U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

82–141 PDF 2013

S. HRG. 113–53 

NOMINATIONS OF: MELVIN L. WATT, JASON 

FURMAN, KARA M. STEIN, MICHAEL S. 

PIWOWAR, AND RICHARD T. METSGER 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

NOMINATIONS OF: 

MELVIN L. WATT, OF NORTH CAROLINA, TO BE DIRECTOR, FEDERAL HOUSING

FINANCE AGENCY

JASON FURMAN, OF NEW YORK, TO BE A MEMBER AND CHAIRMAN, COUNCIL

OF ECONOMIC ADVISERS

KARA M. STEIN, OF MARYLAND, TO BE A MEMBER, SECURITIES AND EXCHANGE

COMMISSION

MICHAEL S. PIWOWAR, OF VIRGINIA, TO BE A MEMBER, SECURITIES AND

EXCHANGE COMMISSION

RICHARD T. METSGER, OF OREGON, TO BE A MEMBER, NATIONAL CREDIT

UNION ADMINISTRATION BOARD

JUNE 27, 2013 

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 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

LAURA SWANSON, Deputy Staff Director 

GLEN SEARS, Deputy Policy Director 

BRIAN FILIPOWICH, Professional Staff Member 

ELISHA TUKU, Senior Counsel 

GREG DEAN, Republican Chief Counsel 

CHAD DAVIS, Republican Professional Staff Member 

JOHN O’HARA, Republican Senior Investigative Counsel 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
(III) 

C O N T E N T S 

THURSDAY, JUNE 27, 2013 

Page 

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

Opening statements, comments, or prepared statements of: 

Senator Crapo ................................................................................................... 2 

Witness introduction ................................................................................. 8 

Senator Hagan .................................................................................................. 5 

Senator Schumer .............................................................................................. 6 

Senator Reed ..................................................................................................... 7 

Senator Merkley ............................................................................................... 15 

WITNESS 

Richard Burr, a U.S. Senator from the State of North Carolina ......................... 4 

NOMINEES 

Melvin L. Watt, of North Carolina, to be Director, Federal Housing Finance 

Agency ................................................................................................................... 9 

Prepared statement .......................................................................................... 34 

Responses to written questions of: 

Chairman Johnson .................................................................................... 41 

Senator Crapo ............................................................................................ 42 

Senator Brown ........................................................................................... 46 

Senator Vitter ............................................................................................ 47 

Senator Toomey ......................................................................................... 47 

Senator Kirk .............................................................................................. 48 

Senator Coburn ......................................................................................... 51 

Jason Furman, of New York, to be a Member and Chairman, Council of 

Economic Advisers ............................................................................................... 12 

Prepared statement .......................................................................................... 35 

Response to written questions of: 

Senator Brown ........................................................................................... 54 

Kara M. Stein, of Maryland, to be a Member, Securities and Exchange Commission .................................................................................................................. 13 

Prepared statement .......................................................................................... 36 

Responses to written questions of: 

Senator Brown ........................................................................................... 55 

Senator Warner ......................................................................................... 56 

Senator Hagan ........................................................................................... 57 

Michael S. Piwowar, of Virginia, to be a Member, Securities and Exchange 

Commission ........................................................................................................... 14 

Prepared statement .......................................................................................... 37 

Responses to written questions of: 

Senator Brown ........................................................................................... 58 

Senator Warner ......................................................................................... 58 

Senator Hagan ........................................................................................... 60 

Richard T. Metsger, of Oregon, to be a Member, National Credit Union 

Administration Board .......................................................................................... 15 

Prepared statement .......................................................................................... 37 

Responses to written questions of: 

Senator Brown ........................................................................................... 60 

Senator Toomey ......................................................................................... 62 
Page

IV 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Center for American Progress letter of support for nomination of Melvin 

L. Watt .................................................................................................................. 64 

Congressional Hispanic Caucus letter of support for nomination of Melvin 

L. Watt .................................................................................................................. 65 

National Association of Realtors® letter of support for nomination of Melvin 

L. Watt .................................................................................................................. 66 

Congressional Black Caucus letter of support for nomination of Melvin L. 

Watt ....................................................................................................................... 67 
(1) 

NOMINATIONS OF: 

MELVIN L. WATT, OF NORTH CAROLINA, 

TO BE DIRECTOR, 

FEDERAL HOUSING FINANCE AGENCY; 

JASON FURMAN, OF NEW YORK, 

TO BE A MEMBER AND CHAIRMAN, 

COUNCIL OF ECONOMIC ADVISERS; 

KARA M. STEIN, OF MARYLAND, 

TO BE A MEMBER, 

SECURITIES AND EXCHANGE COMMISSION; 

MICHAEL S. PIWOWAR, OF VIRGINIA, 

TO BE A MEMBER, 

SECURITIES AND EXCHANGE COMMISSION; AND 

RICHARD T. METSGER, OF OREGON, 

TO BE A MEMBER, 

NATIONAL CREDIT UNION ADMINISTRATION BOARD 

TUESDAY, JUNE 27, 2013 

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

The Committee met at 10:30 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. I call this hearing to order. 

Today, we consider five nominations, Congressman Melvin Watt, 

to be Director of the Federal Housing Finance Agency; Dr. Jason 

Furman, to be a Member and Chairman of the Council of Economic 

Advisers; Ms. Kara Stein and Dr. Michael Piwowar, to be Members 

of the Securities and Exchange Commission; and Mr. Richard 

Metsger, to be a Member of the National Credit Union Administration Board. 

These five nominees before us exemplify public service and we 

are grateful to them for agreeing to serve in their new capacities. 

If confirmed, they will play an integral role in strengthening our 

economy and in the continued implementation of Wall Street Reform. 
2 

One of the most important issues currently before the Committee 

is the health of the housing market and the future of housing finance. It has been almost 5 years since Treasury Secretary Paulson 

and the FHFA took Fannie Mae and Freddie Mac into conservatorship and the FHFA still not have a confirmed Director. We need 

a Senate-confirmed Director in place to ensure that the 

conservatorships of Fannie and Freddie provide stability to the recovering housing market while Congress continues to seek a broad 

consensus on a long-term solution for our housing finance system. 

Congressman Watt has represented the 12th District of North 

Carolina for over 20 years, and before that, he specialized in minority business and economic development law after graduating from 

Yale Law School. As a member of the House Financial Services 

Committee, Congressman Watt showed leadership and foresight in 

his repeated efforts early on to improve lending standards, to better protect borrowers and the borrowing economy. Our housing 

market and our economy need a confirmed Director in place at 

FHFA. Congressman Watt is well qualified for the job and should 

be confirmed without delay. 

Both the National Association of Realtors and the Congressional 

Hispanic Caucus have sent support letters for Congressman Watt 

that I would like to submit for the record. 

Chairman JOHNSON. On the economic front, we continue to recover from the worst recession since the Great Depression. Millions 

of jobs have been created, but too many Americans remain out of 

work. Dr. Furman’s extensive experience as an economist for the 

NEC, the World Bank, and the CEA will serve him well as he advises the President on our economic challenges. 

Financial markets are facing a challenging environment in the 

wake of the financial crisis. As the SEC works to better protect investors on a wide range of issues, such as capital formation, credit 

rating agency reform, derivative regulation, and market structure, 

I know Ms. Stein and Dr. Piwowar will bring focused and innovative thinking to the Commission. Ms. Stein is well qualified for the 

position, with a wealth of legislative branch experience and a keen 

understanding of the issues before the SEC. Dr. Piwowar has 

served as a Staff Economist for the SEC and as Chief Economist 

for Ranking Member Crapo and Ranking Member Shelby. Kara 

and Mike are familiar faces on this side of the dais and I wish 

them the best. 

Last, the NCUA plays an important role in the strength and the 

success of the credit union industry across this Nation. Mr. 

Metsger is a good candidate for the NCUA Board, having served on 

the Board of the Portland Teachers Credit Union, as an Oregon 

State Senator, and on the Oregon Treasury Debt Policy Advisory 

Commission. 

All of our nominees today are well qualified and I hope we can 

move them through the Committee in a timely manner. 

I now turn to Ranking Member Crapo for his opening statement. 

STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you, Mr. Chairman. 
3 

We are here today to consider several nominations across the numerous Federal agencies that we have and I welcome all of you to 

our Committee. 

I have met with each of the nominees today and look forward to 

hearing from them about their goals for the positions to which they 

have been nominated as well as their qualifications. 

We have many introductions to make, so I will keep my remarks 

today focused on the highest-profile position before us, the Director 

of the Federal Housing Finance Agency, or FHFA. This is a unique 

position within all of the Federal Government and requires very 

specific expertise. Not only does the head of the FHFA act as a regulator to all of the Government-Sponsored Enterprises, but as conservator, this person actually operates Fannie Mae and Freddie 

Mac, whose combined portfolios exceed $5 trillion. 

Because the powers of this position are so unique and unparalleled within Government, any nominee to this important position 

must be politically independent and have the necessary policy and 

technical expertise. Specifically, a nominee must understand the 

traditional economics and concerns of financial service regulators, 

such as credit risk, market risk, operation risk, and liquidity risk. 

Additionally, the nominee must understand the business strategies 

necessary to operate two multi-trillion-dollar companies in a manner that conserves their assets until Congress determines our future housing finance system. 

Finding anyone with that expertise is a challenge, but on top of 

that knowledge, it is essential that the individual have a history 

of demonstrated political independence. This position is not a Presidential adviser or a member of a commission who must work in a 

collaborative fashion. As the conservator, the Director of the FHFA 

acts alone, on his own authority, and possesses all of the powers 

of the officers, board of directors, and shareholders of Fannie Mae 

and Freddie Mac. 

The current person holding this job, Acting Director Ed DeMarco, 

is a career civil servant and a Ph.D. economist named to his post 

by President Obama in 2009. Since that time, I have not heard 

anyone question his technical expertise. He is also an apolitical financial regulator who has resisted political pressure from all sides 

of the political spectrum. Yet, since he decided against supporting 

the Administration’s push for principal reductions in underwater 

mortgages, an effort has been waged for his removal. 

Within that context, we have received the nomination of Representative Watt. I have previously expressed my concern about 

the President choosing to make an appointment of this political nature. This is not a reflection on Representative Watt. The Congressman has a long and successful career in Congress and on the 

Housing and Financial Services Committee, representing his constituents very well. He is also a member who is well liked by his 

colleagues and someone who is respected and with whom I enjoy 

discussing these issues. 

My concerns, rather, reflect the unique position of the FHFA Director, who needs to be the regulator, operator, and shareholder of 

Fannie Mae and Freddie Mac. As I said, the Director has virtually 

unchecked power to control two multi-trillion-dollar companies, and 

through them, the entire mortgage market. This requires an in- 
4 

depth knowledge of the operations of the mortgage industry, the 

mortgage-backed security industry, structured securitizations, investment portfolios, the operations of both public and private insurance and guarantees, and the expertise to oversee the nearly 

12,000 employees employed by these entities. In addition, the Director must be able to adequately transition both the FHFA and 

Fannie Mae and Freddie Mac for whatever Congress ultimately decides for the GSEs. 

Recently, earning reports indicate that perhaps we have turned 

a corner, at least for now, as it relates to the losses at Fannie Mae 

and Freddie Mac. However, the taxpayers have already spent nearly $190 billion bailing out these two companies. With the size of 

their operations, a decision resulting in even the smallest negative 

variation could mean the loss of billions more and a return to the 

Treasury draws that have plagued these conservatorships. 

With that in mind, we must gain a better understanding of Representative Watt’s positions on a great variety of issues as well as 

how he plans to insulate himself from the political winds that surround Fannie and Freddie. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Crapo. 

Senator Crapo and I have agreed that in the interest of time, 

opening statements today are limited to the Chair and Ranking 

Member. The record will remain open for Senators who wish to 

submit an opening statement. 

We will now proceed to witness introductions. Senators Burr and 

Hagan will introduce Congressman Watt. Senator Burr. 

STATEMENT OF RICHARD BURR, A U.S. SENATOR FROM THE 

STATE OF NORTH CAROLINA 

Senator BURR. Thank you, Mr. Chairman, and thank you, Senator Crapo and my esteemed colleagues, for this opportunity. 

Mr. Chairman, I want to thank you for holding this hearing and 

for giving me the opportunity and the pleasure to introduce Mel 

Watt to my colleagues. I know his wife, Eulada, and his children, 

Brian and Jason, are proud of him today, and his wife is behind 

him. 

Finding a nominee for Director of the Federal Housing Finance 

Agency has been a long time coming. I sat in this seat introducing 

a fellow North Carolinian only a few years ago for the same position before the Banking Committee, so I would like to note that the 

President obviously thinks my State holds a key answer to addressing the very complex nature of the FHFA and how we reform 

Fannie and Freddie. 

[Laughter.] 

Senator BURR. Congressman Watt and I share a personal history, 

serving together in the House for many years. Our districts bordered each other during the time, so I had the opportunity to get 

to know Mel quite well. I saw his commitment to his constituents 

and, more importantly, to North Carolina. Above all, Mel always 

prioritized service to North Carolina during his more than 20 years 

in the U.S. Congress. 

Mel is a true North Carolinian, having grown up in Charlotte. 

As a graduate of Wake Forest, I have come to overlook his attend-
5 

ing the University of Chapel Hill. I might say that since I had two 

sons that graduated from there, I have become soft on the rivalry 

between the two schools. 

From there, Mel received his law degree from Yale and entered 

private practice for over 20 years. He went on to serve with distinguished tenure in the House, representing one of the most geographically diverse and challenging districts in America. Those who 

know Mel or have worked closely with him will say that he is an 

honest, kind, and truly thoughtful individual. 

Let me just say to my colleagues, Mel is a good man. He is a 

good husband. He is a good father. I am proud to call him my 

friend. Without a doubt, the job Mel has been nominated for will 

not be easy. In my conversations with him, I have made it perfectly 

clear that he is not going to be able to go back to North Carolina 

as often. He is going to have to stay in Washington, which is something most of us fear. 

[Laughter.] 

Senator BURR. But I have promised him, Mr. Chairman, that if 

he got homesick for barbecue, I would bring some up so that he 

could stay here and fix this problem once and for all. 

With that said, I want to thank the Committee for the opportunity to speak before you and offer my personal thoughts on this 

nomination and some of the characteristics that I think Mel Watt 

brings to this position, if confirmed. 

Mr. Chairman, I thank you, I thank the Ranking Member, and 

I thank my colleagues for their time. 

Chairman JOHNSON. Thank you, Senator Burr. 

Senator Hagan. 

STATEMENT OF SENATOR KAY HAGAN 

Senator HAGAN. Thank you, Mr. Chairman and Ranking Member 

Crapo. 

I certainly want to echo my colleague, Senator Burr’s, comments 

on Representative Mel Watt. It is certainly a pleasure to join with 

Senator Burr in welcoming and introducing my friend and colleague, Congressman Mel Watt, to my colleagues here on the Senate Banking Committee. 

I also want to thank his wife, Eulada, who has been with Mel 

for many, many years, and also, thank you for being here today 

with certainly your steadfast support. 

And I am honored to introduce Congressman Watt today. Congressman Watt is a true North Carolinian. He was born in North 

Carolina. He was a Phi Beta Kappa graduate of the University of 

North Carolina at Chapel Hill. He had an undergraduate degree in 

business administration and was the President of the Business 

Honors fraternity. He received a law degree from Yale and was a 

published member of the Yale Law Journal. 

Congressman Watt practiced law for over 20 years, specializing 

in minority business and economic development law. Since 1992, 

Congressman Watt has spent his distinguished career working for 

the people of North Carolina as a member of the House of Representatives. 

Congressman Watt is an outstanding choice to lead the Federal 

Housing Finance Agency. Over his 20 years on the House Financial 
6 

Services and Judiciary Committees, Congressman Watt has been a 

champion for affordable housing in North Carolina and across the 

country. He has worked tirelessly to protect families from predatory and deceptive lending practices. He has been able to work 

across the aisle to find common ground on issues that promote economic opportunity for the middle class. 

Before the housing crisis, Congressman Watt raised concerns 

that predatory lending practices were harming consumers and putting the housing market at risk. Since the housing market collapsed, Congressman Watt has advocated for legislation to turn 

around communities hit hardest by the foreclosure crisis and to 

support hundreds of thousands of jobs across the country. He was 

instrumental in enacting the Dodd-Frank Act and in supporting its 

anti-predatory lending provisions that are working to protect middle class families and our service members. 

Congressman Watt has also worked across the aisle on other 

issues during his distinguished tenure in Congress. He worked 

with Republicans to pass legislation that addressed Patent and 

Trademark Office backlogs and on legislation that ensured adequate transparency for ATM fees while eliminating excessive regulatory burdens. 

With experience in the private sector and more than two decades 

of service on the House Financial Services Committee, Congressman Watt has the background, the skills, and the history of bipartisan cooperation necessary to confront the challenges facing our 

recovering housing market. I know Congressman Watt will work 

successfully with Congress, with us, to strengthen the backbone of 

our current housing finance system, and I look forward to today’s 

hearing and his confirmation by the full Senate. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senators Burr and Hagan. Senator Burr, please feel free to excuse yourself at your own convenience. 

Senator Schumer will introduce Dr. Furman. Senator Schumer. 

STATEMENT OF SENATOR CHARLES E. SCHUMER 

Senator SCHUMER. Thank you, Mr. Chairman. 

First, I want to acknowledge—I just see our Member from North 

Dakota came in. She hit a great single yesterday at the women’s 

softball game, so congratulations, Heidi. 

Anyway, it is my honor to be here today to introduce Jason 

Furman, the nominee to be the next Chairman of the Council of 

Economic Advisers. I see sitting behind him, all three, happy as 

could be, are his wife, Eve, and his son, Henry, and his daughter, 

Louisa. Welcome, particularly you kids. 

Now, Mr. Chairman, this is not the first Furman that I have introduced to the Senate. Two years ago, I introduced Jason’s younger brother, Jesse, to be a Federal judge, and he is now serving with 

distinction on the bench in the Southern District of New York. Welcome, Jesse. He is here, too. 

But, this is the first time that I have introduced someone the 

President has referred to as, quote, ‘‘one of the most brilliant economic minds of his generation.’’ Dr. Furman has served the President for the past four-plus years, working on virtually every facet 
7 

of economic policy. Early on, he developed a reputation as a brilliant academic economist. But above all, his career is marked by 

a commitment to public service. Time and time again, Jason has 

heeded the call to serve, including at the World Bank in the late 

1990s, in the middle of the Asian fiscal crisis, and this will not be 

Jason’s first stint at the Council of Economic Advisers. He worked 

there and at the NEC under President Clinton. 

Jason’s work has garnered him praise from across the political 

and ideological spectrum. He has brought together both sides in a 

way that I wish we could do more often here in the Senate. He is 

supported by both liberal and conservative think tanks and organizations, from CAP and SEIU on the more liberal side to the AEI 

and National Association of Manufacturers on the more conservative side. And he receives uniformly high praise from economists 

of all stripes, from Jared Bernstein, Larry Summers, and Christina 

Romer to Martin Feldstein, Greg Mankiw, and Glenn Hubbard. 

Apparently, Mr. Chairman, the only thing economists can agree 

on is that Jason is abundantly qualified to be the next CEA Chairman, and I am confident that the Senate will feel the same say. 

I am also confident he will not have to rely on his boyish good looks 

to get confirmed. He is thorough, accurate, balanced, and as the 

President noted, he is pretty smart to boot. As 11 conservative 

economists from the American Enterprise Institute wrote, quote, 

‘‘We are confident he will provide President Obama with advice 

that presents both the advantages and disadvantages of the policy 

proposals under consideration.’’ 

In short, Mr. Chairman, Dr. Furman is exactly what we always 

look for in the Chairman of the CEA, someone who can deliver rigorous, unvarnished economic advice to the President and help the 

President translate good economics into good public policy. I am 

confident that, if given the opportunity, Jason will prove to be an 

outstanding Chairman of the Council of Economic Advisers and I 

urge all my colleagues to support his nomination. 

Thank you. 

Chairman JOHNSON. Thank you. 

Senator Reed will introduce Ms. Stein. Senator Reed. 

STATEMENT OF SENATOR JACK REED 

Senator REED. Thank you very much, Mr. Chairman. 

It is indeed a privilege to be able to introduce Kara Stein as a 

nominee to the United States Securities and Exchange Commission, but simply stated, Kara really does not need much of an introduction to the Members of this Committee. She has worked in a 

collaborative spirit with us for years on both sides of the aisle. I 

am pleased to see her husband, Steve, and Isabel and Rowan here, 

her proud family. We have all benefited from her counsel, her expertise, and I am delighted that she is going to continue, with our 

help, to bring that expertise and that sense of public spirit to the 

Securities and Exchange Commission. 

