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THE OBAMA ADMINISTRATION’S 

RESPONSE TO THE HOUSING CRISIS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INSURANCE, HOUSING AND 

COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 6, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–69 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY

JUDY BIGGERT, Illinois, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

PATRICK T. MCHENRY, North Carolina 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT J. DOLD, Illinois 

STEVE STIVERS, Ohio 

LUIS V. GUTIERREZ, Illinois, Ranking 

Member 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

October 6, 2011 ................................................................................................. 1 

Appendix: 

October 6, 2011 ................................................................................................. 41 

WITNESSES 

THURSDAY, OCTOBER 6, 2011 

Barofsky, Neil M., Senior Fellow and Adjunct Professor, New York University 

School of Law ........................................................................................................ 24 

Calabria, Mark A., Ph.D., Director, Financial Regulation Studies, Cato Institute ........................................................................................................................ 26

Galante, Carol J., acting Assistant Secretary for Housing/Federal Housing 

Administration Commissioner, U.S. Department of Housing and Urban Development, accompanied by Yolanda Chavez, Deputy Assistant Secretary 

of Grant Programs, Office of Community Planning and Development, U.S. 

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

Goodman, Laurie S., Senior Managing Director, Amherst Securities Group 

LP .......................................................................................................................... 28

Jakabovics, Andrew, Senior Director, Policy Development and Research, Enterprise Community Partners ............................................................................. 30 

Kingsley, Darius, Deputy Chief, Homeownership Preservation Office, U.S. 

Department of the Treasury ................................................................................ 10 

Trevino, Tammye H., Rural Housing Services Administrator, U.S. Department of Agriculture .............................................................................................. 7 

APPENDIX 

Prepared statements: 

Barofsky, Neil M. .............................................................................................. 42 

Calabria, Mark A. ............................................................................................. 50 

Galante, Carol J. .............................................................................................. 62 

Goodman, Laurie S. .......................................................................................... 75 

Jakabovics, Andrew .......................................................................................... 83 

Kingsley, Darius ............................................................................................... 93 

Trevino, Tammye H. ......................................................................................... 117 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written statement of the U.S. Department of Housing and Urban Development ........................................................................................................... 127 

Written statement of the National Association of REALTORS® ................. 139 

Letter from the National Low Income Housing Coalition ............................. 146 

(1) 

THE OBAMA ADMINISTRATION’S 

RESPONSE TO THE HOUSING CRISIS 

Thursday, October 6, 2011 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. 

Members present: Representatives Biggert, Hurt, Capito, Garrett, Duffy, Dold; Gutierrez, Waters, Velazquez, Cleaver, Watt, and 

Sherman. 

Also present: Representative Al Green of Texas. 

Chairwoman BIGGERT. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order. 

We will begin with opening statements, and it is great to see all 

of the witnesses back here again. Thank you for coming. 

I will recognize myself for 4 minutes. 

Today’s hearing is a continuation of our subcommittee’s work to 

examine the Administration’s refinancing and foreclosure mitigation initiatives and efforts to facilitate the return of the private sector into the housing market, and we will hear from senior Administration officials and several private-sector witnesses. 

Earlier this year, the House voted to end a number of the Administration’s housing programs because they were unsuccessful, costing taxpayers billions of dollars, and, in the case of HAMP, doing 

more harm than good. 

Nearly one month ago, President Obama offered two new initiatives as part as his jobs speech that he urgently requested to deliver to a joint session of Congress. These new housing programs 

were: one, a modified version of an existing Fannie Mae and 

Freddie Mac program to refinance mortgages called the Home Affordable Refinance Program, or HARP; and two, a $15 billion program that is a new iteration of the Neighborhood Stabilization Program, or NSP, which we will examine. 

At a glance, both of these initiatives sound more like stimulus 

spending. However, as we have learned, Federal spending doesn’t 

create jobs. Rather, it increases our deficit. That said, I look forward to hearing more details about them from the Administration 

officials. 

As for housing, it isn’t clear to me how any of the Administration’s initiatives or proposals have succeeded in facilitating a marVerDate Nov 24 2008 16:59 Apr 25, 2012 Jkt 072610 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\72610.TXT TERRIE
2 

ket recovery. In fact, the Administration never achieved its own 

projections for success of these initiatives. In short, I think that 

these programs have failed to deliver. Housing always leads us out 

of recession, but the Administration’s housing regulations and policies are expanding the role of government in the mortgage market 

and forestalling our economic recovery. 

First, Federal Government programs, FHA, Fannie and Freddie, 

monopolize 90 percent of the mortgage market; second, failed 

taxpayer- funded housing programs like HAMP are preventing the 

market from hitting the bottom and prolonging our housing, economic, and job recovery; and third, businesses and the mortgage 

market are threatened by the Administration’s new costly regulations like the proposed QRM regulations. QRM will distort competition in the market, limit choice in credit, and increase costs for consumers and businesses. Businesses need regulatory certainty, relief, and common sense, not competition or indecisiveness from 

Washington. 

At today’s hearing, we are going to talk about the fact that 

Americans need jobs, which is what businesses, not government, 

create; and today we have an opportunity to evaluate the last 3 

years of the Administration’s response to the housing crisis through 

the numerous housing programs. It is my hope that we will get a 

better understanding of the lessons learned before considering new 

approaches. 

I welcome today’s witnesses and recognize the ranking member, 

Mr. Gutierrez, for 5 minutes. 

Mr. GUTIERREZ. Thank you, Chairwoman Biggert, and thank you 

to all the witnesses for joining us this morning. 

Once again, we are talking about the continuing housing crisis, 

and I have seen this movie before. Millions of families are still facing default or foreclosure, vacant homes are dragging down communities, and we are still not sure we have seen the worst of it; and 

we are taking another necessary look at housing programs implemented in response to the crisis, most of which have failed to live 

up to our expectations. 

While we can talk about these programs all day long, we cannot 

refute the fact that we have squandered an opportunity. We had 

a chance to force Wall Street banks to take responsibility for an 

economic crisis they helped create but were too easy on them from 

the start. 

To make matters worse, banks have done far too little to help 

families stay in their homes. Treasury, HUD, and FHFA decided 

at some point that foreclosure prevention could be done with optional programs and incentives, and then the banks came back and 

told us the incentive programs weren’t big enough. Then, mortgage 

servicers turned their modifications that didn’t work and robo-signing foreclosures and just hoped we weren’t looking. 

I can say that I am encouraged by some of the promising new 

ideas out there because I still believe there are many actions that 

can help. For example, Project Rebuild could give neighborhood organizations more access to private capital to stabilize hard-hit communities. The agencies in charge could all be more creative, careful, and thoughtful in the way they manage all the foreclosed 

3 

homes they have on their books. Changes to HARP could also allow 

more people to refinance expensive mortgages. 

But as we move forward with the next set of ideas, we must take 

a good look and see what we can learn from our past mistakes. We 

certainly can’t afford to repeat them. 

I look forward to the testimony of the witnesses, and I thank the 

chairwoman. 

Chairwoman BIGGERT. Thank you, Mr. Gutierrez. 

Mr. Hurt, our vice chairman, is recognized for 1 minute. 

Mr. HURT. Thank you, Madam Chairwoman. 

Thank you for holding another important hearing in the subcommittee to conduct oversight of the Obama Administration’s response to the housing crisis. I appreciate your leadership on these 

issues and your commitment to responsible policies that will facilitate the return of private capital to the housing market. 

This subcommittee has conducted a number of hearings examining the programs that the Obama Administration created in an 

attempt to address the housing and economic crises. While these 

programs were well-intended, our subcommittee has found these 

initiatives have not yielded the results that the American taxpayers were promised at their inception. Billions of dollars were 

committed to these programs. Yet, we have heard from GAO, the 

TARP Inspector General, and other experts that these programs 

have proven ineffective in assisting homeowners in an unwise use 

of taxpayer dollars. 

While the subcommittee has demonstrated how misguided this 

approach is, the President is proposing to double down on these 

flawed initiatives as part of his American Jobs Act. The best way 

that we can help the homeowner in the 5th District of Virginia, my 

district, and across the country stave off foreclosures is with a job. 

Instead of trying to spend our way to an economic recovery, it is 

critical that we continue to focus on supporting policies that remove barriers to job growth so that our job creators will have the 

confidence necessary to put people back to work and move our 

economy forward. 

I thank the witnesses who are here today to share with us their 

perspectives, and I look forward to hearing from you. I yield back 

my time. 

Chairwoman BIGGERT. Thank you. 

The gentlelady from West Virginia, Mrs. Capito, is recognized for 

1 minute. 

Mrs. CAPITO. Thank you, Madam Chairwoman. 

I would like to thank you for holding this hearing to examine the 

Administration’s efforts to ease the housing collapse that left so 

many of our Nation’s homeowners devastated. The difficulties currently facing the housing market are certainly central to the health 

of our overall economy. 

As we know, the different programs that were created—HAMP, 

HARP, NSP, the FHA refinance, and the emergency home loan program—may have provided relief to some, but they have fallen woefully short of their goals and failed to right a housing market which 

is still struggling. 

Earlier this year, after documenting the progress of homeowner 

assistance, foreclosure prevention, and community development efVerDate Nov 24 2008 16:59 Apr 25, 2012 Jkt 072610 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\72610.TXT TERRIE
4 

forts, it became, I think, very apparent that too many taxpayers’ 

dollars are being spent supporting ineffective programs. Not only 

are these not reaching homeowners, but in some cases, the homeowners who did receive assistance have come out in a worse financial position than before. 

This morning we have another—yet another opportunity to shed 

light on the failed initiatives and gain insight into how to proceed 

in the recovery of our housing system. Unfortunately, the Administration is interested, I believe, in implementing new programs that 

seem to mimic the old ones. 

I would like to thank the chairwoman for bringing us together 

and I look forward to the testimony of our witnesses. 

Thank you. 

Chairwoman BIGGERT. Thank you. 

The gentleman from New Jersey, Mr. Garrett, is recognized for 

2 minutes. 

Mr. GARRETT. I thank the Chair for holding this important hearing. 

At the risk of stating the obvious, our Nation’s housing market 

is hurting, and it is hurting badly. House prices are falling, we 

have delinquencies, default rates are at record levels, and there is 

a vast oversupply of properties hanging over the market. 

It is important to remember that we did not get into this mess 

overnight, and there is no magic elixir to cure all the ills. But as 

policymakers, we can decide to prolong the pain and continue to 

kick the can down the road, dragging the problem out for years to 

come at a much greater cost to taxpayers, or we can confront the 

problem and face it head on and begin to do the necessary work 

of what? Clearing the excess inventory and reestablishing a more 

sustainable housing finance system. 

Ad hoc plan after ad hoc plan by this Administration has done 

absolutely nothing but delay the eventual correction that our housing market and market participants have to endure. The current 

new ad hoc plans being floated by this Administration appear to be 

nothing more than a back-door stimulus plan by forcing the breaking of legal contracts and requiring the GSEs to basically forfeit 

their legal standing on claims to the banks that sold them faulty 

loans. This would potentially subject the GSEs to billions and billions of dollars of additional losses, the bills of which will go directly to whom? All of the American taxpayers. 

Also, CBO has stated that taxpayers will stand to lose literally 

billions of dollars through lower coupon payments that the Fed will 

receive on its $1.25 trillion of agency mortgage-backed securities 

that it purchased through its first round of quantitative easings. 

Add that together, then. 

As if these concerns were not enough, the most troubling aspect 

of these proposals is what? It is the negative impact that it will 

have on private mortgage investment from this point forward. At 

a time when we are trying to bring more private investment banks 

back into our Nation’s mortgage system, actions now being taken 

by the Federal Government to reduce the value of investments currently being held by investors will act as an impediment, if you 

will, to future investment. These actions will raise future rates as 

investors will have to basically price this into the mix. 

5 

Fannie and Freddie are not toys of this Administration to try out 

their new social policy. Fannie and Freddie are two failed companies that have played a leading role in this financial crisis, and at 

a time like this, the last thing we need to do is to give investors 

another reason not to buy U.S. mortgage-backed securities. 

Chairwoman BIGGERT. Thank you. 

Mr. Dold, the gentleman from Illinois, is recognized for 2 minutes. 

Mr. DOLD. Thank you, Madam Chairwoman. 

Obviously, we have a very serious housing problem in this country. When serious problems arise, whether they are in the private 

sector or in the government, our first priority should be to thoroughly investigate the problem and correctly define what the actual 

problem is. And then we think about possible solutions, and we try 

to identify the most cost-effective solutions while also trying to 

identify the potential unintended consequences and risks. 

Once we settle on the most cost-effective solution, we need to 

think about how best to implement and execute that solution. Certainly, that is what we do in the private sector. At all times, we 

recognize that we are necessarily dealing with imperfect information, with imperfect institutions, and with frequently changing circumstances. And at all times, we recognize that mistakes are possible at any point in the problem-solving process, and we should expect that future changes and improvements will be made. So after 

the implementation and execution, our next obligation is to continually reevaluate the results, while looking for necessary changes 

and improvements. We don’t do that very well. 

