HERB KOHL 

WISCONSIN 

W-'SHINGTON OFFICE: 3lO HAJIT SENATI: OFRCE BUii.DiNG 

. WASHIHGTON, DC 2D51D 

1211Z)~65l 

hnp:/ltohl..-la.tfNI 

~triuo ~taus ~enate 

WASHINGTON. DC 20510-4903 

,r. 

LAtJ"f - {Jc:; r COMMITTEES: 

Al'l'l!DPRIA TIONS 

.JUDICIARY 

&1"1:CIAI. COMMl'TTI:I 

ON AGING 

~anuary 5, 2009 FDIC 

·Hon. Sheila C. Bair 

. Cha.innan 

Fcdcnd Dopositlusurance Corporation 

. 550 1 ~ Street, NW 

JAN 2i aJ09 

Washington, DC 20429 OFFICE OF LEGISLATIVE AFFAIRS 

DearCh~~~-•- .. 

·w~ ~ wrltfng to JCl}d support to~uest that its motorcycle financing 

company and its subsidiaries be included ~'i1qwdity Guar:intee Program (TI.GP). 

The application was made under the FDIC discretionary program that allows affiliates of approved 

financial institutions to participate in the program. We encourage timely consideration of the request. 

As you kno\ ~ sis an American icon and the only large-scale manufacturer of 

motorcycles in the U.S. ere in Wis in, thctJ ::a jS':mbly, manufacturing, testing, 

administrative and distn'bution operations offer tly-sup jobs and bring significant economic 

benefits to our community. Additional1y,iilll facilities and retailers here and in other states.· as well as 

domestic tire and parts manufacturers d~the success of the company. 

r,;;; and its subsidiaries l'- · es w e-sale financing to 

independent deal~ consumer=.~ of their m,ntnn::vt!l"~l""lllrvt1niu:1rm1ce programs for both dealers 

[§d consumen, f j §.:quests that these subsidiaries be includes in the TI.GP as affiliates of 

Without acces& to unsecured deb"--ihas been forced to rely on bank credit. which is 

unreliable in our CUlTCnt economy, and m~ive than opportunities available through the TI.GP. 

~ 

Participation in the program will provide a better source of financing for consumer purchi These sales 

our local economy where already dccrnsed sales led to the lay-off of 8% o 

~U.S. worlcforce. 

We are greatly concerned about these jobs in our community, and therefore. support the HarleyDavison. Inc. request for its subsidiaries to access credit through the discretionary approval of the FDIC. 

Thank you in advance for your time and attention to this request. Please keep us and our staff 

apprised of any developments related to this request 

MILWAIJICEI: OFFICI:: 

310 WESTWISCONSH AVENUE 

SUITE 950 

MILWAUKEE. WI 5l2Dl 

1414) 21T..-1 

T.T.Y. (4141 297..._ 

Herb Kohl 

U.S. Senator 

MADISONOFf!CE: 

14 WEST MIFRJN !iT!IEET 

SUITt 2117 

MADISON, WI D70J 

l60IIH4-5J:11 

Sincerely, 

EAU CU.IRE OFFICE: 

4112 GRAHAM AVENUE 

surTE:zol 

U.U tl.Alftf. WI 5'701 

(71511132-M24 

""Pl.ETON OFFJCf: 

UZI WEST COLLEGE AVENUE 

SUITE3711 

Arl'1.ETON. WI 549,. 

(120) 731-1~ 

LA CRO.sE OFf 

205 511< AVENUE ! 

5~2tl 

lACl!05SE.Wli 

l&0111'1K-«>-
- FEDERAL DEPOSIT INSURANCE COAPORA110N, Washington, cc 20429 

SHEILA C. BAIR January 7, 2009 

CHAIRMAN 

Honorable Spencer Bachus 

Ranking Minority Member 

Committee on Financial Services 

House of Representatives . 

Washington, D.C. 20515 

Dear Congressman Bachus: 

Thank you for.your letter regarding the Federal Deposit Insurance Corporation•s role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP) and sharing your 

correspondence from the State of Alabama's Deputy Superintendent of Banks, Trabo Reed. The 

FDIC strongly supports the dual banking system~ and we are committed to working closely with 

state regulators on supervisory priorities, inciuding the TARP CPP initiative. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State-chartered 

institutions submit applications either to the FDIC or the Federal Reserve which processes the 

request and makes a recommendation to the Treasury for approval or denial. The Treasury 

detennines program participation. Although state nonmember institutions submit TARP CPP 

applications to the FDIC for consideration, we have consistently advised state banking 

authorities of application submissions and invited the states' comments. The FDIC provides 

daily notification to the Alabama State Banking Department of applications received as welJ as 

periodic written summaries ofapplication status. The Alabama State Banking Department has 

opined on every TARP CPP applicati~!1 submitted from its jurisdiction. 

We share concern that the processing of applications has been somewhat protracted 

because of the extended submission deadline for privately owned institutions, follow-up inquiries 

on applications, and the absence of a term sheet for Subchapter S institutions. The FDIC 

anticipates that decisions on some requests may not be reached until early 2009. We have 

received 34 applications from state nonmember institutions in Alabama, including four publicly 

traded institutions, 19 privately owned institutions. and 11 Subchaptcr S institutions. 

Applications- from three of the four publicly traded, Alabama-based institutions have been 

submitted to the Treasury, which has approved two requests. The submission deadline for 

privately owned institutions was December 8, 2008; therefore, many of those 19 applications arc 

now being processed by our Atlanta Regional Office. The 11 institutions with a Subchapler S 

corporate structure cannot be processed at this time because Treasury has not issued a TARP 

CPP tczm sheet for those institutions. We arc hopeful that such a tcnn sheet will be made 

available in the near term. I am very supportive of including Subchaptc:r Sand mutual 

companies in the TARP CPP program. I recognize they arc typically smaller community banks 

that are critically-important credit providers on Main Street for small businesses and consumers. 
I assure you that the FDIC enjoys a strong working relationship with the Alabama State 

Banking Department We have a long history of cooperatively supervising state-chartered 

institutions in Alabama. and we will continue to seek the State's valuable perspective on 

regulatory matters. The FDIC recognizes the importance of community bank participation in ,; 

TARP. and '!'e continue to encourage FDIC-supervised banks to participate. 

Thank you again for contacting me. If you have further questions or comments, please 

do not hesitate lo contact me at (202) 898-6974 or Eric Spitler, Director of Legislative Affairs, at 

(202) 898-3837. 