Kara is an extraordinarily gifted individual. She graduated Cum 

Laude from Yale College, then received her J.D. from Yale Law 

School. She has been in both public and private practice, including 

working at firms such as Wilmer Cutler Pickering on financial 

services issues. She worked on banking, municipal securities, and 
8 

insurance matters in private practice and was a law professor. She 

could have taken a very lucrative career as a lawyer in one of the 

biggest firms in the country, but she chose public service, and for 

over a decade, she has worked for the people of Rhode Island and 

for the people of this country, and she has done extraordinary work 

for me. I am and will be forever in her debt. 

She has expertise and, importantly, the temperament to be an 

extraordinarily effective Commissioner in the Securities and Exchange Commission. She understands the complexities of the financial system. She understands how integral a well-functioning financial system is to the health of our economy. She is someone who 

not just talks, but listens carefully and wisely. She is inherently 

fair. She values transparency and accountability. And I am confident she will be an extraordinary addition to the Commission. 

It, indeed, has been a privilege both personally and professionally to work with Kara. I am in her debt, and today, I will recommend her without reservation to my colleagues to assume a position as a Commissioner in the Securities and Exchange Commission. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Senator Crapo will introduce Dr. Piwowar. Senator Crapo. 

STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you, Mr. Chairman. 

I am pleased to introduce Dr. Michael Piwowar today for consideration by the Committee as a Commissioner for the Securities and 

Exchange Commission. I also want to acknowledge and welcome 

Dr. Piwowar’s family, several of whom are joining us in the audience today, and I am sure you are all quite proud of him. 

Dr. Piwowar’s experience and expertise will be a real asset to the 

SEC. Not only has he served on the Senate Banking Committee for 

a number of years, but he also worked in the SEC’s Office of Economic Analysis and served on the Council of Economic Advisers for 

two Presidents. 

With a Ph.D. in finance, he appreciates the value that economic 

analysis plays in SEC rulemaking, examination, and enforcement 

processes. Dr. Piwowar will bring that appreciation to bear as the 

SEC moves forward with its demanding regulatory agenda. 

Dr. Piwowar also recognizes the significant and important effect 

that securities legislation and regulation have to protect individual 

investors, as well as bringing about fair, efficient, and orderly markets for market participants and investors. 

Both he and fellow nominee Kara Stein have faced the rigors of 

legislating the Dodd-Frank Act, the JOBS Act, and a number of 

other securities-related matters during their time on the Banking 

Committee. This battle scar expertise, if you will, will serve them 

both very well at the SEC. As a Commissioner, he will make informed decisions and be able to fully appreciate and understand 

the consequences of the agency’s actions. 

I congratulate Dr. Piwowar on his nomination to be an SEC 

Commissioner and I also congratulate you, Kara Stein, for your 

nomination, as well. I am very happy that your family is here to 

witness this, Mike, and thank you, Mr. Chairman. 
9 

Chairman JOHNSON. I will now introduce Mr. Richard Metsger. 

Senator Merkley wanted to be here, but is unable. 

Mr. Metsger is President at Parakletos Strategic Public Affairs 

LLC, a public affairs firm dedicated to forging strategic solutions 

to issues of important public policy. Mr. Metsger served as an Oregon State Senator from 1999 to 2011 with Senator Merkley, where 

his Committee work centered around the areas of finance, transportation, and economic development. He was selected by his colleagues as Senate President Pro Tem in 2009. Mr. Metsger also 

served for 10 years concurrent to his Senate responsibilities as one 

of five Commissioners on the Oregon State Treasury Debt Policy 

Advisory Commission, which advises the legislature on prudent 

management of the State’s long-term indebtedness. 

We will now swear in the nominees. 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. WATT. I do. 

Mr. FURMAN. I do. 

Ms. STEIN. I do. 

Mr. PIWOWAR. I do. 

Mr. METSGER. I do. 

Chairman JOHNSON. Do you agree to appear and testify before 

any duly constituted committee of the Senate? 

Mr. WATT. I do. 

Mr. FURMAN. I do. 

Ms. STEIN. I do. 

Mr. PIWOWAR. I do. 

Mr. METSGER. I do. 

Chairman JOHNSON. Please be seated. 

Please be assured that your written statement will be part of the 

record. I invite you to introduce your family and friends in attendance before beginning your statement. 

Congressman Watt, please proceed. 

STATEMENT OF MELVIN L. WATT, OF NORTH CAROLINA, TO BE 

DIRECTOR, FEDERAL HOUSING FINANCE AGENCY 

Mr. WATT. Chairman Johnson, Ranking Member Crapo, and 

Members of the Committee, I appreciate very much the opportunity 

to appear before you today to discuss my nomination to become the 

Director of the Federal Housing Finance Agency and to request formally that your Committee recommend that the Senate confirm me 

to this position. 

I want to express my thanks to Senator Hagan and Senator Burr 

for taking the time to introduce me and for the kind comments 

they made. 

I am deeply honored by the nomination and I am honored that 

members of my family and others are here to support me in this 

effort, especially my wife of 45 years, Eulada, who is seated right 

behind me, my brother-in-law, and my friend and freshman roommate at the University of North Carolina. Our friendship goes back 

50 years, to a time that was critically important in my life, as a 
10 

freshman at Chapel Hill. I am deeply honored by the nomination, 

also. 

In the interest of time, I will just give a brief summary of my 

background. I was born and grew up in a little community called 

Dixie out in the country, but with a Charlotte, North Carolina, address. I attended the Charlotte-Mecklenberg Public Schools, obtained a degree in business administration from the University of 

North Carolina at Chapel Hill, and a law degree from Yale University Law School. 

I returned to Charlotte in 1971 to join a law firm that was best 

known as a civil rights law firm. But the definition of civil rights 

law was changing to include economic and business development, 

and I joined the law firm to stand up a business practice. 

Over the course of 22 years in the practice of law, I practiced 

business law, representing individuals, partnerships, and corporations of all sizes and descriptions. Over half of my legal practice 

was real estate or related to real estate, and I also became the 

managing attorney of the law firm. Representing the city of Charlotte, my joint venture partners and I became the first North Carolina lawyers to do municipal bond work. 

When I came to Congress in 1993, I was fortunate to be assigned 

to the House Banking Committee and the House Judiciary Committee. I have served on both of these committees continuously 

since then. Counting my 22 years in the practice of law and my 21 

years in Congress, I have had 40-plus years of experience in housing, real estate, and other financial matters. I learned housing and 

real estate from the bottom up and have learned and worked on it 

from the top down. 

Let me express my thanks to the Members of the Committee who 

have met with me leading up to today’s hearing. During those 

meetings, the two questions I have been asked more than any others are why do you want this position, and what do you see as the 

role of the Director of the FHFA? I would like to spend the balance 

of my time addressing those questions. 

Let me start with the latter question, because Congress has, in 

fact, provided clear statutory directions on the role that the FHFA 

and the Director should play. In the Housing and Economic Recovery Act, which authorized the creation of the FHFA, Congress directed the FHFA and its Director to carefully and prudently, quote, 

‘‘oversee the prudential operations of each regulated entity,’’ and to, 

quote, ‘‘foster liquid, efficient, competitive, and resilient national finance markets’’ during the transition period until decisions are 

made about housing finance and how it will be done in the future. 

While a broad consensus, which I fully support, has emerged that 

the future of housing finance must move toward a system driven 

by private capital that minimizes risk to taxpayers, what that system will look like will, of course, be up to the House and Senate. 

In the interim, however, I want to assure you that if I am confirmed, I will rigorously follow the directives of the Housing and 

Economic Recovery Act in an open and transparent manner, working with all stakeholders. You can be assured that we will continue 

to build a solid bridge from where we are now to whatever you decide the future housing finance system will be, that we will continue to test risk-sharing models that move housing finance aggres-
11 

sively to the private sector, and that we will cooperate fully and be 

a resource to members of the Senate and the House as you decide 

the future of housing finance. 

The answer to the other question, why I want this position, is 

perhaps a little more complex, but to me, it is equally clear. 

Throughout my life, I have come to understand deeply just how important where you live is to who you are. I have observed that having a place to live is basic, and that is true regardless of whether 

you rent or whether you own. I suspect that my recognition of this 

started when I spent the earliest years of my life in a run-down 

house my mom rented, which had a tin roof, holes in the floor, no 

electricity, and no inside plumbing. 

I still get emotional when I recall as a little boy watching a big, 

long truck maneuver what had been a four-room omni-barracks 

slowly down the road from the Charlotte airport to place it on a 

little lot that someone gave to my mother. That became the house 

I grew up in. I also get emotional when I recall watching them drill 

the well on that lot so we could have running water for the first 

time, and helping my Uncle Leonard dig the septic tank lines so 

we could have a bathroom inside. 

While home ownership and home equity have become primary 

assets and source of retirement security for many families over the 

years, a place to live is still a basic necessity, whether you rent or 

whether you own. Having a place to live provides a sense of stability. It impacts our decisions about schools and transportation. It 

impacts our sense of community. 

Growing up, there was nothing more basic to me except family, 

food, and the little country church that adjoined our front yard. 

You could say that where I lived even predestined that I would become a Presbyterian, because I am still a member of that church 

today. 

Because a place to live is basic, over the years, I have worked 

to eliminate homelessness and I have been active in community development and neighborhood revitalization. And, of course, I have 

walked hundreds of families through real estate closings, for many 

of them, the most important financial transaction they will ever 

make. 

So I was devastated when our housing finance system started to 

lose its way, and I was among the first to realize that. And Representative Brad Miller and I became the first to introduce antipredatory lending legislation, 4 years before the housing meltdown 

precipitated our economic meltdown. 

Now, we are at a unique moment in the history of how housing 

finance will be carried out in our country. Coming through the 

worst housing crisis in our history, we are struggling to find the 

right path out of a status quo that no one believes is desirable, and 

I cannot think of anything I would rather do now than help build 

the bridge and facilitate the transition to a more reliable housing 

finance future. 

I look forward to answering any questions the Committee may 

have. Thank you. 

Chairman JOHNSON. Thank you, Congressman Watt. 

Dr. Furman, please proceed. 
12 

STATEMENT OF JASON FURMAN, OF NEW YORK, TO BE A 

MEMBER AND CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS 

Mr. FURMAN. Chairman Johnson, Ranking Member Crapo, and 

other distinguished Members of the Committee, I am honored that 

President Obama nominated me to serve as Member and Chairman 

of the Council of Economic Advisers and I am honored to appear 

before you today as you consider my nomination. Thank you, as 

well, to Senator Schumer for those kind and generous words. 

I want to begin by introducing my family members who are here 

today. My first exposure to economics was from my father, Jay 

Furman, who is back there somewhere, who was pursuing graduate 

studies in economics when I was a young child. From an early age, 

I knew that I wanted to follow a similar path, and when I was 13, 

I got my first subscription to The Economist magazine. My mother, 

Gail Furman, also here today, a child psychologist, has always set 

an example for me when it comes to her unrelenting commitment 

to helping others. 

I also want to acknowledge my brother, Judge Jesse Furman, his 

wife, Professor Ariela Dubler, and my father’s wife, Vicki Moran 

Furman. 

When I was in graduate school, focusing on starting a career in 

pure research, I met a woman who changed my future and eventually became my wife. Eve Gerber convinced me to follow her to 

Washington for my first job in government, not just because I 

would have followed her anywhere at that time, but because she 

convinced me that I could use my training to help contribute to better public policy. Eve has been supportive of me ever since. 

When my daughter was just born and my son was barely one, 

Eve encouraged me to return to public service, even though it entailed hardship for her and early sacrifices for my children, Henry, 

who is now 6-years old, and Louisa Bettina, who is now five. Their 

future remains an important motivation for all of my work. 

The job Eve convinced me to take at 25 was as a staff economist 

at the Council of Economic Advisers, then under the leadership of 

Joe Stiglitz. My time at CEA imbued me with a deep respect for 

the institution, its nonpartisan professional staff, and the role that 

unvarnished economic policy advice can play in helping to shape 

and advance the President’s agenda. If confirmed, I would be proud 

to continue in that tradition, one that has strived in both Democratic and Republican administrations. I would also be guided by 

the example of former CEA Chairs Marty Feldstein and Greg 

Mankiw, among others. Marty was my first formal teacher in economics and Greg was my principal dissertation adviser at Harvard. 

As you all know, economists certainly do not always agree with 

each other, but economists do agree on a lot, most importantly, 

that questions should be addressed with a combination of logical 

theories and careful reading of the data, and that is exactly what 

CEA does, applying the tools of economics to the fundamental challenges facing American families. That is the approach I have always tried to bring to my research, teaching, policy advising, and 

public service, and that is the approach I would bring to advising 

the President on the economic goals we strive for today, including 

job growth, fostering sustainable growth, and helping families 

share in that growth. 
13 

Thank you, and I look forward to your questions. 

Chairman JOHNSON. Thank you, Dr. Furman. 

Ms. Stein, please proceed. 

STATEMENT OF KARA M. STEIN, OF MARYLAND, TO BE A 

MEMBER, SECURITIES AND EXCHANGE COMMISSION 

Ms. STEIN. Chairman Johnson and Ranking Member Crapo and 

distinguished Members of the Committee, thank you for the opportunity to be here with you this morning. It is an incredible privilege to appear before you as one of President Obama’s nominees to 

be a Commissioner of the Securities and Exchange Commission. I 

would also like to thank Senator Jack Reed for the kind introduction that he gave. 

I would like to begin by thanking my family for their tremendous 

support. I am grateful to be joined today by my husband, Stephen 

Miller, and my children, Isabel and Rowan, who are sitting directly 

behind me. I also would like to thank my mother, Norma Stein, 

and my sister, Katherine Stein, both of whom are here, as well. I 

also would like to thank and congratulate my colleague, Mike 

Piwowar, who, like me, is sitting here next to me, has been nominated to serve on the Commission. 

The United States has the largest, most robust, and most dynamic securities markets in the world. As the Federal securities 

regulator, the SEC has a critical three-part mission: To protect investors, to facilitate capital formation, and to ensure the integrity, 

transparency, and efficiency of these constantly evolving markets. 

The breadth and scope of that mission and the responsibilities and 

duties that flow from it are significant. 

I am honored to be nominated to serve in such a vital agency 

with a proud and distinguished history and alongside a staff known 

for its tremendous skill and expertise. 

Whether as a practicing attorney, an assistant law professor, or 

a person deeply involved in Senate Banking Committee policy for 

the past 15 years, including my time as Staff Director of the Securities, Insurance, and Investment Subcommittee, I have learned 

how essential it is to listen to a variety of viewpoints and develop 

public policy solutions to complex issues from the facts. If confirmed, I would look forward to engaging with the Commission, the 

SEC staff, and interested members of the public on an array of 

issues currently in the Commission’s jurisdiction. 

I also believe that capital formation and strong investor protections go hand in hand, as a lack of fairness and transparency in 

the markets can lead to higher transaction cost and less capital. If 

confirmed, I would strive to meet the challenge of protecting investors while ensuring that businesses have access to the financial 

services they need to grow and create jobs. 

Beyond this, strong enforcement is critical to investor confidence 

and well-functioning markets. If confirmed, I would endeavor to be 

fair in assessing enforcement recommendations that come before 

the Commission, supporting aggressive actions and sanctions when 

supported by the facts and the law. 

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

and I look forward to answering any questions you may have. 

Chairman JOHNSON. Thank you. 
14 

Dr. Piwowar, please proceed. 

STATEMENT OF MICHAEL S. PIWOWAR, OF VIRGINIA, TO BE A 

MEMBER, SECURITIES AND EXCHANGE COMMISSION 

Mr. PIWOWAR. Thank you, Chairman Johnson. Chairman Johnson, Ranking Member Crapo, and Members of the Committee, I am 

honored to appear before you here today. I am humbled by the confidence the President has shown in me by nominating me to serve 

as Commissioner of the United States Securities and Exchange 

Commission. 

I would like to thank Senator Crapo for that very kind introduction. Thank you. I would also like to express my sincere gratitude 

to Senator Crapo and Senator Shelby for allowing me to work on 

a wide range of Dodd-Frank Act, JOBS Act, and other SEC-related 

issues during my time on the Senate Banking Committee. 

Mr. Chairman, thank you for allowing me to introduce my family 

members who are here with me today. First, I would like to introduce you to my wife, Eileen. I am incredibly fortunate to have the 

encouragement and support of such a wonderful wife. 

I would also like to introduce you to my daughter, Brigid, who 

is here with Eileen. My son, Sean, could not be here. He is at Boy 

Scout summer camp in Pennsylvania. Apparently, he thinks that 

is more fun than being here with his dad, so—— 

[Laughter.] 

Mr. PIWOWAR. Eileen and I are extremely proud of both Sean and 

Brigid. 

I would also like to introduce you to my mom, Linda Dulan, and 

my step-father, Jim Dulan. I am glad they could be here with me 

today, as well, too. 

Sitting here today, I recall the first time I was in this hearing 

room. It was almost exactly 9 years ago at a June 2004 hearing on 

an overview of the regulation of the bond markets. I was a visiting 

academic scholar at the SEC at the time. I was extremely proud 

that empirical evidence from two SEC-related research projects, 

one on the municipal bond market and one on the corporate bond 

market, were included in the testimony of the Director of the Division of Market Regulation at the SEC and the subject of a question 

by the Chairman of the Committee at the time, Senator Shelby. It 

was through work like those research projects that I learned how 

valuable the economic analysis could be to advance the mission of 

the SEC. 

As a visiting academic scholar and later as a Financial Economist at the SEC, I provided economic analysis and other technical 

support to the Commissioners and the Division Directors and other 

staff in the divisions and offices at the SEC in rulemaking, compliance, and enforcement matters. While at the SEC, I had the privilege of working with a number of outstanding economists, accountants, lawyers, and other professionals. Some of them are still at the 

Commission, and if I am confirmed, I look forward to working with 

them again. 

Over the past almost 4 years, I have had the privilege of working 

on many important issues under the jurisdiction of this Committee 

with a number of talented and professional Banking Committee 

staff on both sides of the aisle. These include a number of SEC-re-
15 

lated issues, such as securities, over-the-counter derivatives, investor protection, market structure, and capital formation issues. 

For many of the SEC-related oversight and informational meetings, hearings, and briefings, I have had the privilege of working 

directly with my fellow nominee, Kara Stein. If we are confirmed, 

I look forward to continuing our collegial, bipartisan working relationship to advance the important mission of the SEC: To protect 

investors, maintain fair, orderly, and efficient markets, and promote capital formation. 

As Senator Crapo likes to point out, the U.S. capital markets 

must remain the preferred destination of investors throughout the 

world. For that to happen, the SEC must remain the preeminent 

securities regulator in the world. If I am confirmed, I will faithfully 

work with my fellow Commissioners to achieve that goal. 

On a final note, the President has nominated me to fill the seat 

being vacated by Commissioner Troy Paredes. Commissioner 

Paredes has been an outstanding Commissioner who has earned 

widespread praise for being a thoughtful regulator, a friendly colleague, and a dedicated public servant. If I am confirmed, I hope 

to serve as ably as he has. 

Thank you again for the opportunity to appear before you today. 

I am happy to answer any questions you may have. 

Chairman JOHNSON. Thank you. 

Senator Merkley would like to briefly introduce Mr. Metsger. 

STATEMENT OF SENATOR JEFF MERKLEY 

Senator MERKLEY. Thank you very much, Mr. Chair, and to be 

very brief, you have all heard—I want to say Senator Metsger, 

since he served in the Oregon Senate—his extensive background in 

credit union work, but I wanted to add a little bit. 

I want to make sure people know that his life has included being 

an award winning journalist, being a high school teacher, being involved on a board that pursues financial literacy, going back just 

recently to teach financial literacy in high school, serving on the 

Oregon State Debt Policy Advisory Committee, but most of all, that 

as the chair for 8 years of the key committee on the Oregon Senate 

on financial issues, he did an extraordinary job of bringing the conversation together with the points of view of stakeholders from 

many different directions and working to execute sound public policy. 

It was a job well done in Oregon and I know that he will be a 

terrific Member of the National Credit Union Administration 

Board. 

Chairman JOHNSON. Thank you. 

Mr. Metsger, please proceed. 

STATEMENT OF RICHARD T. METSGER, OF OREGON, TO BE A 

MEMBER, NATIONAL CREDIT UNION ADMINISTRATION BOARD 

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

Crapo, and Members of the Committee. It is an honor to be before 

you today, and I want to thank the Chairman and Senator Merkley 

for their kind introductory remarks, and it was an honor and privilege to serve with you in the Oregon Legislature. 
16 

While my mother could not travel to be here today, she got up 

early in Oregon and she is watching the Web cast online of this 

Committee proceeding. 