So after we ask whether we correctly defined the problem in the 

first place and whether our assumptions were valid, we also should 

ask whether we chose the best solution, whether we properly implemented and executed the solution, and whether we created unintended negative consequences. Very simply, for any serious business problem or public policy problem, we must ask what worked 

and what didn’t work and, more importantly, why. And then, we 

are obligated to make the necessary changes and improvements. 

We are not rigidly tied at all costs to previous decisions. We are 

not trying to prove at all costs that we were perfectly correct all 

along and that nothing ever needs to change or that more of the 

same is the only possible answer. Instead, changes and improvements and corrections are unquestionably a necessary and useful 

part of the entire problem-solving process. That is the problem, and 

that is why we are here today, to evaluate the historical results of 

the Obama Administration’s efforts to solve this very serious public 

policy problem, which is the housing crisis in this country, and to 

identify the possible changes and improvements to those efforts. 

The country is depending on us to do this as we look at the excess glut of housing that is out there. So I look forward to having 

our witnesses help us identify these issues and move forward for 

the American public. 

And I yield back. 

Chairwoman BIGGERT. Thank you. Just in the nick of time. 

Do you have an opening statement, Ms. Waters? Good morning. 

The gentlelady is recognized for 5 minutes. 

6 

Ms. WATERS. Thank you very much. Madam Chairwoman, I 

would like to thank you for holding this hearing this morning. 

There were a record 2.9 million foreclosure filings in 2010, up 

from 2.8 million in 2009, and 2.3 million in 2008. Filings will be 

20 percent higher in 2011, crossing the 3 million threshold. 

With 3 million families at risk of losing their homes this year, 

there is a clear need for programs that prevent foreclosures and 

deal with the blight and disinvestment caused by abandoned and 

foreclosed properties. The Administration’s response to date simply 

hasn’t been bold enough. This is why I am pleased that, as part 

of the American Jobs Act, the Administration has recommended expanding the highly successful Neighborhood Stabilization Program, 

which I authored, to include commercial properties. Called Project 

Rebuild, this targeted assistance to foreclosed and abandoned residences and commercial properties will alleviate blight and create 

jobs and reinvestment in struggling communities. I am looking forward to learning more about this very promising program. 

While I am encouraged by Project Rebuild, I am disappointed in 

HUD’s failure to properly implement the Emergency Homeowners 

Loan Program. I believe that the program was the right solution 

to the problems facing unemployed homeowners and shouldn’t be 

discounted simply because the agency we charged to implement it 

dropped the ball. We have to hold HUD accountable for the mistakes it made in implementing this program, but we can’t punish 

the millions of homeowners who would have benefited from this 

program by abandoning them to unemployment and foreclosure. 

I have also had many issues with HAMP. I will be the first to 

admit that I am dissatisfied with its performance thus far. However, the problem with the program is not its goal of helping homeowners. The problem is a lack of meaningful participation by 

servicers and a lack of enforcement and willingness to change by 

Treasury. Those are the problems we need to fix, and I believe that 

the Administration is committed to fixing those problems. 

However, the silence from my friends on the other side of the 

aisle on how we can fix HAMP to make it work better for homeowners has been deafening. The Republicans have no answer on 

how to fix HAMP and have offered no alternatives because they are 

steadfastly unwilling to challenge the servicers. Instead, my friends 

on the opposite side of the aisle like to say, ‘‘The market must bottom out.’’ 

First, we don’t even know what the bottom is yet. If we have 

learned one thing, it is that foreclosures beget more foreclosures 

and a spiral of declining home prices. 

Second, letting the market bottom out is simply a euphemism for 

letting more people lose their homes, causing children to have to 

switch schools, and more families to be uprooted from their churches, neighbors, and other community institutions. 

So, Madam Chairwoman, I would like to thank you; and I yield 

back the balance of my time. 

Chairwoman BIGGERT. Thank you. 

With that, without objection, all members’ opening statements 

will be made a part of the record, and I will now introduce the first 

panel of witnesses. 

7 

First of all, we have Ms. Tammye Trevino, Administrator, Housing and Community Facilities Programs, U.S. Department of Agriculture’s Rural Development Agency. Thank you for being here. 

Second, Ms. Carol Galante, acting Federal Housing Administration 

Commissioner and Assistant Secretary for Housing, U.S. Department of Housing and Urban Development. And, finally, Mr. Darius 

Kingsley, Deputy Chief, Homeownership Preservation Office, U.S. 

Department of the Treasury. 

For the record, I would also like to recognize Ms. Yolanda Chavez, Deputy Assistant Secretary of Grant Programs with the Office 

of Community Planning and Development at HUD. Ms. Chavez is 

accompanying Ms. Galante to answer any technical questions about 

NSP or Project Rebuild. 

I don’t see her. Maybe when we get to the questions, she can 

move up. That would be fine. Thank you. 

Without objection, all of our witnesses’ written statements will be 

made a part of the record, and you will each be recognized for a 

5-minute summary of your testimony. 

And, with that, we will start with Ms. Trevino. You are recognized for 5 minutes. 

STATEMENT OF TAMMYE H. TREVINO, RURAL HOUSING SERVICES ADMINISTRATOR, U.S. DEPARTMENT OF AGRICULTURE 

Ms. TREVINO. Thank you, Chairwoman Biggert, Ranking Member 

Gutierrez, and members of the subcommittee. It is my privilege 

once again to be with you today. 

As we discussed last month, the mission of the Rural Housing 

Service (RHS) is to create vibrant, thriving rural communities, a 

strong housing stock, access to safe, decent, and affordable rental 

housing, and access to high-quality essential community infrastructure. For over 60 years, the Rural Housing Service has provided essential credit access to areas in which low population density has 

hindered capital formation and infrastructure development. The 

Rural Housing Service helps foster the economic stability needed to 

sustain rural America, preserving its vital contribution to our Nation’s prosperity, security, and success. 

To ensure the effectiveness of efforts to improve capital access in 

rural areas, RHS over the past 2 years has reevaluated programs 

from both delivery and beneficiary perspectives and made important enhancements, including: reengineering the Section 502 Single 

Family Housing Guaranteed program such that fees are expected 

to offset losses, allowing the program to facilitate rural borrowers’ 

access to credit while mitigating costs to the taxpayer; increasing 

flexibility in lending programs for better responsiveness to changing economic conditions; and actively emphasizing loan refinance 

modifications and workout solutions designed to keep homeowners 

in their homes. 

Our programs, as you know, are far-reaching. The Single Family 

Housing, Multi-Family Housing, and Community Facilities Services 

areas are closely integrated through the 47 State offices and 500 

offices that comprise our field structure. 

With a budget authority of $1.3 billion, RHS leveraged a program 

level of approximately $27.2 billion in loans, loan guarantees, 

grants, and technical assistance in Fiscal Year 2011. In underVerDate Nov 24 2008 16:59 Apr 25, 2012 Jkt 072610 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\72610.TXT TERRIE
8 

capitalized rural economies across the Nation, the significance of 

this level of commitment can hardly be overstated. Since Fiscal 

Year 2008, the program level for the Section 502 Single Family 

Housing Guaranteed Program has increased almost fourfold. The 

program expanded from $6.2 billion in Fiscal Year 2008 to the current program level of $24 billion. 

For the single family housing direct program, in the 3 years from 

2009 to 2011, more than 52,000 single family housing direct obligations totaling $4.79 billion were made to low- and very low-income 

rural Americans. For families and individuals who often could not 

qualify for single family housing loans during that period, the 

Rural Housing Service multi-family housing programs invested 

$648.8 million and attracted an additional $1.74 billion in thirdparty investments for rental housing in rural America. These improvements to multi-family housing stock benefited more than 

460,000 Americans living in Rural Development units, with the 

majority being our elderly and persons with disabilities. Actively 

managing the cost of the housing and CF programs is more essential than ever, and the RHS is pursuing several strategies toward 

that end. 

In the area of portfolio management, RHS has compiled a superior performance record over the past decade. In the area of efficiencies, through asset redeployment and operational realignment, 

RHS is pursuing streamlining initiatives in several key areas, including our State network and field office and the centralization of 

core operations at our central servicing center in St. Louis. 

And in the area of partnerships in the instances of shared interests, Rural Development has developed various partnerships with 

entities, agencies, and private and nonprofit organizations. Of particular note is the collaboration with my partners at this table. 

RHS has been working with HUD, Treasury, OMB, and other 

Federal partners in an effort to better coordinate Federal rental 

policy and identify administrative changes. 

On September 29th, in Mount Pleasant, Michigan, USDA, HUD, 

and the Michigan State Housing Development Authority signed a 

three-party MOU to coordinate subsidy layering reviews for rental 

housing developments funded by more than one source in Michigan. The MOU is designed to streamline and clarify the regulatory 

process so that transactions can be approved faster and more efficiently and is the first written agreement in the Nation. We are expanding these MOUs to North Carolina, Ohio, Wisconsin, South 

Carolina, Nevada, Pennsylvania, and Rhode Island. 

The protracted economic downturn has had a profound effect on 

poverty rates, and they are rising faster in rural America than in 

urban America. 

Thank you for the opportunity to address you today. More information can be found in the written testimony that we have submitted. Thank you. 

[The prepared statement of Administrator Trevino can be found 

on page 117 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Ms. Galante, you are recognized for 5 minutes. 

9 

STATEMENT OF CAROL J. GALANTE, ACTING ASSISTANT SECRETARY FOR HOUSING/FEDERAL HOUSING ADMINISTRATION COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT, ACCOMPANIED BY YOLANDA CHAVEZ, DEPUTY ASSISTANT SECRETARY OF GRANT PROGRAMS, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Ms. GALANTE. Chairwoman Biggert, Ranking Member Gutierrez, 

and members of the subcommittee, thank you for the opportunity 

to testify today regarding HUD’s response to the housing crisis. 

As you know, when this Administration took office, our economy 

was shedding 750,000 jobs per month, home prices had fallen for 

30 straight months, and foreclosures were surging to record levels. 

Critical to the Administration’s response has been the FHA, which 

even in the midst of this crisis has helped some 2 million first-time 

home buyers realize the dream of homeownership; and with 60 percent of African Americans and Latinos using FHA insurance to buy 

a home in 2010, FHA has been a particularly powerful pathway to 

the middle class for minorities during this difficult time. 

In addition, through one million loss mitigation actions and early 

delinquency interventions, FHA has played an important role in 

keeping families in their homes. Combined with Treasury’s modification programs, including HAMP, we have set a standard for 

mortgage modification efforts that is improving the way private 

servicers provide assistance to borrowers. More than 5.1 million 

families have received restructured mortgages since April 2009, 

nearly twice the number of families who have lost their homes in 

that time. 

Critical to this progress has been housing counseling resources, 

which, as you know, were eliminated in 2011. There is strong evidence that housing counseling works. Indeed, distressed homeowners who work with a counselor are nearly twice as likely to receive a mortgage modification than those who do not. With President Obama’s proposal to restore HUD’s housing counseling grant 

funding and the changes we are making to get those dollars where 

they are needed more quickly, we hope Congress will restore these 

funds for 2012. 

As the underlying cause for most foreclosures has shifted from 

bad loans to unemployment, we are now requiring servicers of 

FHA-insured mortgages to extend the forbearance period for unemployed borrowers to 12 months. 

In addition, we are helping about 12,000 families who otherwise 

might have lost their homes through the Emergency Homeowners 

Loan Program. This is significantly less than the number we had 

hoped to assist, in part due to the difficulties of program set-up and 

the program statutory limitations. 

In the face of these challenges, HUD worked closely with counseling agencies down to the last few hours before the September 

30th deadline to make certain as many homeowners as possible 

qualified for assistance. We have learned many lessons from this 

process, and we know we could assist more borrowers if we had 

more time. 

10 

Another key challenge is the overhang of foreclosed properties, 

which drag down home prices and destabilize communities. With 

about a quarter of a million foreclosed properties owned by HUD, 

the GSEs, FHA joined with FHFA and Treasury to issue a request 

for information to generate new ideas for the disposition of this inventory. All three agencies are now evaluating the comments received. 

This effort complements the Administration’s Neighborhood Stabilization Program, which is on track to address more than 95,000 

vacant and abandoned properties that comprise about 20 percent of 

the REO in targeted areas. 

Independent research has shown improvements in sales prices 

and vacancy rates in communities with targeted neighborhood stabilization investments. These successes have led President Obama 

to propose Project Rebuild as part of the American Jobs Act. 

Project Rebuild would create almost 200,000 jobs and further contribute to the stabilization of neighborhoods and communities. This 

reflects President Obama’s belief that rebuilding neighborhoods is 

essential to rebuilding our economy. 

Obviously, there is still more to do. As the President emphasized 

in his recent speech before Congress, a major challenge is the difficulty homeowners face in refinancing their mortgages. While FHA 

has helped 1.5 million families refinance into safe, stable mortgage 

products, HUD is now working with FHFA and Treasury to lower 

barriers to refinancing, which will make it possible for more families to save an average of $2,000 each in the first year, providing 

a critical boost to our economy. 

We also know that we have a responsibility to restore private 

capital to the housing market while ensuring Americans have access to quality housing they can afford. That is why the Administration delivered a White Paper to Congress earlier this year that 

provides a path forward for reforming our Nation’s housing finance 

system, and we look forward to working with you to accomplish 

this. 