Sheila C. Bair 

., 

... 
~•JU lj•J•t') 

t:lnitcd .StattB fl ausc or 'Rcpmrntatioe5 

O:Ommittrt on jin~nctal ~01Jicrs FDIC 

2\29 i\apburn t,ausr "'lfirr lSu1lb111g 

IDuhingron. B~ 20m DEC - 8 '.~-~~ 

The Honorable Henry M. Paulson. Jr. 

Secretary of the Treasury 

United Sta tu Dep.irtment oC the Tre:i.sury 

1500 Pennsylvania Avenue, NW. Suite 3330 

\\';nhini:ton, DC 20220 

The Honorable Sheil.i C. Bair 

Ch:iir, Federal Deposit Insurance Corporation 

600 17m Stteet, "tw"W 

Room 6028 

Waahington, DC 20129 

The Honorable John Reich 

Director 

Office of Thrift Supervision 

· 1700 G Street. N. W. 

Washington, DC 20552 

Dur Sin and Madam: 

Decembu 3, 2008 

OFFICE OF LEGISLATIVE AFFAIRS 

The Honorable Ben ~- n e 

Ch:iirmsn 

The Federal Re..er,;e Board 

20111 and C Street. N\\' 

Wuhington. DC 20551 

The Honorable John C. Ducan 

Comptroller 

Office of the Comptroller of the Currency 

250 E Street. S.W. 

Washington, DC 20!?19 

Attached he~with i:1 a copy of a letter from the Afabam..s State Banluni: Superintendent, Trabo lleed. 

e:tpru.ainr apprehension over the procusini: oi applicationa by Alabam.s. ban.le. to puticipat.e 1n the Troubled A11aet 

Relief Proi:ram. ~ I understand Commi9aioner Reed's concern, the length of the processing is C11using rumon that 

some ban'k.11' applications have been rejected •-ith 0bV10lJS negative market reaction!. 

The he~vy burden TARP operations have placed on the limited ruource~ available to Tre:uury is well 

known to me, but the anxiety of banka in this sit~ation is also understandable. Mr. Reed uemi to believa 10me of 

the exces.!'ive delay may be due to inter-aeency ,:bmpetition leadinK to applications being needleasly returned to have 

questions aclced that have been 11dequately :inswered previouily. 

Your penon.al work burden h.:is been incredibly heavy for months and I would. not send thia for your 

attention were it not for the very serious impact this could have on the b3nhnr community. Mr. Ri!ed'sjudi:ment 

and integrity :are well known and I hope you will r:we hia concerns due coraideration and have th.ia m:itter 

examined. 

Thank you for you:r attention to this. 

Enclo,iure 
S'IA'JE 01' AJ.ABAMA 

STiTI B!NIING IIPAITMENT 

Honorable Spencer Bachus 

Ranlcing Member 

December 2, 2008 

House Financial Services Committee 

6"' Congressional District of Alabama 

2246 Rayburn Building 

Wasrungton, D.C. 20515 

SUBJECT: Alabama Banks' Issues Regarding TARP Capital Purcha.sc Program 

(CPP) Approval Procc.u 

Dear Congre.ssm:in Bachus: 

I am 'WTiting to express our concerns and to request your help relating to our 

banks and the TARP Capital Purchase Program·s approval process. We have had 

concerns for some time., but after talking with a number of 9ur banks, we believe that it is 

important that more tranSparency be provided in the TARP CPP evaluation process for 

the banks illld state chartcrins agencies. Of course:, we are concerned that the chartering 

agencies. for state banks are not consulted while th~ fates of our banks are determined by 

panels of federal regulators and the U.S. Dep:J.rtment of the Treasury. We also think that 

banks of.ill charter types that submit TARP CPP applications should be informed of 

where their applications ar~ in the e:valuation process. 

Our federal counterparts at the Federal Reserve and the Federal Deposit Insurance 

Corporation (FDIC) have been moqcls of cooperation in letting us know when our banks 

have submined applications. Ho'9t-ever, those agencies' hands are tied when we inquire 

about the status of our banks· CPP applications. Consequently, we know little of where 

the banks' applications are, what issues need to be resolved before approvals can be 

granted, or wha.t actions we can require the banks to t:ike to obt3.in appronls. We arc not 

even notified when a decision is reached on a CPP application. Consequently, we are 

unable as the ch:utering agency for these banks to take necess:iry, timely regulatory 

actions based upon the approval or denials of CPP applic~tions. · 

This is il significill1t problem here in Alabam:i where we are the chartering agency 

for 129 banks operating in 20 states. We. as the ch3rtering state, have an obligation to 

ta.kc appropriate actions bilSed on the financial status of our banks and have- obligations to 

inform the host states in which our b:utla opcr.atc of significant financial dctvclopmcnts, 

such as TARP CPP approvals or denials. 

~ ···~, ..... 

,;' 
'-f••~;.~•-•>l'J , . .s ~" rl\A. ._,.,~ .. :.-~ ... ,.,, 

Hon. Spencer Bachus 

December 2, 2008 

Page 2 

Currently, our best infonnation is that 28 Alabama, state-chartered banks h3.ve 

submitted applications for TARP CPP. Only one has received funding. Another has 

received.preliminary approval under TARP CPP. We have little or no information about 

the status of the other 26 applications, but we are certain that same are experiencing 

extensive delays:. We are unable to determine to whom we should speak reg3.rding these 

applications,·but we are convinced that. as the bank's ch:irtering authority, we should 

have the ability to speak to any issues that m~y .:uise in the process. 

As we understand the evaluation process for TARP CPP applications, the b:ink • s 

primary federal regulator may choose not to recommend that an application be approved. 

For applications that the primary federal regulator strongly believes should be included in 

the program, it sends the applications directly to the Investment Committee at the 

Treasury Dep3.rtment. In both these cases, our experience has been th.:it the FDIC and 

Federal Reserve consult with the states. For cases that require additional consideration, it 

is our understanding, that the primary federal regulator will forv.-ard the application to a 

Regulato.ry Council composed of sc:nior representatives of the four federal bank 

regulatory agencies, the OTS, OCC, FDIC, and Federal Reserve as we'll as an observer 

fram Tre:isury. The Regulatory Council ~cs a joint recommendation for ilpproval or 

withdrawal of the application. 

Applici!.tions recommended for approval by the federal bank regulators are sent to 

the Treasury TARP Investment Committee for review. The Investment Comminee may 

send ill\ application back to 1he primilcy federal regulator for additional inform.ition or to 

the Regulatory Council for further review, The lnv~~-unent Committee advises the 

Assistant Secretary for financial St3.bility who milkes the final decision an preliminary 

approvill. Once the evaluation process is complete, Treasury notifies institutions directly 

~·hen prelimin:ll'y appro~l is granted. 

