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S. HRG. 112–381 

NOMINATIONS OF: MAURICE A. JONES, CAROL 

J. GALANTE, AND THOMAS M. HOENIG 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

NOMINATIONS OF: 

MAURICE A. JONES, OF VIRGINIA, TO BE DEPUTY SECRETARY, DEPARTMENT

OF HOUSING AND URBAN DEVELOPMENT

CAROL J. GALANTE, OF VIRGINIA, TO BE ASSISTANT SECRETARY, DEPARTMENT

OF HOUSING AND URBAN DEVELOPMENT

THOMAS M. HOENIG, OF MISSOURI, TO BE VICE CHAIRPERSON AND MEMBER

OF THE BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION

THURSDAY, NOVEMBER 17, 2011 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

CHARLES YI, Chief Counsel 

BRIAN FILIPOWICH, Professional Staff Member 

BETH COOPER, Professional Staff Member 

ERIN BARRY FUHRER, Professional Staff Member 

WILLIAM FIELDS, Legislative Assistant 

BRETT HEWITT, Legislative Assistant 

ANDREW OLMEM, Republican Chief Counsel 

MIKE PIWOWAR, Republican Chief Economist 

BETH ZORC, Republican Counsel 

CHAD DAVIS, Republican Professional Staff Member 

DANA WADE, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

RIKER VERMILYE, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
(III) 

C O N T E N T S 

THURSDAY, NOVEMBER 17, 2011 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 2 

Senator Vitter ................................................................................................... 3 

Senator Moran .................................................................................................. 3 

WITNESSES 

Claire McCaskill, a United States Senator from the State of Missouri .............. 5 

Roy Blunt, a United States Senator from the State of Missouri ......................... 6 

Barbara Boxer, a United States Senator from the State of California 

Prepared statement .......................................................................................... 24 

Maurice A. Jones, of Virginia, to be Deputy Secretary, Department of Housing 

and Urban Development ...................................................................................... 8 

Prepared statement .......................................................................................... 26 

Response to written questions of: 

Senator Shelby ........................................................................................... 31 

Carol J. Galante, of Virginia, to be Assistant Secretary for Housing-Federal 

Housing Commissioner, Department of Housing and Urban Development .... 9 

Prepared statement .......................................................................................... 27 

Response to written questions of: 

Senator Shelby ........................................................................................... 33 

Senator Toomey ......................................................................................... 36 

Thomas M. Hoenig, of Missouri, to be Vice Chairperson and Member of 

the Board of Directors, Federal Deposit Insurance Corporation ...................... 11 

Prepared statement .......................................................................................... 28 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Coalition of housing and social services letter of support for Carol J. Galante 

nomination ............................................................................................................ 38 

Stewards of Affordable Housing for the Future (SAHF) letter of support 

for Carol J. Galante nomination ......................................................................... 40 

Mortgage Bankers Association letter of support for Carol J. Galante nomination ........................................................................................................................ 41

National Association of Home Builders letter of support for Carol J. Galante 

nomination ............................................................................................................ 42 

Michael R. Haverty, of Kansas City Southern, letter of support for Thomas 

M. Hoenig nomination ......................................................................................... 44 

(1) 

NOMINATIONS OF: 

MAURICE A. JONES, OF VIRGINIA, 

TO BE DEPUTY SECRETARY, 

DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT; 

CAROL J. GALANTE, OF VIRGINIA, 

TO BE ASSISTANT SECRETARY, 

DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT; 

THOMAS M. HOENIG, OF MISSOURI, 

TO BE VICE CHAIRPERSON AND MEMBER, 

BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE 

CORPORATION 

THURSDAY, NOVEMBER 17, 2011 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:07 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order. 

Thanks to all of our nominees for joining us here today. I also extend a warm welcome to their families and friends who are here 

with us. 

Today we consider two nominees for the Department of Housing 

and Urban Development and one for the Federal Deposit Insurance 

Corporation. 

Mr. Maurice Jones is the Administration’s nominee for the post 

of HUD Deputy Secretary. The HUD Deputy Secretary plays an 

important role in the management of a Department responsible for 

providing critical rental assistance for 5.5 million families, countercyclical support for the housing market, and assistance to State 

and local governments. Today HUD and its partners face a challenging and changing fiscal economic environment as well as 

human capital and technology challenges. It is important that Secretary Donovan have a management team in place to help HUD respond effectively and responsibly to these challenges. 

Ms. Carol J. Galante has been nominated to be the HUD Assistant Secretary for Housing and Federal Housing Commissioner. 
2 

FHA has played an important countercyclical role in the housing 

market, providing credit as private sources of capital have withdrawn. Much has been done by the Administration and Congress 

to strengthen FHA’s underwriting and fiscal position in recent 

years. But as we have seen in a recent report on the financial status of the FHA fund, the legacy of loans insured in prior years still 

pose a threat to the fund that must be managed. It is important 

that the Administration have its management team in place to continue oversight of FHA. 

We also have Mr. Tom Hoenig before us today. As a former 

President and CEO of the Federal Reserve Bank of Kansas City 

from 1991 to 2011, Mr. Hoenig is well prepared to serve as Vice 

Chair of the FDIC. I have been long committed to helping small 

banks in rural communities continue to be a vital engine for economic growth. I know Mr. Hoenig shares my interest in rural communities and the need to preserve the community banking model. 

With Mr. Hoenig’s nomination and today’s hearing, I am hopeful 

that we are one step closer to moving the other nominees who will 

make up the FDIC’s Board of Directors: Mr. Gruenberg to be FDIC 

Chair, Mr. Curry to serve as Comptroller of the Currency and 

FDIC Board member, and Mr. Cordray to be CFPB Director and 

FDIC Board member. 

Given the FDIC’s new responsibilities and powers to unwind failing financial firms to prevent systemic problems, ensuring that its 

Board is operating at full strength is a top priority. 

I now turn to Senator Shelby for any opening remarks he may 

have. Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. Today, as the Chairman has indicated, the Committee will consider three very important nominations. 

Mr. Maurice Jones has been nominated, as he said, to be the 

Deputy Secretary of the U.S. Department of Housing and Urban 

Development, a very, very important post. Previously, Mr. Jones 

was President and Publisher of Pilot Media Group, a print, digital, 

and direct marketing organization. He also has many years of experience serving the Government, including working at the U.S. 

Treasury Department. I look forward to hearing how his private 

and public sector experience will help guide his management of the 

Department of Housing and Urban Development. 

The Committee will also consider today the nomination of Ms. 

Carol Galante to be Assistant Secretary of the U.S. Department of 

Housing and Urban Development and Commissioner of the Federal 

Housing Administration. If confirmed, she will face difficult tasks. 

We have talked about this. She brings a lot of experience to this 

position she has been nominated to. As we all will recall, earlier 

this week FHA’s annual report to Congress on the mutual mortgage insurance fund stated that there is nearly a 50-percent chance 

that the fund would require a taxpayer bailout. That is not good 

news. 

She has been involved—she has led the FHA’s Multi-Family Division since 2009, and her appointment as FHA’s Acting Commissioner in July has, I hope, served her well. Given her familiarity 
3 

with FHA, I look forward to hearing how she would ensure that the 

taxpayers hopefully would not need a bailout of FHA. 

Also before us today is Dr. Thomas Hoenig, who has been nominated to serve as the Vice Chair and a Member of the Board of Directors of the Federal Deposit Insurance Corporation. He brings a 

sterling resume here. Dr. Hoenig has many years of experience in 

banking supervision. He joined the Federal Reserve Bank of Kansas City in 1973 as an economist in the Banking Supervision and 

Regulation Division. Later he was promoted to Vice President and 

then to Senior Vice President of Banking Regulation until ultimately serving as President, a role he filled for 10 years until this 

past October. 

Given the many years of experience, Doctor, that you have in 

banking supervision, I look forward to hearing from you here today 

about the policy that you believe will work to keep the banking sector safe and sound as any additional work that remains to ensure 

you know we will be faced with. 

I look forward to hearing from all the nominees, and I look forward to moving them along with you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Shelby. 

Are there any other Members who wish to make a brief opening 

statement before we proceed to introducing the nominees? 

Senator VITTER. Mr. Chairman? 

Chairman JOHNSON. Yes. 

STATEMENT OF SENATOR DAVID VITTER 

Senator VITTER. Thank you, Mr. Chairman. I will be brief, but 

I also want to thank you for the hearing and thank Mr. Hoenig in 

particular for his past service at the Board of Directors of Kansas 

City Federal Reserve and hopefully his future service if the confirmation goes through. 

His comments about the past crisis and steps we need to continue to take to ensure that we are not in the position of sort of 

open-ended bailouts we were in 2008 I think are very important, 

and I hope the Committee gives them thought as we look at policy 

issues, including outside the ambit of FDIC. 

In terms of the FHA, this is no comment on the nominee, but I 

certainly share Senator Shelby’s and others’ concerns about this 

significant chance, rated at a 50-percent chance, that there will 

have to be a taxpayer bailout in the next year, and whether there 

is or not, of course, they are way below their normal required capital compliance requirements, so I hope we as a Committee and as 

a Senate and as a Congress address that also apart from this confirmation process. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Moran. 

STATEMENT OF SENATOR JERRY MORAN 

Senator MORAN. Mr. Chairman, thank you. I welcome all the 

nominees and look forward to their testimony. I want to particularly express my appreciation for the service of Mr. Hoenig at the 

Kansas City Federal Reserve, and I know he will be introduced by 

his proud home State Senators. Only until recently did I discover 

that Mr. Hoenig was not a Kansan, and it is his one chink that I 
4 

can find in fault, that poor discretion was made on his part some 

years ago. 

[Laughter.] 

Senator MORAN. But it is one of the few things at the moment 

that Kansans and Missourians agree upon, the tremendous service 

that Mr. Hoenig has provided the Federal Reserve, and I am 

pleased that Ms. McCaskill and Mr. Blunt are here in support of 

their home State nominee. 

Mr. Hoenig has been a friend and an adviser of mine for several 

years now, and I always appreciated his frank and honest advice 

and suggestions. He is highly regarded in our State and in our region, and the role at FDIC is a significant one, and there are significant issues to be resolved now that Dodd-Frank is being implemented, questions such as: How do you restrict a bank from becoming systemically significant such that its failure will cause significant problems to the entire economy? How should policymakers 

wind down a large financial institution without exposing taxpayers 

to loss? And one that is especially important to me, how do we 

make certain that the benefits of community banking in rural 

America are preserved in light of the ever increasing regulatory 

burden? 

Tom has spent his professional life pursuing answers to those 

questions, and it is always appealing to me that while his positions 

have been thoughtful, they have not always been popular. And to 

me that shows the sign of significant intellectual capabilities and 

analyzing not for the crowd at the moment but for what is in the 

long-term best interest of our country. And we as elected officials 

could learn something from that role model. 

I received a letter from one of Mr. Hoenig’s friends, Michael 

Haverty, of Kansas City, in which he was supporting this nomination, and I would ask that it be included in the record. But in Mr. 

Haverty’s letter, he praises Tom for ‘‘being honest, open, and dedicated to doing the right thing, even when it is difficult.’’ And that 

is exactly the kind of nominees and, those that we will confirm, the 

officials that we need in this country. I welcome all of you and encourage you to pursue that same kind of reputation that Mr. 