We are by no means out of the woods, but with RealtyTrac reporting 11 straight months of year-over-year declines in foreclosure 

activity and crediting the policies that the Administration has pursued as a major factor for this improvement, I am confident we are 

making progress, and I look forward to working with you and the 

subcommittee to continue that progress in the months to come. 

Thank you, and I look forward to your questions. 

[The prepared statement of Commissioner Galante can be found 

on page 62 of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

Mr. Kingsley, you are recognized for 5 minutes. 

STATEMENT OF DARIUS KINGSLEY, DEPUTY CHIEF, HOMEOWNERSHIP PRESERVATION OFFICE, U.S. DEPARTMENT OF 

THE TREASURY 

Mr. KINGSLEY. Chairwoman Biggert, Ranking Member Gutierrez, 

and members of the subcommittee, thank you for the opportunity 

to testify today on the Administration’s efforts to mitigate the effects of the most serious housing crisis since the Great Depression, 

11 

and specifically Treasury’s response to the Making Home Affordable program and the Hardest Hit Fund. 

It is important to remember that when the Obama Administration took office in January 2009, home prices had fallen for 30 

straight months. Home values had fallen by nearly one-third. 

Fannie Mae and Freddie Mac had been in conservatorship for 4 

months, and American families were struggling to stay in their 

homes. 

Treasury and other Federal agencies responded by taking a series of aggressive steps. Our strategy focused on stabilizing housing 

markets and helping families prevent avoidable foreclosures. Under 

the authority granted by the Emergency Economic Stabilization 

Act, we launched the Making Home Affordable Program, of which 

our first lien modification program, often referred to as HAMP, is 

a key component. In 2010, we launched the Hardest Hit Fund. 

These programs are designed to provide targeted relief to homeowners struggling to make their payments due to a financial hardship but who remain committed to avoiding a foreclosure. Through 

August 2011, HAMP has enabled more than 800,000 homeowners 

to secure permanent modifications of their mortgages. These homeowners save a median of more than $525 a month on their mortgage payments. 

Today, homeowners who begin a trial plan under the program 

have a high likelihood of achieving a permanent modification and 

staying in it. Seventy-six percent of homeowners who started trial 

modifications in the last 16 months converted to a permanent 

modification, with an average trial period today of just 31⁄2 months. 

HAMP modifications have also performed well over time. Based 

on June 2011 data, after 6 months, more than 93 percent of homeowners remain in those permanent modifications. 

For homeowners who do not qualify for HAMP, our guidelines require servicers to evaluate homeowners for other programs to prevent a foreclosure, such as the servicer’s own modification programs. Over 21⁄2 million of these modifications have been offered to 

homeowners outside of the program at no expense to taxpayers. 

But HAMP’s impact goes far beyond the individual homeowners 

it has helped, because it has set new standards and established key 

benchmarks. These include placing limitations on the dual tracking 

of homeowners by requiring servicers to evaluate homeowners for 

HAMP and other mortgage assistance before starting foreclosure, 

making servicers give homeowners looking for help a single point 

of contact, and providing a resource for homeowners who are frustrated with their servicer by supporting both the Homeowners 

HOPE Hotline and the HAMP solution center to fix servicer mistakes and resolve conflicts. 

To ensure the maximum impact of these programs, Treasury is 

committed to making homeowners aware of the resources that are 

available to them. That is why Treasury continues to host events 

across the country to connect homeowners with HUD-approved 

housing counselors and their mortgage servicers. At these events, 

homeowners are guided through their options to prevent foreclosure and can have their questions answered on site. Treasury 

continues to host these events across the country, and we will host 

our 60th event next week in Phoenix. 

12 

Recently, we also launched the second phase of our public service 

advertising campaign to reach struggling homeowners through television, radio, Internet, and billboard PSAs in English and in Spanish. These ads serve as a call to action for those homeowners who 

feel overwhelmed by the challenges they face and reminds them 

that free help is available at 888–995–HOPE. 

We also recognize that the housing crisis is local. Through the 

Hardest Hit Fund Program, we are empowering State housing finance agencies to craft new solutions to help homeowners cope 

with unemployment and negative equity. Programs are now up and 

running in 18 States and the District of Columbia. Seventy percent 

of the Hardest Hit Fund dollars are committed to help unemployed 

borrowers. 

We also know that a modification isn’t the right solution for everyone. That is why we have continued to improve our short sale 

program to help those people for whom homeownership is no longer 

desired or no longer an option. There is still a lot more work to do, 

and the housing market remains fragile, but, as a result of the Administration’s actions, struggling homeowners today have more viable tools available to avoid foreclosure than ever before. 

Thank you for the opportunity to testify. I welcome your questions. 

[The prepared statement of Deputy Chief Kingsley can be found 

on page 93 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

We will now proceed to members’ questions, and we will try and 

stick to the 5 minutes each to ask questions, and with that, I will 

yield myself 5 minutes. 

My first question is for Ms. Galante: $1 billion was appropriated 

for the Emergency Homeowners Loan Program, and the Administration originally projected that it would help around 50,000 homeowners. Yet my staff indicates that, to date, the program has 

helped around 11,823 homeowners. Are those numbers correct? 

Ms. GALANTE. Thank you for the question. 

The 11,820 is an accurate number as far as we know to this date. 

I think the original estimate was we would hope to help about 

30,000 homeowners. 

Chairwoman BIGGERT. Not 50,000? 

Ms. GALANTE. That is my understanding. 

Chairwoman BIGGERT. Should the taxpayers continue to support 

more programs that don’t meet the expectations? 

Ms. GALANTE. Congresswoman— 

Chairwoman BIGGERT. The program has expired. 

Ms. GALANTE. The deadline for obligating the funding was September 30th, and I would say—and I acknowledge that HUD could 

have done a better job to get the program up and running more 

quickly. There were many, many challenges to doing that; and we 

helped as many families as we could during that period of time. 

We certainly believe we could help more families if there was 

some ability to extend the program. We do understand that in a 

new fiscal year that that makes—there are some challenges in figuring out how one might do that, but we have learned a lot of lessons, and I would just say we have helped a number of families. 

13 

Chairwoman BIGGERT. Is there any program that has met the expectations? 

Ms. GALANTE. This is a difficult crisis, Congresswoman, and I 

would say that we have tried a number of issues or tried a number 

of solutions to these problems, and we are going to continue to 

work vigorously at doing that. 

Chairwoman BIGGERT. Have any of the programs met expectations? Yes or no? 

Ms. GALANTE. Certainly, I would say the emergency home loan 

program did not meet our expectations. Whether all other programs have, I really can’t say. 

Chairwoman BIGGERT. Okay. It seems like there is an awful lot 

of administrative funds there that have been obligated for 11,823 

people or properties. When you are looking at $72 million, it seems 

like that is an awful lot of money to do that. 

Ms. GALANTE. If I could just say, again, the final numbers for 

what the administrative costs will be are tied to the final number 

of families who are served. So there are certain funds set aside, but 

the final number—the counseling agencies are essentially reimbursed costs based on the number of families assisted. 

Chairwoman BIGGERT. All right. How many foreclosures or defaults were prevented by the Neighborhood Stabilization Program? 

Ms. CHAVEZ. Congresswoman, the NSP program actually does 

not prevent foreclosures. It deals with properties that have been 

foreclosed or abandoned. So it actually helps neighborhoods stabilize after being hit by foreclosures. 

Chairwoman BIGGERT. Okay, thank you. The answer is zero 

then? 

Ms. CHAVEZ. The answer is that the program expectations are 

being met, because expectations are to stabilize neighborhoods, not 

to prevent foreclosures, to help neighborhoods recover from foreclosures. 

Chairwoman BIGGERT. All right. I just wanted a yes-or-no answer. Thank you. 

And then, Ms. Galante, the MMI fund has a mandatory capital 

reserve ratio of 2 percent, but the fund was at 0.53 percent in 2009 

and then dropped to 0.50 percent in 2010. At this time, what is the 

current estimate of the balance in the capital reserve account and 

what do you expect it to be by the second quarter of Fiscal Year 

2012? 

Ms. GALANTE. Again, thank you for the question. 

The health of the MMI fund is obviously very important to us. 

The actuarial for the capital reserve—what the capital reserve fund 

requirement will be is due to Congress, I believe, mid-November, 

so we are working on that actuarial now. 

Currently— 

Chairwoman BIGGERT. Do you think that you will need to ask 

Congress then for an appropriation during the next year? 

Ms. GALANTE. Again, currently, that actuarial is under way. I 

would say the third quarter report that we delivered to Congress 

last week does show the balance in both the financing account and 

the capital reserve account at the present time combined being 

about the same amount as it was last year at this time. 

14 

Chairwoman BIGGERT. What has contributed to the capital ratio 

drop? Is it the poor performance of the portfolio again, which was 

cited in the 2010 annual report? 

Ms. GALANTE. There are a lot of things that go into calculating 

the capital ratio, one of which is how much new business you have 

done that is added to essentially the denominator. 

Our new book of business is stellar, and the capital reserve ratio 

is looking at what are the claim needs over the entire portfolio for 

a 30-year period. So we are essentially needing to contribute to the 

capital reserve as a result of problem loans earlier in FHA’s— 

Chairwoman BIGGERT. Thank you. My time has expired. 

Ms. GALANTE. Thank you. 

Chairwoman BIGGERT. The gentleman from Illinois is recognized 

for 5 minutes. 

Mr. GUTIERREZ. Thank you so much. 

I would like to ask Mr. Kingsley, you said that Treasury created 

HAMP and the Hardest Hit Fund. I would like to ask you, did 

Treasury ever make principal reductions mandatory for lenders 

during the HAMP modification when calculations indicated it was 

the best for the borrowers or the investors? 

Mr. KINGSLEY. Congressman, thank you. You are absolutely correct that for many homeowners, getting a principal reduction on 

their modification is the best way to achieve a more affordable and 

a more sustainable modification. It is one of the reasons we rolled 

out the principal reduction alternative program, which is a component to HAMP. 

Mr. GUTIERREZ. The question is, did you insist? 

Mr. KINGSLEY. Congressman, Treasury is not a regulator. 

Mr. GUTIERREZ. So you agree that—you went on to say it would 

have been a good idea, but you didn’t insist when you sat down 

with them? 

Mr. KINGSLEY. Congressman, Treasury does not have the regulatory ability to require servicers— 

Mr. GUTIERREZ. I think maybe we should remember that the 

next time a Treasury Secretary comes before the Congress of the 

United States to ask us to bail out the industry to the tune of $700 

billion, including your boss, Mr. Geithner, who used to be at the 

New York Federal Reserve, who came before, I think, members 

who are here to ask us for $700 billion, and now you are saying— 

Because I am going to tell you the reason I voted for it was the 

HAMP money. The HAMP money that you just took credit for in 

your opening statement that you created, really you didn’t create. 

That was really an Act of Congress, wasn’t it, and part of the negotiation that we entered into? So you are telling me that, although 

you think it is a good idea, because you are not a regulatory agency, you never sat down with anybody and told them you should reduce? 

Mr. KINGSLEY. Congressman, we don’t have the ability to compel 

banks to write down mortgages, but I do agree that negative equity 

is a really big problem facing a lot of homeowners. We think it is 

a very useful tool to help a lot of homeowners get to a more achievable modification. 

Mr. GUTIERREZ. Let me move forward so I can ask better questions next time a Treasury Secretary, especially one who used to 

15 

work for Goldman Sachs, comes before the Congress of the United 

States to ask us for billions of dollars to bail out his buddies that 

he then goes back to after he is not Treasury Secretary anymore. 

Because in July 2010, the SIGTARP report says, ‘‘Any incremental moral hazard implicated by making principal reductions for 

homeowners mandatory pales in comparison to the moral hazard 

caused by TARP assistance to Wall Street.’’ What do you think of 

that statement? 

Mr. KINGSLEY. Congressman, I am here in my role as Deputy 

Chief of the Homeownership Preservation Office. I am really here— 

and I work on programs, modification programs and refinance programs, ways to help homeowners stay out of foreclosure, and I 

think— 

Mr. GUTIERREZ. Let me ask you another question. In your role— 

maybe I will ask the gentlelady to invite somebody else from Treasury who can answer these questions. We have all been watching 

and waiting on the settlement—and your boss has been very involved in it—between the big mortgage servicers who are doing the 

robo-signing and the State attorneys general. Now, a few States 

are backing out because they thought the banks were going to get 

off too easy. Let me ask you again, because I could be misinformed, 

is Treasury involved in these conversations or in any way helping 

in this litigation? 

Mr. KINGSLEY. Congressman, we are. We are providing technical 

advice to the States and the other parties. 

Mr. GUTIERREZ. So what technical advice are you giving them? 

Mr. KINGSLEY. We have learned a lot from our programs. We 

have learned a lot on how to reach homeowners. We have learned 

a lot about how difficult it is to modify loans, to help those homeowners achieve more sustainable modifications. 