I would also like to recognize my father, who would have loved 

to have been here. He passed away recently. My dad served honorably in the U.S. Marine Corps in World War II in some of the most 

difficult situations possible in the South Pacific and later served as 

a public servant himself as a Postmaster in my home town of 

Sandy, Oregon. So my thoughts are about him today, as well. 

It is indeed a privilege to be nominated for this very critical position. If confirmed, I will do everything in my power to fulfill the 

trust placed in me to maintain the integrity and the safety and 

soundness of the credit union system and in an ever-changing marketplace. 

Maintaining a safe and sound credit union system requires visionary, attentive, and proactive leadership by those charged with 

regulating federally insured credit unions. In my view, the qualities inherent in serving successfully in this position include consideration of competing viewpoints, effective communication skills, 

and the wisdom to act prudently and decisively when action is required. And, if confirmed, I will bring those qualities to the NCUA 

Board. 

As an Oregon State Senator for 12 years and as chairman of the 

committee charged with most financial legislation, I gained great 

experience and, I hope, wisdom, in weighing varied viewpoints, 

testing assumptions, and acting in a manner that effectively balanced consumer needs with the needs of the industries that serve 

them to produce good public policy. 

Earlier in my career, I spent 16 years as a journalist, where my 

old school news director, Ted Bryant, instilled in me and the staff 

on a regular basis, he said that accuracy, relevance, and fairness 

were the cornerstones of responsible reporting, and I also believe 

that they are the building blocks for responsible regulating. 

Additionally, as a small business owner, I have worked with 

credit unions and their regional associations. These experiences 

have helped me to better understand the perspectives of the regulated community and the importance of clear, open, and ongoing 

communication with the institutions that the regulator has under 

its jurisdiction. 

My first credit union experience was as a 19-year-old working my 

way through Lewis and Clark College as a night custodian at an 

elementary school. There, I found I could join Portland Teachers 

Credit Union, and there, I got my first loan, a $350 loan for my 

first car, a 1957 Chevrolet two-door hardtop. Twenty years later, 

I was privileged to be elected by the members to the Board of Directors of that very same credit union. Through this experience, I 

saw the importance of visionary, effective leadership in guiding a 

credit union. 

These collective life and work experiences have given me a strong 

understanding of the role credit unions play in our Nation’s financial system, the significance of credit unions to their members, and 

the importance of maintaining safety and soundness. If confirmed, 

my experiences would also inform the independent judgments and 
17 

sometimes difficult decisions I would need to make as a member 

of the NCUA Board. 

I firmly believe that a regulatory agency should also strive to be 

its own best critic. To that end, NCUA already has in place a policy 

to review one-third of its rules every year. I can assure you that, 

if confirmed, I will approach this rolling review with diligence and 

vigor, with the aim of updating, simplifying, eliminating, and clarifying existing rules to ensure that they are effective, but not excessive, and consistent, though, with safety and soundness. 

Of utmost importance is the continued protection of the Share Insurance Fund. Now, because the fund is capitalized by the member 

credit unions themselves, it is in the best interest of member credit 

unions to have a strong, proactive regulator committed to protecting the fund from losses. The safety and soundness of the fund 

is job one of the regulator. 

If confirmed, my vision for NCUA is to be recognized as an agency that manages its own fiscal house well, proposes regulatory action that is effectively targeted to achieve the desired outcomes, 

without placing unnecessary burden on the credit unions themselves, and above all, maintains the confidence and trust that the 

American public places in their local credit union. 

Thank you, and I would be happy to answer any questions you 

may have. 

Chairman JOHNSON. Thank you for your testimony. 

If any Member has questions for the record for the nominees, I 

ask that you please submit them by COB on Monday, July 1. I also 

ask that the nominees respond to the QFRs quickly so that we can 

move the nominations forward. 

We will now begin asking questions of our witnesses. Will the 

Clerk please put 5 minutes on the clock for each Member. 

Congressman Watt, well before this crisis, you helped lead multiple efforts in the House to improve lending standards to better 

protect borrowers. You helped draft legislation reforming the GSEs 

that garnered bipartisan support. How does your legislative experience translate to running the regulator that you helped create? 

Will you be independent and pursue policies that are in the best 

interest of the public? 

Mr. WATT. Thank you, Chairman Johnson, for the question. You 

are correct that I was in on the ground floor of anti-predatory lending legislation. We recognized probably earlier than a lot of people, 

because we were dealing with situations out in the community and 

seeing what was happening, that loans were being made that were 

not responsible loans and that the borrowers were not going to be 

able to pay them and that was an unsustainable thing. 

So we started from that premise and tried to build a system that 

would take some of the perverse incentives out of it. Brokers, lenders were making more money for directing people to loans that 

they could not afford than they were making directing people to 

loans that they could afford. The system was essentially out of control. 

And we tried to put together a coalition of people to recognize 

that. It took us one term after we introduced the legislation the 

first time to even get people’s attention to the matter. The second 

term, we actually tried to put together a strong bipartisan coalition 
18 

in the House Financial Services Committee but we were not able 

to pull it together. By the third term, the meltdown had occurred 

and everybody had recognized that there was a serious problem. 

That translates, because I think understanding that you cannot 

make an unsustainable loan, you cannot make a loan to somebody 

who cannot afford to pay it, is basic to the entire system of mortgage finance in this country. And that translates all the way up 

through the system. So, understanding the system all the way 

through, I think, is critical. And legislating to correct problems, you 

cannot legislate unless you really have an understanding of the 

system that you are legislating about. 

I kind of relate it to when I was practicing law, I never wanted 

to walk into a courtroom unless I understood the totality of what 

I was litigating about because I had to anticipate questions from 

both sides. And I think that is critical when we are legislating, 

also, and it is critical to be able to work with people and I have 

demonstrated my ability to do that over the years. 

Chairman JOHNSON. Thank you. 

Dr. Furman, what more should the Federal Government do to 

promote a rapid and broad-based recovery in order to create even 

more jobs and strengthen the middle class? 

Mr. FURMAN. Thank you, Mr. Chairman, for that question. The 

United States has had 37 straight months of job growth, nearly 

seven million jobs created. But, at 7.6 percent, the unemployment 

rate is unacceptably high. 

I think there are a number of steps that we can take, but very 

briefly, increasing our investments in infrastructure and tax credits 

to help small businesses expand their payroll and invest, combined 

with measures that over the medium- and long-term would reform 

our entitlements, reform our tax code, and put our deficit on a 

more sustainable course, and, finally, measures in housing that 

would expand access to credit to help us continue the housing 

progress that we have been making. 

Chairman JOHNSON. Ms. Stein and Dr. Piwowar, if confirmed, 

how will you balance the complex issues on the SEC’s agenda, including Wall Street Reform, the JOBS Act, market structure and 

enforcement, to name a few? Ms. Stein, let us start with you. 

Ms. STEIN. As you know, the SEC has a multi-pronged mission, 

and I think as Chairman White said in her confirmation hearing, 

you need to be pursuing all of those objectives at the same time. 

Dodd-Frank and implementing Dodd-Frank is, to some degree, trying to remedy and learn from the lessons of the past financial crisis. JOBS Act implementation is critical, and other efforts to improve capital formation while still protecting investors. Equally important is allowing the SEC to evolve so that it can keep up with 

a very rapidly changing computerized marketplace. 

I think these things are not mutually exclusive, because if investors believe the market is fair and efficient and transparent and 

well regulated, they are more willing to put their money into the 

markets, and there is greater capital formation, which creates more 

jobs. So I think you need to pursue all of those things at one time. 

Chairman JOHNSON. Dr. Piwowar. 

Mr. PIWOWAR. Thank you. Yes, I agree that we have to work on 

all those at the same time. So, if confirmed, I will definitely work 
19 

with Chair White, who actually sets the rulemaking agenda for the 

SEC, to make sure that priorities are placed on rulemaking that 

is mandated under the JOBS Act and under the Dodd-Frank Act. 

With respect to enforcement, there is a steady slate of cases that 

come forward that the SEC has to deal with on a consistent basis 

and that is just part of the job. 

In terms of rulemaking outside of the JOBS Act and the DoddFrank Act, obviously, the SEC has a rule proposal on money market funds which has to be addressed. And then outside of that, 

there is certainly a need to take a holistic approach at market 

structure issues. That is going to be a longer-term issue. But in the 

short run, I think there is one discrete issue that the SEC could 

move forward on and that is the pilot study on the tick size for 

small cap companies. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. 

Representative Watt, Fannie and Freddie loans are currently exempted from the qualified mortgage, or QM, underwriting requirements and the QRM risk retention requirements. And while Acting 

Director DeMarco has indicated that Fannie and Freddie will only 

purchase QM loans, this standard is only as strong as the FHFA 

leadership requires it to be in the future. Exempting them from 

QRM risk retention requirements seems to grant them additional 

market advantages, but requiring them to retain that risk builds 

their portfolios. Do you believe that Fannie and Freddie should 

only purchase or guarantee loans that meet market-wide QRM requirements? 

Mr. WATT. I do, and I am not saying that loans should not be 

made by the private sector to people outside the QM, but understand that it was the anti-predatory lending provisions in DoddFrank that led to QM, and those are essentially the same standards that we started with 4 years before the meltdown. So I have 

always believed that you cannot make a loan to somebody who cannot afford to repay it. That is unsustainable, and so I think with 

taxpayers now explicitly at risk, we have got to even be more careful about it because all of those risks are being assumed now by 

the taxpayer. So I do agree with that. 

Senator CRAPO. Well, thank you. And with regard to the QRM, 

do you believe that Fannie and Freddie should continue to be exempted from the QRM requirements? 

Mr. WATT. Well, I think the rationale for it is that Fannie and 

Freddie are being phased out over a period of time. If they were 

ongoing operating entities, we should expose them to QRM standards, also. But the theory now is that taxpayers are providing an 

explicit backstop, so QRM standards, risk retention really is not 

relevant in this interim period and, hopefully, will not be relevant 

long-term because the portfolios of Fannie and Freddie are being 

wound down over time. 

Senator CRAPO. With regard to the Fannie and Freddie portfolios, some politicians and analysts have begun to track the cumulative dividend payments to the Treasury by Fannie Mae and 

Freddie Mac and portraying those as offsetting the nearly $190 billion capital requirement that is owed to the taxpayers rather than 

recognizing that as a fee for the capital that is described in the con-
20 

tract governing their conservatorships. Is it your view that the current payments being made to the Treasury by Fannie and Freddie 

are actually paying down their debt or is that a dividend-type obligation under the conservatorship? 

Mr. WATT. It is certainly not. The way the preferred stock purchase agreement is structured, none of it is going to the payment 

of the debt. It is a return to the taxpayers for bailing out these entities, and that is the way I view it. 

Senator CRAPO. Good. Thank you. And under the current contract governing the conservatorships, any revenue above a small 

and diminishing amount is swept into the U.S. Treasury to pay 

this dividend that is owed by Fannie Mae and Freddie Mac. Do you 

believe that under the contract there is the legal authority for the 

Director to use any of the Fannie and Freddie revenue to fund social initiatives, even if the Director believes that those social initiatives would be in the public interest, or, on the contrary, do you 

believe that the Director has an absolute legal obligation to ensure 

that Fannie and Freddie make business decisions to maximize 

their net worth and then submit their net worth above the levels 

established by that to the Treasury? 

Mr. WATT. Ranking Member Crapo, that issue actually has been 

addressed in the statute that created the FHFA and there is a directive there that gives leeway to allow the GSEs to do things that 

do not yield the same kind of return in some cases. So there is kind 

of a built-in tension in the statute. What is important, though, is 

that we should definitely not be making any loans or guaranteeing 

any loans that cannot be repaid. Now, whether they get the maximum rate of return or not in some cases, you can argue about. But 

the primary responsibility ought to be protecting the taxpayers’ investments at this point through this transition. 

Senator CRAPO. Thank you. But just to be clear, you are saying 

that you think that there is legal authority for the Director to fund 

social initiatives? 

Mr. WATT. It is quite explicit in the statute. It says, including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be 

less than the return earned on other activities. Now, that is not an 

authorization to go and make irresponsible loans—— 

Senator CRAPO. Understood. 

Mr. WATT.——but that was built into the statute, and obviously 

there is tension in the statute and that has to be done responsibly, 

and my pledge to you is that I will continue to do it responsibly. 

Senator CRAPO. Thank you. 

Chairman JOHNSON. Senator Reed. 

Senator REED. Well, thank you very much, Mr. Chairman. 

I had the opportunity and the privilege to commend Kara Stein. 

I want to also commend Mike Piwowar for your collaboration, your 

cooperation, your insights, and your great service to this Committee. I think the President has chosen wisely in both cases, and 

very good luck, Mike, and thank you. 

Mr. PIWOWAR. Thank you, Senator. 

Senator REED. Let me also say I have had the privilege of serving with Congressman Watt and I have been impressed for many 

years with his intelligence, his integrity, and, as he explained 
21 

today, his knowledge of housing from Dixie, North Carolina, to 

Washington, D.C., and—— 

Mr. WATT. From the septic tank up. 

Senator REED. Yes. Yes. 

[Laughter.] 

Senator REED. But I think the other thing that Representative 

Watt brings, which is, besides his personal qualities, is his understanding of sort of where we are, which is basically the next Director of FHFA has to continue to maintain the value of the assets of 

Fannie and Freddie and at the same time work collaboratively with 

the Congress, and many of my colleagues have done some very 

good work about proposed transitions. In fact, the goal is, essentially, to put you out of a job, basically, to eliminate Fannie and 

Freddie. And I just want to get your reaction to sort of that approach, Representative Watt. 

Mr. WATT. Well, I think putting me out of a job would mean that 

we have gotten through this transition and built a sustainable future for housing finance and mortgage finance in this country. So, 

I would be delighted to have that happen. In the interim, however, 

we have a set of responsibilities that I would certainly apply and 

use the judgment, the good judgment, that I have built over the 

years to make responsible decisions, and I do not want anybody to 

have any doubt about that. 

Senator REED. Well, I have no doubt about that, Representative. 

I have great confidence and, again, I think the President has made 

a very wise choice in many, many different ways—your experience, 

your, just, character—— 

Mr. WATT. Thank you. 

Senator REED.——so thank you. 

Dr. Furman, we had a chance briefly to chat in the office. America is undergoing this great revolution in natural gas. It is so cheap 

and so affordable and so available, except in New England. 

[Laughter.] 

Senator REED. Yes. We happen to be the largest consumers of 

natural gas because of many things, including air quality rules, 

and we are paying a very high price. 

Henry Hub, which is down in Louisiana, but it is sort of the national pricing point, $3.25 per MMBtu. The Algonquin City Gate, 

that is the one that—the usual pricing reference for New England, 

$30 per MMBtu. So I think one of the things you have to work on 

is trying to figure out how the benefits of this great—and there are 

benefits to this great revolution in natural gas production and 

cost—can be extended to every region of the country, particularly 

the Northeast, and so that we can be competitive in terms of manufacturing, be competitive in terms of many things. So, any comments, I would appreciate, but it is more of a reiteration of our previous discussion. 

Mr. FURMAN. Yes, Senator. I enjoyed that discussion and very 

much agree that natural gas plays a really important role in the 

economy. It directly creates jobs in a lot of States, like Senator 

Heitkamp’s State, and then indirectly is a critical input into manufacturing and is part of why I think American manufacturing is undergoing somewhat of a renaissance right now. 
22 

But, as you said, those natural gas prices are very variable 

across the country, and figuring out what we can do, whether it is 

investment in infrastructure or other measures to help bring those 

prices down, I think is good for jobs, good for clean energy, good 

for dealing with climate change over the long run, and is something 

I would very much look forward to working on if confirmed as 

Chair of the Council of Economic Advisers. 

Senator REED. Thank you very much, Doctor. 

Just one quick question for Senator Metsger. I am cosponsoring 

legislation with Senator Udall that will increase credit union member business only cap to 27.5 percent of assets from the current 

12.25 percent. Do you think that is a good idea? 

Mr. METSGER. I think it is a good idea to recognize that it is the 

purview of Congress to make decisions. 

[Laughter.] 

Senator REED. Spoken like the Chairman of the Oregon Senate 

Committee on Finance and everything else. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. A series of votes has started on the floor. 

On the last floor vote, I ask Members to vote early and hurry back 

to the hearing so that we can resume. I apologize to our witnesses 

and ask them to be patient in hopes that we can resume quickly. 

Votes have started on the floor. Senator Toomey will be the last 

Member I recognize for questions before we recess for votes. 

Senator Toomey. 

Senator TOOMEY. Thank you very much, Mr. Chairman. I appreciate that, and I thank my colleagues for allowing me to go next, 

as I have a conflict later in the day, so thanks very much to all 

of you for your help. 

Congressman Watt, I have got three quick questions, really. I 

want to start with a quote that is attributed to you from a financial—a House Financial Services Committee hearing, and in it, you 

said—in September of 2003, you said, quote: 

Private enterprises really have not done very well in achieving things other 

than making money. Most of them do not really give much of an [expletive 

deleted] about poor people and whether they have housing or not, and it 

seems to me that an over-emphasis in that direction can only make matters 

worse. 

I guess my question is, is that still your view about the private 

sector with respect to the mortgage markets, and if so, how could 

we be confident that you would help lead a transition to a mortgage finance model that would rely more on the private sector? 

Mr. WATT. Thanks for the question, Senator Toomey, and thank 

you also for meeting with me in advance of the hearing, leading up 

to the hearing. 

We were observing a lot of very negative things that were going 

on in the housing industry at that time, some of which I alluded 

to in answering Chairman Johnson’s questions. Loans were being 

made to people based on incentives for profit rather than on their 

ability to repay. There were substantial incentives built into the 

system that were negative incentives and they were taking advantage of them, both in the private sector, and Fannie and Freddie 

also got into the act, one foot in the public sector and one foot in 

the private sector. 
23 

So there are circumstances in which the profit motive overtakes 

anything else, responsibility, and I still believe that, but I think if 

you look at my record, you will know that I have worked in the private sector responsibly. I worked with the private sector responsibly. And I believe that the private sector is critical to our economy and I am hoping that we can incentivize as much of this business going back into the private sector as the private sector will assume as quickly as it will assume it. 

Senator TOOMEY. OK. I have got another question here. With respect to the HAMP PRA program, are you prepared to commit now 

that you will not implement principal reductions on mortgages? 

Mr. WATT. Well, as I told you previously, I can tell you what the 

principles will be if I am asked to look at that again, and I expect 

I will be asked to look at it again because some people still think 

it is a relevant question, despite the fact that housing prices have 

gone up and there are fewer and fewer people underwater at this 

point than there have been. 

But I would start as I would with any issue that has been decided already by FHFA. I would start by studying carefully how 

that decision was reached, what it was based on, and then I would 

build on that new information. I think the information on which 

that decision was made is a year-and-a-half old now. 

Senator TOOMEY. But, the problem—— 

Mr. WATT. And then I would make a responsible decision based 

on that. 

Senator TOOMEY. The concern is that the decision was—the information was quite recent but available when you signed a letter in 

December urging exactly this principal reduction, despite the fact 

that the FHFA analysis was that this was not a good idea. It was 

not a good idea for the Enterprises. It was not a good idea for the 

taxpayers. And I do not think it is a good idea for mortgage credit 

availability generally. 

And so the concern is that, based on the data then and the analysis then that suggested that this was a bad idea, you, nevertheless, recommended it. So that is why I am wondering—— 

Mr. WATT. Well—— 

Senator TOOMEY.——how we should view this now. 

Mr. WATT. First of all, there was conflicting data out there. Obviously, FHFA had made a decision that reached one conclusion, but 

there was conflicting data. 

Second of all, you have got to understand that I was a Member 

of Congress representing my constituents, many of whom were underwater, and advocating for relief for them. You should have no 

doubt that I will be a strong and aggressive advocate for the taxpayers in this role, because I view them as my constituents in this 

role, not the constituents that I represented before. 

Senator TOOMEY. Mr. Chairman, do I have time for one more 

quick follow-up? It is very quick. 

Chairman JOHNSON. Make it quick. 

Senator TOOMEY. Very quick. Thank you. 

You, no doubt, have seen that a number of municipalities are actively considering employing eminent domain to purchase underwater mortgages. Do you support that, and if you do not support 

that, would you make it the policy of Fannie and Freddie not to 
24 

make mortgage financing available within the boundaries of municipalities exercising that? 