In the process outlined above, we arc not consulted or notified at important stiges 

of the process. The banks themselves receive requests for additional information without 

knowing where the questions are coming from or at wh:it stage of the evaluation process 

their applications arc being reviewed. Consequently, we are kept in tht: dark whili: 

Treasury and the federal regulators may miss valuable information th:ir we can provide. 

As a state chartering authority, we arc not .isking for a part in the decision making. We 

understand that this is a Treasury program md Treasury makes the fmal investment 

decisions in consultation with federal regulators. We, however. believe that the 

cha.rtering agencies for state b:mks should be allowed to speak to :llld answtr questions 

t;£J ....... , •••• " 
Hon. Spencer Bachus 

December 2, 2008 

Page 3 

regarding their banks' applications. The states should also be notified when decisions are 

reached. 

We, therefor~ request yoUI assistance to in asking that the following 

modifications be made to the TARP CPP evaluation process: 

l) State chartering agencies should be notified when applications are sent to the 

Regulatory Council and Treasury TARP Investment Committee for review. 

2) State chartering agencies should be allowed to speak to the Regulatory Council 

· during its deliberations on applications of banks chlrttred by the state. 

3) State chutering agencies should be notified of and be allo...,,-ed to respond to 

questions or requestS for additional information regarding applications of banks 

chartered by the state. 

4) Banks of all charter types should be informed of what stage of the evaluation 

process their applications are being reviewed. This is particul.irly needed when 

addition.il questions and information requests arise. 

5) State clwtering agencies should be directly notified by Treasury or the primary 

fi:dcraJ regulator when an application is preliminarily approved or recommended 

for withdraY.-al. 

6) State ch3.rtering agencies should be directly notified when approved TARP CPP 

applications are funded by TreaS\lt)'-

Thank you for your help \l,ith this request We believe that we will be better able 

to perform out function of pcot~cting our citizens, and the TARP CPP evalu~tion process 

will be bener served by taking all available information into consideration. If you have 

any questions or need additional inf~.mt3tion. please feel free to contact me by e-mail at 

trabo.reed(a1banlcinl!.alabil1Tla.gov o-rby telephone at (JJ4) 242-3507. 

Teabo Reed 

Deputy Superintendent of Banks 

Cc: Hon. John D. Harrison 
ft FEDERAL DEPOSIT INSURANCE CORPOFWlON, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Charles E. Grasslcy 

United States Senate 

Washington, D.C. 20510 

Dear Senator Grassley: 

January 8, 2009 

Thank you for your letter expressing your concerns about preventing :fra.nd in connection 

with the Federal Deposit Insurmcc Corporation's loan modification proposal. We share your 

view that any loan modification plan should benefit only borrowers who legitimately find 

themselves unable to meet their current mortgage obligations. 

AB you know, the FDIC in our role as conservator of IndyMac Federal Bank 

implemcnted. a systematic mortgage loan modification program for IndyMac in order to 

maximize returns and minimize the failed bank resolution costs to the Deposit Insurance Ftllld. 

For defaulted mortgage loans with high monthly payments relative to borrower income, the 

program reduced borrowers' monthly payments to an affordable level through interest rate· 

reductions, extensions of terms, and principal forbearance. These IndyMac loan modifications 

did not involve any new extensions of credit or my usc of taxpayer funds. 

As we discussed. in November, the FDIC has developed a proposal to apply the l~ns 

learned at IndyMac on modification of troubled mortgages through a broader, national program. 

Using funds available under the Troubled Assets Relief Program, under our proposal, the 

government would share certain losses with lenders or investors in the event that a borrower 

redcfaults on a mortgage that was modified using standard protocols for payment affordability 

similar to those developed for the In~yMac program. To prevent gaming and promote 

sustainable loan modifications, our proposal would require scrviccrs to apply a standardized net 

present value analysis, and the loss guarmtec would be limited to loans secured by owneroccupied homes where the borrower had demonstrated an ability to make the modified payment 

for several months. The proposal also would limit the loss guarantee to eight years, and help 

prevent adverse selection by requiring lenders and scrvicers to modify all their loans that meet 

the eligi"bility criteria under the proposal . 

. If we are to make a significant impact on the level of foreclosures in the housing marlcets, 

it is vital that we provide inccntives to address the primary concern expressed by lenders and 

investors-the risk of greater losses if the modified mortgage redcfaults in a declining market 

Through this proposal we estimate that we could avoid approximately 1.5 million foreclosures 

that would otherwise occur this year. Th.is could have a significant effect in returning stability to 

our housing market. 

I share your concerns over potential fraud in the mortgage system. The usc of stated 

income loans by far too many lenders did not provide the appropriate controls to ensure that a 
borrower could meet the :fundamental standard of being able to afford the loan. The FDIC and 

other banking regulators have taken action over the past two years to reiterate the long-standing 

principles of pmdcnt underwriting and to ensure that lending is based on the borrowers ability to 

repay the mortgage. Both at IndyMac and under our proposed guarantee program, all incomes to 

support the modification must be documented and verified. 

I also agree that any program using taxpayer funds must have effective mcasarcs to 

prevent fraud. You provide several suggestions to help protect the integrity of the FDIC's loss 

guarantee proposal. We have already applied several of these protections at IndyMac and would 

require them in any taxpa.ycr-fimded program. At IndyMac, the Bonowcr's Financial Statement 

requires borrowers to confirm that they CBilllot pay their mortgage and that their statement of 

:financial condition is complete and accurate. Similarly, IndyMac relies principally on IRS Form 

4506-T for verification of income to support ~e modified mortgage. I agree that these 

procedures can be revised for any taxpayer-~ guarantee program to encompass execution 

under penalty of perjury, as well as to require borrowers to authorize the IRS Form 4506-T for 

the modified mortgage as well as for the year of origination. As you know, borrowers are 

subject to criminal prosecution 1D1der federal law for making false statements to secure a loan 

from an insured depository institution. For the proposed FDIC program, I certainly support 

robust audit procedures to ensure that any loan modification program is working as intended and 

follows established protocols. 