Hoenig has in his current position. 

I thank the Chairman and ask unanimous consent to include the 

letter in the record. 

Chairman JOHNSON. Without objection. 

Senator MORAN. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

I want to remind my colleagues that the record will be open until 

next Tuesday for opening statements and any other materials you 

would like to submit. 

We will now introduce our three nominees. Senator Warner will 

introduce Maurice Jones. Senator Warner. 

Senator WARNER. Well, thank you, Mr. Chairman. I again want 

to welcome all the nominees, and let me assure you, considering 

the temperature in the room, this is not a frosty reception from the 

Committee. 

I am honored today to introduce the nominee for Deputy Secretary of the Department of Housing and Urban Development, 

Maurice Jones. Senator Shelby laid out part of Maurice’s back-
5 

ground. He left out what I think is perhaps one of the most critical 

parts of Mr. Jones’ background. He also had the distinction to serve 

with a certain Virginia Governor’s administration, and I am going 

to get to that in a moment. 

Following an impressive academic record, Maurice entered the 

Treasury Department, becoming Director of the CDFI Fund in 

2000. In 2002, I had the honor of recruiting Maurice Jones to serve 

in my then-new administration, first as my deputy chief of staff, 

where he performed admirably, and then he took on the role of 

Commissioner at the Department of Social Services. I cannot speak 

to every State, but generally, most States’ Departments of Social 

Services, while terribly important, are bureaucratic nightmares. 

My State’s Department of Social Services was that, and Maurice 

brought a remarkable both management ability, ability to kind of 

sort through and seize on problems, get to the core of a problem, 

help with structural reorganization, and really brought a sense of 

long-term vision and planning to an organization that, while there 

had been many competent heads of Social Services in the past, 

there had always been a bureaucracy there that was hard to overcome. Again, no reflection on anybody in the current HUD administration, but I think HUD has some of those same long-term systemic challenges as well. And I think Maurice will be a great, great 

asset on the organizational and management side at HUD. 

After he left our administration, he did actually make, as you 

pointed out, Senator Shelby, the good choice on the one hand of 

going to the private sector side—a little strange going into the 

news business—where he served ably as Vice President in Landmark Publishing Group, ended up becoming publisher of one of our 

leading daily newspapers in the Commonwealth of Virginia. And, 

obviously, anybody that manages a newspaper and publishing organization through these challenging times as well I think reflects a 

great deal of skill and expertise. 

Based on his service for Virginia, his service at the Treasury Department, his service in the private sector, I am most confident 

that he will be able to enter HUD at this critical time when there 

are so many challenges around the housing crisis that still overhangs our economy. I want to welcome him to the Banking Committee. I know he has got members of his family here as well. This 

is a good guy, and we are lucky to have him before us. 

So I am proud, Mr. Chairman, to present and introduce my good 

friend and someone who I hope the Committee will act favorably 

on, Maurice Jones, as the nominee for Deputy Secretary for the Department of Housing and Urban Development. 

Chairman JOHNSON. Thank you, Senator Warner. 

Senators McCaskill and Blunt will introduce Tom Hoenig. Senator McCaskill? 

STATEMENT OF CLAIRE MCCASKILL, A UNITED STATES 

SENATOR FROM THE STATE OF MISSOURI 

Senator McCaskill. Thank you, Mr. Chairman. I am not going to 

spend any time on Tom Hoenig’s resume because you all have it 

in front of you and you know how strong it is. But I do want to 

talk about him as a Member of a Board of Directors, because if you 

look around this country and some of the frustration that this 
6 

country has with some of the abuses that are out there, a lot of it 

can be traced to boards of directors that, as one CEO said to me, 

‘‘We have too many lap dogs and not enough Doberman Pinschers.’’ 

I want to say that I think Tom is capable of being a Doberman 

pinscher if the intellectual policy is there. 

He is so respected in Kansas City. In fact, I do not know what 

his secret is, but I wish I could emulate him because he manages 

to be completely forthright and completely engaging and get respect from all quarters. This is a guy who went to a Tea Party rally 

to speak to them and listen to them when they were chanting in 

the Fed. 

This is a guy who sits down with the AFL–CIO even though he 

strongly disagrees with their views on monetary policy. He wants 

to sit down with them and listen. 

This is a guy who is not afraid to tell community banks about 

supervision being needed, but still they know he respects their 

business model and that he is the kind of man that they can rely 

on to never play to the cheap seats. 

So in this environment in this country right now, with the challenges that face our economy and our financial sector, I can think 

of no better member we could find in this country for the Board of 

Directors of the FDIC. I wish I could command the respect in all 

quarters that he has in Kansas City and the Greater Kansas City 

Region, which, unfortunately—or, fortunately—may include a little 

bit of Kansas. 

But it is my honor to introduce him today, and I know that there 

are many, many times that my colleague and I agree on things, 

and I know that this is one where Senator Blunt and I feel very 

fortunate that we have the opportunity to introduce a man of this 

stature and this capability who I know will help at the FDIC in 

terms of their Board of Directors. 

Chairman JOHNSON. Thank you, Senator McCaskill. 

Senator Blunt. 

STATEMENT OF ROY BLUNT, A UNITED STATES SENATOR 

FROM THE STATE OF MISSOURI 

Senator BLUNT. Thank you, Senator Johnson. Thank you, Chairman and Senator Shelby, for holding the hearing today. I am 

pleased to join with Senator McCaskill to present Tom Hoenig to 

the Committee. I particularly appreciated the comments that Mr. 

Vitter made and Mr. Moran made about Tom’s service in the job 

that he has had for the last 10 years. And we are proud that he 

is a Missourian and proud that he is still a friend of Mr. Moran 

in spite of that. 

He works hard. All the things that Senator McCaskill said are 

exactly right in terms of his courage and his commitment to his 

job. He has been the Kansas City Fed President for 10 years. He 

has a Ph.D. in economics. He has had 35 years of experience at the 

Federal Reserve and is well qualified for the job that he is nominated for. In fact, he is probably well overqualified for the job he 

is nominated for, but he is willing to do it, and we are lucky to 

have him as a nominee and to be able to present him today. 

He has advocated for a careful and cautious approach when addressing the problems facing our economy. He is known for his can-
7 

dor. Through the economic challenges that we have faced recently, 

he has given consumers, stakeholders, Members of Congress, and 

the media a perspective that is both unique and valuable as we 

seek an appropriate path in recovery. 

Often Tom Hoenig was cited as the lone dissenter at the Fed. He 

not only possesses the courage to speak out against excessive risk 

taking by large institutions, but he also have a real sense of Main 

Street, of the agriculture economy, of community banks and regional banks, and he has spent his career figuring out how those 

banks operate, how critical they are to what happens in communities. And my experience with him as a trusted adviser for some 

time has been that he has a perspective at all levels of what it 

takes to make this economy work. 

His ability to shed light on areas of concern when others are unable to see beyond the status quo will serve him well as Vice Chairman of the FDIC. He is not afraid to speak up. However, he is 

equally talented at listening to the concerns of stakeholders and 

consumers alike. It is certainly my pleasure to present him to the 

Committee and to join Senator McCaskill and others already on the 

Committee, including Governor/Senator Johanns, and our deep respect for him and his ability. 

Chairman JOHNSON. Thank you, Senator Blunt. 

I appreciate that Senators McCaskill and Blunt have very busy 

schedules, and you may be excused. 

I will now introduce Ms. Carol Galante. Ms. Galante currently 

serves in the position for which she has been nominated, Acting Assistant Secretary for Housing-Federal Housing Commissioner at 

the U.S. Department of Housing and Urban Development. Prior to 

her designation as the Acting FHA Commissioner, Ms. Galante 

served as HUD’s Deputy Assistant Secretary for Multi-Family 

Housing Programs. Prior to joining HUD, Ms. Galante was President and Chief Executive of BRIDGE Housing Corporation and has 

also served the local governments of Santa Barbara, Philadelphia, 

and Richmond, California. 

Will the nominees please rise and raise your right hand? Do you 

swear or affirm that the testimony that you are about to give is the 

truth, the whole truth, and nothing but the truth, so help you God? 

Mr. JONES. I do. 

Ms. GALANTE. I do. 

Mr. HOENIG. I do. 

Chairman JOHNSON. Do you agree to appear and testify before 

any duly constituted Committee of the Senate? 

Mr. JONES. I do. 

Ms. GALANTE. I do. 

Mr. HOENIG. I do. 

Chairman JOHNSON. Please be seated. Please be assured that 

your written statement will be part of the record. Please also note 

that Members of this Committee may submit written questions to 

you for the record, and you should respond to these questions 

promptly in order for the Committee to proceed on your nomination. 

I invite all the nominees to introduce your family and friends in 

attendance before beginning your statement. 

Mr. Jones, please proceed. 
8 

STATEMENT OF MAURICE A. JONES, OF VIRGINIA, TO BE DEPUTY SECRETARY, DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

Mr. JONES. Thank you, Mr. Chairman and Ranking Member 

Shelby. I do have my wife here with me, Lisa, who is sitting to my 

right, and we have been married for 10 years now. So she is with 

me. 

Mr. Chairman, Ranking Member Shelby, and distinguished 

Members of the Committee, thank you for the opportunity to appear before you today as President Obama’s nominee to be Deputy 

Secretary of HUD. I have already introduced my wife. Our most 

precious gift, our 9-year-old daughter, is in school this morning, but 

she is with us in spirit. 

I am humbled by the nomination and grateful to the President 

for the trust he is bestowing upon me. I am also thankful to Secretary Donovan for his support. If confirmed, I pledge to work collaboratively with the Members of this Committee to ensure that 

HUD achieves the operational excellence the country needs from 

this organization. 

Public service has been a passion of mine since at least my high 

school days in rural Lunenburg County, Virginia. In 1979, as a 

ninth grader, I was fortunate enough to be selected to serve as a 

page during that year’s legislative session of the Virginia General 

Assembly. The experience changed my life. I observed and assisted 

legislators working on the public’s business, and I was inspired. I 

resolved then to try to enter public service when I grew up. 

Following law school and 3 years of law practice, I was blessed 

with the opportunity to work at the Treasury Department. Over 

the course of 6 years at Treasury, I served as Special Assistant to 

the General Counsel, Legal Counsel to the CDFI Fund, Deputy Director for Policy and Programs, and Director of the Fund. I loved 

these jobs, and they taught me valuable lessons and skills. 

My experiences at the CDFI Fund, in particular, called upon me 

to lead people in the building of a high-performing, results-oriented 

Government organization with a compelling mission. And because 

the Fund was essentially a startup entity at that time, we had to 

put in place the necessary infrastructure for the programs and operations of the organization. It was on-the-job training in building 

a Government entity. Over a 5-year period, working collaboratively 

with Congress, we grew from a 10-person organization with an annual budget of $50 million to a 60-person organization with an annual budget of $120 million. We invested approximately $400 million in over 300 mostly nonprofit entities that used those monies 

to make loans and other investments in low-income communities 

across America. 