Mr. GUTIERREZ. Let me ask you a question. How do you think 

things are going since there are States that are now saying they 

are withdrawing because the mortgage lenders are getting off too 

easy? Because in the beginning, many of us were heartened that 

there would be tens of billions of dollars available, and there was 

even an indication that the settlement would be across-the-board. 

They did violate the law. It isn’t like we are asking them for 

something. There is a punishment. I am sure even the other side 

agrees that they—maybe they won’t agree they should be punished 

sometimes, because they should be rewarded. But they did do this 

terrible act of robo-signing. And so what do you think? Are things 

going well? 

Mr. KINGSLEY. Congressman, you are absolutely right. There 

were very serious violations of law that were committed. The OCC 

has found that. The State attorneys general have alleged that. 

I think it is a litigation matter, and ultimately it is up to each 

individual State to decide the degree to which they feel they can 

bring the most relief to homeowners. That may require— 

Mr. GUTIERREZ. Since you are part of it and it is under litigation 

and since you agreed that it was a good idea, in some cases, that 

there be principal reductions and modifications, is Treasury giving 

technical assistance so that we can reach that goal of having reductions in the principals that these mortgages owe? 

16 

Mr. KINGSLEY. We are sharing the lessons that we have learned 

through our principal reduction program and our other thoughts on 

all of our modification programs, things the States are learning 

through the Hardest Hit Funds. We are sharing those with the 

State attorneys general. 

Mr. GUTIERREZ. Thank you. 

Chairwoman BIGGERT. Thank you. 

Mr. Hurt, you are recognized for 5 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. 

I guess the first question is for Ms. Galante. 

Ms. Galante, you indicated in response to the Chair’s question 

that there have been no foreclosures prevented by the Neighborhood Stabilization Program; is that right? Or I guess it was Ms. 

Chavez. I am sorry. 

Ms. GALANTE. Yes. Again, I think I can just echo the comment 

that, again, the Neighborhood Stabilization Program is not designed to prevent foreclosures. 

Mr. HURT. Is it true from what I read that not all the money that 

has been authorized, appropriated, and obligated and so forth and 

so on of the $7 billion that has been appropriated over the—since 

2009, that not all that money has been used? 

Ms. CHAVEZ. $7 billion has been obligated. In terms of NSP1, that was $4 billion. Seventy-eight percent of that has been expended. I think you may remember that State and local governments had an 18-month deadline to obligate. They met that deadline at 99.7 percent. They have now expended 78 percent of that 

money. NSP2, which is $2 billion, has an expenditure deadline of 

50 percent after 2 years. Those grantees are on track to meet that 

expenditure deadline in February. 

Mr. HURT. But you have only spent 28 percent, is that what I— 

Ms. CHAVEZ. 2012. No. Again— 

Mr. HURT. For NSP2? 

Ms. CHAVEZ. For NSP2, we are at 30 percent expenditure as of 

this week. 

Mr. HURT. Okay. 

Ms. CHAVEZ. They have to expend 50 percent by February 2012. 

I should also make clear that at this point, grantees have completed over 33,000 properties in terms of acquisition, demolition, 

and home buyer assistance, new construction, and— 

Mr. HURT. How much of NSP3 has been spent? 

Ms. CHAVEZ. As you know, NSP3 just started. It started this 

summer. We obligated the money in, I believe, May, 100 percent 

of that, to State and local governments; and they have obligated 13 

percent of that. So they are doing well since the program was just 

initiated. 

Mr. HURT. It looks like to me that since the housing crisis of 

2008, we have obligated—we have spent or authorized the spending of $7 billion. Only $4 billion has been spent. Does that sound 

about right, a little over half? 

Ms. CHAVEZ. No, I think it is at this point, about a little over $5 

billion. 

Mr. HURT. So out of the $7 billion, $5 billion has been spent 

since 2008 when we had the housing crisis, and with that money 

we haven’t prevented one foreclosure? 

17 

Ms. CHAVEZ. Again, I want to stress that the goal of the program 

is not to prevent foreclosures. It is to help neighborhoods recover 

after they have been hit with foreclosures. 

Mr. HURT. After the people have been kicked out of the house? 

Ms. CHAVEZ. That is the goal of the program. 

There are programs, as Assistant Secretary Galante and our colleague at Treasury has stated, to prevent foreclosures. This program is to help communities stabilize. The initial results in terms 

of impact of NSP, where there has been investment in neighborhoods when compared to neighborhoods that do not receive investment, show reduced vacancy. 

Mr. HURT. But how does that help? By renovating the home that 

the homeowner is no longer in, no longer has any interest in, how 

does that help the homeowner? 

Ms. CHAVEZ. Unfortunately, it doesn’t help that homeowner. 

Mr. HURT. Okay. 

Ms. CHAVEZ. But it helps new homeowners. It helps that neighborhood. It helps those neighborhoods prevent further decline in 

home prices and value. It creates jobs. It helps neighborhoods stabilize so that they don’t decline further. 

Mr. HURT. Okay. And we—as you know, we are borrowing 40 

cents on every dollar we spend in Washington. I am sure you have 

heard that again and again, and you are well aware of that fact. 

How is it that spending what we have, by my estimate, $3 billion 

out of $7 billion that we haven’t even spent yet, how on earth can 

you justify appropriating another—an additional $15 billion for this 

program, as the President has suggested to the Congress? 

Ms. CHAVEZ. I think the way we justify it is NSP is on track to 

create about 90,000 jobs, it is on track to impact about 100,000 

properties, it leverages private resources, and Project Rebuild will 

help—will basically leverage not only other private resources in the 

private sector and their capacity, but it will also really leverage the 

capacity that State and local governments— 

Mr. HURT. Ms. Chavez, my time has expired, so let me just ask 

you this: Those same promises are the same promises that were 

made when the President sold us the first stimulus bill. Doesn’t 

that sound—the same thing that you are promising now, doesn’t it 

sound familiar to what the President promised us when he said 

that unemployment would not go above 8 percent? 

Ms. CHAVEZ. I can tell you the promises of NSP, it has delivered, 

and it is on track to deliver the promises that were made in terms 

of the outcomes of the program. 

Mr. HURT. Thank you, Ms. Chavez. 

Chairwoman BIGGERT. The gentlelady from California is recognized for 5 minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. 

Let me just say that I am the first to say that I am disappointed 

that the legislation that we were able to pass when we served on 

the conference committee for Dodd-Frank to help unemployed 

homeowners—I am disappointed that we—HUD was not able to get 

that money out in a timely way, and because of that there are some 

homeowners who are unemployed who could perhaps have stayed 

in their homes if we had been able to implement that program 

properly. 

18 

Having said that, I am sorry that my friends on the opposite side 

of the aisle do not understand the Neighborhood Stabilization 

Project. It was signed—it is my bill that I created, and it was 

signed into law by President Bush, not Obama but President Bush. 

It is one of the best things that has happened in this meltdown 

that we have had with these foreclosures. 

The gentleman on the opposite side of the aisle keeps asking, 

how many people did it help to stay in their homes, and I think 

the panel more than one time this morning have said it was designed to stabilize neighborhoods. That is why it is called the 

Neighborhood Stabilization Project. 

We recognize that many of these homes were foreclosed on, and 

in some communities where you have a lot of houses that have 

been foreclosed on and the cities were not able to keep up those 

foreclosed housing that it was a big cost to the cities and their fire 

departments and their police departments. We have discovered 

that the weeds had grown up, animals had taken over some, on 

and on and on, and it was driving down the value of other homes 

in the neighborhood. And we have been able to stabilize those 

neighborhoods and keep those property values up of those other 

homes with this Neighborhood Stabilization Project. 

It is a good program. I am glad President Bush signed it into 

law, and I am pleased that you have been able to move this program in a way where you have not only spent the money well but 

you have obligated that money, and it is moving well. So I compliment you on that. 

Here is what I want to ask all of you about today. You can help 

me. We have people who are coming forward to talk about spending 

huge sums of money to buy up large numbers of properties. They 

want to invest in these nonperforming assets, and they have all 

kinds of ways of talking about what they will do with them. 

What I like about what I am hearing is many of them want to 

buy up large numbers of properties, they want to renovate them, 

repair them if they need it, and some they would put back on the 

market. But others are talking about renting the properties back 

to the homeowners who are in trouble before the foreclosure takes 

place. Have you heard any of these proposals? And, if so, what do 

you think about them? Anybody? 

Mr. KINGSLEY. I can go first, Congresswoman. 

Right now, as you may be aware, the FHFA has put out its proposal for—the FHFA, the regulator of the GSEs for the REO property on its balance sheets, and it is exploring opportunities to offer 

these homes for rental. As you know, these homes are sitting vacant. That is a wasting asset for the taxpayer. Meanwhile, there is 

a lot of—rents are going up, and it really could be a win-win situation for everybody involved. 

Ms. WATERS. Excuse me. We know that. But what I am saying 

is, I have heard at least 5 or 6 proposals where people wanted to 

buy up—100, 200, 300, businesspeople—and renovate them, put 

them back on the market. And the way they describe it is they 

would maintain some for rentals, they would put together programs rent-to-own, or they would put them back on the market. 

And I don’t see anything happening, but you are saying that FHA 

is doing this already? They are looking at this possibility? 

19 

Mr. KINGSLEY. FHFA, the Federal Housing Finance Authority, 

the regulator of the GSEs— 

Ms. WATERS. Yes. 

Mr. KINGSLEY. —with respect to the real estate owned by Fannie 

Mae and Freddie Mac. And, absolutely, right now, they have put 

out a request for information, for ideas, and they are evaluating 

those ideas. We are working together with them on that. We are 

evaluating all options. The opportunities you suggested are certainly some of the options that have been proposed. 

Ms. WATERS. If you would get that to my office, I would like to 

see what you have put out. Because I would like to direct people 

somewhere who are coming up with these proposals. Could you see 

that my office gets that information? 

Mr. KINGSLEY. We will be happy to follow up with your office. 

Ms. WATERS. Thank you very much. 

One other thing before my time is up, Bank of America— 

Chairwoman BIGGERT. Your time is up. 

Ms. WATERS. Oh, I thought I had—oh, it started over again. 

Thank you very much. I yield back. 

Chairwoman BIGGERT. The gentlelady yields back. 

The gentleman from New Jersey, Mr. Garrett, is recognized for 

5 minutes. 

Mr. GARRETT. I thank the Chair. 

And I also appreciate—well, the ranking member is not here 

right now, but his recognition of the fact, albeit a little late, that 

while it was this Treasury Secretary in his former position over at 

the New York Fed and then as Treasury Secretary who was part 

and parcel with leading up to the crisis that we are in right now 

and then, as the ranking member has now experienced, the fact 

that he helped author and bring forth the very same programs 

which failed in their attempts as far as recovery from this, through 

the TARP program and the like. 

It is unfortunate that the ranking member only recognizes now, 

as Mr. Kingsley points out, that the Treasury is not a regulator, 

and they did not have the authority to compel the banks to do anything with the $700 billion that the TARP bailout program initiated. The best the Treasury could do is, I guess, encourage, suggest 

to the banks to do so, but they did not have the authority. 

Now, for those who supported the TARP, as apparently the ranking member did, for those who voted in favor of TARP as opposed— 

as I imagine the ranking member did, that is something I guess 

that they could have included in that legislation, if they had wanted to, to give the Treasury Secretary or some other entity in the 

government that authority to compel the banks, but it was absent 

in there. 

So it is a little bit disingenuous to say, after the fact, this is the 

bill I voted on, and I didn’t know what was in it, and now complain 

to Mr. Kingsley here or the Department or the Treasury Secretary 

for not doing what the legislation did not give them the authority 

to do. 

To the panel or I guess maybe Ms. Galante, first of all, I know 

there are a lot of numbers that have been thrown out because there 

are a number of different programs that are out there, and Ms. 

20 

Biggert asked some as far as how many were in this program and 

that program and what have you, but let me just give you one. 

There was a housing wire story on Tuesday. Today is Thursday, so day before yesterday, right? They note that there was an $8 billion FHA short refi program, and in that story it said it was supposed to help over 500,000 to 1.5 million people, but it only helped 

around, according to that wire story, 301 folks. That is different 

from what we were talking about before. Can you comment on 

those numbers? Are they ballpark correct numbers? 

Ms. GALANTE. Certainly, Congressman. Those are roughly correct 

numbers. I do want to put the short refi, the FHA short refi program in context, however. It is one program that does deal with 

this negative equity problem that we all agree is severe. But, in addition to that, FHA has refinanced FHA borrowers through a 

streamlined refinance program to deal with some of the FHA borrowers’ underwater activities. But I would say that FHA short refi 

is for people who are in non-FHA who want to refi into a sustainable mortgage with FHA. 

Mr. GARRETT. Okay. I appreciate that. At the end of the day, the 

numbers obviously are nowhere near where they anticipated they 

were going to, which is obviously a real problem. 

You heard my testimony also when I asked, aren’t a lot of these 

programs where you are either encouraging or forcing the breaking 

of legal contracts going to have an implication with regard to the 

GSEs for the loans that go through them and the claims that they 

have outstanding and for the investors on the other side of those 

deals, where what their return will be in those situations? It will 

hurt them presently. It will hurt the Fed, because the Fed owns a 

lot of these securities, upwards to the tune of $1.25 trillion, so it 

will hurt the Fed’s balance sheet, and it will hurt future investors 

and therefore discourage future investors to get into this marketplace. So there are one, two, three, three different problems that 

could be caused by these programs. Do you want to comment? 