If any program is to have a significant impact in reducing mortgage foreclosures, it is 

essential that we s1rearnJine the modification process while providing effective protections 

against fraud. I am conccmed that forensic review of every mortgage will prevent a stTeam]ined 

approach and make it very unlikely that the program could be rapidly implemented. I do believe 

that there are alternatives that will achieve our mutual goals of avoiding fraud. Under the 

proposed FDIC loss guarantee program, the taxpayer only pays the guarantee if th.ere is a 

redefault of the modified mortgage. I believe that stpngent audit and fraud reviews of 

redefaulted modifications will effectively eliminate taxpayer payments for fraudulent 

modifications. The program also could, supplement this by reviews of a statistically significant 

sample of modified loans to ensure tha1 loan files are complete and properly documented and 

that all appropriate steps were taken to minimize fraud. 

Thank you again for your interest in the FDIC proposal. If you have questions or 

comments or if we can be of assistance in any way, please do not hesitate to contact me at (202) 

898-697 4. You also may have your staff contact my Special Advisor for Policy, Mike 

Krimmingcr at (202) 898-8950 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair . 
LAO'l- 12 t( 

Via Electronic Transmission 

Sheila C. Bair 

Oiai.rman of the Board 

t~r.u,~.N~ 

~•~'1'1':'"-L f'(" )ll;lo-&'2()0 

December 23, 2008 

I - FDIC 

1 

DEC 2 3 "",1;, -u • .., 

Federal Deposit Insmance Corporation 

550 17th Street, NW 

Washington, DC 20429 

DFFrcr or LEG1sunVE AFFAIRS 

Dear. Chairman Bair: 

l'hmu you for meeting with me and my staff last month to address my concerns 

over your proposed mortgage Joan modification program As I conveyed during that 

meeting. I feel strongly that any plan not benefit borrowers who obtained mo~ 

through fraud. I write now to reiterate that conccm. 

Since our meeting. my staff has consulted with experts across the industry in 

order to better undetstand the extent of fraud in the mortgage market. These e:,cperts 

agreed that fraud is pervasive and ~too that anywhere between 300/4 - 70% of all . 

mor1gages. and up to 50% of owner-occupied mort~ have been fraudulently obtained. 

Providing a benefit such as the FDIC's proposed loan modification program to those who 

committed fraud is bad policy. · 

Many of the consulted e,cperts agreed that a plan like the one proposed could play 

an integral role in stemming the flood of foreclosures. However, those same eq>erts 

echoed my concern. that as propQ,ed, your plan will not deter those who intend to 

defrd.Ud the system nor detect those that stand to benefit despjte past mortgage fraud. I 

understand that you do not want to dissuade borrowers from participating in the 

program. but failing to include some basic fraud detection and prevention mea.mres would 

hlcely have a disastrpus unintended consequence - it would provide incentive for further 

fraud. 

Last week, I asked the Inspector Geoeral of the FDIC to conduct a fraud review 

on a sample of modification-eligible loans. This sort of data could prove crucial for 

Congress and other policymalcers to obtain a realistic estimate of the level offtaud in the 

system. 

Today, I ask you to reconsider including some very basic fraud prevention 

measures in the loan modification program Based on my staff's recent work, 
I suggest· several simple and non-obtrusive provisions that will help protect the integrity 

of your proposed plan: 

1) Require bcxrowers to sign, under penalty of perjmy. that their_ loan and 

application is free from fiaud aoo/or misstatements; 

2) Require borrowers to complete IRS Form 45001' for years covered by the 

original and modified loan periods; 

3) Include robust audit provisions which allow the FDIC Inspector Geoeral, as 

well as third party auditors, to examine documents of all parties in 'the 

mortgage chain; 

4) Subject all loans to an independent forensic loan review; and 

5) Insure all modified loans against fraud (one source estimates that the forensic 

loan review and fraud insurance would cost approximately $300 per loan). 

The above recommendations place little additional burden on the borrower. 

According to one eic.pert, the independent forensic loan review can be accomplished within 

45 days and is already a prerequisite for 1he mongage fraud insurance. Further. 1he 

forensic review and mortgage frqud insurance is expected to cost approximately $300 per 

loan file - a fraction of the potential loss from foreclosure. 

I urge you to incorporate 1hese rjsk management provisions into your program, as 

'they would make it vastly more fraud-resistant and would ensure 1hat more of the . 

taxpayers' money is spent assisting legitimate borrowers iJ\ financial despair rather than 

rewarding fraudsters out to make an easy buck. 

Please respond to this letter by January 8, 2009: If you have my additional 

questions. you can contact Jason Foster or Eben Roberts of my Committee staff at (202) 

224-4515. An.y fo~ correspotrdence should be sent in PDF format to 

Brian_Downey@fmance-rep.senate.gov. Thank you for-your consideration. 

Sincerely, 

Oiarles E. Grassley 

Ranking Member 

Committee on Finance 

cc: The Honorable Jon T. Rymer, Inspector General 

Federal Deposit Insurance Corporation 

2 
13.nittd ~tntta !\OUR of 'RtprucntntiDtJ 

O:Ommltttt on .:fjnandal ~ttoirr.s 

~tll,Bt.21111 

Janwuy 8, 2009 

Th& Honorable Sheila C. Bair 

C.haimum 

Federal Deposit Insurance Corporation 

650 l 'ltb Street, NW 

Waabinpn, DC 20429 

Daar Chairman Bair: 

FDIC 

JAN - 9 m9 

OFFICE OF LEGISLATIVE AFFAIRS 

The Committee on Financial Services will hold a meeting to diacuas "Priorit.iea for 

the Next Administration: Use of TARP Funds under ;EESA• at 2 p.m. on Wednesday, 

January lS, 2009, in room 2128 Rayburn House Office Bw1ding I am writing to confirm an 

invitation ta you ar your designea to participate at thiJ public proceeding. 

The meeting will examine the lessons learned from tha Bush .Admmiatratian1s use af 

TARP fund.I, and how thoao leaaons can inform decision.a on TARP deployment by the 

incoming Adminlatration. The meoting will focua on tho need to use TARP funds to 

prevent Iliortgqe forecloBUJ'8B; the naed to focus TARP recipianta on using: foderal funds to 

increase lending activity ta boost the economy; proposals to provide put.er aceountability 

in the use of TARP funding; and the need for additional tax.payer protections such aa more 

camprehenaive executive cam~ation restrictions. 

Please address the following in your testimony, as appropriate: 

1. What additional measures should be talc.en, through administrative act.ion or 

lagjalatively if need be, to emure that TARP funds facilitate ~mic recovexy? 