Following my time at the Fund and approximately 9 months with 

a foundation, I was honored to be asked by then-Governor, nowSenator Warner to join his administration. I started as his deputy 

chief of staff and subsequently also became his Commissioner of 

the State Department of Social Services. At Social Services, I led 

a team of more than 1,500 State government employees who 

worked with several thousand local government workers to provide 

social services to the people of the Commonwealth of Virginia. I 

spent the bulk of my time attempting to transform structures, proc-
9 

esses, practices, and people in an effort to make the system more 

efficient and more effective. During my tenure, Social Services received a $922,000 reward for increasing the number of children 

adopted from State-supervised foster care; earned over $28 million 

in Federal incentives for record performances in child support and 

collections; and received around $24 million in Federal awards for 

successfully placing welfare participants in jobs. 

I departed the Warner administration after more than 3 years to 

join a regional media company. I wanted to run a newspaper because I wanted the challenge of leading a private sector enterprise 

that pursued both excellent business results and distinguished public service. Little did I know that I was entering an industry that 

was and is in the midst of the most far-reaching transformation of 

its history. 

Very quickly I had to develop a point of view about the newspaper’s biggest challenges and attempt to set us on a path to 

achieve our double bottom line mission. It has been an incredible 

educational journey, and I continue to learn lessons from the challenge. We have had to transform the way we do business in every 

area of the company, from integrating departments to launching 

new businesses, to eliminating products no longer valued by our 

customers. As a result, we are a debt-free, profitable enterprise 

well positioned to assist the community in taking advantage of its 

opportunities. The Virginian-Pilot has been voted the best newspaper in Virginia by its peers every year I have been its publisher. 

These are the experiences I bring to the opportunity we are discussing today. HUD aspires to transform itself into an organization 

that consistently delivers excellent results. To realize this aspiration, bold changes are needed across the agency. I want to help 

lead this journey. My public and private sector work have helped 

to prepare me for this role. And particularly in light of the housing 

and related economic challenges our country continues to face, 

which have come down so hard on so many Americans, I can think 

of no more important time to be at HUD. 

I am humbled by the President’s decision to nominate me for this 

role, and I am grateful to the Committee for allowing me to appear 

before you today and for considering my nomination. I would be 

happy to answer any questions. 

Thank you very much. 

Chairman JOHNSON. Thank you, Mr. Jones. 

Ms. Galante, please proceed. 

STATEMENT OF CAROL J. GALANTE, OF VIRGINIA, TO BE ASSISTANT SECRETARY, DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

Ms. GALANTE. Good morning, Chairman Johnson, Ranking Member Shelby, and Members of the Committee. I am honored to be 

here today to testify and humbled by President Obama and Secretary Donovan’s decision to nominate me as Assistant Secretary 

for Housing, FHA Commissioner. I would also like to thank this 

Committee for the time you are committing to this hearing. I look 

forward to hearing your thoughts on the housing challenges facing 

the Nation, particularly FHA. 
10 

Before I begin, I would like to introduce my youngest son, Chris 

Roberts, who is here today. He and my older son, Matt, are both 

exceptional young men who I know will make the world an even 

better place as they proceed through their careers. 

I also want to thank my wonderful husband of 26 years, Jim 

Roberts. Without his steadfast support, I surely would not be sitting before you all today. 

Mr. Chairman, my entire professional life has been dedicated to 

real estate development, finance, community planning, and affordable housing and economic development. My more than three decades of experience in all three business lines served by FHA—single family, multifamily, and health care—has equipped me with a 

deep understanding of the industries, organizations, and individuals that HUD serves. 

Immediately before my appointment as Deputy Assistant Secretary for Multifamily Housing at HUD and my subsequent tenure 

as Acting Assistant Secretary for Housing, I served for 13 years as 

President and Chief Executive of BRIDGE Housing Corporation, 

the largest nonprofit housing developer in California. During my 

tenure, I developed BRIDGE into a financially sustainable family 

of companies with annual revenues in excess of $115 million and 

assets of more than $1 billion. I also developed new and innovative 

business lines to serve our mission, such as HOMEBricks, which 

assists first-time homebuyers to access affordable ownership opportunities. 

At BRIDGE and throughout my career, I have worked to demonstrate that partnership between the Government, private, and 

nonprofit sectors to create opportunity is not just good policy, but 

smart business, and I brought that conviction with me to HUD. 

As a Deputy Assistant Secretary for Multifamily Housing, I led 

major changes in the office. Under my leadership, FHA Multifamily 

grew from an annual level of $2.5 billion in 2008 to over $12 billion 

in 2011, providing key liquidity to this market segment during the 

toughest housing environment since the Great Depression. In addition, I led the first major overhaul of underwriting standards and 

loan documents in the 40-year history of the FHA Multifamily Insurance Program. These changes allow us to more effectively manage risk while better aligning programs with the norms and practices of the private sector. 

As Acting Assistant Secretary for Housing, I have continued to 

focus on making FHA’s programs work for all our stakeholders. Toward that end, I am spearheading an overhaul of HUD’s Housing 

Counseling Program, including the development of a new Office of 

Housing Counseling. Given that families receiving housing counseling are twice as likely to receive a mortgage modification, this 

work is particularly important as our economy continues to recovery. 

In addition, I have placed a strong focus on risk management. 

This includes continued development of FHA’s Office of Risk Management and Regulatory Affairs as well as a commitment to hold 

lenders accountable for noncompliance with FHA’s requirements. 

Just last week, I hosted a kickoff meeting with FHA’s new Senior 

Advisor for Risk and many of the recently hired Credit Risk Officers, along with their counterparts in all the program offices, so 
11 

that we can ensure that risk management is fully integrated into 

FHA’s operational practices. 

If confirmed by the Senate, I will continue to provide effective 

leadership for FHA in achieving its important role of providing liquidity in the Nation’s housing markets while maintaining a strong 

focus on protecting the Department’s insurance funds. 

As is clear from the report we released on Tuesday regarding the 

current status of the FHA Mutual Mortgage Insurance Fund, FHA 

is at a critical juncture. As a result of the sweeping reforms instituted under Secretary Donovan’s leadership, the MMI capital reserve remains positive and we have originated the highest quality 

books of business in FHA’s history. 

However, the residual effects of poor performing books from prior 

years will require FHA to be vigilant in managing its business 

moving forward. Therefore, should I be confirmed, my highest priority would be balancing of FHA’s historic mission with responsible 

management of risk. At this important point in our economic recovery, ensuring the flow of mortgage capital necessary to restore our 

housing markets is vital and FHA is playing a key countercyclical 

effort, particularly for low- and moderate-income minority and 

first-time homebuyers. However, FHA can fulfill its mission only if 

it effectively manages the resources that make its programs available. 

Thank you again for your time and for considering my nomination. I appreciate the opportunity to be here, and if I am honored 

to be confirmed, I will look forward to earning your ongoing trust. 

Thank you. 

Chairman JOHNSON. Thank you, Ms. Galante. 

Mr. Hoenig, please proceed. 

STATEMENT OF THOMAS M. HOENIG, OF MISSOURI, TO BE 

VICE CHAIRPERSON AND MEMBER OF THE BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. HOENIG. Thank you, Chairman Johnson, Ranking Member 

Shelby, Members of the Committee. It is my honor and privilege 

to come before you as the President’s nominee to serve as Vice 

Chairman and Member of the Board of the Federal Deposit Insurance Corporation. I do want to thank Senators McCaskell and 

Blunt for their warm introduction and also Senator Moran for your 

kind words. 

I would also like to note my appreciation for the Committee’s use 

of technology this morning. My family cannot be here in Washington with me today, but my wife, Cynthia, who is in Missouri 

with our grandchildren, is able to join me through the Committee’s 

live stream system. So they are watching, and I say that for the 

camera’s sake and theirs. 

I recognize that the job as Vice Chair for the FDIC is an important responsibility. I believe my experience in bank supervision and 

regulation within the Federal Reserve System for the past 38 years 

has prepare me for this role. 

I started my career as an analyst at the Federal Reserve Bank 

of Kansas City, working in the areas of research and policy. During 

that time, I also shared responsibility as part of a team that analyzed bank holding company merger applications. Later, I was as-
12 

signed responsibility for the Federal Reserve Bank of Kansas City’s 

discount window lending and led the Bank’s examination work for 

the supervision of bank holding companies and State member 

banks. 

In 1986, I was given the opportunity to lead the Bank’s Division 

of Bank Supervision and structure, directing the oversight of over 

1,000 banks and bank holding companies ranging in size from less 

than $100 million to $20 billion in assets. 

And finally, I served as President of the Federal Reserve Bank 

of Kansas City for 20 years, actually, from October 1991 until October of this year. 

During my career, I was involved with the banking crisis of the 

decade of the 1980s that involved agriculture, energy, and commercial real estate. In the Tenth Federal Reserve District, we dealt 

with 350 banks in the Midwest and Mountain States that either 

failed or required assistance between roughly 1982 and 1992, including the failure of Penn Square Bank that later contributed to 

the failure of Continental Illinois National Bank and Trust. 

As a member of the Federal Open Market Committee, I was involved in an indirect manner in the efforts to mitigate the effects 

of the financial panics in Asia, South America, Russia, and Mexico 

that occurred with regularity during the decade of the 1990s. 

Finally, I worked with financial and nonfinancial firms in the 

Midwest through the recent financial crisis and recession. 

Each one of these unfortunate events was difficult for Americans. 

Each one of these events provided me with experience in dealing 

with financial crises. I have observed how distorted financial incentives encourage institutions to take on excessive risk. Just as importantly, I understand the difficulties of managing crisis and restoring confidence to an economy that involves both Wall Street 

and Main Street. 

Should the Senate choose to confirm me, I would serve with commitment and with the best interest of the country as my first priority as we continue to face national and global financial and economic challenges. 

Thank you for the opportunity to appear before you today, and 

I look forward to answering questions. 

Chairman JOHNSON. Thank you, Mr. Hoenig. 

Ms. Galante, a major cause of the recent financial crisis was the 

relaxed underwriting criteria for thousands of loans that were 

originated during the housing boom. How has the quality of loans 

underwritten by FHA changed since the housing crisis? What impact are loans underwritten during the peak of the housing bubble, 

particularly those during 2007 and 2008, having on the capital reserve account compared to those underwritten after the burst of 

the housing bubble? 

Ms. GALANTE. Thank you, Senator, for that question. This Administration has put in place, as I mentioned in my testimony, 

sweeping reforms that have resulted in the best book of business 

starting in mid-2009 through 2011, things like—with the help of 

Congress—getting rid of the seller downpayment program, which 

created a significant drag on our books for the previous books of 

business. Fourteen billion dollars is estimated by the actuary for 

that class of legacy loans alone. 
13 

So we have put in place many, many programs, including lender 

enforcement. We have the highest credit score quality in this most 

recent book of business, with seriously delinquent loans basically 

negligible for early defaults. So we have put in place numerous activities, including lender enforcement, that are resulting in, as I 

said, the best book of business FHA has ever had. 

Having said that, we are still suffering from the very large poor 

performing legacy books of business and need to continue to build 

on the reforms that we have made. 

Chairman JOHNSON. Mr. Jones, the Deputy Secretary of HUD 

has often served as the Chief Operating Officer of the Department, 

heading up its management efforts. What do you see as HUD’s top 

management challenges? How have the experiences you mentioned 

in your statement prepared you to confront these challenges? 

