

Dodd-Frank, we have the tools that will make this sort of thing unnecessary in the future.

Mr. WALSH. One overall critique, Mr. Barofsky.

Mr. BAROFSKY. I think one of the things that could have been

done better, within the realm of possible, within the realm of what

the TARP was, was better transparency for the Treasury Department. From day one this has been a recurring theme of our criticism, and we have been very bipartisan in our criticism for both

the Paulson Treasury Department, as well as the Secretary

Geithner Treasury Department.

But explaining this better to the American people, being more

up-front and honest about these programs, whether it was saying

that the first nine institutions were all healthy and viable, when

they knew full well that some of them were not; to some of the

more recent statements, the cheerleading statements about the

program, which under a little bit further examination certain

things were left out.

I think that having a more transparent program—and it is not

too late, and I would encourage Treasury to renew its efforts toward transparency—will help address some of the real negative

views of this program, because I think if people understand it and

feel that everyone is being up-front with them, it can be a more informed conversation, be a more informed debate. Right now, Treasury’s running of this program has been viewed of one, I have

heard, of picking winners and losers, or backroom deals, and those

criticisms really come out of these transparency failures.

Mr. MASSAD. If I may respond to that. I am fully committed to

transparency, and most of the particular suggestions that

SIGTARP has made in this regard we have implemented.

I would just like to note, because I think often people aren’t

aware of it. We publish annual financial statements which are audited, and we have received clean opinions on these financial statements for 2 years, without any material weaknesses. That is actually a very rare thing for a startup entity; it is a relatively rare

thing in government.

We publish a monthly report to Congress that lays out exactly

where the money is, how much of it has come back, what is the

status of the program. We publish a transaction report on each

transaction within two business days of completing it. We publish

a dividend and interest report quarterly which shows how much

dividend and interest payments we have gotten. We put all of our

contracts and agreements on our Web site.

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That means not only any contract entered into with a financial

institution, but also all the procurement contracts, all the documents related to HAMP, and any program we have, as well as program guidelines and other materials. We have testified before Congress numerous times; we meet. We have three oversight agencies

and we fully cooperate with them and give them all the information that they need. They have produced a total of 75 reports.

So we can always strive to do more, but I think, actually, there

is a lot of information about this program available.

Mr. WALSH. Thank you both.

Thank you, Mr. Chairman.

Chairman ISSA. You are very welcome.

If anyone else arrives who has not had a first round, we will take

them if they arrive before we finish. Otherwise, with your indulgence, we would like to have a brief second round for a couple people.

At this time, I would go to the chairman of the subcommittee of

jurisdiction, Mr. McHenry, for his questions.

Mr. MCHENRY. Thank you, Mr. Chairman.

I would begin by, this has not been discussed greatly, but the

moral hazards created by TARP is mentioned, Mr. Barofsky, in

your report. You have mentioned it before. This is certainly a big

concern.

Mr. Massad, S&P considers the likelihood of government’s support explicitly in their credit rating. Are you aware of that?

Mr. MASSAD. [No audible response.]

Mr. MCHENRY. OK. Do you think that is a direct result of TARP?

Mr. MASSAD. I would say it this way, Congressman. I think because we didn’t have the tools to deal with this rescue, we had to

do TARP, and that does raise the moral hazard, too big to fail concerns that Mr. Barofsky has mentioned. But I think now Congress

has addressed those through Dodd-Frank. We haven’t implemented

Dodd-Frank yet, but those are the tools we now have. So I don’t

think it is appropriate to blame it on TARP but, rather, blame it

on the fact that we didn’t have an adequate regulatory system, and

that is what we are trying to improve now.

Mr. MCHENRY. I would like to call up the Geithner slide, if I

could. Secretary Geithner, Mr. Barofsky, and your report on Citi,

outlines very clearly in the future we may have to do exceptional

things again if we face a shock that large. We just don’t know what

is systemic and what is not until you know the nature of the shock.

Now, Mr. Barofsky, was this interview post-signing of the DoddFrank law?

Mr. BAROFSKY. This interview occurred in December 2010.

Mr. MCHENRY. Mr. Massad, it seems that your testimony is

counter to your boss’s testimony. How do you reconcile that?

Mr. MASSAD. No, I don’t think it is. I think what Secretary

Geithner was referring to, and neither I nor Mr. Barofsky were actually in the room, but——

Mr. MCHENRY. But we have his words.

Mr. MASSAD. Yes, we do, and I have also spoken to him about

this. What he was referring to was the ability to use the tools

under Dodd-Frank to address this and the fact that we don’t know

exactly what the issue will be.

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Mr. MCHENRY. Right.