Ms. GALANTE. I will comment again. With respect to short refi, 

it is a voluntary—it goes back to one of the other questions, it is 

a voluntary program. The lenders do need to take some principal 

reduction essentially in order to avail themselves or avail the borrowers of the short refi program, and they wouldn’t do that if they 

didn’t feel as if that were ultimately the best solution and the best 

resolution economically both for the borrower and for the investor 

lender. 

Mr. GARRETT. I have 7 seconds. Really quick, the FHA is supposed to be helping home buyers start out, usually at very bottom 

of the rung of the economic ladder. Isn’t it best to only help out 

first-time home buyers though as opposed to those who want to buy 

second or larger homes after the fact? Shouldn’t that be the focus 

of the FHA, first-time home buyers only? 

Ms. GALANTE. The focus of the FHA is first-time home buyers 

and new buyers, but refinancing existing borrowers in today’s low 

interest rates to help them achieve a more sustainable monthly 

payment is certainly also— 

Mr. GARRETT. Exclusively to first-time. 

Ms. GALANTE. It is not exclusively. 

Mr. GARRETT. Shouldn’t it be? 

21 

Ms. GALANTE. I don’t think so, no. 

Chairwoman BIGGERT. The gentleman’s time has expired. 

The gentlelady from New York is recognized for 5 minutes. 

Ms. VELAZQUEZ. Mr. Kingsley, in your opinion, would full utilization of every program have been enough to stabilize the housing 

market and stop the crisis, and where would we be today if it 

wasn’t for those programs? 

Mr. KINGSLEY. Congresswoman, thank you. And I think you have 

hit upon a great point, which is where we were in 2007, 2008, and 

2009 when the housing crisis started and where we are today are 

vastly different. In 2007, when the subprime loans started to melt 

down and rates started to reset, servicers were completely unprepared. They didn’t have the staff, they didn’t have the resources, 

they didn’t know how to engage homeowners. There was really nowhere homeowners could go for help. They would call up their 

servicer and receive an answering machine. They would send in 

documents, which would be lost. We recognized those problems. 

In 2009, when we rolled out HAMP and other modification programs started, we faced those very challenges. We have worked 

very hard at them. Where we are today is vastly different. As I 

mentioned in my oral testimony, 76 percent today of the people 

who get a trial modification convert to a permanent. 

Ms. VELAZQUEZ. Ms. Galante, regarding the Emergency Homeowners Loan Program to unemployed homeowners at risk of foreclosure, what specific steps are you taking to make sure that you 

maximize the participation in the program during the extension period? 

Ms. GALANTE. Congresswoman, we did a number of things in the 

waning days before the September 30th deadline for applicants to 

ensure that as many potential borrowers as possible could get into 

the program. We worked very closely with the housing counseling 

agencies on the ground. We are now in the process of beginning the 

process of actually closing on those loans that are being made to 

borrowers, and we will work vigorously to do that as quickly as 

possible. 

Ms. VELAZQUEZ. Are you satisfied with the outreach and response? 

Ms. GALANTE. I would say this. We got tremendous response for 

the program. The pull-through rate, as we call it, the number of 

folks who were ultimately eligible, was not nearly as high as we 

would have liked and we didn’t assist as many people as we would 

have wanted to. But we are helping approximately 12,000 unemployed homeowners, and we think that is positive. 

Ms. VELAZQUEZ. Mr. Kingsley, the Hispanic community faces a 

foreclosure rate that is nearly double the national average, and this 

is especially troubling in New York, where we have 56 percent of 

Hispanic and African Americans at risk for foreclosure. Have any 

of the Administration programs been successful in helping Latinos 

and other minority groups? 

Mr. KINGSLEY. Congresswoman, through our HAMP outreach 

events, as I mentioned, we have had 59 them, we have one in Phoenix next week, we launched a PSA campaign, and we actually have 

a lot of Spanish materials, Spanish radio advertisements. We have 

staff who have appeared on— 

22 

Ms. VELAZQUEZ. Give me numbers. 

Mr. KINGSLEY. Congresswoman, I can have my staff follow up 

with you. We have had, like I said, 59 outreach events. We have 

had more than 60,000 homeowners come to those outreach events. 

A lot of those have been in cities such as Phoenix or in Texas, 

where there are large Latino communities. 

Ms. VELAZQUEZ. I didn’t hear New York. 

Mr. KINGSLEY. I believe we had an outreach event in New York, 

Ms. Velazuez. I can follow up with you. 

Ms. VELAZQUEZ. You could have a second one. 

Mr. KINGSLEY. I apologize? 

Ms. VELAZQUEZ. You could have a second one. 

Mr. KINGSLEY. We are going to continue those outreach events 

all into next year. 

Ms. VELAZQUEZ. Thank you. 

Chairwoman BIGGERT. Thank you. 

I recognize the gentleman from Illinois, Mr. Dold. This will be 

the last question, because we have pesky votes coming up. So with 

that, then we will dismiss this panel and be ready to start the next 

one when we come back. 

Mr. DOLD. Thank you all for being here. Thank you, Madam 

Chairwoman. 

Ms. Galante, if I could, just looking at the Emergency Home 

Loan Program, certainly I have some statistics in front of me, the 

States, in terms of how they are administering these loans and also 

how it is done through the Federal Government. And I am just 

looking at some statistics from Connecticut, Delaware, Idaho, 

Maryland, Pennsylvania—I don’t have Illinois in front of me, which 

is where I am from. 

But the thing troubling to me coming from the private sector is 

just actually the costs of administering these. I look at Connecticut. 

They have done about 1,000, a little over 1,000 home loans, basically to the tune of about $45,000 that are being put in there. In 

terms of how it is administered, they are administering each and 

every one of those at about $2,600 worth of administrative cost. If 

I move that down on administrative cost to Pennsylvania, it is 

about $2,800. But yet when I look at what HUD does, those average costs, administrative costs, are about $7,400, almost $7,500, almost 3 times what they are doing in Pennsylvania. 

Can you give me an idea why the American taxpayer shouldn’t 

be extraordinarily frustrated with the cost that HUD is doing this, 

when other government agencies and the States are doing it for a 

fraction of the cost? 

Ms. GALANTE. Congressman, let me respond in a couple of different ways. First, the State program was set up for agencies. They 

were allocated funding because they already had substantially 

similar programs up and running in their States, and so they were 

allocated this funding so that they could— 

Mr. DOLD. But they are doing it for a fraction of the cost. Per 

loan, they are doing it at almost a third of the cost. 

Ms. GALANTE. Yes. So to my point, because they already had programs up and running, this was an additive pot of funding for 

them. On the HUD side, we were starting from ground zero with 

23 

all the other States and counseling agencies and contracting, so 

there were startup costs for— 

Mr. DOLD. So we should see next year this drop precipitously to 

fall in line then, because it has been going on for a period of time? 

Am I correct in saying that? Up-front costs have been taken care 

of, so next year it should fall back in line? 

Ms. GALANTE. Unfortunately, the program ended. There is no additional funding, unless there is some kind of extension of the program. If there were an extension, then, yes, the up-front costs have 

been taken care of. 

Mr. DOLD. Excluding the up-front costs though, other administrative costs. And that is part of the complaint that I hear from taxpayers all the time, is that the government is just inefficient in 

how it does things. And certainly having to deal with the government from a previous life, I would certainly concur. 

Let me switch gears, if I may, Ms. Galante, and go over to the 

FHA refinance program. To what extent—certainly when we look 

at the amount of activity, does the lack of activity within the FHA 

refinance program speak to the practicality or the usefulness of the 

FHA refinance program? 

Ms. GALANTE. I guess I would want to make sure I understand 

your question. Are you talking about the FHA short refi? Because 

the FHA global refinancing for FHA borrowers, FHA streamline financing has helped 700,000— 

Mr. DOLD. I am talking about the program that basically has had 

about 242 applications and about 44 loan remodifications in a period of about 8 months. That, to me, would be dismal. 

Ms. GALANTE. Thank you. So that is the FHA short refi program, 

which as I mentioned earlier is a program for non-FHA borrowers 

to have the opportunity to refinance into FHA mortgages. It is a 

voluntary program on the part of lenders. 

Mr. DOLD. We have obligated $8 billion for it. My question is, is 

this program one we should scrap, according to HUD? 

Ms. GALANTE. I would say absolutely not. This is a program we 

want to build on. My colleague from Treasury can talk about how 

the $8 billion works. We have not—there have been no losses under 

this program and there have been no direct expenditures on loan 

losses for the program at this time. 

Mr. DOLD. I have under a minute, so please excuse me on that 

one. I am going to shift over. 

Ms. Chavez, you talked before about the NSP, talking about how 

it has created or stabilized an additional 90,000 jobs and 100,000 

properties, is that correct? 

Ms. CHAVEZ. It will. That is the goal when the $7 billion are expended. We are a third of the way there in terms of properties. 

Mr. DOLD. I just want to make sure that those who are tuned 

in and watching this thing, because back in the private sector, we 

will look at this thing and say, I am going to go 90,000 jobs and 

100,000 properties. So you know what I am saying? It is almost one 

job per one property, almost a one-to-one. It is a little bit less than 

that. Is that an effective use of our dollars? Are we getting the 

most out of it? 

Ms. CHAVEZ. Yes, we are. We can give you the data on the jobs 

that are— 

24 

Mr. DOLD. You and I might disagree in terms of how we are effectively using that. But I want to make sure you think that is an 

effective use. 

Ms. CHAVEZ. Yes, it is. And early results in terms of impact of 

vacancy reduction and stabilizing home prices are very positive. 

Mr. DOLD. Madam Chairwoman, I know that I am running out 

of time, but I want to just follow up if I could for Mr. Kingsley, just 

food for thought on this, why should taxpayers continue to support 

additional programs that don’t meet expectations? That would be 

just a general thing that I have not only for this panel, but for panels across the government coming again. Taxpayers are looking for 

the Federal Government to make the biggest bang for the buck, because we desperately need to make sure we are stretching those 

dollars because we are in a financial crisis right now. 

I thank you all for your time. 

Chairwoman BIGGERT. This concludes our first panel. The Chair 

notes that some members may have additional questions for this 

panel which they may wish to submit in writing. Without objection, 

the hearing record will remain open for 30 days for members to 

submit written questions to these witnesses and to place their responses in the record. 

I would like to thank you all for being here, and we will dismiss 

this panel. When we will come back, as soon as votes have ended, 

we will start with the second panel, which will probably be around 

11:30, 11:25. I hope sooner than that. 

[recess] 

Chairwoman BIGGERT. The hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order 

and resume. Thank you for your patience for those votes, those 

pesky votes that seem to come up when we don’t expect them. 

Thank you to the second panel. I would now like to introduce 

you: Mr. Neil Barofsky, senior fellow, New York University School 

of Law, and he was our former SIGTARP Special Inspector General, so it is nice to see you back on the witness stand: Dr. Mark 

Calabria, director of financial regulation studies at the Cato Institute, thank you for being here; Ms. Laurie Goodman, senior managing director, Amherst Securities Group, LP.; and Mr. Andrew 

Jakabovics, senior director of policy development and research, Enterprise Community Partners. 

Without objection, your written statements will be made a part 

of the record and you will each be recognized for 5 minutes to 

present a summary of your testimony. We will start with Mr. 

Barofsky. You are recognized for 5 minutes. 

STATEMENT OF NEIL M. BAROFSKY, SENIOR FELLOW AND ADJUNCT PROFESSOR, NEW YORK UNIVERSITY SCHOOL OF 

LAW 

Mr. BAROFSKY. Thank you. It is always a privilege to be on a 

panel where I don’t have the hardest-to-pronounce name. It is rare, 

but it is kind of nice. 

Madam Chairwoman, members of the subcommittee, it is truly 

a privilege and an honor to be back testifying before this committee 

once again on the Administration’s foreclosure mitigation efforts. 

25 

When I was last here a little bit more than 7 months ago, the 

state and outlook for HAMP and its related programs was quite 

bleak, and at that time I pleaded with the Administration to make 

the wholesale necessary reforms so that Treasury could keep the 

promise it made to Congress and the American people that TARP 

funds would be used not only to generously bail out the largest 

Wall Street financial institutions that caused the crisis, but also 

struggling homeowners. 

Unfortunately, 7 months later, my plea, along with many others 

and members of this committee, have been flat out ignored. Rather 

than change, we have the status quo. Rather than seeing a meaningful increase in the number of participants in the HAMP program, it continues to trail off, with just about 13,000 new trial 

modifications in the last month. And rather than being candid 

about the problems and committing to reform, we see the type of 

obfuscation that we saw in this morning’s session, with Treasury 

continuing to declare success against ever-changing and meaningless goals. HAMP has failed, and with it, it has crushed the hopes 

of millions of homeowners. 

Due to the ongoing foreclosure crisis, there is now consideration 

of potential new programs or expanding old programs, and I 

thought I would share some very basic lessons we have learned 

from HAMP’s failure. 