Mr. JONES. Thank you for that question, Mr. Chairman. I think 

there are probably two or three top challenges. I will tell you that 

I suspect I will learn more, if confirmed and get on the job. But 

based on the experience I have had both in the public and private 

sector, usually, your top challenge with moving any organization to 

a standard of excellence is having the right people in the right 

places, and that certainly will be one of my first focuses, is making 

sure that we have got a human capital system that enables us to 

put the best people in the best places. So that would be one. 

Second to that, I think you also, particularly in these tough 

times, you have to make sure that the organization is operating as 

efficiently as possible, and that probably will require looking at financial systems, procurement systems, IT systems, all the things 

that if they are not running well, you will not have excellent program results. 

My both public and private sector experience have enabled me to 

learn about all of those and I look forward to trying to bring that 

experience to HUD. 

Chairman JOHNSON. Mr. Hoenig, one of the things that made the 

FDIC so effective over the last 3 years was the strong working relationship between the Chair and the Vice Chair, and it is my hope 

that will continue. Mr. Hoenig, can you describe how you will build 

a strong working relationship with the Chair of the FDIC and the 

other members of the Board? 

Mr. HOENIG. Yes, Senator. Assuming that Mr. Gruenberg is confirmed also, and whoever the Chair is, but in this particular instance, I know we have a common interest in community banks, 

which is, I think, a very important part of our banking system. I 

also have had the opportunity to speak with members—with the 

staff of the FDIC. I think there are many common areas that we 

have. And, therefore, I feel like if I am confirmed, we would go in 

there and continue to have a common mission. We know we have 

a huge job ahead of us with Dodd-Frank as well as just dealing 

with the commercial banks through this time of stress. So I feel 

very confident that we would have a strong working relationship 

going forward with whomever. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Dr. Hoenig, in a speech you gave earlier this year, you stated, 

and I will quote, ‘‘Today, we have a far more concentrated and less 
14 

competitive banking system. There are fewer banks operating 

across the country, and the five largest institutions control more 

than half of the industry’s assets, which is equal to almost 60 percent of GDP.’’ 

Senator Moran raised this earlier, about community banks and 

the demise of them, so we are all concerned about it. What do you 

believe are the principal causes of consolidation in the banking sector? 

Mr. HOENIG. Well, Senator, there are probably several, one of 

them being just economies of scale when the technologies are 

brought forward. 

Senator SHELBY. Mm-hmm. 

Mr. HOENIG. I think another has been, and this is one thing I 

am sensitive to for community banks, the fact that when you do introduce new regulations, whatever the right reasons and so forth, 

it does put a kind of a fixed cost over those banks that require 

more dollars to spread those costs over and that does encourage 

consolidation. 

So I think one of the challenges that the regulatory authorities 

have is to inform community banks, all banks but community 

banks in particular, in terms of how these regulations can be put 

in place, get them at least pointed in the right direction so that 

they can control some of those costs and compete on a cost structure basis across the broad economy, and that is essential as we 

go forward. 

Senator SHELBY. Are our community banks not inextricably 

linked to a lot of the small businesses and job growth across this 

country—— 

Mr. HOENIG. I—— 

Senator SHELBY.——or lack thereof? 

Mr. HOENIG. Absolutely, they are critical. In fact, during the recession, the community banks were, I think, very involved in lending. Even though lending was very difficult during that period, a 

good portion of them were still in the business of lending. You have 

small businesses, that it is much easier for them in many cases, 

and especially in communities across the United States, to look to 

these banks for help for loans. And so I think they are very important for the future of this country and that needs to be recognized. 

Senator SHELBY. Ms. Galante, House and Senate negotiators— 

you probably know this—recently reached a, I call it a costly deal 

on extending the conforming loan limits. The deal would not boost 

the conforming loan limits for the GSEs but would raise FHA’s 

loan limit from $625,000 to $729,000. This means that taxpayers 

will be subsidizing the purchase of expensive homes by wealthy 

buyers. Interestingly, Secretaries Donovan and Geithner have stated that the loan limits should revert to the limits established under 

HERA, which would keep FHA’s limit at $625,000. 

What is your position on increasing FHA’s loan limit to $729,000 

as would occur in this new deal, especially in view of the financial 

challenges that FHA has that have been pointed out here, and 

what steps—do you agree with Secretary Geithner and Secretary 

Donovan on this, or do you have a different view? 

Ms. GALANTE. Thank you, Senator. Yes, it has been the Administration’s position since we put out the White Paper on the housing 
15 

reform that we believe that lowering the limits is a step to ensuring that private capital will return to the market. We understand 

that at the present time FHA is playing a somewhat outsized role 

in the market, and so we continue to support the limits being returned as they did October 1. 

We do understand, though, the markets are fragile and there are 

reasonable people who may want to see us continue to stay in the 

business and I would just say we will implement whatever Congress decides on this matter. 

Senator SHELBY. How much household income would a borrower 

typically need to qualify for a $725,000 loan from the Federal 

Housing Administration, just roughly? 

Ms. GALANTE. Yes, I do not have those—— 

Senator SHELBY. Can you furnish that for the record? 

Ms. GALANTE. I certainly can furnish that for the record. 

Senator SHELBY. In your opinion, is helping wealthy homeowners 

purchase expensive homes at odds with FHA’s affordable housing 

mission, which you have been in a long time? 

Ms. GALANTE. So, again, I would say our traditional mission is 

to help first-time homebuyers, low- and moderate-income families, 

and that continues to be the core of our mission. Even when the 

loan limits were higher, it was a very, very small percentage of the 

work that FHA does. 

Senator SHELBY. Mr. Jones, one of HUD’s core missions is to, 

quote, ‘‘provide grants to States and communities for community 

development activities.’’ The HOME Investment Partnerships Program, referred to as HOME, is one of the largest community development grant programs that HUD administers. HOME has been 

the subject, as you probably know here, of a Washington Post investigation called ‘‘Million Dollar Wasteland’’ and has been cited by 

the HUD Inspector General as having, quote, ‘‘a pattern of nonachievement in delivering its housing goals.’’ 

If confirmed to your position here, what would you do to improve 

the accountability and effectiveness of the HOME Program, which 

is under attack right now? 

Mr. JONES. Yes, sir. Thank you for that question. The first thing 

I would do is learn the facts. 

Senator SHELBY. Mm-hmm. 

Mr. JONES. I have read newspaper reports and I have also seen 

the Department’s—— 

Senator SHELBY. But you also have the Inspector General involved here—— 

Mr. JONES. I have seen the Department’s response—— 

Senator SHELBY. Yes, sir. 

Mr. JONES.——and I have not read thoroughly the IG’s commentary, but I think my first job, certainly, being somebody who 

is coming to this new, will be to dig deeply and to find the facts. 

And then my job, as I see it, would be to go where the facts take 

me. And I understand the Department is already working on making improvements to the HOME Program. There are a proposed set 

of rules out there now that are being considered. 

Senator SHELBY. Would this be one of your high priorities if you 

were confirmed? 
16 

Mr. JONES. If the Secretary says it will be, yes, sir, it will be one 

of my high priorities. 

Senator SHELBY. Thank you. 

Dr. Hoenig, a recent report by the Government Accountability 

Office, GAO, found that prompt corrective action has not prevented 

widespread losses to the Deposit Insurance Fund. In that report, 

the GAO found that since 2008, every bank that underwent prompt 

corrective action because of capital deficiencies and failed produced 

a loss to the Deposit Insurance Fund. The GAO further found that 

the presence and timeliness of enforcement actions were inconsistent. What steps should be taken to fix prompt corrective action 

and minimize losses to the Deposit Insurance Fund? 

Mr. HOENIG. I think that is always a challenge in the bank supervision business, Senator Shelby. It is very difficult to anticipate 

where losses are going to be, but I think that is where, number 

one—— 

Senator SHELBY. But that is part of your supervision, is it not? 

Mr. HOENIG. It is. Number one is to make sure you do have a 

strong capital base. 

Senator SHELBY. One. 

Mr. HOENIG. Number one; number two—— 

Senator SHELBY. And what is two? 

Mr. HOENIG. To examine the assets and make sure that they are 

sound, and if not, to force the write-downs and then force the actions that will minimize losses, first to the bank and then to the 

Insurance Fund. There is always judgment in that and it can be— 

because there are human beings involved, it can become inconsistent. But what you have to do is keep pushing that concept, 

pushing around the capital standards, and strong examination procedures. 

Senator SHELBY. Last, do you know of any bank—you were President of the Federal Reserve of Kansas City and you were also a 

member of the Federal Open Market Committee at the time—— 

Mr. HOENIG. Yes. 

Senator SHELBY. Do you know of any bank in your area that was 

well capitalized and well managed and well supervised that failed? 

Mr. HOENIG. I cannot think off the top of a single one. If it is 

well managed, well capitalized, and well supervised, they tend to 

earn consistently—— 

Senator SHELBY. That is not asking too much, is it? 

Mr. HOENIG. No. That is the standard—— 

Senator SHELBY. That is the standard. 

Mr. HOENIG. I agree. I agree with you on that. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Warner. 

Senator WARNER. It is hard to quibble with the Ranking Member’s qualifications of well capitalized, well managed, and well supervised. I just wish we saw more of that. 

Senator SHELBY. But that should be the criteria. 

Senator WARNER. Amen. Amen. Amen. 

I will be very brief with my questions. One, I want to go back 

to Mr. Jones’s comments about the best people and best places. I 

do think when you are dealing with large organizations, and I 

think about our Department of Social Services, and from an out-
17 

sider, my view of HUD, putting the best people in the best places, 

easy to say, harder to do, and I would just like to commend again 

Mr. Jones for, when he served in my administration, what he did 

at the Department of Social Services where there were a series of 

entrenched folks who, regardless of administration, had never 

changed and he managed to shake the place up in a very positive 

way and I do believe and think that—I hope, at least, and one of 

the reasons why I so firmly support him, he would bring that same 

approach to HUD. 

And while I heard your comment about following where the facts 

lead you on the HOME Program and that whether, answering Senator Shelby’s question, whether that would be a top priority or not 

and your response being that if it was the Secretary’s top priority, 

I just have to recall from personal experience, at least when we 

had the opportunity to work together, you followed the facts even 

if it was not the—you tried to at least make the case that that 

ought to be your boss’s top priority if the facts said there was a 

problem. 

Mr. JONES. Yes, sir. 

Senator WARNER. I would like for you to comment on that in 

terms of perhaps clarifying a little bit to Senator Shelby your response. 

Mr. JONES. Yes, you are correct, although I think I deferred to 

you most often, as well. 

[Laughter.] 

Senator WARNER. We have different memories of some of the conversations. 

[Laughter.] 

Mr. JONES. But, no question, I thank you for the chance to clarify. It will be my job to also make the case that HOME and other 

programs should be priorities, and I commit to you that, if confirmed, I will dig deeply, find the facts, and try to make a contribution to us improving across the board. 

Senator WARNER. And if there are inefficiencies, inappropriate 

behavior, or are activities that are not commensurate with the 

standards—— 

Mr. JONES. I have one standard and that is excellence, and anything that is less than that, I am going to work on moving it up. 

Senator WARNER. I thank you for that. 

Mr. JONES. Across the board. 