Mr. WATT. Well, I have been a long advocate for acknowledging 

the prerogatives that State governments have in our Federal system. We cannot make every decision, and eminent domain is essentially a State and local issue. But I would insist that any decision 

not put local governments in front of our taxpayers and that if a 

decision was being made, it was being made for strictly public reasons, and I think that would be the analysis I would make. 

Senator TOOMEY. Thank you very much, and thank you, Mr. 

Chairman. 

Chairman JOHNSON. The Committee now stands in recess. 

[Recess.] 

Chairman JOHNSON. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Mr. Chairman, I would just like to start by saying that I think 

the President of the United States has made five very strong 

choices, and I particularly want to say he has made a strong choice 

with Congressman Mel Watt to be the permanent head of the 

FHFA. I worked with Congressman Watt many, many years— 

starting many years before the financial crisis on a number of 

housing-related economic issues. He has always been a thoughtful 

policymaker. He has a deep background in finance. He has been a 

champion of working families. There is much work still needed to 

stabilize the housing market and FHFA is going to play an important role in that. And so I very much hope that we will not succumb to political bickering, that we will confirm a truly excellent 

candidate for this role. 

So that is my only question for Congressman Watt. Should I say, 

do you agree with me? 

[Laughter.] 

Mr. WATT. I just want to say thank you. I was hoping that I 

would not deflect from the rest of the panel the entire day, so—— 

Senator WARREN. There we go. There we go. 

But I do want to—I do have a question for Mr. Piwowar and Ms. 

Stein. We have talked in this Committee before about understanding how important it is for the SEC and other agencies to settle with companies that have engaged in wrongdoing, but we also 

understand that if the SEC does not go to trial and does not require admissions of guilt, either because it is too timid or because 

it lacks the resources, that they will have less leverage in their settlements. 

And now we know that Chairman White has said that the SEC 

will require admissions of guilt in select enforcement cases. I think 

this is a very important step. I think this indicates that the SEC 

will show some backbone in critical cases and I think that has important benefits, spillover effects, even in other cases, in helping 

create some credibility behind any SEC threat to go to litigation. 

So the question I have, and I will just start with you, Mr. 

Piwowar, do you agree with Chairman White’s new policies here? 

Mr. PIWOWAR. Absolutely. The ‘‘no admit, no deny’’ policy seemed 

to be on autopilot, and by definition, enforcement cases should be 

on a case-by-case basis. So I was pleased to see that she said that, 
25 

you know, in some cases it is appropriate, in other cases, it is not. 

They have to be dealt with on a case-by-case basis. 

Senator WARREN. Fair enough, but that she is making an important change here. Thank you. 

And, Ms. Stein? 

Ms. STEIN. I would agree. I am supportive of the policy change 

and I think that the SEC should use all of the tools it has at its 

disposal to enforce the Federal securities laws. Nothing should be 

on automatic pilot. 

Senator WARREN. Good. Thank you very much. I think that is 

very important. I think that Chairman White is onto something 

really important here and I hope other regulators are paying attention to the changes that she is instituting. You know, every District 

Attorney and every U.S. Attorney knows that plea bargainings will 

break down and have no real impact if, in fact, the Government is 

unwilling to go to trial. So I think this is true. I hope that the other 

agencies follow suit. 

And I hope that we follow up. It is important that everyone know 

when we are talking about litigation that you do not have to have 

a perfect record. We can tolerate sometimes you will bring someone 

to trial and you may not succeed, but you are out there trying. It 

is important. Thank you. Good. 

Dr. Furman, I have a question for you. We have also spent a lot 

of time in the Banking Committee talking about too big to fail, and 

I think I understand the policy of the Administration right there. 

Chairman Bernanke has said too big to fail is not yet in the rearview mirror, and he and others in the Administration have said, 

but Dodd-Frank is chipping away at the too big to fail system that 

we have right now. 

But, we also know that a recent study has indicated that the big 

banks are receiving a subsidy of about $83 billion a year in lower 

borrowing costs because the market believes that too big to fail is 

still out there, and that is a subsidy that boosts big banks over 

community banks in terms of attracting capital. 

So my question is one about timing, Dr. Furman. I understand 

the point the Administration is making, but it has now been almost 

5 years since the financial crisis, 3 years since we put Dodd-Frank 

into place. So, at what point will we determine whether or not 

these tools are sufficient or it is time to do more, like instituting 

Glass-Steagall? Do we wait a year? Two years? What do you think, 

Dr. Furman? 

Mr. FURMAN. Senator, thank you for that question. I think what 

you would want to see is very steady progress and ideally rapid 

progress. As Chairman Bernanke has said to you in this Committee, too-big-to-fail is over. The Federal Reserve would not be 

bailing out an institution. You are right that the market continues 

to have a perception that there is—the credit rating agencies, for 

example, that there is some backstop there. 

It is important to understand, markets can be wrong. They might 

have that perception, but that perception is not matched in reality. 

Part of what policy needs to do is continue that implementation of 

Dodd-Frank, everything from the capital requirements, the supervision, the reduced risk taking, and the resolution authority, so 

that you are making it crystal clear that that perception is wrong. 
26 

But, at the same time, I agree, we would need to continue to monitor the data on things like the funding premium for large, complex, risky institutions. 

Senator WARREN. Good. Thank you very much, Dr. Furman. 

And, Mr. Metsger, the only thing I would ask is did you keep 

that 1957 Chevy that you bought with the credit union money? It 

is a great investment now. 

Mr. METSGER. Well, it would certainly be worth 60 to 70 times 

more now, so my long-term investing decision was not very wise on 

that one. 

Senator WARREN. Thank you. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and I thank each of 

you for your willingness to serve. 

Over the last, I guess, 9 months, I have worked with Mark Warner and others here, as a matter of fact, eight of us, on a very detailed piece of legislation dealing with GSEs, and during that time, 

I spent some time with Jason and others, but realize the tremendous complexities that Fannie and Freddie have within their portfolio and overseeing them is something that is very complex. 

Congressman Watt, I know that you and I have a very friendly 

relationship. I see you traveling back home sometimes and passing 

through Charlotte and worked with you on the Dodd-Frank conference and know that we have had, again, a very, very warm relationship. While we had a pretty tough meeting the other day privately, we also had a warm meeting, and I do appreciate the public 

service that you have offered. I know you have served your district 

with distinction. I know you have been married for many, many 

years, the number I will not say because it does not look possible 

that that could be. 

[Laughter.] 

Senator CORKER. But, in any event—— 

Mr. WATT. You are obviously looking at me, right? 

[Laughter.] 

Senator CORKER. I was actually looking a little off to the side, to 

be honest. 

But I think you know, and I have said this publicly and I have 

said this privately, I have—I said this long before your name ever 

came up—that I really thought this position, because of the nature 

of it—and I am all for politicians going on to do great things—but 

I really thought, because of the nature of it, this was a job that 

needed a real technician. 

We have sat down with the Fannie and Freddie CEOs. These are 

people who have come in at diminished pay to try and run these 

organizations, $5 trillion worth of very, very complex financial instruments, $2 trillion worth of derivatives. We have sat down with 

just people involved in this business and it is the most complicated 

thing I have ever been involved in. 

You know, I have mentioned publicly how disappointed I was 

that anyone other than a technician—you know, we do not have, 

typically, people who oversee the FDIC that are politicians. We do 

not have folks that oversee the OCC. These are people that really 

are specialists in their areas. 
27 

Again, I would just ask you this question, and again, you know 

this is not about you. I do not know of many—as a matter of fact, 

I am not sure I know of anybody today in Congress that I would 

feel good about in this position. Maybe there are one or two. I do 

not know who they are at this moment. But, as you know, it is very 

complex. I know you have spent a lot of time looking at this and 

cramming, and I very much appreciate you doing that, and I appreciate the preparation prior to our meeting. 

But, in reality, I mean, if you were going to select someone to 

oversee the risk-sharing arrangements that are going to be so complex as we move ahead, the winding down of Fannie and Freddie, 

if you were President, would you have selected you? 

Mr. WATT. Well, first of all, I want to express my thanks to you 

for meeting with me and for the warm relationship that we have 

had leading up to this. As I told you in our private meeting, qualifications for a position is a relevant criteria and I have discouraged 

people privately from taking a position other than that, so we 

should be clear on that. 

I would—if I were the President, I would select me, yes. That is 

exactly what I would select, because I would want somebody who 

understood this business from the ground up. I would understand—I would want somebody who had technical qualifications, 

but not arrogance about it, understanding that the people who resulted in this meltdown theoretically had technical qualifications 

and they did not do all that great. 

I would want somebody who would surround themselves with expertise and not think that they knew everything, but most of all, 

I would want somebody with good judgment who could listen to all 

of the stakeholders and work with all of the stakeholders and try 

to facilitate the transition from where we are now to where the 

House and Senate are going to take us in the future. 

So—and be clear, a number of people throughout my life have 

questioned my qualifications to do things. I mean, I got it questioned when I went to the University of North Carolina. I got it 

questioned by the Dean of the Law School at the University of 

North Carolina when I selected Yale University Law School over 

UNC’s Law School. I have had it questioned time after time after 

time. 

And so it is hurtful to have been doing something for 40-plus 

years, be on a panel with people who, most of whom could be my 

children, and I be the person designated out for ‘‘this guy is not 

qualified.’’ But, if you have any questions about—— 

Senator CORKER. You notice, I put us all in that category. 

Mr. WATT. Beg your pardon? 

Senator CORKER. I put us all in that category. 

Mr. WATT. Well, but understand, I have been doing this from 

ground-up and from top-down. 

Senator CORKER. Yes. 

Mr. WATT. Those are the criteria that I would want applied to 

a candidate for this position. You can put as many zeroes behind 

a trillion dollars as you want. The same principles that apply in 

spending $10 a week to work my way through college apply at that 

level. And I tell people all the time, I do not understand what a 

billion dollars or a trillion dollars is, but I do know that regardless 
28 

of how many zeroes you put back there, you have got to apply the 

very same principles that you would apply as if you were making 

a decision when you had only $10 a week to live on. 

One final thing, and I just—you know, this helps me get it off 

my chest as we—— 

[Laughter.] 

Senator CORKER. Go ahead. 

Mr. WATT.——as we did—— 

Senator CORKER. I have thought about going into therapy down 

the road, but go ahead. 

[Laughter.] 

Mr. WATT.——as we did in private, so, I mean, you have heard 

some of these things before. I just—I think I have the skill set to 

do this job. I think it requires good judgment above everything else. 

I have demonstrated good judgment throughout my life. I am not 

under anybody’s thumb. I mean, I have been elected to Congress 

11 times. You are right, I am an elected official. But very few people in my life have called me a politician. I have taken some very 

difficult stances in my life, regardless of who the President of the 

United States was, Democrat or Republican, and I will place my 

record against anybody in the House or the Senate when it comes 

to independence and doing what the facts and the substance prove 

to be the right thing to do. 

And that is the kind of person I think I would want for this position, and I think on those criteria, I fit your—technician, I can get 

somebody to do the technician part. I can help them do it. You 

want somebody who is going to make good judgments about the 

technical work that is being done here, and I think that is what 

I bring to this position. 

Senator CORKER. Mr. Chairman, some of my time was eaten up 

during this therapy session. I am wondering if I could ask one 

more question. 

Chairman JOHNSON. One more question. 

Senator CORKER. OK. First of all, thank you. 

I know that the Chairman and others have gotten into this a little bit, and for what it is worth, you know that we just confirmed 

your good friend as Secretary of Transportation, somebody I think 

was—— 

Mr. WATT. A very good choice. 

Senator CORKER. And I think he was confirmed 100-to-nothing 

on the floor, 100-to-0. I think many of us look at these kinds of positions different than a cabinet Secretary. We know that a cabinet 

Secretary is going to be oriented toward the agenda of the White 

House. I mean, that is the purpose and we give the President a lot 

of leeway. 

I think in jobs like this, though, and for what it is worth, I have 

had to go through this over and over and over again, the plumbing 

of how all this ties together. And we have had the CEOs and CFOs 

and others in, and Mel, you know, over and over, I have got to go 

through it. 

And so my point is, I understand about the judgment piece, and 

certainly, you have lived the American dream due to your hard 

work and I applaud you for that. But I do think there is a high 
29 

level—a large degree of technical skills that come with this, 

OK—— 

Mr. WATT. And I am the first to acknowledge that—— 

Senator CORKER.——and that is what has troubled me as I have 

gone through it. But I think Senator Crapo brought up a point, and 

I know you answered a question earlier about eminent domain and 

you would not hesitate to use eminent domain to foreclose on mortgages. I understand. I know that is sort of out in the intellectual 

way of sort of—— 

Mr. WATT. I do not think that is what I said. If you heard that, 

then I need to certainly clarify my answer. I respect the right of 

local authorities. Some people think I am too States’ rights oriented, given my background. But if somebody is going to try to put 

States’ rights or individual eminent domain authority above the 

taxpayers of the United States, that is where I would certainly 

draw the line—— 

Senator CORKER. Well—— 

Mr. WATT.——and I thought I was clear on that. 

Senator CORKER. And what I might do is just have a follow-up 

QFR so I do not take everybody else’s time. 

But here, I guess, is the issue. You know, we have talked a little 

bit about you being a bridge, if you will, because of—and that was 

one of the skills you brought. You know, to be candid, I do not really want a bridge to Congress on this particular job in that we have 

had so many difficulties with Congress trying to influence Fannie 

and Freddie. I think that Congress aided in big ways the problems 

that occurred. I really believe that. And that was the reason, especially with potentially—I know the Committee is taking up some, 

hopefully, GSE legislation this fall after FHA. It is certainly their 

decision as to when that occurs. 

But to attach, quote, ‘‘politics’’ to it, to me, was another element 

that you and I discussed, and, you know, let us face it, that is an 

element that none of us really want to see. I mean, we want some 

tough, hard-nosed decisions that have nothing to do with politics. 

We do not want the Administration influencing. Once we pass a 

piece of legislation, we want to see it happen. 

And I know you want to respond, and I am glad to let you do 

that if the Chairman will, but I would also, in that response, would 

like to, in the event we pass legislation to wind Fannie and Freddie 

down out of business over a short but reasonable amount of time, 

is that something, based on your past, you would feel comfortable 

in doing? 

Chairman JOHNSON. Please briefly respond. 

Mr. WATT. OK. Thank you, Mr. Chairman. 

Let me address the bridge part of this, because I do not want you 

to misinterpret what I mean by bridge. I am not talking about a 

political bridge. The bridge that has been started to be constructed 

here is the single securitization platform, and it is going to be important on the other side of that bridge, regardless of what you all 

come up with as the next iteration of mortgage finance in this 

country, for every different kind of element to link into that bridge. 

Big lenders, community banks, credit unions, co-ops, if you all see 

fit, everybody is going to have to connect into that bridge. 
30 

So I hope nobody leaves here thinking that I am talking about 

playing the role of a political bridge builder in this process. That 

is not what I am talking about. I am talking about a technical 

bridge that Fannie and Freddie jointly are trying to build that I 

think needs to continue to facilitate whatever you all agree to. 

I applaud the bipartisan effort that you all have made. I am glad 

to see somebody stepping into this space, and I would hate for it 

to be a partisan effort. But in my role, I think I have got to cooperate with, as I said in my opening statement, with anybody who, in 

the House or the Senate, has ideas about what the next iteration 

of housing finance should be. And you can be assured that I will 

cooperate fully with you, but not in the sense that I am thinking 

that I am a bridge between you and the White House or you and 

the House. I am talking about a technical bridge. That is the bridge 

I am talking about. 

Chairman JOHNSON. Thank you, Congressman Watt. 

Senator CORKER. Thank you. 

Senator WARREN. Mr. Chairman, could I just make one quick 

statement, that I think all five of these positions are based on good 

judgment. That is what we are looking for, people with good judgment. And I just want to say, based on my past experiences, if I 

could, I would vote for Congressman Watt twice. 

Mr. WATT. You might need to do that to offset his—— 

[Laughter.] 

Chairman JOHNSON. Dr. Piwowar and Ms. Stein, what do each 

of you believe is the best way to address the resources challenge 

at the SEC? Dr. Piwowar. 

Mr. PIWOWAR. Sure, Senator Johnson. Being here during DoddFrank, I was actually pleased, working for Senator Shelby when he 

worked on the SEC match funding provision with Senator Schumer 

that actually hard-wired in increases in the SEC’s funding over 

time. 

In addition, it put in something called the reserve fund that actually helped add some certainty to the SEC funding during times of 

uncertainty. That is a key one, is to have that fund be able to do 

that. 

And then, third, the ability of the SEC, when they submit their 

budget to OMB, also do a direct submission to Congress, and that 

allows Congress to have the information as to what the SEC would 

want before OMB gives them the pass-back, which sometimes includes a haircut off of what they want, and then be able to have 

the conversation, so Congress could have a frank and open conversation with the SEC in terms of what would you do with those 

additional monies in the case that there was a haircut there. 

Chairman JOHNSON. Ms. Stein. 

Ms. STEIN. As you know, Chairman, the SEC collects fees based 

on transactions in the securities markets that are matching what 

the appropriators set as their budget that particular year. So I 

would agree with Dr. Piwowar that the SEC has the capability of 

getting the resources it needs, with Congressional approval. However, in a world of limited resources, the SEC needs to be doing 

what it does smartly, effectively, efficiently, and some of that, I 

think, at the end of the day, is going to mean improvements in 

technology, being able to keep up with fast-paced markets, and 
31 

oversee them more efficiently, allowing employees at the SEC to 

use what they do have more effectively. 

Chairman JOHNSON. Mr. Metsger, what lessons have credit 

unions learned from the financial crisis, and are there additional 

steps that NCUA should take to further strengthen the credit 

union system? 

Mr. METSGER. Thank you, Mr. Chairman. I think one of the key 

lessons is that the regulator needs to be watchful in good times and 

bad. 

Number two, that the rules need to be modernized to look at the 

threats in the modern marketplace. 

I think there are some things on the horizon now that the NCUA 

needs to look at, and if I am confirmed, will be part of that agenda 

moving forward. Number one is interest rate risk. Credit unions 

are very involved in the mortgage industry. We all know what happens in low interest rate environments. It is going to change eventually. We do not know when or where or how much. Just look in 

the last 30 days on the average 30-year mortgage or look at the 10- 

year Treasury and what has happened, 60 basis points in the last 

30 days. So credit unions need to be prepared. As a regulator, I will 

work to ensure that credit unions are prepared for interest rate 

risk and can manage that risk, number one. 

Number two is access to emergency liquidity. Because of the crisis that hit in the last 5 years, the Central Liquidity Facility is not 

subscribed to now by a lot of credit unions, and to insist that all 

credit unions have a plan to access liquidity for emergency situations. 

The third is, as we all know, no matter how well a credit union 

is run, how well their underwriting is, the technology that has 

helped our lives so much has also now created tremendous risk, 

systemic risk, to the Share Insurance Fund. A credit union can, in 

a matter of milliseconds, possibly have tens of millions of dollars 

taken away. I will work diligently, if I am confirmed, to see that 

the rules and regulations of the NCUA are as contemporaneous as 

possible to meet the technological risk, particularly in the area of 

cyber security. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. I just have a couple 

more questions of Mr. Watt. 

Representative Watt, when we were discussing this issue prior to 

the break, I asked you a question about whether it would be legally 

permissible under the conservatorship, in your view, to utilize some 

of Fannie and Freddie’s revenue to fund social initiatives, and you 

read me the authorization under the statute. 

My understanding is—and you indicated at the time, there were 

some competing tensions in the statutes, and I agree with that. I 

just want to confirm this issue with you, because the statute that 

you were reading to me was the National Housing Act, which lays 

out the authorities for Fannie and Freddie, among other things. 

But as I see it, we have now moved Fannie and Freddie into a 

conservatorship, which is an exceptional circumstance, and we 

have actually passed subsequent legislation, the HERA legislation, 

that established the conservatorships and the rules under which 

the conservatorships will be operated. And the language of the con-
32 

servatorship is—in multiple cases details the powers of the conservator to be, and I quote, ‘‘to conserve and preserve the assets of the 

regulated entities.’’ And so that is a tension that I see there. 

As I see it, the conservatorships are a unique circumstance and 

the HERA legislation trumps, if you will, other policy considerations that were established when Fannie and Freddie were operating under normal circumstances. And so, again, I want to come 

back to that. 

Do you interpret this circumstance in the statutes to give the 

conservator, or the Director of FHFA, the authority to utilize revenue of Fannie Mae and Freddie Mac to fund social programs 

which would then reduce the function of conserving and preserving 

the assets of the regulated entity? 