First, the necessity for comprehensive planning. Too often, the 

Administration’s response has been to rush out a program that 

promises great results and looks great on paper but ends up being 

a failure. This ‘‘ready, fire, aim’’ approach has problems that are 

still ricocheting through the system. For example, in the HAMP 

program, which was originally announced to help up to 4 million 

homeowners get the benefit of permanent government-sponsored 

mortgage modifications, here we are 21⁄2 years later with the program limping along with fewer than 700,000 ongoing modifications, 

a program that has been plagued by bad planning, rushed implementation, and incompetent management. 

But that program actually looks great compared to the FHA 

short refinance program. That was supposed to help up to 1.5 million homeowners. And here we about a year later after implementation with 301 families helped. Good planning matters, and the 

poor planning for these programs has had devastating effects and 

lost opportunities. 

Second, it is a basic and good tenet of good government, any program, that you have clear articulable goals, you measure performance against those goals, and then you change the program if it is 

not working to meet those goals. What Treasury has done is the 

exact opposite—changing its goals to meet performance no matter 

how anemic it is and declaring it a success. They have convinced 

no one. All they have really done is further damage the already impaired credibility of Treasury. 

And, third, these programs generally rely on third parties, like 

the mortgage servicers in the HAMP program, so it is essential to 

have the right balance of incentives and penalties. Secretary 

Geithner testified in February of this year that the incentives in 

HAMP were, in his words, not powerful enough. And by that, I 

26 

take it he is referring to the conflicts of interest that are baked into 

the HAMP model by the way Treasury designed it. 

But rather than address that problem, Treasury has ignored it. 

Even worse, they have given a free pass to the mortgage servicers 

who have had just an abysmal performance, in their words, with 

not complying with the program’s rules and regulations. Rather 

than having a meaningful penalty regime, they backtrack and really come up with a bunch of political gimmicks and tricks that give 

them a free pass for having really committed egregious abuses on 

homeowners through the implementation of this program. 

Part of me still believes that the government should have a role 

in foreclosure mitigation, if for no other reason than that this was 

the necessary promise that Treasury made in order to get TARP 

passed in the first place. But it is becoming harder and harder to 

support these measures. Whether it is through sheer incompetence, 

undue deference to the banks or just missed opportunities, the Administration has demonstrated itself to be an incompetent manager 

of these programs, and it is a real question of whether they can effectively manage any mitigation program. And when they come out 

as they did this morning and suggest that they have had success 

in completely unrelated areas, it really raises a question of whether 

we can trust them to do so. 

Madam Chairwoman, members of the committee, again I thank 

you for this opportunity and I look forward to answering any questions that you may have. 

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

42 of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

Dr. Calabria, you are recognized for 5 minutes. 

STATEMENT OF MARK A. CALABRIA, PH.D., DIRECTOR, 

FINANCIAL REGULATION STUDIES, CATO INSTITUTE 

Mr. CALABRIA. Chairwoman Biggert, distinguished members of 

the subcommittee, to evaluate the effectiveness of the Administration’s response to the housing crisis, I believe one first must look 

to the conditions of the housing market. Intentions are one thing; 

outcomes are quite another. 

The first market condition to keep in mind is that despite large 

price declines, housing in many parts of the country still ranks expensive relative to income. Historically, median home prices tend 

to be 3 times the median incomes. We are close to this relationship 

at the national level. Many cities, such as San Francisco for instance, still have median home prices almost 8 times median income. Such prices remain out of reach for the typical family. 

We should also recognize that new home prices still remain well 

above construction costs. Over the long run, in a competitive market, prices fall to meet the price of production. Up until about 2003, 

this was the trend in the housing market. This relationship is likely to reassert itself over the next few years. 

It is also worth noting that existing home sales in 2010 were only 

5 percent below their 2007 level, while new home sales remain almost 60 percent below their 2007 level. The primary reason for this 

difference in my opinion is that existing home prices have declined 

by a much greater degree, more than twice that of new home 

27 

prices. I believe this clearly illustrates that housing markets work 

like every other market. If you want to eliminate excess supply, 

you have to allow prices to drop. 

As prices have continued to slowly decline, sales activity has 

slowly increased. On a seasonally adjusted basis, existing home 

sales for the first half of 2011 were 12 percent above home sales 

for the second half of 2010. I am expecting further minimal price 

declines at the national level. And while none of us have a crystal 

ball in terms of sales activity, I believe we have come close to hitting bottom and are slowly working our way towards a recovery in 

the housing market. 

That said, it is important to keep in mind, I believe, we are years 

away from seeing anything like the activity of 2005 and 2006. 

I believe there is some consensus that there is a considerable 

pent-up demand for housing, perhaps as much as 2 million units. 

The question is, what it will take to elicit that demand? As we have 

tried a variety of incentives, such as the home buyer tax credit, 

with I believe at best mixed results, I believe this pent-up demand 

will not really show itself until we see further price declines, even 

if those price declines are small. 

So, again, to emphasize one of the points that I am trying to 

make, we should not be afraid of further price declines. We should 

actually welcome that as a way of trying to clear the housing market. 

I will say as an aside that I look at shelter, housing, as one of 

life’s basic necessities, so not only should we see price declines as 

helping to clear the market, we should also see price declines as 

helping to make one of life’s basic necessities actually more affordable, cheaper. 

To get to this point touches on what I see as the central flaw in 

most of the Administration’s response to the housing crisis, which 

is rather than accept the fact that perhaps we built too much housing, perhaps we encouraged buyers to get into homes they could 

not afford, the Administration has consistently viewed the housing 

market through a Keynesian lens of lack of adequate demand, and 

it is just one policy after another trying to create artificial demand 

in the housing market through one stimulus after another, rather 

than actually allowing the market to clear via prices reflecting fundamentals. 

We must also recognize that owners’ equity or lack thereof has 

little to do with their ability to pay their mortgage, but simply impacts their willingness to pay their mortgage. The primary driver 

of mortgage delinquency is job loss. Putting an artificial floor under 

housing prices will not turn the labor market around. I cannot 

overemphasize this point. I think the primary driver of the housing 

market at this point is the labor market, and turning the labor 

market around will be the best thing we can do to get the housing 

market moving again. 

It is also important to keep in mind that subsidizing the unemployed to remain in place will not turn around either our mortgage 

market or our housing market. Current foreclosure policies as well 

as the elevated rate of homeownership entering the crisis in my 

opinion have injected significant rigidities into our labor market. 

28 

It should also be recognized we do not have a national housing 

market. We have lots of regional and local housing markets. The 

housing vacancy rate, for instance, is a useful gauge of excess supply and illustrates this point. At one extreme, Orlando has a owner 

vacancy rate approaching 6 percent, whereas on the other extreme, 

cities like Allentown, Pennsylvania, have owner vacancy rates of 

about 0.5 percent. So, again, vast differences across the country. 

Even vast differences within the same State. If one looks at Riverside compared to San Jose in California, the differences in market 

conditions are dramatically different. 

One point to keep in mind, because of these dramatic differences, 

markets react differently to the same Federal policies. Markets 

where supply is tight and building is difficult react very differently 

than markets where it is relatively easy to bring forth additional 

supply. The importance of this distinction is that policies that attempt to increase demand are likely to increase prices in tight markets rather than increase volumes, where in looser markets such 

as Phoenix, these demand things will actually add additional supply and result in further pricing declines. So, again, we need to 

make sure that we are not making the most expensive markets 

more expensive by making those with a glut have additional gluts. 

I will end by saying that it is also important to keep in mind that 

so much of the discussion among policies in our housing market 

has focused on the middle class and those better off. We should not 

forget those who don’t have homes at all. While the quality of data 

on homelessness is not what it is in the rest of the housing market, 

every indicator seems to suggest that we have seen a tremendous 

increase in homelessness over the last couple of years, particularly 

among families. And so again, I think because our traditional assistance programs have focused on individuals and focused on central cities, I would suggest to the committee to reevaluate the current structure of our McKinney-Vento Homeless Assistance Act 

programs in light of current market conditions. 

I thank you for your indulgence and welcome your questions and 

comments. 

[The prepared statement of Dr. Calabria can be found on page 

50 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Ms. Goodman, you are recognized for 5 minutes. 

STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING 

DIRECTOR, AMHERST SECURITIES GROUP LP 

Ms. GOODMAN. Chairwoman Biggert and members of the subcommittee, thank you for your invitation to testify today. My name 

is Laurie Goodman and I am a senior managing director at Amherst Securities Group, a leading broker-dealer specializing in the 

trading of residential mortgage-backed securities. I am in charge of 

strategy and business development for the firm. 

We perform data intensive research as part of our efforts to keep 

ourselves and our investors informed of critical trends in the residential housing market. That work has shaped our view of the 

housing crisis and I will share some of our results with you today. 

The Obama Administration has pursued a number of measures 

to try to stabilize the housing market. In February 2009, the AdVerDate Nov 24 2008 16:59 Apr 25, 2012 Jkt 072610 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\72610.TXT TERRIE
29 

ministration announced the Home Affordability and Stability Plan. 

This plan included both HAMP, the Home Affordable Modification 

Program, a loan modification program designed to help at-risk borrowers; and HARP, the Home Affordable Refinancing Program, a 

program designed to eliminate frictions to refinancing and allow 

existing GSE borrowers to take advantage of lower mortgage rates. 

I would like to focus on the success of these two programs. 

The HAMP program was originally estimated to reach 4 million 

borrowers. As of the end of July, there have about been 1.66 million trial modifications extended. Of these, there are now 675,000 

active permanent modifications and another 106,000 in active trial. 

So even if all these active trial modifications were to become permanent and there were no further defaults, the success rate on this 

program would have been less than 50 percent. To date, the program overall has achieved less than 20 percent of the original stated goals. 

The HAMP program has done a good job reaching eligible borrowers. The problem is the program’s success rate is relatively low. 

The largest reason for the failure of HAMP has been the fact that 

the borrower has not been re-equified. 

Our research has shown that redefault rates are significantly 

lower when principal reduction and not just payment reduction 

modifications have been made. To improve modifications for success, we would suggest making the principal reduction alternative 

under HAMP mandatory, as long as it represents the highest net 

present value alternative. Exclusions would apply only if that action is expressly prohibited by either the pooling and servicing 

agreement or the ultimate holder of the risk. In addition, treating 

the second lien pari-passu to the first is a subversion of the lien 

priority and a hindrance to successful modification as it impedes 

the re-equification of the borrower. 

In recognition of the fact that a disproportionate number of delinquent borrowers have second liens, we suggest that if the first lien 

is modified, second liens should be eliminated or at the minimum 

take a disproportionate writedown. However, modification activity 

alone is insufficient to bridge the supply-demand gap in the housing market. It is necessary to encourage investor activity. The 

FHFA-HUD-Treasury request for information acknowledged this 

and asked for the best way to design the program. In our view, this 

can best be done by conducting bulk sales of real estate-owned 

properties and of nonperforming loans owned by the GSEs and 

FHA. Providing conservative financing would raise the sale price 

on these assets even further. 

The Home Affordable Refinance Program was created to facilitate the refinancing of Freddie- and Fannie-insured mortgages. 

This program was originally supposed to reach 4 to 5 million borrowers with GSE mortgages. In fact, the number of HARP refinances is actually 838,000 through June 30th. Why the limited 

reach? 

In this case, it was not one factor, but a bunch of different factors. The real issue is that the GSEs are not the only bearer of risk 

on a defaulted GSE loan. Many of these loans have mortgage insurance. Moreover, the GSEs have the right to put back the loan to 

the originator if it contained a violation of the representations and 

30 

warranties that were made at the time when the GSE initially insured the loan. 

The three largest impediments to the success of HARP are, first, 

the mortgage insurance (MI) issue. If the loan is refinanced by a 

different servicer, the mortgage insurer will lose the reps and warrants they have with the old servicer. Thus, loans with MI tend to 

refinance more slowly than loans without, as loans with MI are dependent solely on same servicer refi’s. 

Second, the rep and warrant issue. Many lenders are reluctant 

to refinance high LTV, low FICO borrowers as the new lender must 

bear the rep and warrant risk on the refinance loans. 

Third, capacity constraints. With the drop in interest rates, mortgage lenders face capacity constraints, but they are not adding capacity. The result is, they are reaping excess profits and keeping 

mortgage rates to the borrower consistently higher than they 

should be. 

To make HARP successful, we believe it is important to introduce 

competition by reducing the frictions to different servicer refinances. Other actions that have been discussed to improve HARP 

effectiveness include the elimination of loan level pricing adjustments, the elimination of the 125 ceiling, and the elimination of all 

appraisals on HARP refinancing. We believe these actions will have 

a limited impact. 

Again, thank you for the opportunity to appear before the subcommittee. We look forward to working with you on practical solutions to ease the housing crisis, promote housing market stability, 

and allow homeowners to take advantage of lower rates to refinance. 

[The prepared statement of Ms. Goodman can be found on page 

75 of the appendix.] 

Mr. HURT. [presiding]. Thank you, Ms. Goodman. 

Mr. Jakabovics is recognized for 5 minutes. 