Senator WARNER. Ms. Galante, I know you have moved over into 

this FHA acting role now, but I do want to commend you for some 

of your previous work at HUD. I know we have had an incident of 

a case in Virginia where, with some of the HUD backlog on some 

of these multifamily projects, the ability to try to cut through some 

of the bureaucracy, and I know you have moved into this new role, 

but do you have any counsel for those who are still looking at HUD 

in terms of this huge backlog of projects that need this kind of 

HUD financing, since the project financing is not there, and how 

we might find creative ways to move it along so we do not have 

these bottlenecks? 

Ms. GALANTE. Yes. Thank you, Senator. This is one of the con- sequences of going from, you know, $2 billion a year to $12 billion 

a year of business, so we are doing more and more, and our staff 
18 

certainly has not increased during that period of time. I have been 

having a major focus while I was in the multifamily role and will 

continue that—you know, multifamily is still part of the responsibilities of the Assistant Secretary for Housing—changing our 

business practices to ensure that we are managing the risk but 

that we also are moving projects on the multifamily side through 

the pipeline as quickly as possible, and we have major business improvement initiatives underway at this moment. We have folks out 

across the country rolling out changes to our processes to ensure 

that we can get these developments done and get them built and 

generate jobs and homes for people. 

Senator WARNER. And I know my time has expired, so I will not 

get to ask Mr. Hoenig the question I wanted about cross-border resolution. I think, Senator Shelby, you raised the issues, and I know 

Senator Corker and I had a conversation about this, as well, on 

what you called the costly price on some of the homes, and I think 

you make a very, very good point that we need to move back from 

$729,000 to $625,000. 

I would only point out that this notion that $729,000 is only buying a mansion in many communities, I can point to, unfortunately, 

many places in Northern Virginia where $729,000 buys you a onebedroom condo, and I am not sure that that necessarily is the case 

in every market around the country, obviously, but there are areas 

where that price does not compete. 

Again, Senator Corker and I had a great exchange on the floor 

about when and how we move back those numbers and you may 

actually have been right on that. 

Senator SHELBY. Well, we are moving in the right direction. We 

just did not get FHA to move. 

Senator WARNER. Yes. 

Senator SHELBY. You know, FHA should have, of all people, 

moved, in my judgment. 

Senator WARNER. Yes. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and thank you for 

the exchange we just had and I hope we have many more. 

I want to say to Ms. Galante, thank you for your service. I think 

what I just heard you say is that you all really are not in support 

of FHA’s limits being raised to the level that the House is sending 

over to us in this conference report, is that correct? 

Ms. GALANTE. That is correct, Senator. We maintain that it is appropriate to take a step back on the loan limits. 

Senator CORKER. Yes. I just want to say, I do not know how some 

of the organizations like you lead deal with the hypocrisy of Congress basically saying that we need to lower limits and move away 

from Fannie and Freddie and yet finding this back-door way for 

FHA to basically fill in the gap. While I agree with the comments 

that Senator Warner made, there are, in fact, loans being made in 

the private markets above the $625,000 level that are happening 

every single day. So I have to tell you, I think it is unconscionable 

what is coming over from the House, totally unconscionable, and I 

am going to do everything I can to urge as many Senators as I can 

to vote against the conference report because of the lack of courage 
19 

that this body is showing in actually moving in the direction that 

we all know we need to move. 

And I would say to you, this is not reprimanding in any way, but 

the Administration did send out a White Paper, but a White Paper 

and a bill are two very different things, and it was a multiple 

choice White Paper, pick which you like. 

I will say that we have offered a piece of legislation that I hope 

will attract people like Senator Warner and others that I think is 

thoughtful and will move us over a 10-year period away from the 

reliance that we have on Fannie and Freddie, and I sure hope that 

you and your Department will look at that and offer any comments 

that you might have. 

But again, I thank you for your leadership. I thank you for your 

statement. And I am just absolutely so discouraged at Congress in 

lacking the courage to deal with this issue that we all know needs 

to be dealt with. 

With that, I will move to Mr. Hoenig. I thank you for coming by 

the office the other day. I think you know that. We talked a little 

bit about Title II, and obviously as Vice Chairman, Title II in the 

Dodd-Frank bill, as Vice Chairman, you are going to be in charge 

of orderly liquidations, I think, and my question to you, number 

one is do you think that the FDIC has the ability to unwind a highly complex top five banking entity in this country if it fails? 

Mr. HOENIG. I think, Senator, that will be one of the major challenges—is one of the major challenges that the regulatory agencies 

and the FDIC in particular have ahead of them. These institutions 

are, some of them, over a trillion dollars, and the impact of a failure on the economy will be unavoidably bad. So how you do this 

under the law that Dodd-Frank has given us is, I think, the great 

challenge that the FDIC has in front of it. 

There was reference to, first of all, understanding the organization that might be insolvent. You have to make that choice of 

whether it is solvent or a liquidity crisis. You have to do it in a 

very short period of time and you have to have the right steps in 

place to take control, make a decision whether it is in bankruptcy 

and so forth. 

So I think we will find out only when the time comes for sure 

when you have to then execute these actions to deal with these 

very large institutions. It is not magic. It is not automatic. It is 

going to take a lot of hard work between now and some hopefully 

long time in the future situation that we have to confront. 

Senator CORKER. It is interesting. I have had some calls from 

some of the larger institutions that know that you are going to be 

doing what you are doing, and obviously you have made a lot of 

comments, I think, in the past about the fact that any organization 

that is too big to fail is too big. And some of them are concerned. 

I think it is an interesting dynamic, personally, and I thank you 

for bringing many of these thoughts to the table, but a lot of them 

are concerned that maybe their funeral plans do not quite meet 

your standards and you break them apart anyway. I would love for 

you to expand—and, by the way, I am not giving judgment on that. 

I am just expressing something that has been expressed to me. I 

would love for you to talk a little bit about what you think ought 

to happen with some of our larger institutions. And, second, will 
20 

that affect how you look at the ‘‘funeral plans’’ that each of these 

have to produce and I think you have to approve? Is that correct? 

Mr. HOENIG. Correct. Yes. And let me say, I am not against big. 

I have said that several times. I am against ‘‘too big to fail’’ because ‘‘too big to fail’’ does impact the taxpayer in significant ways. 

And what my concern has been—and I voiced this—is that if you 

take the safety net and you place it underneath these institutions 

and you give them and their creditors protections that they know 

or presume strongly are in place, then they do increase the risk 

and they do increase the fragility. And you can see it as an example in leverage because the higher the safety net, the more you 

tend to encourage leverage, so you get a higher return on equity. 

Now, if you have strong capital, you compete from a position of 

strength. If you are highly leveraged, you are vulnerable. 

So I think it is incumbent upon these institutions to understand 

themselves and their risk profile and how much capital they have, 

and then it is very important that the regulatory agencies and the 

Federal Deposit Insurance Corporation understand these institutions, and that if they present these living wills, what we choose 

to call them, they have to be understandable. And if the management and the directors do not understand it, I do not think we can 

understand it. 

So the burden is on them to show that they are manageable, that 

their risks will not impact the taxpayer in the future, and that is 

capitalism. And I think I would be supportive of that. But I do not 

support future bailouts by the taxpayer for institutions that are allowed to take on too much risk. 

Senator CORKER. Mr. Chairman, I thank you for letting me talk 

with the witness 120 seconds over. I will say to you that I am looking forward to this. I could not agree more with you that we need 

to absolutely end any thought of taxpayer bailouts. 

Title II was crafted—and it was not crafted exactly perfectly, in 

my opinion, and I want you to know, as I told you in the office, 

we are working on a bankruptcy title to create a much bigger bankruptcy—or much better bankruptcy provision also for highly complex financial institutions. I look forward to working with you on 

that, and I certainly look forward to seeing what you are going to 

do at the FDIC to ensure that we do not have a situation where 

‘‘too big to fail’’ continues to be part of our vernacular. Thank you 

and I look forward to your service. 

Mr. HOENIG. Thank you. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Well, thank you, Mr. Chairman. I appreciate 

all of the nominees. Congratulations on your nominations. I have 

had the chance to meet with them all. 

I want to start off with something that both Senator Isakson and 

I have been pursuing and that got strong bipartisan support here 

in the Senate of 60 votes, and some of my colleagues have talked 

about it in more disparaging ways, but I have a different view of 

it, and that is, loan limits. The reality is that, according to CBO, 

who does the scoring around here, loan limits will not cost the taxpayers one dime, and I think that is incredibly important. And the 

suggestion that this is only about the wealthy, the reality is that 

this does not just affect high-cost loans because hundreds of coun-
21 

ties experienced FHA loan limit declines from around the high 

$300,000s to about $270,000 per year. 

Now, you know, I wish that people throughout the country could 

be able to obtain homes in that price range, but if you live on the 

coasts of this country, which have a huge amount not only of the 

land mass but the population mass of the country, the reality is 

that costs for homes are simply much higher than that. 

And so we would be taking out of the housing market at a critical time in which the housing market is already facing enormous 

challenges a key component of being able to help a large universe 

of people who can be responsible borrowers and for which it will 

not cost the taxpayers any money at all, you know, a vehicle by 

which they can get access to a mortgage. 

Now, Ms. Galante, am I misstating the fact that it is not just a 

question of the higher limits but the fact that there are declines 

from the high $300,000s to around $270,000 per year that affect 

numerous counties throughout the Nation? 

Ms. GALANTE. Senator, that is correct. I do not have the exact 

number of counties in front of me, but there are hundreds of counties that are affected by the change in the loan limits, and you are 

correct, it is not just about the highest amounts. 

Senator MENENDEZ. And let me ask you this: We have had numbers run that suggest that actually the higher-cost loans actually 

have better performance records than others. To your knowledge is 

that true? 

Ms. GALANTE. Yes, Senator. We have not had a large opportunity 

to investigate this, but based on our historical data, again, we have 

done a small number that are at the higher limits. But our data 

does show lower seriously delinquent percentages for loans that are 

in a higher loan category. 

Senator MENENDEZ. So the reality is, if our information is right 

and, you know, the universe that you have already reviewed, although maybe not as large as you would like to, shows that, in fact, 

there are lower loan defaults, it seems to me that we improve 

FHA’s financing. So, you know, I certainly hope that our colleagues 

will join the House and support the effort here when we come to 

passage. 

Let me ask you, I announced at a previous hearing that I am 

working on a bill to promote shared appreciation mortgages at 

FHA as one—there is no simple silver bullet to solve our whole 

housing challenge—that has multiple dimensions to it—but as one 

creative solution to part of our housing constants. What do you 

think of shared appreciation mortgages where lenders reduce principal in exchange for a percentage of future home price appreciation? 

Ms. GALANTE. Yes, Senator. I think that is something that we 

should look at very carefully and thoughtfully. I do agree that 

shared appreciation can be a good vehicle. I can tell you not in the 

context that you are referring to but in the affordability context I 

have a tremendous amount of experience with shared appreciation 

mortgages and their benefits to homeowners. 