Mr. WATT. Senator Crapo, you are right that the conservatorship 

built in an additional tension that was in addition to the tensions 

that existed in the original authorizing statute that stood up FHFA 

and you have got to respect both of those things. I agree with that. 

I am not sure I understand, and perhaps I should have clarified 

it when you first asked the question, what a social expenditure is. 

I do not think the GSEs should have ever been in the business of 

carrying out any kind of social agenda. Their authorization was to 

do housing, and as I have indicated previously, I do not think you 

should ever be doing housing where people cannot afford to repay 

the loans that they are getting. 

So unless you are defining some other—something else as social, 

I think you and I would be in complete agreement. I just think that 

is how we lost our way in the first place, making loans to people 

who could not afford to pay them, not looking at their creditworthiness, not assessing their ability to repay, and that is what the QM 

standards are all about, and I was the first to support that and 

continue to support it and you can count on it. 

Senator CRAPO. Well, it sounds like we are talking the same 

thing. Let me give you just an example of what could be. As you 

indicated, for those who are not in a position to be able to repay 

their loans, we should not be incentivizing Fannie or Freddie to 

create such loans, which got us into the kinds of troubles that we 

got into earlier. And there is the potential, and I am just coming 

up with an example, of the possibility that some would say that the 

resources of Fannie and Freddie should be utilized to establish, 

say, a housing fund to provide subsidies for loans that otherwise 

could not work out, or—and that may actually be a policy decision 

that we would want to establish here in Congress as we develop 

the ultimate outcome for our national housing policy. 

Mr. WATT. As, in fact, you did in the original bill. 

Senator CRAPO. Exactly. 

Mr. WATT. Yes. 

Senator CRAPO. And so I am not saying that that should not be 

established. My question is whether you see that you have the role 

to establish that as opposed to Congress when we determine the 

outcome of what housing policy should be. 

Mr. WATT. I do not see that as my role to establish it. The conservator made a determination, and it might be my role to evaluate 

that determination of whether there is sufficient capital to do that. 

I mean, there are criteria that the conservator has to apply under 
33 

the conservatorship statute for cutting on or cutting off contributions to the trust fund. And as I have said before, my starting point 

on making that determination would be to fully understand how 

the determination was made before, why it was made before, and 

whether there have been additional developments since then that 

would result in a different outcome. 

Senator CRAPO. Well, thank you. I would just wrap up with a 

statement rather than another question to you, and that is as I see 

the role that you would fulfill as the Director of the FHFA, in the 

conservatorship role, I think that Congress very specifically intended that the assets of Fannie Mae and Freddie Mac be conserved and be managed in such a way that they return the maximum support back to the taxpayer and then let Congress make 

the decision as to how those assets should be managed in terms of 

housing policy moving forward. And that is what I think the statute clearly says, and I just wanted to be sure that I got your perspective on that. 

Mr. WATT. Thank you. 

Chairman JOHNSON. I thank you all for your testimony today 

and for your willingness to serve our Nation. 

I ask that a letter of support from the Congressional Black Caucus regarding Congressman Watt’s nomination also be included in 

the record. 

Chairman JOHNSON. I remind Members to submit questions for 

the record by COB on Monday, July 1. I also ask that nominees respond to the QFRs quickly so that we can move the nominations 

forward. 

This hearing is adjourned. 

[Whereupon, at 1:12 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 
34 

PREPARED STATEMENT OF MELVIN L. WATT 

NOMINEE FOR DIRECTOR, FEDERAL HOUSING FINANCE AGENCY

JUNE 27, 2013 

Chairman Johnson, Ranking Member Crapo and Members of the Committee, I appreciate very much the opportunity to appear before you today to discuss my nomination to become the Director of the Federal Housing Finance Agency and to request formally that your Committee recommend that the Senate confirm me to this 

position. I am deeply honored by the nomination and I am honored that members 

of my family and others are here to support me in this effort. 

In the interest of time, I’ll give just a brief summary of my background. I was 

born and grew up in a little community called ‘‘Dixie,’’ out in the country but with 

a Charlotte, North Carolina address. I attended the Charlotte-Mecklenburg public 

schools at a time when they were still segregated. After graduation, I gained admission to the University of North Carolina at Chapel Hill where I graduated with a 

degree in business administration in 1967. I obtained my law degree from Yale University Law School in 1970 and returned to Charlotte to join a law firm that was 

best known for its civil rights reputation. However, the definition of ‘‘civil rights 

law’’ was changing to include economic and business development and I agreed to 

join the law firm with the understanding that my role would be to stand up a business practice. 

Over the course of 22 years in the practice of law, I practiced business law, representing individuals, partnerships and corporations of all sizes and descriptions. 

Over half of my legal practice was real estate or related to real estate and I also 

became the managing attorney of the law firm. Representing the city of Charlotte, 

my joint venture partners and I became the first North Carolina lawyers to do the 

legal certifications required to issue municipal bonds. 

When I started in Congress in 1993, I was fortunate to be assigned to committees 

that matched my background, the House Banking Committee (now the House Financial Services Committee) and the House Judiciary Committee. I have served on 

both of those committees continuously since then. Like the Senate Banking Committee, the House Financial Services Committee has general jurisdiction over housing, banking, insurance and other financial services matters. I have served on subcommittees that deal with all the various matters under the Committee’s jurisdiction. Counting my 22 years in the practice of law and my 21 years in Congress, I 

have had 40+ years of experience in housing, real estate and other financial matters. 

As part of the nomination process, I have had the opportunity to meet with a 

number of members of the Senate. During these conversations I’ve been asked two 

questions more than any others. The questions are: 

• ‘‘Why do you want this position?’’ and 

• ‘‘What do you see as the role of the Director of the FHFA?’’ 

For me, the answers to these questions are very much related and I’d like to roll 

my answers to them together in the short time I have left. 

Throughout my life, I’ve come to understand deeply just how important where you 

live is to who you are. I’ve observed that having a place to live is ‘‘basic’’ and that’s 

true, regardless of whether you rent or whether you own. I suspect that my recognition of this started when I spent the earliest years of my life in an old house my 

Mom rented which had no electricity and no inside plumbing. My brothers and I 

could see the stars at night through the tin roof and we could see the ground 

through our rickety floors. I still get emotional when I recall, as a little boy, watching a big, long truck maneuver what had been an army barracks slowly down the 

road from the Charlotte airport to place it on a little lot that someone gave to my 

mother. That’s the house I grew up in, four rooms—one bedroom for my Mom, one 

for me and my two brothers, a kitchen and a living room. I also get emotional when 

I recall watching them drill the well on our lot so we could have running water for 

the first time and helping my Uncle Leonard dig the septic tank lines so we could 

have a bathroom inside. 

Over the years, home ownership and home equity have become the primary asset 

and source of retirement security for many families. A place to live is a basic necessity, however, whether you rent or whether you own. Having a place to live provides 

a sense of stability. It impacts our decisions about schools and transportation. It impacts our sense of community. Growing up, there was nothing more basic for me, 

except family, food and the little Presbyterian Church that adjoined our front yard 

and made it impossible for us to get to the road without crossing the church lot. 
35 

I’m still a member of that church. So where I lived even guided my choice of religions. 

A place to live is basic. So over the years, I’ve worked to eliminate homelessness 

and I’ve been active in community development and neighborhood revitalization. 

And, of course, I’ve walked hundreds of families through real estate closings, which 

for many of them was the most important financial transaction they will ever make. 

So I was devastated when our housing finance system started to lose its way. And 

I was among the first to realize that which is why Representative Brad Miller and 

I became the first to introduce anti-predatory lending legislation, 4 years before the 

housing meltdown became obvious. And much of what was in that that legislation 

became a central part of the anti-predatory lending standards in Dodd-Frank. 

I really can’t think of anything I’d rather do now that would be more important 

than helping our housing finance system find a reliable way forward. I believe we’re 

at a unique moment in the history of how housing finance is carried out in our country. Coming through what is arguably the worst period in our history related to 

housing, we’re struggling to find the right path out of a status quo that no one believes is desirable. 

The good news is that a broad consensus has emerged on the direction that our 

next steps must take us—toward a system driven by private capital that minimizes 

the risk to taxpayers. The legal framework for getting to that destination will, of 

course, be up to the House and Senate. But in the Housing and Economic Recovery 

Act, the House and Senate authorized the creation of the FHFA and provided clear 

statutory directions on the role that the FHFA will play in the interim to help get 

from here to there. That statutory role directs the FHFA and its Director to carefully and prudently ‘‘oversee the prudential operations of each regulated entity’’ 

through the transition in a way that protects the interests of the taxpayers and to 

make sure that each of these entities continues to ‘‘foster liquid, efficient, competitive and resilient national finance markets’’ in the meantime, until decisions are 

made about how housing finance will be done in the future. Acting Director 

DeMarco and the FHFA have followed these mandates effectively and I applaud 

their work. 

I want to be clear about my role and the role of the FHFA under my leadership 

should I be confirmed. The Housing & Economic Recovery Act clearly defines the 

role of the FHFA and the Director. And, if confirmed, you can be assured that I will 

rigorously follow the statute in an open and transparent manner working with all 

stakeholders. You can also be assured that we’ll continue to build a solid bridge 

from where we are now to whatever you decide the future housing finance system 

will be, we’ll continue to test risk-sharing models that move housing finance aggressively to the private sector and we’ll cooperate fully and be a resource to members 

of the Senate and the House as you decide the future of housing finance. 

I look forward to answering any questions you may have. 

PREPARED STATEMENT OF JASON FURMAN 

NOMINEE FOR MEMBER AND CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS

JUNE 27, 2013 

Chairman Johnson, Ranking Member Crapo, and other distinguished Members of 

the Committee, I am honored that President Obama nominated me to serve as 

Member and Chairman of the Council of Economic Advisers (CEA) and I am also 

honored to appear before you today as you consider my nomination. Thank you. 

I want to begin by introducing my family members who are here today. My first 

exposure to economics was from my father Jay Furman, who was pursuing graduate 

studies in economics when I was a young child. From an early age, I knew that I 

wanted to follow a similar path, and when I turned thirteen I got my first subscription to The Economist magazine. 

Watching my mother Gail Furman, a child psychologist, helped teach me that analytical training can be used to make a meaningful difference in people’s lives. I also 

want to acknowledge my brother, Judge Jesse Furman, and his wife Professor 

Ariela Dubler. 

When I was in graduate school focusing on starting a career in pure research I 

met a woman who changed my future, and eventually became my wife. Eve Gerber 

convinced me to follow her to Washington for my first job in government, not just 

because I would have followed her anywhere but because she had persuaded me 

that I could use my training to help contribute to better public policy. Eve has been 

supportive of me ever since. 
36 

When my daughter was just born, and my son was barely one, Eve encouraged 

me to return to public service, even though it entailed hardship for her and early 

sacrifices for my children, Henry who is now 6 years old and Louisa Bettina who 

is now five. Their future remains an important motivation for all of my work. 

The job Eve convinced me to take, at 25, was as a Staff Economist at the CEA, 

under the leadership of Joe Stiglitz. My time at CEA imbued me with a deep respect 

for the institution, its nonpartisan professional staff, and the role that unvarnished 

economic policy advice can play in helping to shape and advance the President’s 

agenda. If confirmed, I would be proud to continue in that tradition-one that has 

thrived in both Democratic and Republican Administrations. I would also be guided 

by the example of former CEA Chairs Marty Feldstein and Greg Mankiw, among 

others. Marty was my first formal teacher in economics and Greg was my principal 

dissertation adviser at Harvard. 

As you all know, economists certainly do not always agree with each other. But 

economists do agree on a lot—most importantly that questions should be addressed 

with a combination of logical theories and careful reading of the data. CEA applies 

the tools of economics—rigorous data based analysis—to the fundamental challenges 

facing American families. 

That is the approach I have always tried to bring to my economic research, teaching, policy advising and public service. And that is the approach I would bring to 

advising the President on the economic goals we strive for today, including creating 

jobs, fostering sustainable growth and helping families share in that growth. 

Thank you and I look forward to your questions. 

PREPARED STATEMENT OF KARA M. STEIN 

NOMINEE FOR COMMISSIONER, SECURITIES AND EXCHANGE COMMISSION

JUNE 27, 2013 

Chairman Johnson, Ranking Member Crapo, distinguished Members of the Committee: 

Thank you for the opportunity to be here this morning. It is an incredible privilege to appear before you as one of President Obama’s nominees to be a Commissioner of the Securities and Exchange Commission (SEC). 

I would like to begin by thanking my family for their tremendous support. I am 

grateful to be joined today by my husband, Stephen Miller, and my children Isabel 

and Rowan, who are sitting directly behind me. I also would like to thank my mother, Norma Stein, and my sister, Katherine Stein, both of whom are here as well. 

I also would like to congratulate my colleague, Mike Piwowar, who like me has 

been nominated to serve on the Commission. 

The United States has the largest, most robust, and most dynamic securities markets in the world. As the Federal securities regulator, the SEC has a critical threepart mission: to protect investors; to facilitate capital formation; and to ensure the 

integrity, transparency, and efficiency of these constantly evolving markets. 

The breadth and scope of that mission—and the responsibilities and duties that 

flow from it—are significant. I am honored to be nominated to serve in such a vital 

agency with a proud and distinguished history, and alongside a staff known for its 

tremendous skill and expertise. 

Whether as a practicing attorney, an assistant law professor, or a person deeply 

involved in Senate Banking Committee policy for the past 15 years, including my 

time as Staff Director of the Securities, Insurance, and Investment Subcommittee, 

I have learned how essential it is to listen to a variety of viewpoints and develop 

public policy solutions to complex issues from the facts. If confirmed, I would look 

forward to engaging with the Commission, the SEC staff, and interested members 

of the public on the array of issues currently in the Commission’s jurisdiction. 

I also believe that capital formation and strong investor protections go hand in 

hand, as a lack of fairness and transparency in markets can lead to higher transaction costs and less capital. If confirmed, I would strive to meet the challenge of 

protecting investors while ensuring that businesses have the access to the financial 

services they need to grow and create jobs. 

Beyond this, strong enforcement is critical to investor confidence and well-functioning markets. If confirmed, I would endeavor to be fair in assessing enforcement 

recommendations that come before the Commission, supporting aggressive actions 

and sanctions when supported by the facts and the law. 

Thank you again for the opportunity to appear before you today, and I look forward to answering any questions you may have. 
37 

PREPARED STATEMENT OF MICHAEL S. PIWOWAR 

NOMINEE FOR COMMISSIONER, SECURITIES AND EXCHANGE COMMISSION

JUNE 27, 2013 

Chairman Johnson, Ranking Member Crapo, Senator Shelby, and Members of the 

Committee, I am honored to appear before you today. I am humbled by the confidence the President has shown in me by nominating me to serve as a Commissioner on the United States Securities and Exchange Commission. 

I would like to thank Senator Crapo for that very kind introduction. I would also 

like to express my sincere gratitude to Senator Crapo and Senator Shelby for allowing me to work on a wide range of Dodd-Frank Act, JOBS Act, and other SEC-related issues during my time on the Senate Banking Committee. 

With your permission, Mr. Chairman, I would like to introduce the members of 

my family who are here with me today. First, I would like to introduce you my wife, 

Eileen. I am incredibly fortunate to have the encouragement and support of such 

a wonderful wife. I would also like to introduce you to my daughter, Brigid, who 

is here with Eileen. My son, Sean, could not be here today. He is at Boy Scout summer camp in Pennsylvania. Eileen and I are extremely proud of both Sean and 

Brigid. I would also like to introduce to my mom, Linda Dulan, and my step-father, 

Jim Dulan. I’m glad they could be here with me today. 

Sitting here today, I recall the first time I attended a hearing in this room. It was 

almost exactly 9 years ago at a June 2004 hearing on ‘‘An Overview of the Regulation of the Bond Markets.’’ I was a visiting academic scholar at the SEC at the time. 

I was extremely proud that empirical evidence from two SEC research projects I had 

collaborated on—one on the municipal bond market and one on the corporate bond 

market—were included in the testimony of the SEC’s Director of the Division of 

Market Regulation and the subject of a question by then-Chairman of the Committee, Senator Shelby. 

It was through work like those research projects that I learned how valuable economic analysis could be to advance the mission of the SEC. As a visiting academic 

scholar and later as a financial economist, I provided economic analyses and other 

technical support to the SEC Commissioners and other SEC divisions and offices on 

a wide range of rulemaking, compliance, and enforcement matters. While at the 

SEC, I had the privilege of working with a number of outstanding economists, accountants, lawyers, and other professionals. Some of them are still at the Commission, and if I am confirmed, I look forward to working with them again. 

Over the past almost 4 years, I have had the privilege of working on many important issues under the jurisdiction of this Committee with a number of talented and 

professional Banking Committee staff on both sides of the aisle. These include a 

number of SEC-related issues, such as securities, over-the-counter derivatives, investor protection, market structure, and capital formation issues. For many of the 

SEC-related oversight and informational hearings, briefings, and meetings, I have 

had the privilege of working directly with my fellow nominee, Kara Stein. If we are 

confirmed, I look forward to continuing our collegial, bipartisan working relationship 

to advance the important mission of the SEC—to protect investors, maintain fair, 

orderly, and efficient markets, and promote capital formation. 

As Senator Crapo likes to point out, the U.S. capital markets must remain the 

preferred destination for investors throughout the world. For that to happen, the 

SEC must remain the preeminent securities regulator in the world. If confirmed, I 

will faithfully work with my fellow Commissioners to achieve that goal. 

On a final note, the President has nominated me to fill the seat being vacated 

by Commissioner Troy Paredes. Commissioner Paredes has been an outstanding 

Commissioner, who has earned widespread praise for being a thoughtful regulator, 

a friendly colleague, and a dedicated public servant. If I am confirmed, I hope to 

serve as ably as he has. 

Thank you again for the opportunity to appear before you today. I am happy to 

answer any questions you may have. 

PREPARED STATEMENT OF RICHARD T. METSGER 

NOMINEE FOR BOARD MEMBER, NATIONAL CREDIT UNION ADMINISTRATION

JUNE 27, 2013 

Chairman Johnson, Senator Crapo, and Members of the Committee, thank you 

very much for the opportunity to appear before you today as a nominee for the National Credit Union Administration Board. I would also like to thank my former legislative colleague, Senator Merkley, for his kind introduction. 
38 

It was an honor to serve with you Senator in the State legislature. The legacy 

of your thoughtful leadership continues to reverberate through the halls of the Oregon State Capitol. 

While she could not travel here to join us today, my mother was also very pleased 

when I told her about my nomination to serve on the NCUA Board. She is watching 

today’s proceedings online. 

It is indeed an honor and privilege to be nominated for this critical role. If confirmed, I will do everything within my power to fulfill the trust placed in me by 

the President and the Congress to ensure both the integrity and the continued safety and soundness of our Nation’s credit union system in a rapidly changing marketplace. 

Maintaining a safe and sound credit union system requires visionary, attentive 

and proactive leadership by those charged with regulating federally insured credit 

unions. In my view, the qualities inherent in serving successfully in this position 

include experience in considering competing viewpoints, effective communication 

skills, and the wisdom to act prudently and decisively when action is required. I believe that, if confirmed, I will bring those qualities to the NCUA Board. 

Over the last three decades, I have dedicated my professional life to analyzing, 

exploring and creating solutions to public policy issues that affect people from all 

walks of life. 

As an Oregon State Senator from 1999 to 2011, I focused on business, finance and 

transportation policy. I believe each of these issues is integral to fostering an economic climate that provides individuals an opportunity to obtain financial stability 

in their own lives. 

As Chairman of a State legislative committee charged with hearing most legislation involving the financial services industry in Oregon, I gained valuable experience, and I hope wisdom, in weighing varied viewpoints, testing assumptions and 

acting in a manner that effectively balanced consumer needs with the needs of the 

industries that served them to produce good public policy. 

During my legislative career, I also served as one of the five appointed members 

representing both the public and private sectors on the Oregon State Debt Policy 

Advisory Commission. The Commission provides guidance to the legislature on prudent and risk-based management of the State’s long-term debt obligations. 

My private sector experience consists of leading a strategic communications and 

policy firm. I was energized by working with private sector clients who had a focus 

on job creation and improving the financial health of citizens across the economic 

spectrum. 

Earlier in my career, I spent 16 years as a broadcast journalist. My ‘‘old school’’ 

news director, Ted Bryant, drilled into his staff, including me, that accuracy, relevance and fairness are the cornerstones of responsible reporting. They are also the 

foundation of effective regulating. 

Additionally, as a small business owner, I have worked with both individual credit 

unions and a regional credit union association. These experiences have allowed me 

to better understand the perspectives of the regulated community and the importance of clear, open and ongoing communication between the regulator and the institutions it oversees. 