STATEMENT OF ANDREW JAKABOVICS, SENIOR DIRECTOR, 

POLICY DEVELOPMENT AND RESEARCH, ENTERPRISE COMMUNITY PARTNERS 

Mr. JAKABOVICS. Thank you. That was excellent pronunciation, 

by the way. That rarely happens. 

Congressman Hurt, thank you so much for having me here today 

and providing me the opportunity to testify, to discuss mechanisms 

and policy options to facilitate bringing the private sector back into 

the housing market in a supportive and sustainable way. 

I act as senior director for policy development and research at 

Enterprise Community Partners, which is a national nonprofit organization that creates opportunities for low- and moderate-income 

people through affordable housing and diverse thriving communities. For nearly 30 years, Enterprise has provided financing and 

expertise to organizations around the country to build and preserve 

affordable housing and to revitalize and strengthen communities. 

Enterprise has invested more than $11 billion and created more 

than 280,000 affordable homes in hundreds of American communities by bringing public and private capital together to meet local 

needs. 

31 

In addressing the housing crisis, the solutions we must talk 

about must address the needs of individual borrowers and their 

families. But a comprehensive approach to stabilizing the broader 

housing market must include preventive efforts as well as remedial 

ones. The old adage, ‘‘An ounce of prevention is worth a pound of 

cure’’ certainly applies here. 

The cost of providing counseling or offering foreclosure mediation, both of which have proven successful in keeping borrowers 

in their homes compared to individuals navigating the complicated 

and often frustrating modification process without help, is far, far 

less than the cost of foreclosure borne by families, communities, 

municipalities, lenders, and investors. 

A theme that will recur through my testimony is that successful 

interventions in the housing market require deliberate coordination. There are too many moving pieces and too many overlapping 

interests to act unilaterally. Collaboration is key. So while I am 

going to focus most of my testimony on the pressing need to continue minimizing the impact of foreclosures, I would be remiss if 

I did not mention that the best option for avoiding a costly foreclosure is to provide a distressed borrower with an affordable mortgage payment, as we have heard up till now. 

With better coordination in mind, however, bulk note purchases 

by entities or consortia with the capacity and flexibility to restructure notes where possible, including through principal reduction, 

and the ability to transition properties with minimal disruption or 

vacancy, either through negotiating a deed for lease with the current owner or quickly repairing and renting to new tenants into affordable rental portfolios may yet hold the most promise for stabilizing the Nation’s housing markets. 

You have already heard about changes that could improve 

HARP, so without going into that again, I would point you to my 

written testimony on that. 

But if we consider that refinancing is one end of the mortgage 

process, REO disposition is at the other end. Stabilizing the housing market means more than being effective in keeping people in 

their homes. It means dealing with the impact that foreclosures 

have on communities across the country. 

Vacant and blighted properties have terrible effects on neighbors 

of foreclosed properties and whole communities. Research has 

found the contagion effect with price declines increasing with each 

additional foreclosure in an area. The impact of a foreclosed property increases the longer that property sits unsold. 

The Neighborhood Stabilization Program was designed specifically to address that contagion. Through targeted interventions to 

acquire properties in hard-hit communities, NSP has created jobs 

when houses are restored to good quality and helped put families 

back into formerly distressed properties. The most successful programs have been those that have brought private capital into their 

efforts to stabilize neighborhoods, and in places like New York, 

Cleveland, and Sacramento, those funds have been leveraged more 

than one-to-one with private capital. 

Those programs, however, focused on narrow communities in 

small areas in order to maximize the potential impact. But to address the need of foreclosed properties across the country, we have 

32 

to bring responsible private capital back into the housing market 

for broader stability. 

There are issues with the NSP recipients being able to revolve 

their funds when they cannot sell homes because lenders are not 

lending even to creditworthy borrowers, and this has significantly 

limited the potential scope of NSP’s efforts to restore those communities. 

We heard a little bit this morning from the first panel about 

Project Rebuild and the fact that it is intended to create or support 

190,000 jobs and addressing 80,000 foreclosed, vacant or abandoned properties nationwide. But the problem is much, much larger than just those 80,000 properties. 

As we have heard, based on the RFI put forward by FHFA, HUD 

and Treasury, we need to find a better way of disposing of properties that the GSEs and FHA acquire in foreclosure. The current 

REO disposition process for everybody, both the private sector and 

public agencies, is designed to treat individual properties one at a 

time, assigning it to a broker for sale and then writing off the 

losses after closing. 

The process rarely takes into account how any individual property might impact other properties, and we have to be far, far more 

strategic, again both on the individual side as well as on the private side, as to how best approach the process. So by removing 

REO properties from the forced sale inventory by converting them 

to rental in bulk, there is an opportunity not only to quickly increase the supply of rental homes, most of which will be affordable, 

but downward pressure on prices from excess forced sale inventory 

for owner occupants would also be alleviated, allowing for a faster 

housing market recovery. 

To be successful, an REO rental program must address the initial sales process, buyer qualifications, post-purchase treatment of 

properties, and ultimately excess strategies for the buyer. I point 

you to my written testimony for recommendations. But very, very 

briefly, buyer qualifications are absolutely critical. You have to ensure that the buyers have sufficient capital to acquire and maintain the properties and that asset managers are in place to treat 

the properties with the respect that those properties and their tenants deserve as well as the communities in which they are found. 

I look forward to taking any questions you might have. 

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

83 of the appendix.] 

Mr. HURT. Thank you, Mr. Jakabovics. I recognize myself for 5 

minutes. 

I am glad that you talked a little bit about the Neighborhood 

Stabilization Program. Maybe my question, I really have one question for everybody, but I would like to start with you since you 

spoke about it. 

Obviously, foreclosure mitigation is something that I think as far 

as everyone here is concerned, is something that we want to 

achieve. We want to prevent people from being put out of their 

homes under these circumstances. I guess the Neighborhood Stabilization Program comes to our attention, particularly because expanding that program is part of the President’s jobs plan, as you 

call it, Project Rebuild. 

33 

I think from my standpoint, the fact that the Neighborhood Stabilization Program has not prevented any foreclosures, and I understand that is perhaps not the primary purpose, but at a time 

when we are borrowing 40 cents on every dollar that we spend and 

we have to prioritize what money we do have coming into our 

Treasury in order to maximize the return, I wonder about the efficiency, the efficacy of this program. One of the things that I also 

note is that the Neighborhood Stabilization Program since 2008 

has been given $7 billion. It appears to me from my math that it 

has only used between $4 billion and $5 billion of that, and that 

is since the crisis in 2008, and it has not mitigated any foreclosures. 

So I guess my question for you is, how do we justify another $15 

billion into this program when it is not mitigating foreclosure? And 

I also wanted you to speak to the fact that it is my understanding 

that the President’s proposal would extend this to commercial properties as well. 

Could you talk about that? And then, I would like to maybe go 

to Mr. Barofsky, Dr. Calabria, and Ms. Goodman. 

Mr. JAKABOVICS. Sure. I think it is important to recognize the 

sort of flow of ways properties end up in foreclosure. And what 

NSP is really designed to do is address post-foreclosure, minimize 

the impact on everybody else around them. So one of the things 

that—the way I think it has been incredibly successful—and we 

have seen this in a number of places—is that as those properties 

get rehabilitated, they are no longer blights on the community. 

They don’t drag down neighboring prices. 

On the one hand, job loss is certainly a critical component in 

terms of ultimately delinquency, default and then—delinquency 

and then default. The probability of a property going ultimately 

through to foreclosure is very, very closely tied to the value of that 

property relative to how much the homeowner owes on that mortgage. And so, as homes go into foreclosure, the more foreclosures 

that are in an area and the more properties are sitting on the market that are vacant and abandoned and blighted, the less value everybody else associates with those properties. The idea is that by 

bringing those properties back into productive use, getting people 

into properties—it is not designed at all to address pre-foreclosure 

issues. 

Mr. HURT. And I get that. But I guess if you are dealing with 

a limited amount of resources, would it be wiser to use those resources to prevent that in the first place and keep somebody in the 

home? That would be the question. But maybe— 

Mr. JAKABOVICS. Optimally, you want to keep everybody in their 

homes. But if people don’t have jobs, and can’t make mortgage payments, there is very little that we can do. People are not finding 

jobs, so at some point foreclosures do happen. And the idea behind 

NSP specifically is very, very closely targeted to dealing with the 

impact of those foreclosures that are going to be inevitable. 

Mr. HURT. Thank you. 

I would like to just give the other panelists the opportunity to 

answer briefly, if you can. 

34 

Mr. BAROFSKY. Sure. One of the things that is striking, as you said, it sounds like it has been about $4 billion to $5 billion out 

of a projected— 

Mr. HURT. $7 billion that has already been allocated. 

Mr. BAROFSKY. $7 billion. So, once again, you have these very 

strong predictions of a wide application of a program that fall 

short. Now, compared to other programs, that is remarkably good. 

When you look at HAMP, which had $50 billion allocated, and we 

spent $2 billion, and that was supposed to help 4 million people. 

Or the $8 billion allocated to FHA short refinance, and I think it 

spent $50 million, helping 301 people out of the 11⁄2 million. 

So I think it is very important to sort of, before allocating money 

or obligating money, to look at whether or not that money can actually be spent in an effective manner. It is not just in housing programs. We had the small business lending fund, $30 billion was 

needed, and they ended up spending $4 billion. So I think it goes 

back to my original point of having good, comprehensive planning 

so we are not just putting money into a program that can maybe 

go elsewhere if it is not actually going to be spent and used. 

Mr. HURT. Thank you. 

Dr. Calabria? 

Mr. CALABRIA. There are a couple of assumptions buried in NSP 

that I think are worth pointing out. Because this is where I would 

have a disagreement. One assumption, of course, is that cities and 

nonprofits are going to be better landlords, with a better ability to 

get these properties back on the market than private investors. 

To me, that is a questionable assumption, certainly one that 

hasn’t been proven. I think if you let prices fall far enough, you will 

have investors out there. A tremendous amount of the sales now 

are cash anyhow, so I am not sure that I think it makes a good 

use of taxpayer funds to put cities, localities directly in competition 

as buyers with private investors who will themselves get these 

properties back onto the marketplace. And again, the desire is to 

get these properties back onto the marketplace. 

I also again question the intention that we have to be able to 

prop up prices. What you want to be able to do is get sales volume. 

You want to get buyer confidence. To get buyer confidence, we need 

to get to a point where buyers simply believe that prices will go no 

lower. 

Mr. HURT. Right. 

Mr. CALABRIA. Another assumption in this, again, much of NSP 

is aimed at rehabilitating existing properties. In the Detroits and 

the Buffalos and the Clevelands of the world, as well as the 

Phoenixes of the world, the problem is not a lack of supply. 

Mr. HURT. Right. 

Mr. CALABRIA. The problem is excess supply. So adding to that 

supply only further does that. If we are going to spend this sort of 

money, perhaps we should be looking at destroying properties, 

rather than rehabilitating properties in excess markets. 

Mr. HURT. Thank you, Dr. Calabria. 

Without objection, I would like to recognize Ms. Goodman just for 

an additional 60 seconds. 

Ms. GOODMAN. Okay. If no further actions are taken, about 101⁄2

million borrowers could be in danger of losing their homes. I think 

35 

it is very, very important to keep focus on the few actions that can 

help the most: first, keeping borrowers in their home by doing principal reductions and by explicitly recognizing the second lien issue; 

and second, to close the supply-demand gap, you have to do bulk 

sales to get investors involved in the market. Those are the things 

that will really, really help; and I think we need to focus on doing 

fewer programs well. 

Mr. HURT. Thank you, Ms. Goodman. 

Now, it is my pleasure to recognize the gentleman from Wisconsin, Mr. Duffy, for 5 minutes. 

Mr. DUFFY. Thank you, and I appreciate the panel for coming in. 

I just want to make sure the record is clear, Mr. Barofsky. I 

heard in your testimony you said that, with the FHA refinance, the 

goal was for 1.5 million homeowners to be helped, and I think you 

actually said there were 301 actual people helped. Did you mean 

to say 301,000 people helped or 301 actual people helped? 

Mr. BAROFSKY. No, no, it is 301. It was about 254 when I stepped 

down, so I think they have added about 50 in the last 6 or 7 

months. 

Mr. DUFFY. So those who were helped from this program could 

actually fit in this room? 

Mr. BAROFSKY. It might be a little tight, but, yes, I think so. 

Mr. DUFFY. Yes. Okay, I wanted to be clear on that, that I didn’t 

misunderstand your testimony. I think under the backdrop of 

Solyndra right now, the American people look around and ask, is 

my government effectively using my tax dollars or are they effectively using the money they are borrowing from China on my behalf and my kids’ behalf? And then they will ask, if you are not 

using my money effectively, are you still accomplishing the goals 

that you are setting out when you are wasting my money? And I 

think with Solyndra they would say, no, you wasted our tax dollars, number one, but, number two, you didn’t even accomplish the 

goal you told me you were setting out to accomplish, which was 

giving seed money for good, green start-ups. 

If you look at what is happening, say, with HAMP, if Treasury 

was a private corporation, would they be fired? Would they continue to exist in the private sector if they have accomplished the 

goals—if we are reviewing their accomplishments per the goals 

they set out at the start of the mission? 