Senator MENENDEZ. Mr. Hoenig, let me ask you a question. You 

and I had a conversation. I often hear, as I listen to community 

banks who tell us that their regulators often speak to them in a 
22 

different way than we speak to them—we are saying we would like 

to see responsible lending, not speculative lending but responsible 

lending to take place, and we would like to see that as one of the 

methods in which we grow this economy. I listen to business people 

all the time who say, ‘‘Senator, even in this economy, I have a business that can grow, but I cannot get access to capital unless I give 

my firstborn and several points over LIBOR, in which case I really 

do not need a loan at that point.’’ 

The question is, they say that the regulators actually go in and, 

for example, on performing assets tell them, well, you know, even 

though it is performing and everything is on time, you have to recapitalize this, or there are other messages being given. Do you see 

it as part of your mission, should you be confirmed, to strike the 

right balance here at the end of the day? 

Mr. HOENIG. Senator, if I am confirmed, I think the right balance 

is absolutely essential. You know, when you go into a recession, the 

banks are under stress, the borrowers are under stress, and, therefore, there are a lot of issues around extending loans, growing 

loans, and so forth. And I think that I have noticed in this recession that community banks, broadly, have—some of them had to 

deal with commercial loans problems, but many, almost half at 

least, actually did increase their loans to businesses during this period. They were, I think, very committed to their communities. I 

think community banks are. And I think examiners want that to 

happen as well. 

Now, they have their own set of criteria in terms of sound supervision, having the right balance, and trying to strike that right balance. And it is not simple. There is always that shade of gray, what 

do you do, and I think that is where a lot of the confusion comes 

from. But my own view is, if I were confirmed, to work with the 

regional directors for the FDIC, pushing for that balance to make 

sure that the community needs are met and that the banks have 

a sound portfolio in meeting those needs. No simple matter, but essential. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Johanns. 

Senator JOHANNS. Mr. Chairman, thank you. And to each and 

every one of you who are on the panel today seeking confirmation, 

congratulations on really a great history that you all bring here. I 

have been sitting here, as you know, throughout the hearing, and 

the amount of experience is remarkable, and it is encouraging because you face some tough problems. 

I just wanted to offer a few thoughts, if I could, and if I have 

any additional questions, then I will submit them for the record 

and get responses back from you. But let me start with you, Tom. 

One thing that strikes me about you is that not only do you have 

bipartisan support, which is obvious, it is also very clear that you 

have community support. The thing about your nomination, I can 

expect to get a call from a president of a bank, and the next call 

might be from the leader of a union. And that is not always an 

easy pathway to navigate through, but you have successfully done 

it. You have earned their respect. And I am excited about you serving at the FDIC with all the experience that you have. 
23 

If I would offer a thought, it would be I think we have got to pay 

attention to what is happening out in our more rural States. 

Things have been good. We see a very strong AG economy, but I 

must admit I am worried about land values. I see just hugely remarkable numbers in terms of land appreciation. We know from 

the 1980s that what goes up does tend to come down, and there 

will be a correction at some point. And if people are overleveraged, 

then this is going to be a bad deal for the community banks. We 

remember how many were closed or consolidated or whatever during the 1980s. It can happen again, and I just worry that there 

may be some warning signs out there. 

I worry that because of the difficulty of banks being profitable, 

the temptation is going to be to take on more risk. Everybody 

wants the AAA person. They may be stretching now to try to figure 

out how they make some money. 

In terms of the FHA, I have to tell you, I am so worried about 

where we are headed there, and I listened to your responses very 

carefully. Gosh, I am always impressed when somebody figures out 

how to do things better. But that does not solve the problem here. 

The problem is that you inherit a portfolio that stinks. 

There are a lot of underwater people out there, and there is 

going to be no easy way to get through this. We need to know how 

to deal with that, and I just think we have got a Fannie and 

Freddie phenomenon headed our way, and I am very concerned 

about how we would deal with that just because of the financial 

condition of the United States. 

Then with HUD, if I were to offer just one thing there, I hear 

from my housing authorities—and they do such great work. I 

worked with them as a mayor and when I was Governor. They 

really feel that the regulatory challenges that they face are unnecessary in many respects—not that we believe regulation should go 

away. That is not what I am saying. But they feel like, you know, 

the housing authority for a small community is facing the same 

regulatory issues that Houston is facing, and they are going, ‘‘Wait 

a second. We are not close to that. We know the people that we 

manage by first name, and we know their kids and their grand 

kids.’’ And so any way that you can bring some stability to that and 

some balance to that will be greatly appreciated. 

Those are my words of wisdom for each of you. I wish you all the 

very, very best. You have huge challenges in front of you but great 

experience to meet those challenges, and I look forward to working 

with all of you. 

Chairman JOHNSON. I thank the nominees for your testimony 

and for your willingness to serve our Nation. I ask all Members of 

this Committee to submit questions for the record by the close of 

business on Tuesday, November 22. I would also like to remind our 

nominees to please submit your answers to us in a timely manner 

so that we can move your nominations forward as quickly as possible. 

This hearing is adjourned. 

[Whereupon, at 11:28 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 
24 
25 
26 

PREPARED STATEMENT OF MAURICE A. JONES 

NOMINEE FOR DEPUTY SECRETARY

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

NOVEMBER 17, 2011 

Mr. Chairman, Ranking Member Shelby and distinguished Members of the Committee, thank you for the opportunity to appear before you today as President 

Obama’s nominee to be Deputy Secretary of the Department of Housing and Urban 

Development. Before I begin, I would like to introduce my wife, Lisa, who is here 

with me today and has been my partner in life for the last decade. Our most precious gift, our 9-year-old daughter, Michela, is in school this morning, but she is 

with us in spirit. 

I am humbled by the nomination and grateful to the President for the trust he 

is bestowing upon me. I am also thankful to Secretary Donovan for his support. If 

confirmed, I pledge to work collaboratively with the Members of this Committee to 

ensure that HUD achieves the operational excellence the country needs from this 

organization during these challenging times. 

Public service has been a passion of mine since at least my high school days in 

rural Lunenburg County, Virginia. In 1979, as a ninth grader, I was fortunate 

enough to be selected to serve as a page during that year’s legislative session of the 

Virginia General Assembly. The experience changed my life. I observed and assisted 

legislators working on the public’s business, and I was inspired. I resolved, then, 

to try to enter public service when I grew up. 

Following law school and 3 years of law practice in a firm in Richmond, Virginia, 

I was blessed with the opportunity to work for the U. S. Treasury Department. Over 

the course of 6 years at Treasury (from 1995–2001), I served as Special Assistant 

to the General Counsel, Legal Counsel to the Community Development Financial Institutions Fund, Deputy Director for Policy and Programs and Director of the Fund. 

I loved these jobs, and they taught me valuable lessons and skills. 

My experiences at the CDFI Fund, in particular, called upon me to lead people 

in the building of a high-performing, results-oriented government organization with 

a compelling mission. And because the Fund was essentially a startup entity at the 

time I joined the team, we had to put in place the necessary infrastructure for the 

programs and operations of the organization. It was on the job training in building 

a government entity. Over a 5-year period, working collaboratively with Congress, 

we grew from a 10-person organization with an annual budget of $50 million to a 

60-person organization with an annual budget of $120 million. We invested approximately $400 million in over 300 mostly nonprofit entities that used those monies 

to make loans and other investments in low-income communities across America. 

Following my time at the Fund and approximately 9 months with a foundation 

in the Washington Metropolitan area, I was honored to be asked by then Governor, 

now Senator, Warner, to join his Administration. I started as his Deputy Chief of 

Staff and subsequently also became his Commissioner of the State Department of 

Social Services. At Social Services, I led a team of more than 1,500 Administration 

government employees who, in turn, worked through several thousand local government workers in 121 localities to provide social services to the people of the Commonwealth of Virginia. I spent the bulk of my time attempting to transform structures, processes, practices and people at Social Services in an effort to make it a 

more efficient and effective system throughout the State. During my tenure, Social 

Services: received a $922,000 reward for increasing the number of children adopted 

from Administration-supervised foster care; earned over $28 million in Federal incentives for record performances in child support and collections; and received 

around $24 million in Federal awards for successfully placing welfare participants 

in jobs and improving their job retention and wage advancement capacities. 

I departed the Warner Administration after more than 3 years to join a regional 

media company in the Hampton Roads area of Virginia, Pilot Media. I wanted to 

run a newspaper because I wanted the challenge of leading a private sector enterprise that pursued both excellent business results and distinguished public service. 

Little did I know that I was entering an industry that was and is in the midst of 

the most far-reaching transformation of its history. 

I knew nothing about newspapers when I joined The Virginian-Pilot. Very quickly 

I had to develop a point of view about our biggest challenges and attempt to set 

us on a path to achieve our double bottom line mission in these uncertain times. 

It has been an incredible educational journey, and I continue to learn lessons from 

the challenge. And we are weathering the times quite well. We have transformed 

the way we do business in every area of the company, from integrating departments 

to launching new businesses, to eliminating products no longer valued by our cus-
27 

tomers. As a result, we remain a debt-free, profitable enterprise well-positioned to 

assist the community in taking advantage of its opportunities and confronting its 

threats. The Virginian-Pilot has been voted the best newspaper in Virginia by its 

peers every year I’ve been its Publisher. 

These are the experiences I bring to the opportunity we are discussing today. 

HUD aspires to transform itself into an organization that consistently delivers excellent results, as reflected in Goal 5 of its 2010–15 Strategic Plan. To realize this aspiration, transformations across the agency are necessary. I want to help lead this 

journey. My public and private sector work have helped me to prepare for this role. 

And particularly in light of the housing and related economic challenges our country 

continues to face, which have come down so hard on so many Americans, I can think 

of no more important time to work at HUD. 

I am humbled by the President’s decision to nominate me for this role, and I am 

grateful to the Committee for allowing me to appear before you today and for considering my nomination. I would be happy to answer any questions. 

Thank you very much. 

PREPARED STATEMENT OF CAROL J. GALANTE 

NOMINEE FOR ASSISTANT SECRETARY

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

NOVEMBER 17, 2011 

Good morning, Chairman Johnson, Ranking Member Shelby, and Members of the 

Committee. 

I am honored to appear before you today and humbled by President Obama’s and 

Secretary Donovan’s decision to nominate me as Assistant Secretary for Housing— 

FHA Commissioner. I would also like to thank the Committee for scheduling this 

hearing and considering my nomination. 

Before I begin, I would like to introduce my youngest son, Chris Roberts, who is 

here today. He and my older son, Matt are both exceptional young men who I know 

will make the world an even better place as they proceed through their careers. I 

also want to thank my wonderful husband of 26 years, Jim Roberts. Without his 

steadfast support, I would not be sitting before you all today. 

Mr. Chairman, my entire professional life has been dedicated to real estate development and finance, community planning, and affordable housing and economic development. My more than three decades of experience in all three business lines 

served by FHA-single family, multifamily, and healthcare-has equipped me with a 

deep understanding of the industries, organizations and individuals that HUD 

serves. 

Immediately before my appointment as Deputy Assistant Secretary for Multifamily Housing at HUD and my subsequent tenure as Acting Assistant Secretary 

of Housing, I served for 13 years as President and Chief Executive of BRIDGE 

Housing Corporation, the largest nonprofit housing developer in California. During 

my tenure, I developed BRIDGE into a financially sustainable family of companies 

with annual revenues in excess of $115 million and assets of more than $1 billion 

dollars. I also developed new and innovative business lines to serve our mission 

such as HOMEBricks which assists first time homebuyers to access affordable ownership opportunities. 