2. Please provide specifics regarding how the next Administntion might moat 

afmctjvely use TARP fun~ng to mitigate foreclos1Jl"8a and help struggling 

homaownsrs. . · 

3. Which additional accountabili,ty measures should be am.ployed to ensure that TARP 

recipient. are using federal funds far the purpoaes intended by Congress? · 

4. What additional conditions (such aa more comprehensive reatrictiona on executin 

compensation and othor corporate activities) should be placed on TARP funding to 

onaure that tho intcroats of taxpayers mo adequately protoctod? 

Please read the fhl1owing material cm-efw.ly. It ia intended u a guide to your righta 

and obligations as a witne11 under the rules of the Committee on Financial Services. 

The Farm of your Tutimony. Under t.ha Rules of the Committee on Financial 

Servicee, each witnea1 who is to testify before the Committee or it.a subcommittees must file 

with t.ha Olerk of tha Committee a written atatamant of propoaed testimony of any 

reasonable length. Plaaaa also include with t.ha tsstbnony a currant raaume summarizing 

education, exporlence and affiliationa pmtinent to th.a subject matter of the hearing. This 

muat be filed at least f;wo buaineas days befora your appearlll1C8. PleaH note that changas 
The Honorable Sheila C. Ba:ir · 

Page2 

to the written statement will not be permitted after the meoting begins. Failure to comply 

with this r-eqwrement may result in the ezcluaion of your written testimony from the 

record. Your oral t.estim.ony should not exceed five minutes and ahould summ.arize your 

written ramarka. 'l1i.o Chair reaenea the right to exclude from the printed ~cord any 

aupplemental materials aubmitted with a written •tatamenf due to apace limitatiom or 

printing expense. . 

Submi11rion. of your Teatbnan,,. Please submit a.t least 100 copie1 olyonr proposed 

written statement to the Clerk of the Committae not lau than two busine•s days in 

adv&DC8 of your appearance. These copies should be delivered to: Clerk, Committee on 

Financ:ial Sem.ees, 2129 Rayburn Hause Office Building, Waahingt.on, D.C. 20515. 

Doe to heightened security restriction.a, many com.man forms of deli.vety ax:periance 

significant delays in delivery to the Committea. 'lli.ia includes paclcagea aent via the U.S. 

Postal Service, Federal Expnaa, UPS, and other aimilar carriers, which typically arrive S to 

6 daya later than normal Th~ United Sta.tea Ca.pitol Police have specifically requested th.at 

the Committee refuse deliveries by courier. The best method far delivery of your testimony 

is to havis an employee from your Ol'gllllization. deliver your testimony in an unsealed 

package to. the 11ddresa above. If you are onablo to comply with .this procedure. please 

ccntact the Committee to diaC11Bs alternative methods for delivery of your testimony. 

The RulBB of the 'Committee require, to the extent practicable, that you also submit 

your written tostimony in electronic fann. The prefened method of subm:iaion of testimony 

in electronic form is to aand it yia electronic mail to facbpmptony@maiJ'houae.gov. The 

electronic copy of your testimony may be in rmy ~or file format, including WordParfac:t, 

Microsoft; Word, or ASCII text for either W-mdows or Macintosh. Your electronic mail 

message should specify in the sul:v~ line this date and the Committee or irnbcmnrnfttee 

before which yon are scheduled to teatuy. You may also submit testimony in electronic form 

on a disk or CD-ROM at the ~a of dalivazy of th.a c:opiea of your written testimony, 

Submiaaion of testimany in electronic form facilitate. the production of the printed hearing 

record and posting of your testimony on the Com:tnitt.ee'a Internet site. 

Your Riehh ,u a Wime•"- Under the Rules of the ·HoUlle, witnesses may ho 

accompanied by their own coimsel to advise them concerning their con.atitu.tional rights. 1 

reserve the right to place any witneu under oath. Finally, a witneaa may obtain a 

tra.nacript copy of b.ia toatimony given in open, public session. or m a closed aeaaion only 

when authorized by th.a Committeo or aub,oJnmittee. Howovor, by appearing befare the 

Committee or its subcommittees, you authorize the Committee to make t«-bnical, 

grammatical, and typographical corrections to the b:amcript in accordance with the rules of 

. the Committee and the Houae, 

The Rules al the Committee on Financial Service&, and the applicable rules of the 

House, are available on the Committee's website at htiJ?:-1/finap,;ia]servicea.houae.gov. 

Copies C8J1 alao be sent to you upon request. · 

The Committee on Fimmcilil Services endeavors to mab it.a fact1itiea aCCBU1"hle to 

persons with disabilities. H you are in ·need of spacial accommodations, Ill' have my 
'11ie Honorable Sheila C. Bair 

PapS 

question.a reprdinr special ateom:rnodatian1 pnarally, pleue canted the Committee in 

advance of the IIICheduled nant (4 buainau da,- notice ii requeated) at (202) 22i-42•7; 

TI'Y: 202-226-1691; or write tz:, tbs Committee al the address above. 

Pleau note that apace in tho Committee'• hearing room ii extremely limitad. 

Therefore, the Committee will cmly reeerve 1 oat for •taff accom.panyinc you du:rmg JOUl' 

appearance (a total of 2 aata). In order to maintam our obligation under the Rules of the 

Houae to ensure that Committaa h811lings are open to the public, we cannot deviate from 

thi• policy. 

Should you or your 1bdf ban any queatum. or need additional information, p]eaae 

contact Michael Beruik at (202) 225-(24-7. 

BF/mb 

a:: 'Iha Honorable Spencer Bach:m 
FDII 

Federal Da00sit Insurance Corooratlon 

550 17111 Slreet NW, Waslinglat, DC 20429 

Honorable John Cornyn 

United States Senator 

Occidental Tower 

5005 LBJ Freeway, Suite 1150 

Dallas, Texas 75244 

Dear Senator Comyn: 

Office cf legisf illive Affairs 

January 8, 2009 

Thank you for your correspondence regarding the 

Asset Relief Program's (TARP) Capital Purchase 

application to the Troubleo 

As you may know, the Federal Deposit Insurance Corporation is actively engaged with the U.S. 

Department of the Treasury (Treasury) and the other federal banking agencies in considering 

TARP applications filed by banking institutions.· in our role as primary federal supervisor for 

state nonmember institutions, the FDIC makes a recommendation to the Treasury on each TARP 

application it receives, which ultimately determines if an institution may participate. 