Mr. MASSAD. But the tools under Dodd-Frank are flexible. We

are not going to have just a set of immutable, quantitative criteria

that say if you are above this amount of assets, you are too big to

fail.

Mr. MCHENRY. OK.

Mr. MASSAD. We have qualitative and quantitative——

Mr. MCHENRY. My next slide is President Obama said last night

in the State of the Union because of this law, there will be new

rules to make clear that no firm is somehow protected again—I am

sorry, the Dodd-Frank signing in July of last year. He said these

new rules will make clear that no firm is somehow protected because it is too big to fail so we don’t have another AIG.

Mr. Barofsky, it seems that Secretary Geithner’s words run

counter to that. And it is hard to, after the fact, for his staff to say

he didn’t really mean it. Can you give us context for this?

Mr. BAROFSKY. Sure. And a couple things I want to make very

clear. I was not in the room; I had six members of SIGTARP, including my deputy, were in the room. And after we received this

quote, we documented it and, as is the normal practice of our reports, we provided the quotes in a draft copy of the report to Treasury, both the quote itself and the context in which it was presented, and we had a number of conversations. They made some

suggestions; we incorporated those suggestions. And at the end of

that process Treasury assured us that they did not contest the language that was used, the quote itself, and did not think that we

had presented it in any type of misleading or wrong context.

So the quote is the quote. We stand by it. There is no question

in my mind, and based on our interactions with Treasury before

the report was released, that it is an accurate quote. I think that

Secretary Geithner, and it was the impression of the six people in

the room, was being transparent, was being candid, and I commend

him for that, by recognizing the reality that the market is today

that banks are still too big to fail.

Now, the hope is that if Dodd-Frank—and certainly Dodd-Frank

has given the regulators many, many potential tools, and if those

tools are implemented correctly—and that is a very, very big if—

it would require actions by the regulators that, frankly, they did

not seem capable of doing in the runup to this crisis, as far as seeing around corners and understanding. But let’s assume that they

can. Hopefully we can get to a day or a point where the market

will believe that the government doesn’t need and will not bail out

these companies. But we are not there.

Mr. MCHENRY. So we know that S&P has made the idea of a

bailout, a TARP-like program or Dodd-Frank—it is hard to really

judge based on S&P making permanent their analysis of really a

Federal backstop to bail out the biggest firms. We also know that

there is explicit guaranties, signed through contracts in 2008 and

2009, for these financial institutions, whether it is the Fed, FDIC,

or TARP, of a backstop to—well, government guaranties of assets.

We know the explicit number, right?

Mr. MASSAD. Yes.

Mr. MCHENRY. So the question to both of you is can you tell this

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ernment guaranties are going forward to these financial institutions?

Mr. BAROFSKY. There have been some studies, and I think we include one as a footnote reference in our report. We don’t do that

type of economic analysis, but I think I saw one that suggested

that it was—and please don’t quote me on this—I think a $34 billion a year advantage that the larger institutions have because of

their ability to raise debt more cheaply than their smaller rivals.

That is one number, I believe, from one academic study that may

be helpful.

Mr. MCHENRY. Mr. Massad.

Mr. MASSAD. Certainly, Congressman, I don’t have an ability to

quantify that on the spot, but let me just try to respond to your

question. In terms of explicit guaranties, I think you are referring

to the Citigroup asset guaranty program, which has now been terminated at a profit to the U.S. Government, so there is no

longer——

Mr. MCHENRY. No, actually, that is not what I am referring to.

There are actually—at the time of the economic crisis, as has been

well documented, FDIC, the Fed, TARP, Treasury has explicit

guaranties through contracts that are publicly available. I am asking you about the implicit—and those are well know, well documented; we don’t have to rehash them here. I am asking about the

implicit guaranties. And Mr. Barofsky, as he mentions in his report, has——

Chairman ISSA. If the gentleman could conclude.

Mr. MASSAD. But really I think the thrust of your concern is

have we addressed the too big to fail issue sufficiently, and I guess

my response to that is that Congress passed the Dodd-Frank law

to address that. If there is a view of some that wasn’t sufficient,

that is a judgment for Congress to make. But I think where we are

now, where Treasury is is that we are actively trying to implement

that law so that we can use the tools it gave us to make sure that

no institution is too big to fail. And I think it is premature to conclude that it hasn’t worked and that we need some tougher legislation to address that.

Chairman ISSA. I thank the gentleman.

The Chair now recognizes the ranking member.

Mr. CUMMINGS. Mr. Massad, the Dodd-Frank legislation includes

a number of provisions intended to eliminate the concept of too big

to fail. For example, the legislation is clear that taxpayers will not

cover the cost of saving failing institutions and will not cover the

cost of liquidating such an institution. Further, the legislation alters the Federal Reserve’s 13(3) emergency lending authority to

prohibit bailing out an individual company. Finally, the legislation

creates a Financial Stability Oversight Council to monitor systemic

risks and to require non-bank financial companies that pose a risk

to the financial stability of the United States to submit to supervision by the Federal Reserve.