At BRIDGE, and throughout my career, I have worked to demonstrate that partnership between the Government, private and nonprofit sectors to create opportunity is not just good policy—but smart business. And I brought that conviction 

with me to HUD. 

As the Deputy Assistant Secretary for Multifamily Housing, I led major changes 

in the Office. Under my leadership, FHA multifamily lending grew from an annual 

level of $2.5 billion in 2008 to over $12 billion in 2011—providing key liquidity to 

this market segment during the toughest housing environment since the Great Depression. 

In addition, I led the first major overhaul of underwriting standards and loan documents in the 40 year history of the FHA Multifamily Insurance Program. These 

changes allow us to more effectively manage risk while better aligning programs 

with the norms and practices of the private sector. 

As Acting Assistant Secretary for Housing, I have continued to focus on making 

FHA’s programs work for all of our stakeholders. Toward that end, I am spearheading a major overhaul of HUD’s Housing Counseling Program, including the development of a new Office of Housing Counseling. 
28 

Given that families receiving housing counseling are twice as likely to receive a 

mortgage modification, this work is particularly important as our economy continues 

to recover. 

In addition, I have placed a strong focus on risk management. This includes continued development of FHA’s Office of Risk Management and Regulatory Affairs, as 

well as a commitment to hold lenders accountable for non-compliance with FHA’s 

requirements. Just last week, I hosted a ‘‘kick-off’’ meeting with FHA’s new Senior 

Advisor for Risk and many of the recently hired Credit Risk Officers, along with 

their counterparts in all of the Program offices so that we can ensure risk management is fully integrated into FHA operational practices. 

If confirmed by the Senate, I will continue to provide effective leadership for FHA 

in achieving its important role of providing liquidity in the Nation’s housing markets while maintaining a strong focus on protecting the Department’s insurance 

funds. 

As is clear from the report we released on Tuesday regarding the current status 

of the FHA Mutual Mortgage Insurance Fund, FHA is at a critical juncture. As a 

result of the sweeping reforms instituted under Secretary Donovan’s leadership, the 

MMI capital reserve remains positive and we have originated the highest quality 

books of business in FHA’s history. However, the residual effects of poor performing 

books from prior years will require FHA to be vigilant in managing its business 

moving forward. 

Therefore, should I be confirmed, my highest priority would be the balancing of 

FHA’s historic mission with responsible management of risk. At this important 

point in our economic recovery, ensuring the flow of mortgage capital necessary to 

restore our housing markets is vital. And FHA is playing a key countercyclical role 

in that effort, particularly for low-to-moderate income, minority and first-time homebuyers. However, FHA can fulfill its mission only if it effectively manages the resources that make its programs available. 

Thank you again for your time and for considering my nomination. I appreciate 

the opportunity to be here and, if I am honored to be confirmed, I will work hard 

to earn your ongoing trust. 

PREPARED STATEMENT OF THOMAS M. HOENIG 

NOMINEE FOR VICE CHAIRPERSON AND MEMBER OF THE

BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION

NOVEMBER 17, 2011 

Thank you. Chairman Johnson, Ranking Member Shelby, Members of the Committee, it is my honor and privilege to come before you as the President’s nominee 

to serve as Vice Chairman and Member of the Board for the Federal Deposit Insurance Corporation. 

I recognize that the job as Vice Chair for the FDIC is an important responsibility. 

I believe my experience in bank supervision and regulation within the Federal Reserve System for the past 38 years has prepared me for this role. 

I started my career as an analyst at the Federal Reserve Bank of Kansas City, 

working in the areas of research and policy. During that time, I also shared responsibility as part of a team that analyzed bank holding company merger applications. 

Later, I was assigned responsibility for the Federal Reserve Bank of Kansas City’s 

discount window lending and led the Bank’s examination work for the supervision 

of bank holding companies and State member banks. In 1986, I was given the opportunity to lead the bank’s Division of Bank Supervision and Structure, directing 

the oversight of over 1,000 banks and bank holding companies ranging in size of 

less than $100 million to $20 billion in assets. Finally, I served as President of the 

Federal Reserve Bank of Kansas City for twenty years from October 1991 until October of this year. 

During my career, I was involved with the banking crisis of the decade of the 80s 

that involved agriculture, energy and commercial real estate. In the Tenth Federal 

Reserve District, we dealt with 350 banks in the Midwest and Mountain states that 

either failed or required assistance between 1982 and 1992, including the failure of 

Penn Square Bank that later contributed to the failure of Continental Illinois National Bank And Trust. 

As a member of the Federal Open Market Committee, I was involved in an indirect manner in the efforts to mitigate the effects of the financial panics in Asia, 

South America, Russia and Mexico that occurred with regularity during the decade 

of the 90s. Finally, I worked with financial and nonfinancial firms in the Midwest 

through the recent financial crisis and recession. 
29 

Each one of these unfortunate events was difficult on Americans. Each of these 

events provided me with experience in dealing with financial crises. I have observed 

how distorted financial incentives encourage institutions to take on excessive risk. 

Just as importantly, I understand the difficulties of managing a crisis and restoring 

confidence to an economy that involves both Main Street and Wall Street. 

Should the Senate choose to confirm me, I would serve with commitment and with 

the best interest of the country as my first priority as we continue to face national 

and global financial and economic challenges. 

Thank you for the opportunity to appear before you today and I look forward to 

answering any questions. 

(31) 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM MAURICE A. JONES 

Q.1.–a. Mr. Jones, the HOME Investment Partnerships Program 

(‘‘HOME’’), has been the subject of additional oversight by the HUD 

Office of Inspector General and is the focus of a Washington Post 

investigation called ‘‘Million-Dollar Wasteland.’’ 

At a Congressional hearing earlier this year, the HUD Assistant 

Inspector General for Audit testified on HUD’s management of the 

HOME program. He stated: 

The most common finding throughout our audit reports is the lack of adequate controls, including: subrecipient activities, recapture provisions, overreporting program accomplishments, and ineligible activities. There is also 

a repetitive thread of not meeting the HOME objective to provide affordable 

housing or not meeting local building code requirements for housing rehabilitation work. 

If confirmed, will you commit to ensuring that HUD tightens its internal controls of HOME, provides adequate oversight over funds 

spent, holds recipients accountable for results, and carefully monitors projects through completion? 

A.1.–a. As I stated at the Committee hearing, if I am confirmed, 

I commit to find the facts with respect to these and other allegations concerning the HOME and other programs, and I will then 

work hard to help improve HOME and other programs. My priority 

will be to ensure that HUD serves as a responsible steward of taxpayer funds while meeting the needs of the individuals the program is designed to serve. My standard will be excellence across 

the board. 

My understanding is that as a result of provisions included in FY 

2012 appropriations legislation for HUD, as well as in HUD’s proposed HOME rule, increased oversight, monitoring, accountability, 

and tightening of controls with respect to HOME will be mandated. 

For example, I understand that jurisdictions participating in 

HOME will be required to: certify that underwriting of projects has 

occurred indicating that developers have the experience and financial capacity to carry out projects; monitor construction progress 

and conduct an inspection at completion; and complete projects in 

4 years (with a 1-year extension in some cases) or return HOME 

funds to the treasury. 

Q.1.–b.What, in particular, would you do in each of these areas to 

make HOME a more effective program? 

A.1.–b.Without having investigated the facts and reviewed in detail 

the steps already underway, it would be difficult to be more specific 

at this point than to say that I commit to find the facts and then 

work hard to help make any appropriate improvements. Based on 

my understanding of the relevant provisions in the FY 2012 appropriations legislation and in HUD’s proposed HOME rule, there will 

be improvements in each of these areas. 
32 

If confirmed, I would be pleased to discuss this issue further with 

you or your staff after completing that review, as well as the other 

questions you have raised concerning the HOME program. 

Q.2. Related to this, one of HOME’s most significant issues is its 

lack of clear audit trails. The HUD Assistant Inspector General for 

Audit testified that: 

In sum, we believe that HUD’s information systems used to administer the 

HOME program are incapable of producing complete and reconcilable audit 

trails throughout the entire grant life cycle and are unable to produce reports which would facilitate timely identification of fraud, waste and abuse 

in the programs. 

If confirmed, what would you do to clarify HOME’s audit trails and 

improve its information systems? 

A.2. As I stated at the Committee hearing, if I am confirmed, I 

commit to find the facts with respect to these and other allegations 

concerning the HOME and other programs, and I will then work 

hard to help improve HOME and other programs. It is my understanding that under this Administration, HUD has agreed with 

many of the Inspector General concerns about the HOME information system, has raised such concerns on its own, and has sought 

funding to make improvements. I further understand that a number of system improvements are in the process of being implemented, and I look forward to learning more about them and seeking further improvements as appropriate if I am confirmed. 

Q.3. In addition, in recent testimony, the HUD Acting Deputy Inspector General specifically pointed out the lack of oversight of subgrantees receiving HOME funds. He remarked that ‘‘in some instances, no monitoring is occurring, particularly at the subrecipient 

level.’’ 

If confirmed, would you commit to additional monitoring and 

oversight of HOME subrecipients? 

A.3. As I stated at the Committee hearing, if I am confirmed, I 

commit to find the facts with respect to these and other allegations 

concerning the HOME and other programs, and I will then work 

hard to help improve HOME and other programs. My understanding is that because HOME is a block grant program, significant responsibility for monitoring and oversight of subrecipients is 

placed on participating jurisdictions, who have accountability for 

the results of HOME projects, and that some of the changes discussed above in the FY 2012 appropriations law and in the proposed HOME rule will improve monitoring and oversight in this 

area. 

Q.4. The Washington Post illustrated that some of the metrics used 

to signify completion of HOME projects are often unreliable and 

confusing. The Post mentions ‘‘dozens of projects that HUD claimed 

were built and occupied had inconsistencies in completion dates 

and unit counts.’’ 

If confirmed, what would you do to fix flaws in HUD’s reporting 

system and improve the program’s metrics? 

A.4. If I am confirmed, I would find the facts with respect to these 

allegations and work hard at improving HOME in appropriate respects, using the priorities and the standard of excellence described 
33 

1See Review of Management Practices at the Treasury Department’s Community Development 

Financial Institutions Fund, Majority Staff Report for Subcommittee on General Oversight and 

Investigations, House Committee on Banking and Financial Services (June, 1998)(‘‘Staff Report’’) at 23 (quoting Inspector General report). The Staff Report specifically noted that I denied 

the former deputy director’s claim that I had ‘‘vaguely concurred’’ with his decision to leave the 

memos undated. Id. at 42. 

above. My understanding is that there are pending improvements 

in HUD information systems and accountability by participating jurisdictions, as a result of the FY 2012 appropriations law, the proposed HOME rule, and pending information system improvements 

initiated by HUD, which may help remedy any such problems. 

Q.5. Mr. Jones, during your tenure there, the Community Development Financial Institutions (‘‘CDFI’’) Fund was the subject of a 

Majority Staff Report compiled by the House Committee on Financial Services Subcommittee on General Oversight and Investigations. The report highlights a lack of documentation associated 

with certain CDFI awards and the presence of undated evaluation 

memos found in CDFI files. The Inspector General for the Treasury 

Department concluded that the undated memos were written at the 

last minute prior to a Congressional staff review and that they contained deliberately misleading information about CDFI awards. 