On October 24, 200&. the FDIC received a TARP application from -

- We transmitted this application to the Treasury on Deccmb~ry 

makes a determination on this request, the Bank will be notified. . 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can·be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
JOHNCORNYN 

WASHINGTON, DC 205i0-4305 

December 19, 2008 

Fede:ral Deposit ln.$urance Corporation 

550 Seventeenth Street, NW, Room 6076 

Washington, District of Columbia 20429 

Re: 3 pages to follow· 

My constituent ha.s ~t the enclos~d connnunkation. A r~-ponse which addn."'SSes his/her 

concerns •.vould be appreciated. 

Please send your response to the following address: 

Office of Senator John Comyn 

Occidental Tower 

SOOS LBJ Freev."3.y, Suite 1150 

DalJas, Texas 75244-6199 

· ATfN: Diana P:tlacios 

(972) 239-3453 

(972) 239-2110 (Fax) 

E-mail: Diana _Palacios@cornyn.semte.gov 

.l:.nclosurt 
I 

t 

I 

I 

I. 

L 

.L.::111:.:uu3 .t..J:u;: rA-\. lgJIIIIJ.'UU,l 

FDII 

Federal Deposit Insurance CorporaUon Division of SupeJVision and Consumer 

Dallas Regional Office Memphis Area o,n,c __ _. 

11D1 81)a11 Slreer. Oilla:. Teas 7521)1 

(21-4)754-0008 FAX[V72)761-D2 

S100 Poplar AV!/'ua, Wm 1900, ll.emphls. T1Pnmae 31137 

l!OIJ 6B5-161D FAX~) 821..s309 

o~-~ . lct,)l . The FDIC has received the-applic:i~on to particip.ite in the Troubled 

Asset Rclicf'Program's Capital~ is being admi:iistcred by the U.S. 

Department ofT.reasuzy. Tot applicati011 has bcc:n accepted for review and ~ill be treated by the 

FDIC con:fidenmlly. We may tontilet you with additional ~ons or in.foimation requests as 

necessary. Toe FDIC will process this application as expeditiously ilS posn'blc. 

Your mstitutiOll will be advised bytlie Dcpa:rtment 0fthe Tnu,ny u to its detc:anin.a.tion 

on your request. T.bis applic.atioa may be wnhdn.wn 3t my time upon wrlttec notice to this 

office. If you have any 4ues:tions, please contact Acting Amstmt Regional Dn-cctol' Moka 

Candle at (972) 761-2035 or Cast Manager Teresa Rodriguez at (972)761-2935. 

Kurt R. Hagedorn 

Acting Deputy Regional Director 

.. 

., 

.-

v 
SHEILA C. BAIR 

CHAIRMAN 

-

FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

January 8, 2009 

Honorable Spencer Bachus 

Ranking Member 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Bachus: 

Thank you for your letter regarding the deposit insurance applications otfallr 

o establish industrial loan compamcs. 

The FDIC is required to assess each deposit insurance application relative to the seven 

statutory factors enwncratcd in Section 6 of the Federal Deposit Insurance (FDI) Act These 

filctors consider, among ot:hex elements of a proposal, the financial history and condition of the 

proposed depository institution and its parent organization; the proposed ownership, 

management, and capital structures of the proposed institution, and the risk prc.scnted by the 

proposed institution to the Deposit Insurance Fund. 

Our reviews of the referenced applications are continuing. While the FDIC must 

consider the complexity and unique nature of each application, especially during these furbulent 

economic times. I assure you that the FDIC strives to process applications withln a reasonable 

period of time. We will do so in the referenced cases, consistent with the companies' changing 

circumstances and the receipt of periodic submissions from the applicants. FDIC staff will 

continue to communicate with representatives of both organizations and will consider all relevant 

information in the analysis of the statutory factors. 

Yom interest in this matter is appreciated. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of Legislative 

Affairs, at(202) 898-3837. . . 

Sincerely, 

Sheila C. Bair 
VIA FACSIMILE 

The Honorable Sheila .Bair 

Cb.airman 

_ 'lll.6. J,out of .Bqr~tntatffitit 

«:onmdtttt ou ;:ffna.nrilll §trbicu 

2129 )tqfnmi ~t CIJftiu ~itflhmi 

aBd\l{qb,11. •c 2ost5 

December 18, 2008 

Federal Deposit Insurance Corporation 

560 1 'TftJ. Street NW 

Washington, DC 20429 

Dear Chairman Bair: 

FDIC 

DEC 1 8 2008 

OFFICE OF LEGISLATIVE AFFAiRS 

The applications of Cluyaler Financial Set~~• and Ford 

Motor Credit Company LLC ("'Ford Motor Credi ~ indmtrial loan company (ILC) 

cha.rt.er have enclin& for some time. filed its ILC application in 

May 2005, w ·•· applied fbr an cbalcter in June of 2006 and 

resubmitted it.a application last Fem-uArv, I am writing to inquire as to the eta.tu.a of these 

· 1ong-pendinc applications. 

As policymakers look for waya to stimulate the' economy and blunt the harmful 

effects of a consumer-led recenion. promotinc t.be availability of commercial and consumer 

credit is vitally important. This is particularly true in the dmnestic auto indnstry, both for 

auto dealers financing th~' inventories and cona~2i purchases. Auto 

company finance arm.a like td~lay a crucial role in 

meeting the credit need.a th dealen and consumers. . 

As you know, several foreign automakers, including Toyota and BMW, already own 

and operate ILCs today, placing the domestic auto industry at a competitive disadvanta~ 

in meeting the credit needs of its dealers and cuat.omers. While it ia important tliat the 

FDIC e112age in a thorouih aafety-and-so'llclldness review of the applications filed by 

~ _ that review should not go on forever. 
The Honorable Sheila Bair 

Page2 

l)ecember 18, 2008 

Accordi.nely, I request that you provide me with a statas report on the FDIC'a consideration 

of these pending applications, including an estimat.e of when you expect t.ci complete your 

review. 

Thank you fur your consideration. 

:Ranldng Member 

cc: The Honorable Hemy M. Paulson, Jr. 

The Honorable Nancy Pelosi 

The Honorable John A. Boehner 

The Honorable Steny H. Hoyer 

The Honorable Barney Frank 
FDII 

Federal Deoosit Insurance Cor0oration 

_55017lh Street NW, Washington, DC 20429 

Honorable Ken Salazar 

United States Senate 

Washington, D.C. 20510 

Dear Senator Salazar: 

Thank you for your letter regarding 

January 8, 2009 

application to the Troubled Asset 

Rcljef Program's (TARP) Capital Purchase Program_ 

As you may know, the Federal Deposit Insurance Corporation is actively engaged with the U.S. 