Can you describe briefly how implementation of these measures

will address the too big to fail problem and what is the time line

for implementing the measures?

Mr. MASSAD. Congressman, I can describe that very generally,

because, actually, it is not my responsibility to implement it, but

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I am happy to get the appropriate officials of Treasury to brief you.

But my understanding where we are is the law was passed in July.

There are a number of rulemaking procedures and studies that are

being conducted. The FSOC holds regular meetings and it always

has a part of that which is public, and they are busy working on

these. They are also busy creating the Office of Financial Research,

which is designed to monitor conditions in the financial industry

and help us determine what risks need to be addressed. But I

would be happy to get you——

Mr. CUMMINGS. Please do.

Mr. MASSAD [continuing]. A more detailed briefing.

Mr. CUMMINGS. And we will followup with you with some detailed questions, all right? And if you can answer this: How will

criteria be established to allow us to identify firms that pose systemic risks and are therefore systemically significant? I take it that

you will do that in writing also?

Mr. MASSAD. I can do that. I will say very generally that it is

going to be, as has been announced, quantitative as well as qualitative judgments, and the criteria aren’t simply about size; they are

about riskiness of activities, interconnectedness, extent of leverage,

extent of supervision. So I think these matters are being given a

lot of thought. They are obviously very complex issues, but I would

be happy to get you a more detailed summary of where we are on

that.

Mr. CUMMINGS. Thank you. Let me say this. I think that you all

hear, both sides of the aisle, we are all very concerned about

HAMP, Mr. Massad, and we also are concerned about servicer behavior. And I understand that you and SIGTARP disagree about

your authorities, but based on your understanding of your authorities, can you and will you take more aggressive steps to require improved servicer performance?

Mr. MASSAD. Certainly, Congressman. I don’t think, actually, we

disagree with the extent of our authorities, but maybe there is just

a difference in how we can best improve the program in terms of

using those authorities.

Mr. CUMMINGS. Do you all talk?

Mr. MASSAD. Yes, we talk regularly.

Mr. CUMMINGS. OK, I just want to make sure.

Mr. MASSAD. But let me just say I want to make very clear while

we think the benefits of these housing programs are very real and

very important, we are still trying to improve them, still trying to

reach as many people as possible. And it is not just HAMP.

Mr. CUMMINGS. I understand that.

Mr. MASSAD. I mean, obviously, statements have been made

about HAMP. A lot of the money goes to some of the other programs as well. But I think the key thing is the statement was

made that, well, because this hasn’t gone as well as you had hoped,

or because there are these problems, we should simply turn it all

back over to the servicers and let them deal with it; and I think

that would absolutely be the wrong thing to do. That is what got

us here. It has been clear, not just from our HAMP experience, but

from the foreclosure irregularities issues and from a number of

other standpoints, that turning it back over to the servicers would

not be constructive at this time.

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Mr. CUMMINGS. Two things. You had talked a little bit earlier

about retooling. I take it that there are things that you are doing

now, you are in the process of doing, trying to improve the program

to make it more effective and efficient, is that right?

Mr. MASSAD. That is correct. We have done a number of

things——

Mr. CUMMINGS. And I want you to give us a list of those things

and when do you expect them to be complete. I am running out of

time, unfortunately.

Mr. MASSAD. Well, it is an ongoing process. As we see problems,

we respond to them. But, for example, some of the things we have

recently done is we have addressed the fact that servicers might

have been considering someone for HAMP at the same time as they

were foreclosing. We have addressed the fact that initially we started this program by trying to get a lot of people into trials and we

didn’t make the servicers verify the income. That obviously led to

the fact that a lot of people then didn’t get into permanent trials.

We have addressed that and we have worked through the backlog.

So it is an ongoing process and I would be happy to give you a list.

Mr. CUMMINGS. Let me ask you this. One of the things that I

said to the chairman, and I really want to thank him for this, we

talked about how do we make our agencies more accountable. If

you are doing things that are going to improve this program, Mr.

Chairman, I would ask that we bring Mr. Massad, or somebody

from his agency with that level of authority, back at a certain date

to give us a report as to exactly where they stand, because I think

we are—you have said it and I have said it, and we all agree that

we do want accountability.

I don’t want to see the program ended, but if you are telling us

that you are doing things to improve the program, I want to know.

I want you to tell us when you can come back to us and give us

some more information so that we can have some confidence, because both sides of the aisle are quite frustrated, to be frank with

you.

Mr. MASSAD. Certainly, Congressman. Happy to do that.