Mr. BAROFSKY. I think there is no question they have fallen embarrassingly short of the goals. If there is any silver lining to this 

incredibly dark cloud, it is that at least they haven’t spent a lot of 

money on it. They have obligated a lot of money for it—$50 billion 

was supposed to be spent, and not to say that $2 billion isn’t a lot 

of money, but in comparison this hasn’t been a sinkhole because it 

has been such a failure. So that is the one silver lining to all this. 

At least it hasn’t cost as much money in not accomplishing their 

goals as just throwing money at the problem with similar results. 

Mr. DUFFY. And similarly, broadly speaking, if we are looking at 

these programs, I would guess that many of you would agree that 

many of them are underperforming, to say the least? 

Mr. BAROFSKY. Failing. 

Mr. DUFFY. Failing, yes, okay, that is a little more aggressive. 

Are any of the programs working? Can you sit here and say, listen, 

36 

we have some hope; there is a little light out there shining that can 

help? 

Tuly, Americans who are in some very difficult times and I think 

to find some programs that can help them out, are any of these 

possibly going to get that job done, helping the American homeowner? 

Mr. BAROFSKY. Again, I think, rather than just do opinion, you 

just look at the numbers. So HAMP is supposed to help 4 million, 

691,000 ongoing, almost 900,000 fails. The FHA program we talked 

about, the principal reduction program which was rolled out as 

part of HAMP, which we heard about in the testimony this morning, that has helped 10,000 people. Second lien modification is such 

a huge problem, as Ms. Goodman described, 35,000. The HAFA 

program to help people leave with dignity through short sales, 

16,000. Unemployed program, this is supposed to help the millions 

of unemployed with our tremendous unemployment, 14,000. It is 

not just for me to say that it’s a failure. These numbers are unambiguous. They are failing. 

Mr. DUFFY. And are there programs the government can—oh, I 

am sorry? 

Ms. GOODMAN. Yes, I just wanted to mention, the one thing that 

could potentially help a lot which has been introduced is Treasury, 

HUD, and FHFA did a joint request for information on bulk sales 

to investors, sort of a deed for lease; I think that a program facilitating bulk sales to investors with the express purpose of renting 

out those properties could potentially help a lot. I think that is the 

most important initiative that has been taken, and should be definitely encouraged. 

Mr. DUFFY. It could work? 

Ms. GOODMAN. And that could work. You could actually put stipulations on it like investors can’t sell those properties for a number 

of years or can only sell 20 percent of those properties in the first 

3 years or whatever to make it even more effective, and I think 

that program should be pushed. 

Mr. JAKABOVICS. If I may, also, I think that a lot of the reasons 

for failures that have been identified both by Mr. Barofsky and Ms. 

Goodman are largely private-sector failures. I think part of the 

problem has been an overreliance on the private sector to act as 

agents for the government without sufficient oversight and sufficient sticks to ensure compliance. 

So to put the blame entirely at the feet of government for coming 

up with efforts to help homeowners, I think if you would ask those 

nearly 700,000 people who have been able to stay in their homes 

as a result of the modification efforts or the communities where the 

blighted property next door has not only created a job for them but 

also made the neighborhood a little bit more attractive, I think 

from that perspective—there is enough—there is certainly enough 

blame to go around, but I think it would be a mistake to write all 

of this off as a failure simply because it hasn’t met potentially outsized expectations from the get-go. 

Mr. HURT. Do you want more time? 

Mr. DUFFY. Could I have— 

Mr. HURT. Without objection, the gentleman is recognized for an 

additional 2 minutes. 

37 

Mr. DUFFY. Thank you. 

I think as we sit back and look, Mr. Calabria, you have indicated 

that, if I am understanding your testimony, if we just step back 

and let the market work, maybe the market could more effectively 

find a floor so then we have sufficient demand to step in and see 

the market then take off again. Is that your position? 

Mr. CALABRIA. That is very much the case. I would characterize 

a lot of the actions as somehow trying to get back to 2005–2006. 

That was not a sustainable situation. We need to accept we built 

too much housing. We need to accept that the way that works 

going forward is you try to clear the market by prices coming down. 

I want to draw out a point that I think was implicit in something 

you said earlier about tax dollars. So much of the reaction has been 

that we need to maintain housing wealth, we need to maintain 

housing values because that is people’s wealth. We need to keep in 

mind that homeowners and taxpayers are the same people. Taking 

a dollar out of my left pocket and putting it into my right pocket 

does not make me better off just because you switched it around 

on my balance sheet. So it is important to keep that in mind. 

If we can find ways, like bulk sales, which I do think is one of 

the things that can be done effectively, something I would add, 

maybe a little of the difference is I think we do need to resist the 

temptation of micromanaging those bulk sales. If we put too many 

restrictions like, you have to have income requirements or so much 

of it needs to go to nonprofits, you will make the process more cumbersome. 

I think all you need to do is look at, for instance, FHA’s asset 

control area program they have been running for over a decade. It 

has been a disaster, in my opinion. So, again, resist the temptation 

to micromanage. Get the properties out there in the market. 

Mr. DUFFY. Right. And if we have a philosophy of letting the 

market work, but then, also, if someone is going to say Congress 

should also try to do something to move the process along, do you 

have any ideas on where we would go if we are relying on the market but also a little Miracle Gro as well? I don’t know— 

Mr. CALABRIA. I think there are a number of areas you need to 

look at. The bulk services is one area. I think we need to parse out 

some of the discussions on foreclosures. The Administration, the 

President himself has said this. We can’t save everybody. We need 

to be more honest about that. I think you need to have essentially 

a two-tiered process— 

Mr. HURT. Thank you, Dr. Calabria. 

Mr. CALABRIA. Those homeowners who can be saved, move forward, those who can’t— 

Mr. HURT. Thank you, Dr. Calabria. 

It is now my pleasure to recognize the gentleman from California 

for 5 minutes, Mr. Sherman; and we will certainly give him more 

time if he needs it. 

Mr. SHERMAN. Okay. I don’t think what the American people 

want is to get into this room and have a shouting match, less filling—what is the other side of that—better tasting or whatever? Or 

‘‘government’s at fault, private sector’s at fault.’’ 

The fact is, Americans are mad because the system isn’t working. 

They know that the private sector either caused it and/or hasn’t 

38 

solved it. They know government either caused it and/or hasn’t 

solved it or, as some of our witnesses have pointed out, has solved 

it for tens of thousands of people at a time when we wanted to 

solve it for hundreds of thousands of people. 

I would point out that the fact that the various programs adopted in the last Congress have helped a lot fewer people than anticipated also means they have cost an awful lot less than anticipated. 

And so those who oppose those programs should regard that as an 

unintentional compromise, halfway between what Democrats wanted both in terms of number of people helped and cost to the Federal Government and what the other side wanted. 

People have been urging compromise on me for a long time. 

Things being ineffective and too slow is probably not the way they 

wanted to achieve that compromise. 

As to bulk sale, Ms. Goodman, what do we need to do governmentally to facilitate investors buying these homes in bulk and 

renting them out? 

Ms. GOODMAN. We basically have to make the program available 

on a scale that works. So, basically, my recommendation would be 

that you get together, say, 200 properties in a given MSA, and you 

sell it as a bulk sale, and you will get excellent execution. Because 

basically what you have to do is encourage large investors to build 

out an infrastructure for renting out these properties, for managing 

these properties, and they are going to pay more for bulk. If you 

can accumulate five properties in Indianapolis, that doesn’t allow 

you to build out a structure. If you can accumulate 200 properties, 

it does. You don’t need legislation. You have to basically put the 

program into place. 

Mr. SHERMAN. You need a program. What is the matter with the 

private sector, Wells Fargo and Bank of America saying, ‘‘Hey, let’s 

get together. You have 100 homes in Indianapolis, I have 100 

homes in Indianapolis, we will put them up for bid.’’ 

Ms. GOODMAN. Because most of the properties—or at least half 

of the loans in the United States are either Freddie, Fannie, or 

FHA/VA properties; and so the government actually has to be willing to dispose of these properties in bulk and put a program into 

place to do so. You don’t need legislation. You need action. 

Mr. SHERMAN. And this bulk sale idea is the only thing I have 

seen at least three witnesses, if not four, testify in favor of, and it 

is consistent with what I see in my district, which is there is a surplus of homes for sale or will be as soon as they grind through their 

foreclosure process and a dearth of rental housing. And in fact, 

many of the people who want to rent would prefer a single family 

home since that is what they bought back when they could afford 

to buy it. 

Ms. GOODMAN. Very well said. 

Mr. SHERMAN. The focus here in part is, how do we maintain 

home values without costing the Federal Government a lot of 

money? 

One of the ways to do that is to, in my area, which is a high- cost area, is to maintain the $729,000, $750,000 conforming loan 

limit. Ms. Goodman, what do we expect to happen to homes that 

were selling for $800,000, $900,000, even a million dollars now that 

the conforming loan limit has dropped to $625,000? 

39 

I know the homes that sell for $20 million down in Malibu aren’t 

going to be affected. If you buy one of those, you probably own a 

bank. But for those homes which, believe it or not, in my area are 

called middle-class homes but sell for over $700,000, what is this 

decline in the conforming loan limit going to do to home values and 

the ability of buyers to purchase? 

Ms. GOODMAN. It is important to realize that credit availability 

is constrained across the spectrum to begin with. Freddie and 

Fannie’s average FICO score is 762 for recent origination. The average LTV is 67. Bank portfolios have similar origination standards. 

Mr. SHERMAN. The LTV is 67? 

Ms. GOODMAN. On average. 

Mr. SHERMAN. That is a one-third downpayment? Wow. 

Ms. GOODMAN. Yes, yes. Credit availability is very, very limited 

as it is, and what that will do is constrain credit availability even 

more. 

Taking a step back, you have this huge supply and demand gap. 

As you pointed out, you have a lot of homes that haven’t been foreclosed on but will be. The borrower just can’t afford to be in that 

home. You have to transition to someone. Your choice is you either 

transition to another owner occupant who has less good credit because he couldn’t make the payments on his prior home or you are 

going to have to transition to investors. 

So it just makes a case that at the margin, the loan limits—the 

recent decrease in the loan limits makes credit availability tighter 

for that sector. 

Mr. HURT. Without objection, the gentleman is recognized for an 

additional 2 minutes. 

Mr. SHERMAN. I appreciate that. 

Is there any evidence that the private sector is ready without 

any kind of government guarantee to make the loans of $700,000, 

$725,000 to middle-class or upper-middle-class families trying to 

buy homes? 

Mr. CALABRIA. If I could add to that for a second, and I will start 

with—I am always loathe to generalize from anecdote, but I will 

use myself. 

I was just qualified for a jumbo loan in Washington, D.C., that 

would have been below that limit if it had not been changed; and 

I will say the difference in cost to me is 25 basis points of what 

I would have gotten otherwise. But I did get the loan, and again, 

that is just one example. 

Mr. SHERMAN. With all due respect, some Republicans would say 

that Washington, D.C., because it’s bleeding the rest of the country 

dry, is the only hot housing market in the country, and you have 

qualifications in terms of your ability to manage your finances that 

the average constituent or Member of Congress does not have. 

The next issue is with regard to homes where people just want 

to refinance. That will enhance their equity. They are not able to 

refinance because they are underwater. At least, they don’t have a 

huge amount of equity in the property. 

It has been proposed that we allow these people to refinance because the Federal Government is already on the hook for the loan. 

You have a $500,000 loan at 8 percent interest, and the governVerDate Nov 24 2008 16:59 Apr 25, 2012 Jkt 072610 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\72610.TXT TERRIE
40 

ment is on the hook, and there is no equity in the property. And 

you convert that into a $500,000 loan, nobody is allowed to take out 

any money—$500,000 loan, the government is still on the hook, 

and it is 3 percent interest or 4 percent interest. 

Ms. Goodman, what do we have to do to allow people to refinance? Won’t we reduce the government’s risk if the interest rate 

is 4 percent instead of 8 percent, and obviously we enhance a life 

for the homeowner who is able to refinance? 

Ms. GOODMAN. Absolutely. Where Freddie and Fannie already 

own the risk, there is absolutely no reason other than the series 

of frictions I delineated why the borrower shouldn’t be able to refinance to take advantage of lower rates. Almost everybody is better 

off. It should be able to happen. 

Mr. SHERMAN. And if I can just comment, what you have now is 

an unjustified profit where the current holder of that loan is earning 8 percent, government guaranteed, at a time when, if you buy 

it from Mr. Bernanke, he will pay you a quarter of a point—well, 

2 percent. 

I yield back. 

Mr. HURT. Thank you, Mr. Sherman. 

I ask unanimous consent to insert the following material into the 

record: the October 3, 2011, letter from the National Low Income 

Housing Coalition; the October 6, 2011, statement from the National Association of REALTORS®; and the October 6, 2011, statement from Mercedes Marquez, Assistant Secretary for Community 

Planning and Development, U.S. Department of Housing and 

Urban Development. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

I would like to thank the witnesses for joining us today; and, 

without objection, this hearing is adjourned. 

[Whereupon, at 12:35 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

October 6, 2011 

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