Department of Treasury (Treasury) and the other federal banking agencies in considering TARP 

applications filed by banking institutions. In our role as primary federal supervisor for state 

nonmember institutions, the FDIC makes a recommendation to the Treasury on each TARP 

application it receives, which ultimately determin'es if an institution may participate. 

On November 10, 2008, the FDIC received a-TARP application from 

This application is being processed by our Dallas Regional Office. We 

understand that ·•••••has received~ commitment for a S• million capital injection 

to coincide with a prospective TARP capital subscription. However, the outside investor group 

has applied to become a bank holding company and also is seeking TARP funds. Therefore. the 

FDIC and the Federal Reserve an: coordinating these applications and have ucsted more 

information from the plicants. Of particular significance, entered into a 

Once the FDIC and the Federal Reserv~mendation on this request, the 1 -~ 

Treasury will make a determination on-application. LY'-,; lv 

Your interest in this matter is appreciated. If you have further questions, the Office of L~ 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
Crampton, Lali 

From: Spitler, Eric J. 

Sent Friday, December 19, 2008 4:28 PM 

To:. Crampton, Lall; Baggage, Mable T. 

Cc: Goodman, Allee C. 

Subject ~ f iJ} · 

Let's log this in as a letter from Sen. Salazar's office. 

From: Mitchell, Sam (Salazar) [maffto:Sam_Mitchell@salazar.senate.gov] 

Sent: Friday, December 19, 2008 4:03 PM . 

To: SpltreJ;; Eric J. a.1 

Subj~ ":J 

Mr. Spitler. 

Page 1 of 1 

)/)OS~ i' 1 

Thank you so much for taking the time to speak with me on the phone this afternoon - I deeply 

appreciate if. 

As we discuss has been working with FDIC to put 

itself in a positio m can application to Treasury for assistance under TARP~ifically. after a 

cease-and-desist order was negotiated and ente~on December 2, and aft took all necessary 

write-downs required by FDIC, FDIC cncourag to apply for TARP fimds. bu indicated that 

approval of such an application was contingent o raising approximately $30 million in new 

private capital. 

According trf 111111 tho bank has succeeded in identifying an investor group to provide the $30 million in 

new capital.-The investor group has filed a Banlc Holding Company application with the Federal 

Reserve Boa.rd (which is expected to be substantially completed within the next several days) and has 

filed a TARP ,application that mirrors the TARP application b{°~as also indicated to our 

office that the receipt of TARP funds w012ld resolve its current~~ssues and prevent failure of 

the bank. 

Given th~- portance o~ the agricultural economy in northern Colorado, and 

given tha pears to have complied with the reqeents imposed on the bank to date by FDIC, 

our office wou d like to encourage your agency to giv<J__. application full and fair consideration. 

For your infonnation, it is our understanding that the FDIC representatives with knowledge of J 

situation include Dallas Regi~nal Director Thomas Dujenski and Dallas Assistant Regional Director 

Joseph Meade. 

Thank you in advance for your attention to this request. 

Sam 

12/19/2008 
Crampton, Lali 

From: Spitler, Eric J. 

Sent: Friday. December 19, 2008 4:28 PM 

To: Crampton. Lali: Baggage, Mable T. 

Cc: Goodman. Alice C. --l ~ 1 S) 

Subject: 

. FW: lvJ":" L\t ~ 

let's log this in as a letter from Sen. Salazar's office. 

From:· Mitchen, Sam (Salazar) [maDto:Sam_Mitchell@salazar.senate.gov) 

Sent: Friday, December 19, 2008 '4:03 PM 

To: Spitler, Eric J. --l ~ ':""\ 

Subject: \yr 'B:,J 

Mr. Spitler. \Y 

Page 1 of l 

}/) Of--f/1 

Thank you so much for taking the time to speak with me on the phone this afternoon - I deeply 

appreciate it 

AcconJi?g lo-the bank has succeeded in idcntifyi~g an investor gro~p t? pro~de the S• mi11ion in ~ new capital. The investor group has filed a Bank Holdmg Company apphcabon with the Federal· :-)~ :-) 

Reserve Board (which is expected to be substantially completed within the next several days) and has lY' _,lj I 

filed a TARP application that mirrors the TARP application by ... lllbas also indicated to our L\r'· 

office that the receipt of TARP funds would resolve its·currcnt regulatory issues and prevent faiJure of 

~~ . ~ 

Given the.=,rumce of-to the agricultural economy in northern Colorado, and L~ __ ( «t 

given that-appears t~th the requirements imposed on the bank to date by FDIC, r \r,-

our office would like to encourage your agency 16 give -application full and fair consideration. · \; 

? 

For your infonnation, it is our understanding that the FDIC representatives with knowledge of- '"jJ~ 

situation include Dallas Regional Director Thomas Dujenski and Danas Assistant Regional Director {Y' ~ 

Joseph Meade. t0 

Thank you in advance for your attention to this request. 

Sam 

12/19/2008 
All YSOIJ V. SCHWARTZ 

un.lllcncT.1'1--

COMMITTEE 

~-

ON WAYS AND ME4HS 

Sl!uCT"--....,_ s,,c,,..,s.a.,n 

COMNlfT'TEE ON THE BUDGET 

tongrtss of tbt llnittlJ ~tatts 

J,ouse of l\tprttmtatibes 

Lll0Cf-lD~1 

cnc.........--laa.JRG -DC.211511 --

Ta.: 12112) 2:Z!Hl111 

F-PmJ 

..,_.. ~PA1-

T11.: ll1SI S,J.aJZ 

FIJCIZISI~ 

__,_.....___ 

NT AKE PERSON: DATE: tf-;8-£JJ -- .bLP 

::ity __ ---! 

iome Phone: ____________ _ Business Phone: ---------- )ate ofBirth:..:..·-------------------------------

;ocial Security Number. _____ ,.... 

'ursuant to the provisions the Privacy Act of 1974 (fitlc S, Section 5552A of the United States Code) I hereby authorizt 

.c release of information from_ or copies o~ medical records or files regarding all information pertaining to me, to the 

)fficc of Congresswoman Allyson Y. Schwartz 

:ignaturc: 
FDl•-

Federal Deoosit Insurance Corooration 

550 171h Slreel NW, Washington, DC 20429 

Honorable Ken Salazar 

United States Senate 

Washington, D.C. 20510 

Dear Senator Salazar: 

Thank you for your letter regarding 

January 8, 2009 

application to the Troubled Asset 

Relief Program's {TARP) Capital Purchase Program. 