Are you aware of this report? Can you clarify your involvement, 

if any, in the actions described by the report? 

A.5. I am aware of this report and cooperated fully in extensive 

interviews with Subcommittee staff with respect to its preparation, 

as I did concerning the Inspector General (‘‘IG’’) report. Most of the 

staff report focuses on issues relating to the conduct of the thendirector and deputy director of the CDFI Fund concerning its first 

round of awards, which were almost complete by the time I joined 

the Fund as legal counsel in the spring of 1996. With respect to the 

undated memos, as the staff report and the IG report state, in my 

capacity as legal counsel to the Fund, I specifically ‘‘rejected’’ the 

deputy director’s suggestion of placing undated memos in the files 

and ‘‘advised him to place current dates’’ on such materials.1 The 

Subcommittee and the IG found that the deputy director nevertheless placed undated memos in the files, and he and the director resigned from the Fund shortly after the IG report. The staff report 

also noted that I advised as legal counsel that awards should not 

be made until evaluation memos and other required documentation 

was completed, and that I was involved in seeking to improve the 

CDFI Fund award process for the second round of awards. See 

Staff Report at 35, 53–54, 99. I continued to work at the CDFI 

Fund on further improvements to the award process, keeping in 

mind the concerns raised both by the IG and the staff report. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM CAROL J. GALANTE 

Q.1. During your confirmation hearing you seemed to suggest that 

by making more loans to people with high income, FHA could improve its financial condition and, therefore, Congress should raise 

FHA’s loan limits. In previous questioning, however, you have stated that you oppose raising the loan limits, as is consistent with the 
34 

positions of Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan. 

Setting aside the accounting differences that cause loan limit increases to cost the Government money for the GSEs, but appear to 

save money within FHA, do you believe that FHA should increase 

the number of larger mortgages to wealthy borrowers in an effort 

to improve its financial condition? 

A.1. Let me begin by clarifying my statements on the topic of loan 

limits. First, I did state and continue to maintain that the Administration’s position is that lowering the loan limits back to their 

historical levels (as happened on October 1, 2011) is an important 

step in enabling private capital to begin to reassert itself in the 

marketplace. As you mention, this position is consistent with the 

positions of both Treasury Secretary Timothy Geithner and HUD 

Secretary Shaun Donovan. I also stated that the Administration 

certainly understood why at this point in the market’s fragile recovery, some people may believe this is not the time to take such 

a step. While acknowledging that, the Administration still stands 

behind its position. 

In response to a question regarding the potential impact of a proposed increase to FHA’s loan limits, I stated that based on the limited data available to FHA on higher loan limit borrowers, I did not 

see that such a move would have a negative impact on FHA finances, and in fact, based on default rates of these borrowers being 

somewhat lower than for average FHA borrowers, it could have a 

positive impact on the Fund’s finances. I would add here for the 

record that our data is limited on this point because the percentage 

of high loan limit borrowers is based only on the 2008–2011 book 

of business that enabled the higher loan limits, and further, that 

the percentage of FHA’s business in this high loan limit space was 

approximately 2–3 percent by loan count and 6–7 percent by dollar 

volume in 2010 and 2011. We also do not know, given that FHA 

is generally a more expensive alternative in terms of monthly payment (because of the mortgage insurance premium) how much of 

this business will eventually come to FHA as opposed to using private capital sources. 

The fact is that while higher loan limits are not likely to hurt 

the FHA, and could in fact add some modest benefit, the Administration continues to believe that it is an appropriate time to lower 

the loan limits in order to encourage private capital to return to 

the market. 

Q.2. In your testimony you state, ‘‘my highest priority would be the 

balancing of FHA’s historic mission with responsible management 

of risk.’’ 

What specific borrower characteristics do you believe place FHA 

most at risk? If confirmed, what changes would you make to reduce 

this risk? 

A.2. There is not one particular borrower characteristic that places 

the FHA at risk. It is almost always a combination of factors that 

predict success or failure of a borrower, including FICO score, consistency of employment/source of income, debt-to-income ratios, 

down payment and source of down payment, cash reserves, and 

other related factors. These factors are considered in ‘‘TOTAL 
35 

1 Assuming a purchase price of $751,295, loan amount of $725,000, 3.5 percent down payment of $26,295, interest rate of 4.25 percent and taxes and insurance of $1,565. 

Scorecard’’—FHA’s system for evaluating the credit risk of a loan. 

This Administration has taken significant steps to evaluate these 

borrower characteristics and has already made major improvements including requiring a minimum FICO score of over 500 and 

a two tier evaluation of FICO and down payment amount. FHA 

now requires a 10 percent down payment for borrowers with FICO 

scores under 580. 

Additional credit factors that are being evaluated moving forward include a requirement for housing counseling for certain higher risk loans, changes in cutoff points within TOTAL for automatic 

approval (and requiring more manual underwriting), and publication of a final rule regarding allowable seller concessions, which 

lowers the amount of seller funded concessions permitted for closing costs (thereby ensuring that borrowers possess the necessary 

cash to close and protect FHA from inflated appraisals). 

If confirmed, I would continue to be vigilant in protecting the 

Fund, while ensuring access to credit for borrowers who can responsibly sustain homeownership. 

Q.3.–a. According to HUD, the mission of FHA is to administer active mortgage insurance programs that are ‘‘designed to make 

mortgage financing more accessible to the home-buying public and 

thereby to develop affordable housing.’’ 

During your hearing you stated that you would supply the Committee with an answer to the following question: How much household income does a borrower typically need to qualify for a 

$725,000 loan from FHA? 

A.3.–a. In practice, the answer to this question is that there are 

a range of borrower incomes required to qualify for a $725,000 loan 

from FHA, depending on both the cash available for down payment 

as well as other borrower debts and expenses. The required household income if the borrower paid 31 percent of their income toward 

their monthly housing expense, contributed the minimum down 

payment (and had a good credit score) and had no other significant 

debt or expenses would be an estimated $205,774.1

Q.3.–b. Do you believe this is an appropriate income level to be 

served by FHA? 

A.3.–b. The Administration believes that it is appropriate for the 

loan levels insured by FHA to return to their lower levels. We do 

understand that in this period of recovery it is difficult to ensure 

that private capital will return as hoped, and we will of course implement Congress’ determination to maintain Government support 

for lending at the higher level for some additional period of time. 

Q.4. In FHA’s annual report to Congress on the Mutual Mortgage 

Insurance Fund, it was projected that the capital reserve ratio, 

which FHA has a statutory obligation to maintain at a minimum 

of 2 percent, has fallen to less than one quarter of 1 percent. Furthermore, it revealed that there is nearly a 50 percent chance that 

the Fund will require a taxpayer bailout. 
36 

If faced with the prospect of obtaining money from the U.S. 

Treasury or increasing premiums and other risk mitigation actions, 

what will be your course of action? 

A.4. If confirmed, focusing on this critical issue will be among my 

highest priorities. The first place where additional support would 

come from is the net receipts on new endorsements. Under the 

base-case scenario utilized in the independent actuarial review, the 

FY 2012 book will add an additional $9 billion in economic value 

to the Fund. The second source of revenue I would consider is increasing the premiums going forward. There are a variety of specific premium options to be considered, including determinations as 

to whether up-front premium increases versus annual premium increases are most appropriate (or some combination), as well as 

whether premium increases would be done across the board or on 

specific types of business. These alternatives are currently being 

evaluated both for their revenue generation capability as well as 

their impact on both loan volumes and particular types of FHA borrowers. Other avenues are also being evaluated, including lender 

enforcement activities and policies to enhance REO or pre-REO recovery rates. 

To be clear, the independent actuary does not indicate that there 

is ‘‘nearly a 50 percent chance that the Fund will require a taxpayer bailout’’. Rather, the report states that there is a close to 50 

percent chance that should market conditions worsen further than 

anticipated in the base-case economic scenario envisioned by 

Moody’s Analytics, net losses on the current outstanding portfolio 

could exceed current capital resources. As new books of business 

are expected to be highly profitable, these profits can be used to offset losses on earlier books, reducing the potential need for additional support for the MMI Fund. In any case, we are actively considering alternative courses of action to maintain FHA’s ability to 

be self-sufficient and to rebuild its required reserves. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY 

FROM CAROL J. GALANTE 

Q.1. If FHA is permitted to insure loans up to $729,000, what are 

steps that FHA can take to improve its financial condition and 

scale back its market share to reduce its risk? 

A.1. FHA has a number of tools available to both improve its financial condition and scale back its market share. FHA is currently reviewing a number of alternative options including increasing its 

premiums (the upfront premium, the annual premium, or some 

combination). It is also possible to increase premiums for specific 

types of loans or for borrowers with certain characteristics. These 

actions could begin to ‘‘price’’ FHA out of the market for some borrowers, however, so FHA must be conscientious of its mission as 

it explores available alternatives. 

Q.2. Isn’t FHA’s central mission undermined by expansion into 

more high-cost areas? Shouldn’t FHA begin to refocus its efforts on 

only insuring loans for borrowers who are unable to access the conventional loan market? 
37 

A.2. As stated previously, I do believe that it would be appropriate 

for FHA to step back and encourage private capital to serve borrowers above $625,500. FHA’s core mission is two-fold: 1) to ensure 

access to mortgage credit for low- to moderate-income, first-time 

and minority borrowers, and 2) to play a countercyclical role in the 

Nation’s mortgage markets by facilitating liquidity during periods 

of market constriction. In times of economic stress, as we are seeing today, FHA is being called upon to act with respect to both aspects of its mission. We continue to provide access to homeownership for responsible low- to moderate-income, minority, and firsttime homebuyers while also ensuring the flow of capital throughout 

the various price points of the market. FHA has taken steps over 

the past year to begin stepping back and encouraging private capital to return to the market. This can be seen in the fact that FHA 

premiums have been raised three times in the past several years 

and are at their historic highs. FHA volume has begun to drop 

from its peak in 2009 as a result of stepping in to keep mortgage 

capital flowing. In 2011, FHA volume was down over 30 percent. 

We are hopeful that these trends will continue as the market recovers, and that in the near future FHA’s countercyclical role will no 

longer be necessary and FHA support can once again largely be focused on the underserved borrowers FHA has consistently served. 

Q.3. Doesn’t raising FHA’s loan limit to $729,000 while maintaining Fannie’s and Freddie’s at $625,000 provide FHA with access to 

parts of the market that are closed to Fannie and Freddie, thereby 

expanding FHA’s market share and exposing taxpayers to the very 

real possibility of another expensive bailout? 

A.3. Raising FHA limits and not Fannie’s and Freddie’s does enable FHA to reach certain borrowers that the GSEs cannot. However, higher loan limits alone do not expose taxpayers to more risk. 

As mentioned in an earlier response to a question, FHA does not 

believe these higher loan borrowers pose additional risk to FHA. In 

fact, based on limited historical information, it appears these borrowers have a lower default/claim risk. 

Notwithstanding that these borrowers do not appear to increase 

FHA risks, the Administration still believes that it would be appropriate for FHA to begin to step back and encourage private capital 

to serve these borrowers. 
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ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
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