My first credit union experience was as a 19-year-old paying my way through college by working as a night custodian at a local elementary school. I found myself 

eligible to join Portland Teachers Credit Union and that credit union gave me a 

$350 loan to purchase my first car. Twenty years later, I was privileged to be elected by the members to the board of directors of that very same credit union. During 

my 8 years on this board, I served in a time of extensive membership and asset 

growth. 

A changing regulatory environment and evolving compliance requirements accompanied that growth. Through this experience, I saw the importance of visionary, expert and effective leadership in guiding a credit union. I also worked to position the 

credit union’s executive team to better serve the needs of the credit union’s growing 

membership while maintaining the membership’s and the public’s trust as a safe 

and sound, not-for-profit consumer financial cooperative. 

My credit union policy background has only strengthened my ability to critically 

examine and thoughtfully consider the arguments by all stakeholders before deciding on any regulatory course of action. With safety and soundness in mind, I am 

committed to using the best available information to reach the right regulatory result and will do so by carefully testing stakeholder advocates and NCUA staff on 

issues that come before the Board, if confirmed. 

These collective life and work experiences have further given me a strong understanding of the role credit unions play in our Nation’s financial system, the significance of credit unions to their members, and the importance of maintaining safety 
39 

and soundness. If confirmed, my experiences would also inform the independent 

judgments and sometimes difficult decisions that I would need to make on the 

NCUA Board. 

I firmly believe a regulatory agency should strive to be its own best critic. To that 

end, NCUA already has a solid policy in place to re-evaluate a third of its rules and 

regulations every year. I can assure you that, if confirmed, this will not be merely 

a mechanical exercise for me. I will approach this rolling review with diligence and 

with the aim of updating, simplifying, eliminating and clarifying existing rules to 

ensure that they are effective, but not excessive, consistent with safety and soundness. 

Today’s financial services industry, including credit unions, is more diverse and 

sophisticated than ever, and it is growing more complex every day. A large portion 

of our Nation is dominated by small communities that rely on the services of equally 

small credit unions and community banks as their economic lifeblood. Not only have 

I been a board member of Oregon’s largest State-chartered credit union, I have also 

been a member of one of the smallest credit unions in the State. If confirmed, I will 

add a fresh set of eyes to policies old and new to reflect that diversity. 

Of utmost importance is the continued protection of the Share Insurance Fund, 

which protects credit union member deposits up to $250,000. Because the fund is 

capitalized by member credit unions themselves, it is in the best interest of member 

credit unions to have a strong, forward-looking regulator, committed to protecting 

the fund from losses. The safety and soundness of the credit union is ‘‘job one’’ of 

the regulator. It goes to the very core of consumers trust and confidence. That must 

not be compromised. If confirmed, I will be vigilant in this regard. 

Our Nation’s credit unions have weathered the past 5 years of unprecedented financial challenges extremely well. This is due in large part to the dedicated efforts 

and innovative management of Chairman Matz, Board Member Fryzel and previous 

board members, along with the team of NCUA professionals who strive diligently 

and effectively to navigate those challenges to protect and ensure a strong federally 

insured credit union system depended upon by almost 95 million Americans. 

If confirmed, my vision is for NCUA to be recognized as an agency that manages 

its own fiscal house well, proposes regulatory action that is effectively targeted to 

achieve the desired outcome without placing unnecessary burden on the credit 

unions themselves and, above all, maintains the confidence and trust the American 

public places in their local credit union. 

Thank you again for the invitation to appear. I am happy to answer any questions 

you may have. 

(41) 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON 

FROM MELVIN L. WATT 

Q.1. Congressman Watt, community banks are concerned that 

changes in the secondary market could make it more difficult to 

provide credit in rural areas and unfairly target small lenders. In 

the short term, would you commit to reviewing the policies at the 

GSEs regarding small lenders and mortgages in rural areas to ensure continued access to the secondary market? 

A.1. Mortgage lending in rural areas is a very important part of 

housing finance and lenders in those areas face unique challenges 

under the current system. I am fully supportive of community 

banks and their important role in providing mortgage finance in 

rural and other underserved regions. I would certainly commit to 

reviewing the policies of the GSEs regarding small lenders and 

mortgage availability in rural areas to ensure continued and equitable access to the secondary market for community banks. I would 

also work to encourage Congress to ensure continued access to the 

secondary market by small lenders and lenders in rural areas in 

any legislation to reform the housing finance system. 

Q.2. Congressman Watt, at your nomination hearing, you had a 

discussion with Ranking Member Crapo about the statutory role of 

the FHFA Director. The Emergency Economic Stabilization Act of 

2008 (EESA), which passed the Senate on October 1, 2008 and 

passed the House on October 3, 2008 before being signed into law, 

states that the Director, at that time also the conservator, shall 

‘‘implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program 

under section 257 of the National Housing Act or other available 

programs to minimize foreclosures.’’ How would you balance the 

statutory directives from HERA and EESA? 

A.2. The FHFA Director has several critical responsibilities to balance. HERA mandates the Director take necessary steps to protect 

taxpayers, and conserve and preserve the assets of the GSEs. The 

EESA statute requires the consideration of net present value to the 

taxpayer while taking steps to minimize foreclosures. I do not view 

the directives of HERA and EESA as being at odds as long as any 

plan that ‘‘seeks to maximize assistance to homeowners’’ and ‘‘minimize foreclosures’’ assesses each homeowner’s ability and willingness to meet his or her mortgage obligations and insures positive 

‘‘net present value to the taxpayer.’’ The primary mandate under 

the statutory language of both HERA and EESA is to ensure that 

the FHFA protects the interest of and maximizes returns to the 

taxpayers. Accordingly, I will insist that any actions of the FHFA 
42 

be pursued only after careful and responsible analysis and undertaken to protect the taxpayers’ interest. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO 

FROM MELVIN L. WATT 

Q.1.1. Twenty-nine States and the District of Columbia have redemption laws that obviously impact the disposition of Real Estate 

Owned portfolio, or REO, in those jurisdictions. These laws can 

range from 5 days to 3 years. 

• Which State and local laws do you feel pose the most risk to 

the enterprises and why? 

A.1.1. State redemption laws, which give homeowners the right to 

redeem (in some States for up to 6 months to a year) or require 

in some States that a court confirm any sale, present particular 

problems for the Enterprises because they delay the GSEs’ ability 

to sell properties quickly when prospective homebuyers usually 

want to purchase a home quickly. These laws also typically result 

in extra costs to the GSEs for maintenance and upkeep before the 

disposition of the property. Similar problems may also arise under 

Federal bankruptcy laws or practice. 

Q.1.2. Are there any legal positions regarding these matters that 

FHFA has taken that you plan to reverse or reexamine? Please be 

specific and explain why. 

A.1.2. I am advised that the FHFA has taken the position that the 

Enterprises must comply with these laws. As Director, I would review this determination in a careful and diligent manner. However, 

in the absence of compelling legal precedent to the contrary, this 

would likely be the position of the FHFA and the Enterprises going 

forward. 

Q.1.3. What are your plans for dealing with future laws both from 

the standpoint of: 

i) your legal strategy if other States consider similar laws: and 

ii) from the perspective of how it might affect Fannie and 

Freddie’s disposition strategies in these jurisdictions? 

A.1.3. If confirmed, I look forward to analyzing this issue carefully 

and determining what strategy FHFA might be able to pursue to 

reduce the costs that these laws pose. I understand that FHFA 

supports harmonizing these laws and I would intend to examine 

both the purpose of the laws as they stand—since it is a local 

issue—and the benefits to harmonizing them as a benefit to the 

taxpayer. 

Q.1.4. Are there additional State laws in any other subject area 

that you believe pose risk to the value of Fannie and Freddie? 

A.1.4. While the Enterprises and the national programs administered by the GSEs should work as smoothly as possible with State 

regulation, I have been advised that several State laws have posed 

or continue to pose some risks and challenges to the GSEs. From 

what I’ve been informed, they include laws that attempt to impose 

obligations on the GSEs for vacant properties even though the Enterprises are not the owners, create obligations on the GSEs to post 
43 

high bonds for REO property maintenance, collect ‘‘transfer fees’’ 

notwithstanding that the GSEs may be taxed only on real property 

ownership, and recent State enactments of homeowner protections 

that either create legal uncertainty or differ significantly from the 

Servicer Alignment Initiative that provides great benefits for homeowners. If confirmed, I will carefully study these issues and update 

FHFA policy where warranted by facts and circumstances at the 

time I make any decisions. 

Q.2. A handful of local communities have discussed seizing underwater mortgages by eminent domain. Once that occurred, the 

homeowners would be offered a mortgage that would put them 

above water, with the previous mortgage owners absorbing the 

loss. In your hearing you indicated that you would oppose any plan 

that put any entity in front of the taxpayer. 

• Do any of the current plans being considered by jurisdictions 

meet this test to oppose or take action to mitigate Fannie and 

Freddie’s risk such that you would take action to prevent 

Fannie or Freddie from being involved? If so, please indicate 

specific examples. 

• Would you allow for Fannie and Freddie to buy or guarantee 

mortgages in any of the jurisdictions if they adopted the current plans they are considering? 

• Would you allow for Fannie and Freddie to buy or guarantee 

mortgages in any jurisdiction that adopted a plan to seize 

mortgages not currently owned or guaranteed by Fannie or 

Freddie, but then subsequently sought loans to be owned or 

guaranteed finance the new mortgages on these properties? 

• Do you believe it appropriate for any Government entity to 

buy, guarantee or insure loans to replace seized mortgages, regardless of whether the original mortgage was an agency or 

private label mortgage? 

A.2. As I indicated in my testimony, while I have deep respect for 

local and States’ rights to take necessary steps to protect their communities, I will draw the line on any actions that are contrary to 

the interests of the taxpayers of the United States. As Director, I 

will insist that the FHFA evaluate any eminent domain proposals 

carefully and take the necessary actions to ensure that the Enterprises fully meet the statutory responsibility to protect taxpayers 

and conserve its assets. 

Q.3.1. During your hearing you indicated that it would be up to the 

Congress to establish any kind of funds that might meet housing 

needs of various constituencies. You also noted that Congress has 

already done so through with the Housing Trust Fund. 

• Is it your interpretation that the Director of the FHFA, while 

acting as conservator, currently has the authority to set aside 

revenue from Fannie Mae and Freddie Mac, to fund already established funds, such as the Housing Trust Fund, the Capital 

Magnet Fund, or any other currently established fund? 

A.3.1. The Director of the FHFA has the authority to suspend allocations to the Housing Trust Fund and the Capital Magnet Fund 

based on the determination that such payment would contribute to 

the financial instability to the Enterprise, cause the Enterprise to 
44 

be classified as undercapitalized, or prevent an Enterprise from 

successfully completing a capital restoration plan as outlined in 

Section 1337(b) of the statute. As conservator of the GSEs’ assets, 

I would be obligated to apply the same three statutory criteria to 

any future decision. As with any standing FHFA policy, I intend 

to start with the current determination and base any changes solely on new facts and circumstances that have arisen since the decision was made. 

Q.3.2. If you believe there is this authority, while as conservator 

would you under any circumstances exercise this authority or 

evaluate the exercising of this authority without express authorization from the Congress granted after this date? 

A.3.2. As stated above, as conservator of GSEs’ assets, I would be 

obligated to apply the same three statutory criteria to any future 

decision. As with any standing FHFA policy, I intend to start with 

the current determination, and base any changes solely on new 

facts and circumstances that have arisen since the decision was 

made. 

Q.4. At times the Director will necessarily find conflict between his 

requirements to protect the taxpayer and to support the housing 

market. Are there any circumstances in which you believe efforts 

to support the housing market should take priority over protecting 

Fannie and Freddie’s value and thus the taxpayer? 

A.4. The purpose of the conservatorships is to preserve and conserve each Enterprise’s assets and property and restore the Enterprises to a sound financial condition so they can continue to fulfill 

their statutory mission of promoting liquidity and efficiency in the 

Nation’s housing finance markets during the transition to the new 

housing finance system. Accordingly, I believe that the efforts of 

supporting the housing market is a core mission of the Enterprises 

and that helping maintain a healthy housing market protects 

Fannie Mae’s and Freddie Mac’s value and guards against taxpayer 

losses. 

Q.5. The Emergency Economic Stabilization Act is cited for its 

mandate that FHFA ‘‘maximize assistance to homeowners.’’ However, the bill also caveats that requirement with a stipulation that 

the agency ‘‘consider the net present value to the taxpayer.’’ In 

evaluating the costs of approving an activity by Fannie and 

Freddie, do you believe that this requirement extends to considering the costs of all taxpayer funds, regardless of the agency or 

program from which those taxpayer funds originate, or is the duty 

of the Director to consider the taxpayer costs limited to the costs 

incurred by Fannie Mae and Freddie Mac? 

A.5. Yes, I believe that the wording of the statute extends to considering the costs to all taxpayers funds, not just the taxpayer 

costs incurred by Fannie Mae and Freddie Mac. 

Q.6.1. Given the involvement of both Treasury and HUD in loan 

modification programs in which Fannie and Freddie participate or 

have similar offerings, there may be instances in which these agencies have strong opinions as to what actions Fannie and Freddie 

should take regarding certain policies. Likewise, certain the White 
45 

House may also have strong opinions surrounding policies in which 

the President becomes politically active, as he has in the past. 

• What is your view of the appropriate role for the Secretary of 

Treasury, Secretary of HUD or any other executive branch or 

White House official with respect to the management of Fannie 

Mae and Freddie Mac? 

A.6.1. The Preferred Stock Purchase Agreements give the Treasury, as a party to the Agreements, certain rights to consult with 

the FHFA as conservator for the GSEs. However, the FHFA has 

complete management and regulatory authority over Fannie Mae 

and Freddie Mac and neither the PSPAs nor the applicable statutes give the Treasury any authority to manage or regulate the 

GSEs. Consequently, while I would consider input from the Administration, as I would consider input from Members of Congress, I 

would exercise the authority granted to me by the governing statutes consistent with the provisions of those statutes and consider 

external views, but make my own independent decisions. 

Q.6.2. What specific barriers would you establish to prevent political influence that you believed to be improper? 

A.6.2. I would maintain appropriate firewalls around myself and 

the FHFA consistent with firewalls that exist between other regulators and external political influences. 

Q.6.3. Given your long political career, what specific steps would 

you further take to insulate you and your staff from the influence 

of your former political colleagues and the Administration across 

your decisionmaking as conservator? 

A.6.3. In an effort to insulate myself from external influence as 

conservator, I will abide by the terms of the ethics agreement that 

I have entered into with FHFA’s Designated Agency Ethics Official. 

Additionally, I will abide by all applicable prohibitions imposed on 

me by the Hatch Act (5 U.S.C. §§ 7321–7326). 

Q.7.1. Fannie and Freddie a large Real Estate Owned, or REO, 

portfolio and face many options when choosing the appropriate disposition channel, such as: selling directly to an owner occupant; 

selling to an investor, either individually or in bulk; renting the 

property; or even demolishing the property. Choosing the appropriate disposition channel can be difficult, especially considering 

the answer can vary by region, localities or even individual properties. 

• What specific criteria would you construct to evaluate the REO 

disposition strategy of Fannie and Freddie? 

A.7.1. I believe that REO properties must be sold in a manner that 

is beneficial to the Enterprises and thus the taxpayer, which will 

generally mean ensuring the sale also benefits the neighborhoods 

in which the properties are located, so as to help preserve the value 

of other Fannie Mae and Freddie Mac REO properties. Consequently, the criteria I would evaluate include efficiency; timeliness and effectiveness in management, restoration and repair; 

sales preparation, and marketing of the properties. 

Both Fannie Mae and Freddie Mac rely on retail sales strategies 

in which properties are sold one at a time, most often to buyers 
46 

who plan to use the properties as their primary residence. During 

2011, approximately 65 percent of the GSEs REO properties were 

sold to owner-occupants, the majority within 60 days of listing and 

at close to market value. Properties that do not sell within 6 

months are generally sold at auction or, alternatively, in small bulk 

sales if they are sufficiently concentrated in a particular geographic 

area. I would continue efforts to meet or exceed those results. 

Q.7.2. Do you believe these are decisions most appropriately handled by Fannie and Freddie under the supervision of the conservator, or should these strategies actually be developed by the conservator? 

A.7.2. I believe that decisions of this kind are best handled by the 

GSEs, but only after consultation with and approval by the conservator. 

Q.7.3. As conservator, how would you evaluate situations where 

maximizing value to Fannie and Freddie (and thus the taxpayer) 

may conflict with other goals such as: neighborhood homeownership rates, affordable housing needs of a community, investor 

versus owner-occupied goals? 

• If you find that meeting community goals is beneficial to those 

communities but would harm the financial return to Fannie 

and Freddie, as conservator, what do you believe is your number one priority in a decision of this nature? 

A.7.3. REO decisions should take into account what is most beneficial to the GSEs and the neighborhoods in which the properties 

are located. I would try to balance and meet both of these objectives and believe that situations would rarely, if ever, arise in 

which these objectives are at odds with each other. If any such instances arise, however, my top priority would be protecting the taxpayer. 

Q.8. During the time in which the Senate is considering your nomination, if there are any votes within the House Financial Services 

Committee or on the floor of the House of Representatives on legislation that could affect FHFA, any of the regulated entities or the 

future markets that FHFA may regulate, do you plan to recuse 

yourself from these votes? 

A.8. No. Not unless there was a clear conflict of interest. 

RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN 

FROM MELVIN L. WATT 

Q.1.1. You stated in your testimony that ‘‘a broad consensus has 

emerged. toward a [secondary housing market] driven by private 

capital that minimizes the risk to taxpayers. The legal framework 

for getting to that destination will, of course, be up to the House 

and Senate.’’ 

Given that Congress has yet to finalize the legal framework for 

how the secondary housing market will operate, what challenges do 

you foresee in your role as FHFA director to effectively execute the 

FHFA’s mission given legal and institutional uncertainty? 

A.1.1. If confirmed, I believe my responsibility would be to help 

form a bridge to whatever future housing finance system Congress 
47 

ultimately decides. While there are multiple challenges due to the 

uncertainty about the timing of the wind down of the GSEs, including maintaining competent and engaged staff and maintaining 

commitments to continuing upgrades to technology, my job would 

continue to build, solidify and test that bridge. For example, I plan 

to test different types of risk syndication efforts to help Congress 

determine how private capital can best be part of the future system. My mission, if confirmed, is clear and is set out in statute by 

HERA and EESA. My job is to adhere to those requirements even 

if there is near term uncertainty about what is ultimately decided 

about the future of the housing finance system. 

Q.1.2. How do you plan to address this to ensure FHFA continues 

to support a stable housing finance market that includes access to 

affordable housing? 

A.1.2. I plan to insist that we continue to support a deep and liquid 

secondary mortgage market while taking steps to encourage private 

capital to assume responsibility for as much mortgage credit risk 

as quickly as possible or until legislation informs how housing finance will take place going forward. This is consistent with the 

statutory mandate given to the Director and the FHFA. 

RESPONSE TO WRITTEN QUESTION OF SENATOR VITTER 

FROM MELVIN L. WATT 

Q.1. Congressman Watt, at a recent House hearing where Acting 

FHFA Director Edward DeMarco testified you recused yourself 

from asking questions because of the speculation that you were a 

candidate for the permanent job. There are now news reports today 

that Chairman Hensarling will introduce his GSE reform bill shortly after the House returns from the 4th of July district work period. If the Committee or House considers that legislation while 

your nomination is still pending in the Senate do you plan to also 

recuse yourself from debating and voting on that legislation? 

A.1. No. I do not believe that the responsibilities I would assume 

if confirmed as the Director of the FHFA result in a conflict of interest that would prevent me from voting on GSE reform legislation while I am still a member of the House of Representatives. 

RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY 

FROM MELVIN L. WATT 

Q.1. A number of municipalities are considering using the power 

of eminent domain to acquire underwater performing mortgages 

out of private label securities and then refinancing them into an 

FHA product. While the courts will ultimately decide the constitutionality of this scheme, I am concerned that using eminent domain 

this way will scare off private capital, dry-up new mortgage credit, 

and harm investors and taxpayers. 

FHFA has previously expressed concerns with this proposal 

given that Fannie Mae and Freddie Mac are collectively the largest 

holders of private label securities and taxpayers would bear the 

losses from any seizures. Under Acting Director DeMarco, the 

agency published a notice in the Federal Register indicating its 

‘‘significant concerns’’ with this proposed use of eminent domain. 
48 

1http://www.fhfa.gov/webfiles/23930/FHFA%20Draft%20Strategic%20Plan%202013- 

2017.pdf, page 5. 