Chairman ISSA. And in response, if you will commit to give us

monthly updates next month and the following month, we will commit to have you back in your next quarterly report, if that works

for both of you.

Mr. MASSAD. That is fine.

Mr. CUMMINGS. Mr. Chairman, I really appreciate that.

Chairman ISSA. Thank you.

Mr. CUMMINGS. And I yield back.

Chairman CUMMINGS. I thank the gentleman.

In closing, I have just a couple of questions, and these can be answered for the record because they tend to be perhaps a little complex. Today we have talked specifically about TARP. That was the

subject. We got into HAMP. My understanding is that HAMP, of

course, is shared with another piece of legislation, HERA. It has

joint funds. We did not get into the $30 billion of obligated and how

that is scored and all of that.

If you would, and I know Mr. Barofsky has a very thorough quarterly report, but if you would try to create before this next 30-day

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tion of outstanding funds, meaning—and this is a question for

Treasury in consultation with the Fed—obligated funds remaining

at the Fed, because we are not the Financial Services Committee,

so you will have to give us a little primer from time to time; looking at the funds committed under other programs, including

HERA. Because I think that will help us understand where is the

money still remaining out that is either obligated or literally out,

and that will help us 30, 60, and 90 days from now.

It is very clear that we do still have major credible agencies that

believe too big to fail is leading them to having more success in

loaning money at a lower amount. That is a challenge for small

banks, and we certainly would like to work as a committee to ensure that, as Dodd-Frank is put into action, that leads to a fading

away of that as the President had promised at the time of its signing.

We also didn’t talk about, and I would like this included in your report or briefing sheet, the approximately $145 billion that I believe is gone forever to the GSEs, the actual failure rate, which

often, as we are talking about the success of TARP, we are forgetting about Freddie and Fannie’s actual losses that we have backstopped as a Nation.

One thing that I would appreciate, which is uniquely to Treasury, most of us here in Washington who have been in business

have tried to convert from GAAP over to understanding the Federal Government’s pay as you go accounting. Now, at Treasury you

are a little different, you are a hybrid, and so as I looked through

a report, which I believe our people have furnished you with, a report internal that we developed,—if not, we will—I began seeing

the accrual system of reserves come into play in a way that, as a

public company officer, I always question. OK, you had a stated

value, a marked to market value, you went back and stated them,

restated them in this year for the previous year, and they got

worse.

However, in this year they got so much better that there is this

$154 billion to $110 billion swing. And we will give you our source

material, because it may very well be that you can clarify it to

where we understand it is simpler, not more complex. But I think

it is important because, as I understand it, those numbers reflect

really reflect on the anticipated deficit and other figures that we

look at, and I think all of us want to know the true deficit in 2009,

the true deficit in 2010, and so on. Actually, we don’t want to know

it, we would like it not to exist, but we would at least like to have

the accurate numbers for them.

Last, a request. Today we have been talking in net dollars. Before we talk again, I would like the committee to have source material that preferably you two very much agree on in the way that

a normal business would do it, meaning you represent a profit from

investments you made, loans you made, warrants, etc., that have

been realized. Those do not go as an offset against other bad deals.

We are not looking for your net profit.

What we would, I believe, like to see is where you put the money

in and what you lost; where you put the money in and what you

gained. So effectively what we are saying is scrape off the profits

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lar basket, meaning a company or an entity, had a loss, we would

like to see those losses. Because I think when we are evaluating

what worked and didn’t work in this program that never did what

we anticipated, but did something very different, it is important, I

think, for all of us to see, OK, loans to solvent entities in certain

forms worked; other things not so much. And obviously some of

these you can’t answer because General Motors and Chrysler are

projected but not yet final, but we will take the projection.

Last, I would like to take the liberty, quickly, in closing of reading what is a draft, but we believe will be the final mission statement, because as a private sector guy, I figure at some point when

you take over as CEO, the first thing you have to do is make sure

your mission statement to your people matches what you would

like to see. And because this is our first hearing, I would like to

read it.

Americans deserve to know that money Washington takes from

them is well spent. Americans deserve an efficient, effective government that works for them. Our job on the Oversight and Government Reform Committee is to help Americans secure these

rights. Our task is to hold Government accountable to taxpayers

because taxpayers have a right to know what they get from government. We will work tirelessly in partnership with citizens-watchdogs to deliver facts to the American people that bring reform to

the Federal bureaucracy.

This is our mission statement. Hopefully we began today by asking you, as you have done, to help us in that effort. I thank you

and we stand adjourned.

[Whereupon, at 12:16 p.m., the committee was adjourned.]

[[The prepared statements of Hon. Elijah E. Cummings and Hon.

Mike Quigley, and additional information submitted for the hearing record follow:]

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