FHFA noted that eminent domain would ‘‘[alter] the value of the 

companies’ securities holdings.’’ FHFA further stated ‘‘FHFA has 

determined that action may be necessary on its part to avoid a risk 

to safe and sound operations at its regulated entities and to avoid 

taxpayer expense. Additionally, FHFA has concerns that such programs could negatively affect the extension of credit to borrowers 

seeking to become homeowners and on investors that support the 

housing market.’’ 

The Obama administration, on the other hand, has been largely 

silent on the subject and FHA Commissioner Carol Galante recently went so far as to say in testimony before the Senate Appropriations Committee that ‘‘the idea of [using eminent domain] on 

mortgages is trying to get at an important issue of people’s inability to refinance their mortgages that are in private label security 

. . . ’’ 

Eminent domain is a local issue, but its effects on Fannie Mae 

and Freddie Mac, particularly while these two companies are in 

Federal conservatorship, is a Federal matter. 

So are the effects these local decisions would have on our broader 

goals, shared by many in Congress and within the Obama administration, to stabilize our Nation’s housing markets and draw more 

private capital into the housing finance system. And the issue is 

national in scope because a mortgage seized in Richmond, California affects a pension fund in Charlotte, North Carolina. 

If you are confirmed to serve as Director of FHFA, would you 

stand with the current FHFA leadership or the Obama administration on this potential use of eminent domain? Would you allow the 

GSEs, and by extension the taxpayer, to take the risk of continuing 

to purchase loans in communities that implement eminent domain 

programs for underwater mortgages? 

A.1. As I stated in my response regarding eminent domain during 

my June 27, 2013, Senate Banking Committee confirmation hearing, while I have deep respect for local and States’ rights to take 

necessary steps to protect their communities, I will draw the line 

on any actions that are contrary to the interests of the taxpayers 

of the United States. As Director, I will insist the FHFA evaluate 

any eminent domain proposals carefully and take the necessary actions to ensure that the Enterprises fully meet the statutory responsibility to protect taxpayers and conserve its assets. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR KIRK FROM 

MELVIN L. WATT 

Expertise 

Q.1. The Acting Director of FHFA has identified the ‘‘immediate 

goals’’1 of FHFA while the Enterprises are in conservatorship as 

‘‘taking necessary actions to put the Enterprises in a sound and 

solvent condition and to preserve and conserve their assets and 

property.’’ Do you agree with FHFA’s stated goals and will these 

be the goals you would prescribe if confirmed? 
49 

A.1. I strongly agree with the stated goals and direction articulated 

in the FHFA’s 2013 scorecard for the Enterprises. As conservator, 

FHFA’s primary statutory responsibility is to preserve and conserve the assets of Fannie Mae and Freddie Mac in order to maximize returns to the taxpayers. As Director, I will continue to take 

every necessary action, including those articulated in the 2013 

scorecard, to meet the statutory responsibility of the FHFA. 

In particular, I commend the inclusion of risk-sharing pilots that 

will transfer more mortgage credit risk to the private sector. These 

transactions will take immediate steps to reduce taxpayers’ exposure to the mortgage market, create mechanisms for more accurate 

price discovery of mortgage risk, and help inform the design of a 

more sound and safe future system of housing finance to be determined by Congress. 

Transition to a Private Market 

Q.2.1. You state in your written testimony that ‘‘[t]he good news 

is that a broad consensus has emerged on the direction that our 

next steps must take us—towards a system driven by private capital that minimizes the risk to taxpayers’’. Yet, in September 2003, 

you note that ‘‘private enterprises really have not done very well 

in achieving things other than making money’’. Are you committed 

to returning the two enterprises that currently control 90 percent 

of the mortgage market, to the private market? Are you now confident that the private market can take on a greater market share 

in the mortgage finance system successfully? 

A.2.1. Long-term housing finance reform will ultimately be up to 

Congress to determine. That said, I am fully committed to ending 

the failed model of Fannie Mae and Freddie Mac, and bringing 

back private capital to the mortgage market as quickly as possible, 

while ensuring mortgage finance remains broadly available and accessible. I am confident that the private market can take on a 

greater share of the housing finance system successfully. My concerns expressed in 2003 were regarding predatory lending activities 

that contributed to the financial crisis. These types of predatory 

lending were wrong and irresponsible and I am proud to have cosponsored legislation that not only sounded the alarm but offered 

sensible solutions to rein in these practices years before the financial crisis. 

In the interim, the FHFA’s role will be to build a solid and reliable bridge (the single securitization platform) that private market 

participants of all sizes and descriptions can access and rely on in 

any future system. I am committed to building that bridge. On the 

other end of the bridge, I do believe that the private market can 

successfully take on a greater share in the mortgage finance system. 

Q.2.2. In responding to a question before the House Financial Services Committee in March 2013, Acting Director Edward DeMarco 

stated that he believed that the time it would take to wind down 

Fannie Mae and Freddie Mac should be a ‘‘multiyear process’’ but 

that it ‘‘should not take more than 5 years’’. If confirmed do you 

feel that you could and will pursue a goal of winding down Fannie 

Mae and Freddie Mac within 5 years? 
50 

A.2.2. If confirmed as the FHFA director, I will aggressively pursue 

a wind-down of GSEs as quickly as possible, while ensuring that 

there remains broad availability of mortgage credit in the country 

during the transition to what Congress decides as the future system of housing finance. However, the specific timing of any winddown plan will be up to Congress. 

Q.3.1. The Director of FHFA is also a member of the Financial Stability Oversight Council (FSOC). 

• What specific market trends/activities do you see the Director 

of FHFA as having a unique perspective on that he/she can 

bring to the Council? 

A.3.1. As a member of the Financial Stability Oversight Council, 

the FHFA Director has a leading role in helping inform the members of the Council on how the housing markets are performing 

and where risks might be emerging. The Director also has the opportunity to help shape macro housing finance policy by coordinating with others members on the Council on key decisions that 

will impact the housing finance system. 

Q.3.2. The Council has been tasked with identifying ‘‘systemically 

significant’’ institutions—what do you see are the critical activities/ 

features within the housing finance system that you think could 

fall into these categories that would deem them as systemically important? 

A.3.2. Housing and the housing finance markets play a key role in 

the U.S. economy and financial system. When the housing markets 

are healthy, the economy tends to perform well and when the housing markets are weak, significant financial risks can arise. If confirmed, I will work with the other members of the Council to study 

carefully what aspects of and participants in the housing finance 

system could pose systemic risk to our markets and economy if not 

functioning appropriately. I believe that it is imperative that the 

future housing finance system allow entities of all sizes (community banks, credit unions, cooperatives, etc.) to be active and important participants instead of allowing one or two entities to dominate. If one or two entities dominate the market they could easily 

become ‘‘systemically significant.’’ 

Principal Reductions 

Q.4. Are you comfortable with implementing principal reductions 

for borrowers though it goes against the Director’s requirement 

while the enterprises are in conservatorship to ‘‘protect the tax 

payer’’ above all else and preserve the quality of the assets of the 

enterprises? 

A.4. My first priority as the FHFA director is to conserve the assets of the GSEs and to protect the taxpayers. I will not make any 

decision that conflicts with this first principle. Furthermore, in 

making any decision as the FHFA director, I will start with the 

standing decision of the agency, fully understand the original rationale, and give appropriate deference to the prior decision. I 

would then evaluate any new information and make the determination as to whether a different conclusion would be justified in light 

of new data or circumstances. In making any final decision, includ-
51 

ing regarding principal reduction, I would be careful to fulfill my 

statutory responsibility to protect the taxpayers and preserve the 

assets of the enterprises. 

Eminent Domain 

Q.5. You have indicated that you are a strong supporter of States 

rights—though you have not indicated whether or not you would 

support the use by States of eminent domain. Eminent domain 

brings with it legal issues, and will be very destructive to U.S. 

mortgage markets. In general, if contractual relationships between 

borrowers and creditors are undermined, it is only logical that 

lenders and investors will contract credit availability weakening 

the housing recovery. 

Given your strong legal background: 

• Do you think the use of eminent domain is constitutional? 

• Would you consider allowing States to use eminent domain to 

revise existing financial contracts and the alternation of the 

value of the companies’ securities holdings? 

• Pension funds, IRAs and other retirement funds are among the 

largest traditional investors in the mortgage back security 

market. Do you think it is prudent to create ‘‘winners and losers’’—winners, if eminent domain is permitted, being fund 

managers and losers being investors on both sides with current 

investors in MBS (pension funds and retirement funds) taking 

the biggest hit? 

A.5. As I indicated in my testimony, while I have deep respect for 

local and States’ rights to take necessary steps to protect their communities, I will draw the line on any actions that are contrary to 

the interests of the taxpayers of the United States. As Director, I 

will insist the FHFA evaluate any eminent domain proposals carefully and take the necessary actions to ensure that the Enterprises 

fully meet its statutory responsibility to protect taxpayers and conserve its assets. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR COBURN 

FROM MELVIN L. WATT 

Q.1. The previous directors of FHFA—James Lockhart and Edward 

DeMarco (acting director)—both had extensive backgrounds in finance and economics. Mr. Lockhart held various posts at the Federal Reserve, Treasury, HUD, and SEC. Mr. DeMarco studied the 

bank portfolios as part of the dissertation and then several in financial analysis positions at the Office of Federal Housing Enterprise Oversight, SSA, Treasury, and GAO. How do you feel your resume compares to those of these directors? How has your experience prepared you to manage multi-trillion portfolios? 

A.1. I have enormous respect for both Directors Lockhart and 

DeMarco. Both Directors brought significant qualifications to this 

critical position. 

I believe I also bring extensive qualifications to the position as 

I outlined in my testimony at my confirmation hearing. My 40+ 

years of private sector and public service experiences have pre-
52 

pared me well to take on the challenges and responsibilities of the 

Director of the FHFA. 

Q.2. The current leadership of FHFA has laid out a plan to promote risk-sharing between the GSEs and private market participants. The current goal is $30 billion in risk-sharing transactions 

for 2013. Can you lay out several examples of the types of transactions that might promote risk sharing? How will you measure the 

success or failure of these transactions? Do you plan to change the 

goal for 2013? 

A.2. The FHFA’s strategic plan for conservatorship and target for 

2013 in the conservatorship scorecard is intended to evaluate and 

promote new alternatives for several types of risk sharing. Because 

these activities have different risks and advantages, I believe it 

would be prudent to allow data from these pilots to inform decisions regarding the best future strategy or mix of strategies. 

Currently, Fannie Mae and Freddie Mac are engaged in developing their approaches and transactions to meet the 2013 scorecard 

target to transfer the credit risk on $30 billion of mortgage credit 

exposure through risk-sharing transactions. As appropriate based 

on market conditions, I intend to scale up the $30 billion goal in 

subsequent years and to begin to set timelines to provide greater 

certainty and clarity in an effort to move more of the housing finance market to the private sector as quickly as possible. Some of 

these strategies include: 

• Credit risk sharing with mortgage insurers. A variety of 

insurance structures may deserve consideration. Several design 

choices exist including loan vs. pool level coverage and size of 

the pools. Risk-sharing with mortgage insurers inevitably involves some counterparty risk that must be considered and 

carefully evaluated. 

• Credit risk sharing through senior/subordinate structures. The simplest form of credit risk taken through structured products is to create a senior/subordinate cash-flow 

structure. This would divide the actual cash-flows from a pool 

of mortgage collateral paid out to investors based on the credit 

risk they bear. The subordinate tranche holders would bear the 

bulk of the credit risk, while the senior tranches would carry 

a wrap provided by the GSEs similar to current agency MBSs. 

• Credit risk sharing through synthetic senior/subordinate 

structures. GSEs could issue credit linked notes (CLN) to offset losses on diversified pools of mortgages. The proceeds of the 

bonds or CLNs are placed in a trust and provide a secured 

funding source to offset losses from the underlying pool of 

mortgages. One critical advantage of this structure is that it 

would not impact the existing TBA market as the investors in 

the CLNs would bear any losses in the underlying pools of 

mortgages. However, CLN deals are complex and technically a 

derivative. 

I expect to be able to develop other strategies as well, in transparent consultation with the private sector, and to pilot and test 

those strategies. 
53 

Q.3. Explain, in your view, the role the GSEs played in the country’s financial crisis in terms of the amount of risk the institutions 

posed to the financial system. In your view, what are the top three 

problems the GSEs have had to address since 2008? 

A.3. While there are many factors that contributed to the financial 

crisis, the GSEs were a contributor to the financial crisis in that 

they used the benefits of an implicit Government guarantee to pass 

on risks to the taxpayers while overzealously seeking profits that 

benefited their executives and shareholders. Specifically, the poor 

judgment exercised by Fannie Mae and Freddie Mac in pursuing 

unsafe businesses in an attempt to maintain market share resulted 

in both of these institutions needing to be bailed out by the taxpayer. While I believe that the GSEs were contributors to the crisis, other participants in the housing sector also contributed the 

types of irresponsible behavior we witnessed leading up to the financial crisis. This shared responsibility includes politicians who 

too aggressively championed homeownership or were naive or 

turned a blind eye to the abuses that were taking place. 

I believe the three major challenges facing the GSEs since 2008 

are: 

• Digging out of the terrible decisions made in the preceding 

years; 

• Uncertainty about their future; and 

• Technology shortcomings that contribute to their inefficiency 

(See Answer 4 below.) 

Q.4. FHFA’s 2012 annual report states of Fannie Mae, ‘‘Unresolved 

system issues continue to make the Enterprise difficult to manage, 

impede efficiency, and raise serious questions about the reliability 

and effectiveness of Fannie Mae’s modeling and forecasting of 

data.’’ Describe the key factors that have perpetuated these inefficient systems, how the Enterprise needs to resolve the problem, 

and the timeframe over which improvements can be made. 

A.4. Both GSEs’ businesses rely on extensive technology systems to 

purchase and securitize a high volume of mortgages in the secondary market, thereby freeing up capital for lenders to make more 

loans. Currently, they are processing about $100 billion in new 

loans each month. These complex systems require continual maintenance and upgrading, which has been a challenge for both GSEs 

and even more so in light of their uncertain future. 

The conservatorships of the GSEs have continued for almost 5 

years, forcing the FHFA and the GSEs to make decisions on longer 

term investments to upgrade and maintain their technology systems. This led the FHFA to direct the GSEs to invest in developing 

the common securitization platform, which will replace legacy systems at both GSEs when complete. The FHFA has projected that 

the platform will be operational within 5 years. I anticipate trying 

to shorten this timeline, but acknowledge the complexity and difficulty of this task and that this must be done carefully and responsibly. 
54 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM JASON FURMAN 

Q.1.1. The Obama administration has consistently stated that policymakers should wait until Dodd-Frank is finalized before looking 

for additional policy solutions to address the existing moral hazard 

issues associated with too-big-to-fail (TBTF). 

• Can you define what benchmarks need to be met to declare 

that Dodd-Frank has been implemented? 

A.1.1. The most important metric for ‘‘full implementation’’ of 

Dodd-Frank is the completion of core reforms. Currently many significant reforms, including the stand-up of the Consumer Financial 

Protection Bureau, new mortgage protections, stress testing requirements, resolution authority, and many of the core derivatives 

rules, are effectively complete. However, there still remains significant work to be done with outstanding rules that have not been finalized, such as work to implement the Volcker Rule, rules governing securitization, and the completion of outstanding 

rulemakings on derivatives. 

Q.1.2. What steps will you take to examine whether the provisions 

of Dodd-Frank have successfully resolved TBTF? 

A.1.2. Economics clearly shows that policymakers should be concerned about the possibility that institutions are ‘‘Too Big to 

Fail’’—a short-hand for the dynamic that we saw during the financial crisis in which certain institutions were so large, interconnected and risky that policymakers did not allow them to fail 

in order to protect the financial system and the broader economy. 

In the crisis, we saw how the failure of a large, complex financial 

institution like Lehman Brothers could have severe repercussions 

throughout financial markets and the economy as a whole, leading, 

for example, to fire sales of assets, impairing collateral and contracting credit. Subsequent support of other firms, moreover, contributed to an expectation that certain large, complex financial institutions may receive taxpayer assistance in a crisis, leading creditors to provide cheaper funding. For both of these reasons, these 

institutions might take more risk than is warranted, recognizing 

that they get the full potential upside benefit, but without internalizing the full costs of the downside—what economists call moral 

hazard. This is a classic source of market failure that regulation 

can and should address. 

The most important assessment of the status of the ‘‘Too Big to 

Fail’’ dynamic is the law itself. Since the passage of Dodd-Frank, 

reforms have made it less likely that an institution would fail 

through curbs on risk-taking activities and requirements for greater capital, have put in place a resolution authority in the case that 

they do fail and bankruptcy would disrupt markets, and have 

banned tax-payer funded bailouts, requiring that any costs are 

borne by the company’s investors and creditors and the financial 

industry—not taxpayers. 

An important place to start an assessment is to understand the 

degree to which the market perceives that these steps have actually ended ‘‘Too Big To Fail.’’ Although these measures are imperfect, for instance, it would be valuable to monitor and evaluate in-
55 

dicators including the pricing of credit for large, complex institutions. 

It is important, however, to understand that these are measures 

of the market perception of ‘‘Too Big to Fail.’’ To the degree that 

funding differences reflect a market perception, the key task for 

policymakers is to implement the laws which make clear that the 

financial industry and not taxpayers will bear the losses from the 

failure of any company. 

Q.2. Some argue that financial services rules should be included in 

the Transatlantic Trade and Investment Partnership (TTIP). U.S. 

financial regulators have been negotiating international financial 

regulations with their international counterparts, including a new 

regime for capital standards, agreements for coordinating cross-border resolutions with international financial institutions, and international rules for derivatives transactions. 

• With so many delicate financial regulations being implemented 

domestically, and so many complex international regulations 

being negotiated among regulators, do you believe that it 

would be appropriate to inject financial services into the TTIP? 

A.2. U.S. Trade Representative and Department of Treasury officials have stated that financial services are a critical component of 

the transatlantic relationship, and in TTIP, as in all our Trade 

Agreements, the Administration will seek robust market access 

commitments for financial services. 

Since the financial crisis, it is my understanding that Treasury 

and our financial regulators have been actively engaged on a range 

of financial regulatory issues. There is an ongoing robust agenda 

with ambitious deadlines on regulatory and prudential cooperation 

in the financial sector—both bilaterally under the Financial Markets Regulatory Dialogue, and under the auspices of the G–20 rubric and international standards setting and other bodies such as 

the Financial Stability Board, the Basel Committee on Banking Supervision, and the International Organization of Securities Commissions. The ongoing work is expected to continue making 

progress alongside the TTIP. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM KARA M. STEIN 

Q.1.1. While the Jumpstart Our Business Startups (JOBS) Act was 

passed with the worthwhile goal of spurring job creation, one of its 

central tenants is to reduce long-standing investor protections to 

make it easier for companies to raise capital. Chairman Schapiro 

opposed this piece of the legislation, and I am concerned that the 

SEC may continue to press for further deregulation. 

How will the JOBS Act alter conditions for investors? Do you 

have any concerns about the impact of these changes for non-institutional investors? 

A.1.1. Since many of the provisions of the Congressionally mandated JOBS Act have yet to be implemented, it is not yet clear how 

it may alter conditions for either investors or small- and mediumsized businesses. If confirmed, I would work to get the JOBS Act 

rules implemented as quickly as possible in a way that balances 
56 

the need of smaller businesses to have access to the capital and financial services they need to grow and create jobs while still protecting investors. 

Q.1.2. As commissioner, what will you do to ensure the SEC will 

not, absent a specific directive from Congress, move forward with 

any further deregulatory proposals? 

A.1.2. The SEC has a three-part mission to protect investors, maintain the integrity of the markets, and promote efficient capital formation. In an increasingly complicated, high-speed and interconnected marketplace, it is critical for both the SEC and Congress 

to think about how to update, modernize, and improve the securities market regulatory infrastructure. If confirmed, whatever proposals may come before the SEC, the determinative issue will not 

be whether the proposal provides for more or less regulation, but 

rather whether it is smart and efficient and effective at achieving 

the SEC’s three-pronged mission. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM KARA M. STEIN 

Q.1. The Securities Exchange Commission (SEC) has been deliberating about how best to write implementing regulations for the 

2012 Jumpstart Our Business Startups (JOBS) Act for more than 

a year. In the meantime, some States have already passed or are 

moving to pass and implement their own intra-State crowdfunding 

exemptions instead of waiting for the SEC to issue regulations. 

• In your view, are these State laws and deliberations instructive to the SEC? Can anything be learned from this going forward? 

• Do these activities by various States increase the need for the 

Commission to release its crowdfunding rules in a timely manner? 

A.1. Crowdfunding is an innovative and new idea that should help 

infuse small businesses with needed capital to grow and create 

jobs. If confirmed, I would look forward to discussing with SEC 

staff and my fellow commissioners how State laws and deliberations may be instructive to the SEC. As a general matter, I believe 

it is important for the SEC to implement in as timely a manner 

as possible the rulemakings mandated by Congress under both the 

JOBS Act and the Dodd-Frank Act, including the rulemaking pertaining to crowdfunding. 

Q.2. The JOBS Act established that ‘‘funding portals’’ would be 

viewed as distinct entities with fewer obligations and reporting requirements than traditional broker-dealers, so long as the portals 

meet the requirements and restrictions outlined in the law. Nonetheless, portals will be facilitating the sale of securities and playing 

a role in coordinating payment for those securities. 

• In your view, how can the SEC rulemaking best effectuate 

those disclosures and requirements? Which obligations and requirements for broker-dealers are essential and should be applied to crowdfunding funding portals? 
57 

• Which restrictions on funding portals, beyond not giving investment advice or directly handling the investors’ funds, 

should also be implemented? 

• In addition to background checks, what steps should the SEC 

take to prevent fraud in crowdfunding, and to make sure that 

participants understand the meaning of fraud? 

A.2. The creation of ‘‘funding portals’’ is a new concept in the securities context. A funding portal would be exempt from broker registration, but would remain subject to the SEC’s examination, enforcement and rulemaking authority and would have to become a 

member of a national securities association. While I understand 

that SEC staff have already been in contact with interested members of the public about the manner in which this concept will be 

implemented, the notice and comment process standard in SEC 

rulemaking is going to be critical. The issues you identified are important, and if confirmed, I would work with the SEC staff and my 

fellow commissioners in an effort to get this new concept right and 

adopted in a way that allows small businesses access to the capital 

they need while still protecting investors. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR HAGAN 

FROM KARA M. STEIN 

Q.1. State and local governments and municipal organizations have 

expressed concern about money market mutual fund reforms. Municipalities obtain substantial, short-term funding from money 

market mutual funds and are concerned that if investors no longer 

find the product attractive, money market mutual fund assets will 

shrink and an important source of capital for public projects will 

become more costly. Given that money market mutual funds provide such a substantial share of short-term lending to local governments, do you have concerns that new regulations on money market mutual funds could make it more difficult for municipalities to 

obtain cost-effective financing for projects? 

A.1. Following the financial crisis, the Securities and Exchange 

Commission (SEC) adopted new rules to strengthen money market 

mutual funds and ensure that they remain a stable, reliable investment product and a robust capital source for those who rely upon 

them for funding, including municipalities and many businesses. In 

November 2012, the Financial Stability Oversight Council proposed 

for public comment additional recommendations for structural reforms regarding money market mutual funds. In June 2013, the 

SEC issued a proposal that would further change this product. Included within the proposal were two principal reforms that could 

be adopted alone or in combination. One proposed reform would require a floating net asset value for prime institutional money market funds. The other would allow the use of liquidity fees and redemption gates in times of stress. The comment period should help 

the SEC learn about the potential impact of these proposals from 

those who rely on money market funds as a source of funding, such 

as State and local governments and municipal organizations, and 

those who invest in them. 

If confirmed, I would look forward to reviewing the comments regarding these proposed changes and working with my fellow com-
58 

missioners and the SEC staff to see what, if any changes, need to 

be made. 

RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN 

FROM MICHAEL S. PIWOWAR 

Q.1.1. While the Jumpstart Our Business Startups (JOBS) Act was 

passed with the worthwhile goal of spurring job creation, one of its 

central tenants is to reduce long-standing investor protections to 

make it easier for companies to raise capital. Chairman Schapiro 

opposed this piece of the legislation, and I am concerned that the 

SEC may continue to press for further deregulation. 

• How will the JOBS Act alter conditions for investors? Do you 

have any concerns about the impact of these changes for noninstitutional investors? 

A.1.1. Because many of the provisions of the JOBS Act have not 

yet been implemented, I believe it is too early to predict how the 

JOBS act will alter conditions for investors. If confirmed, I look forward to working with staff and my fellow Commissioners complete 

the JOBS Act rulemakings in a thoughtful manner that takes into 

account all three parts of the SEC’s mission—protecting investors, 

maintaining fair, orderly, and efficient markets, and facilitating 

capital formation. 

Given the SEC’s threefold mission, investor protection should always be a concern for SEC Commissioners. With respect to non-institutional (retail) investors, they participate in the securities markets directly through individual purchases of securities as well as 

indirectly through the asset management industry. If confirmed, I 

look forward to working with the staff and my fellow Commissioners to understand how the JOBS Act will impact retail investors who, directly and indirectly, provide investment capital to entrepreneurs and businesses. 

Q.1.2. As commissioner, what will you do to ensure the SEC will 

not, absent a specific directive from Congress, move forward with 

any further deregulatory proposals? 

A.1.2 Any SEC regulatory proposal designed to promote capital formation should be considered with the SEC’s two other mandates— 

investor protection and market integrity—in mind. If confirmed, I 

will commit to do so. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM MICHAEL S. PIWOWAR 

Q.1.1. The Securities Exchange Commission (SEC) has been deliberating about how best to write implementing regulations for the 

2012 Jumpstart Our Business Startups Act (JOBS) Act for more 

than a year. In the meantime, some States have already passed or 

are moving to pass and implement their own intra-State 

crowdfunding exemptions instead of waiting for the SEC to issue 

regulations. 

In your view, are these State laws and deliberations instructive 

to the SEC? Can anything be learned from this going forward? 
59 

A.1.1. While the SEC is the primary overseer of U.S. securities 

markets, the SEC works closely with many other institutions, including State securities regulators. If confirmed, I look forward to 

discussing with members of the National Association of State Securities Administrators (NASSA) their concerns about crowdfunding, 

as well as their perspectives on the deliberations for intra-State 

crowdfunding exemptions in their States. 

Q.1.2. Do these activities by various States increase the need for 

the Commission to release its crowdfunding rules in a timely manner? 

A.1.2. I have not yet had the opportunity to review the 

crowdfunding activities by various States. But, as a general matter, 

if confirmed, I am committed to working with my fellow Commissioners to complete all JOBS Act mandated rulemakings in a 

thoughtful and timely manner. 

Q.2.1. The JOBS Act established that ‘‘funding portals’’ would be 

viewed as distinct entities with fewer obligations and reporting requirements than traditional broker-dealers, so long as the portals 

meet the requirements and restrictions outlined in the law. Nonetheless, portals will be facilitating the sale of securities and playing 

a role in coordinating payment for those securities. 

• In your view, how can the SEC rulemaking best effectuate 

those disclosures and requirements? Which obligations and requirements for broker-dealers are essential and should be applied to crowdfunding funding portals? 

A.2.1. I understand the important role that disclosures and other 

requirements play in helping investors make informed decisions 

about whether to purchase a company’s securities. If confirmed, I 

look forward to working with the staff and my fellow Commissioners to determine which obligations and requirements for traditional broker-dealers should be applied to crowdfunding portals. 

Q.2.2. Which restrictions on funding portals, beyond not giving investment advice or directly handling the investors’ funds, should 

also be implemented? 

A.2.2. In addition to prohibitions on giving investment advice and 

directly handling investor funds, the JOBS Act mandates two other 

prohibitions that should be implemented. One provision prohibits 

funding portals from soliciting purchases, sales or offers to buy the 

securities offered or displayed on its Web site or portal. The other 

provision prohibits compensating employees, agents or other persons for such solicitation or based on the sale of securities displayed or reference on its Web site or portal. The JOBS Act also 

allows the Commission to determine, by rule, other activities that 

may be prohibited. If confirmed, I look forward to working with the 

staff and my fellow Commissioners to determine what additional 

prohibitions should be implemented. 

Q.2.3. In addition to background checks, what steps should the 

SEC take to prevent fraud in crowdfunding, and to make sure that 

participants understand the meaning of fraud? 

A.2.3. The SEC’s Office of Investor Education and Advocacy (OIEA) 

is the office within the Commission that is dedicated to helping in-
60 

vestors invest wisely and avoid fraud. If confirmed, I look forward 

to working with the Director and staff of OIEA to determine what 

specific steps the Commission can take to help educate investors 

and prevent fraud in crowdfunding. 

In addition, the local offices of State securities regulators are 

often the first to receive complaints from investors about potentially fraudulent activity. If confirmed, I look forward to discussing 

with members of the National Association of State Securities Administrators (NASSA) their front line experiences with 

crowdfunding. 

RESPONSE TO WRITTEN QUESTION OF SENATOR HAGAN 

FROM MICHAEL S. PIWOWAR 

Q.1. State and local governments and municipal organizations have 

expressed concern about money market mutual fund reforms. Municipalities obtain substantial, short-term funding from money 

market mutual funds and are concerned that if investors no longer 

find the product attractive, money market mutual fund assets will 

shrink and an important source of capital for public projects will 

become more costly. Given that money market mutual funds provide such a substantial share of short-term lending to local governments, do you have concerns that new regulations on money market mutual funds could make it more difficult for municipalities to 

obtain cost-effective financing for projects? 

A.1. The SEC’s recent money market reform rule proposal includes 

an alternative that would require a floating net asset value (NAV) 

for prime institutional funds. Government money market funds and 

retail money market funds would be exempt from the floating NAV 

requirement, but there is no exemption for municipal funds. However, the SEC solicits public comment on a number of questions in 

the rule proposal, including ‘‘Should money market funds that invest primarily in municipal securities be exempted from the floating NAV requirement? Why or why not? To what extent would 

such funds expect to qualify for the retail exemption?’’ and ‘‘Should 

the exemption for Government money market funds be extended to 

municipal money market funds? Why or why not?’’ 

I understand that money market funds are substantial purchasers of short-term securities issued by States, local governments, and municipal authorities. If confirmed, I will work closely 

with staff and my fellow Commissioners to carefully consider the 

public comments on the important questions above. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM RICHARD T. METSGER 

Q.1. In response to questions on what additional steps NCUA 

should take to implement lessons learned from the financial crisis, 

you stated that NCUA’s regulations need to be modernized to identify and address threats in the modern marketplace. More specifically, how do you plan to ‘‘modernize’’ NCUA’s regulatory approach? 

A.1. NCUA needs to have in place balanced rules that reflect the 

risks of the modern marketplace. In essence, the agency must have 
61 

forward-looking rules to mitigate small risks before they turn into 

large ones. In terms of risks on the horizon, I see three areas for 

NCUA to act upon. 

First, the agency needs to provide appropriate tools to permit 

well-managed, experienced credit unions to hedge interest rate 

risk. Second, the agency needs to enhance emergency liquidity access for all credit unions. If confirmed, I am committed to working 

to quickly complete the rulemakings already begun by the NCUA 

Board on both of these important matters. 

Third, credit unions need to have in place safeguards to protect 

against cyber-security and technological threats. As these risks 

evolve, the industry must also change. For example, credit unions 

ought to continue to update their procedures to test the security of 

their electronic payment systems, Internet platforms, and other 

electronic network functions. 

To address these matters, I understand that the Federal Financial Institutions Examination Council, of which NCUA is a member, has recently created a working group to enhance communication among the FFIEC member agencies and build on existing efforts to strengthen the activities of other interagency and private 

sector groups. Among other things, this group is reviewing existing 

examination policies and guidance addressing cyber-security and 

critical infrastructure resilience in order to make recommendations 

for reform. 

Because cyber-security threats can lead to credit union losses 

and potentially affect the Share Insurance Fund, I am committed 

to working within the FFIEC framework to address these matters 

and, as necessary, adopt narrowly targeted regulations and issue 

industry guidance to protect against cyber-security threats. 

Q.2. You also stated that interest rate risk is at the top of your list 

of market threats. How do you plan to address this threat? What 

proposals do you plan to champion to ensure credit unions are prepared for rising interest rates? 

A.2. If confirmed, I am firmly committed to ensuring that credit 

unions have the policies and tools in place to protect against rising 

interest rates. Last year, the NCUA Board issued a final rule on 

managing interest rate risk. This rule requires covered credit 

unions to have a written interest rate policy and an effective interest rate management program. NCUA has issued guidance on this 

rule that provides credit unions with the flexibility to manage their 

business models with NCUA’s interest rate risk management expectations. 

Earlier this year, the NCUA Board also issued a proposed rule 

to provide certain well-managed federally insured credit unions 

with the authority to purchase limited amounts of simple derivatives. Access to tools like interest rate swaps and interest rate caps 

would help credit unions to offset interest rate risk. 

If confirmed, I am committed to working with my colleagues on 

the NCUA Board to complete the derivatives rulemaking. Additionally, I would work to ensure that NCUA has specialists in the field 

to examine, and provides examiners with sufficient training on, interest rate risk. Finally, through speeches and other public communications, I would work to educate the industry on the importance 
62 

of protecting against interest rate risk, diversifying portfolios, and 

avoiding heavy reliance on long-term loan obligations. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY 

FROM RICHARD T. METSGER 

Q.1. NCUA’s budget has gone up for the last 5 years. Should containing costs be a priority for NCUA, and what do you think can 

be done to keep a lid on future budget expenditures? 

A.1. As detailed in my written statement, if confirmed, my vision 

is for NCUA to be recognized as an agency that manages its own 

fiscal house well. I believe NCUA should strive to demonstrate efficiency in managing its budget, while focusing on NCUA’s core mission of protecting safety and soundness. 

NCUA needs sufficient resources to address the increasing size, 

complexity and risk profile of the credit union industry. While 

NCUA’s overall budget has increased in recent years, the agency’s 

budget expressed as a share of industry assets has remained essentially flat. If confirmed, I am committed to considering what further steps could be taken to lower the budget as a percent of the 

industry’s assets, consistent with statutory requirements, contractual obligations and prudential priorities. 

To contain future budget expenditures, I believe that NCUA 

should utilize zero-based budgeting, in which each expense is justified anew each year. This is an important tool to use to validate 

the continued need for each expenditure without sacrificing required oversight. 

Q.2. Credit unions have raised concerns about an NCUA proposal 

under which the agency would assess fees for activities it considers 

risky. Would this proposal set the stage for fees to become a more 

common regulatory tool of the NCUA? 

A.2. As part of an overall strategy for helping credit unions manage interest rate risk, I understand that the NCUA Board has 

issued a proposed rule to provide well-managed federally insured 

credit unions with more than $250 million in assets the authority 

to purchase limited amounts of simple derivatives. With appropriate safeguards in place, these interest rate swaps and interest 

rate caps would allow participating credit unions to hedge against 

that risk. 

As I understand, the supervisory costs associated with this proposed rule are, however, significant. To determine how to pay for 

these costs, the proposed rule has requested comments on whether 

to institute fees on credit unions that apply for or obtain this expanded authority. 

If confirmed, I would closely read the comment letters received 

as part of the derivatives proposed rulemaking to evaluate the appropriateness of imposing such fees. I would also carefully weigh 

the factors about whether NCUA should continue to cooperatively 

charge all credit unions for the costs of supervision or create new 

fees like the ones in the proposed rule to address the unique circumstances of this rulemaking. 

Q.3. A number of credit unions have raised concerns about examinations and their ability to dispute findings. How can we make 
63 

sure that credit unions receive fair treatment from their examiner 

and have appropriate avenues of appeal? 

A.3. To prevent appeals, I believe examinations should be consistent. Additionally, the process for resolving complaints must be 

clearly understood. Open and direct communication between NCUA 

examiners and credit unions is also a key to resolving problems at 

the first opportunity. As a result, NCUA examiners must have appropriate training on successful communications techniques. Such 

training will help to prevent appeals from occurring. 

When the relationship between an examiner and a credit union 

fails to produce a mutually agreeable result, credit unions need to 

have access to a fair, equitable and reliable appeals process. As I 

understand, NCUA presently has in place a multi-layered appeals 

process that involves informal and formal channels. NCUA also 

communicates the process for filing appeals as part of the cover letter that accompanies every exam. 

If confirmed, I would carefully examine the agency’s record on 

appeals, once I have access to the records, and the need to further 

improve the effectiveness of appeals procedures. If necessary, I will 

press staff to see if, in my judgment, the process is flawed or the 

appeals are handled correctly. To enhance fairness, equity and reliability, I would not hesitate to recommend changes aimed at improving the appeals process, if I believe they are warranted. 

Q.4. Some have raised concerns that prompt corrective action and 

capital requirements for credit unions are too prescriptive. Do you 

have similar concerns and is there a role for NCUA in addressing 

those concerns? 

A.4. Risk-based capital and leverage capital rules are critical components to an effective, well-developed regulatory regime for credit 

unions. Together, they ensure that the right level of capital is applied to the right level of risk without overburdening low-risk institutions. They also ensure that capital regulation is dynamic based 

on the size and risk appetite of a credit union. 

Capital also plays a central role in the cooperative credit union 

system. Losses to the Share Insurance Fund are ultimately borne 

by the surviving credit unions that must pay higher premiums to 

offset the losses. An effective capital regime therefore protects the 

entire industry, not just an individual credit union. 

I believe that forward-looking indicators of capital adequacy can 

aid in identifying risks and the impact of potential adverse outcomes on a financial institution. A January 2012 report by the Government Accountability Office also recommends that NCUA should 

consider additional prompt corrective action triggers that would require early and forceful regulatory action and make recommendations to Congress on how to modify prompt corrective action. 

NCUA has not revised the risk-based net worth requirement of 

the prompt corrective action standard since its introduction in 

2000. If confirmed, I am committed to exploring what steps NCUA 

could take to modify its risk-based capital rule to reflect today’s 

marketplace realities. I am also committed to following up expeditiously on the GAO report’s recommendations on the need for statutory changes to credit union capital standards. 
64 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

CENTER FOR AMERICAN PROGRESS

1333 H STREET, NW, 10TH FLOOR

Washington, DC 20005 

June 27, 2013 

Hon. TIM JOHNSON

Chairman 

Committee on Banking, Housing & Urban Affairs 

534 Dirksen Senate Office Building 

United States Senate 

Washington, D.C. 20510 

Hon. MIKE CRAPO

Ranking Member 

Committee on Banking, Housing & Urban Affairs 

534 Dirksen Senate Office Building 

United States Senate 

Washington, D.C. 20510 

Dear Chairman Johnson and Ranking Member Crapo: 

We are writing to express our support for the nomination of Congressman Melvin 

Watt to lead the Federal Housing Finance Agency. The U.S. Senate should move 

quickly to confirm him. 

The Federal Housing Finance Agency, or FHFA, urgently needs a confirmed director as it moves forward in collaboration with Congress to reform and rebuild the 

U.S. housing finance system. The agency has been operating as conservator of 

Fannie Mae and Freddie Mac without a confirmed director for close to 5 years. 

Initially, much of FHFA’s work focused on restoring the financial health of Fannie 

Mae and Freddie Mac, which were on the brink of failure when Congress appointed 

the FHFA to act as their conservator in 2008 and are now generating revenues. 

Now, however, the agency is turning to very significant decisions concerning the access to and price of mortgage credit, the supply of affordable rental, and the nature 

of the securitization process that will shape the future of the U.S. housing finance 

system without the benefit of a presidentially appointed director. 

While Congress considers options for reforming the Nation’s housing finance system, a process that will likely take significant time, FHFA will continue to play a 

key role in determining whether affordable credit is broadly available to diverse 

populations and geographic locations, or whether credit will be more costly, more 

limited, and less sustainable, especially for first-time home buyers, low- and moderate-income households, rural communities, and communities of color. 

We believe that Mr. Watt has the vision, expertise, and experience necessary to 

provide strong leadership for FHFA. His personal background and professional experience have provided him with a deep commitment to affordable housing and sustainable credit, which not only support a robust housing market, but also provide 

shelter and opportunity for America’s families and spur economic growth for the Nation as a whole. Having spent more than two decades running a law practice focusing on business, real estate, municipal bonds, and community development, he 

knows the details of housing finance from the ground level. At the same time, as 

one of the first policymakers to sound the alarm about dangers of predatory lending—which ultimately led to the foreclosure crisis—he has demonstrated an equal 

ability to see how what’s happening on the ground can threaten the larger housing 

market and economy as a whole. 

We appreciate your attention to this important nomination and would be happy 

to respond to any questions or concerns that you may have. 

Sincerely, 

JULIA GORDON, 

Director, Housing Finance and Policy, 

Center for American Progress 
65 
66 
67