As you may know, the Federal Deposit Insurance C(?rporation is actively engaged with the U.S. 

Department of Treasury {Treasury) and the other federal banking agencies in considering TARP 

applications fiJed by banking ~titutions. 1n our role as primary federal supervisor for state 

nonmember institutions, the FDIC makes a recommendation to the Treasury on each TARP 

application it receives, which ultimately determines if an institution may participate. 

On November 10, 2008, ·the FDIC received a TARP application fro* ~ Q !]Coloradof . This applican~· on is being processed by our Dallas · gional Office. e 

understind tlr A has received a commitment for a $30 million capital injection 

to coincide wi a prospective T capital subscription. However, the outside investor group 

has applied to become a bank holding company and also is seeking TARP fun~. Therefore, the 

FDIC and the Federal Reserve are coordinating these applications and have!Euested more 

information from the applicants. Of particular significance.fill . tered into a 

Cease-and-Desist-Order that became effective on DecembJ-i 2008. This aild the Bank's 

financial condition may affect the institution's request for TARP program participation; 

therefore. the proposed capital injection represents a critical aspect of our regulatory analysis of 

bank viability. . 

Once the FDIC and the Federal Reserve complete their recommendation on this request, the 

Treasury ~11 make a determination o~ application. 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at {202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
FDl8 

Federal Deoosit Insurance Corooration 

550 17th Street NW, Washington, DC 20429 

Honorable Charlie Melancon 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Melancon: 

Office al Legislative Affairs 

January 12, 2009 

Thank you for your letter regarding the increase in deposit insurance premiums paid by a bank in 

your district. While your letter does not identify the bank, I can nevertheless assl,ll'e you that the 

premium increase was not in any way due to the temporary increase in the depo~it insurance 

coverage limit from $100,000 to $250,000. The Emergency Economic Stabilization Act of 2008, 

which authorized the temporary increase in deposit insurance coverage limit, specifically 

prohibited the Federal Deposit Insurance Corporation from taking the higher coverage limit into 

account for purposes of setting deposit insurance assessments. 

There are several possible explanations for the bank's premium increase. First, the bank's 

deposit insurance risk category may have changed. Pursuant to the Federal Deposit fusurance 

Reform Act of 2005, the FDIC substantially revised the risk-based deposit insurance assessment 

system and adopted a new rate schedule effective January I, 2007. That rate schedule remained 

in effect unchanged during 2007 and 2008. Under the FDIC's assessment system, insured 

institutions are put into one of four risk categories, each charged a different assessment rate, 

based on periodic supervisory appraisals and on quarter-end capital levels. Rates applicable to 

the largest category (Risk Category I) vary by institution within a two basis point range based 

upon supervisory ratings and selected financial ratios. From quarter to quarter, the same 

institution may pay different rates within Risk Category I as its risk profile changes. 

Second, the amount of deposits held by the bank also may have changed. Premiums are 

determined by multiplying an institution's assessment rate by its assessment base, which is 

closely related to the amount of domestic deposits that it holds. 

Finally, the bank may have had an assessment credit that now is exhausted. Under the Federal 

Deposit Insurance Reform Act of 2005, Congress required the FDIC to grant a one-time 

assessment credit to certain institutions. The FDIC applies this credit as an offset to an 

institution's insurance premium until the credit is exhausted. It is possible that the bank in 

question used the last of its assessment credits earlier this year and began paying the full 

assessment amount in the quarters thereafter. 

As you are aware, the number of bank failures increased greatly in 2008, which has resulted in a 

substantial decline in the Deposit Insurance Fund's reserve ratio. By statute, when the reserve 

ratio falls below 1.15 percent, as it has, the FDIC must adopt a restoration plan that will restore 

the reserve ratio to 1.15 percent within five year. Pursuant to the restoration plan adopted by the 

FDIC Board in October 2008, the FDIC has increased rates for the first quarter of 2009 and has 
proposed substantial changes to the assessment system ( and new and higher rates than during 

2007 and 2008) beginning in the second quarter of 2009. · 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. · 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
,2-1a-oa:OS:42PY; 

CHARLIE MELANCON :JIID 0151111C!', ~ 

COMMmeE ON ENERGY 

AND COMMERCE 

COMMITTEE ON 

SCIENCE AND TEOINOLOGY 

Eric Spitler 

• 

~on_grms of the: iinittd ~mtt.s 

!ton.st of Rrprr.smmtiuts 

:n>ashingtun, 'Ba: 1D515 

December 18, 2008 

Director of Office of Legislative Affairs 

Federal Deposit Insurance Corporation 

550 17'ts St. NW 

Washington., DC 20429 

Mr. Spitler, 

mm=amz= 

113nWllrT"'-PIMZD!w'I 

~l,A7DDQ 

llll,IJZ71-1717 

121 StluTN .... k"°-, SunE 107 

GaNz.lus.l.A~ 

1225112'1--Mm 

en~ $'nl&T, SuM ,01 

ttouM.1,LA.7113111 

11151171-:111Xl 

12• EASY aa-s-n 

SIAII z».A 

Nl\ltl--,r.,..7DS811 

IXDl*-c:rl 

I am writing on behalf of a bank in my district that has recently seen its FDIC insurance 

premiums tripled. This bank is a 25-year ol~ financially soun~ well-manage~ well-capitalized 

bank with a good bank rating. Previously its insurance premium was $1700 a month and has 

recently increased to $5100 a month. 

Any infonnation, that you could give on the basis of this increase would be greatly appreciated. 

Specifically, the bank would like to know if this is a reflection of the increase in FDIC insurance 

coverage from $100,000 to $250,000. 

I thank you in advance for your coope~tion. 

Charlie Melancon 

Member of Congress 
e FEDERAL DEPOSff INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher J. Dodd 

Chainnan 

Commillee on Banking, Housing, 

and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

January 12, 2009 

Thank you for your letter, received December 1, 2008, enclosing your questions and 

those from Senator Enzi subsequent to my testimony on "Turmoil in the U.S. Credit Markets: 

Examining Recent Regulatory Responses" before the Committee on October 23, 2008. 

Enclosed arc responses to those questions. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of Legislative 

Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions from the Honorable Christopher J. Dodd 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Ql. Please provide the legal justification for establishing the Temporary Liquidity 

Guarantee Program under the systemic risk exception in the Federal Deposit Insurance 

Act. 

Al. The legal authority for establishing the Temporary Liquidity Guarantee Program (TLGP) 

is set forth in 12 U.S.C. l 823(c)(4)(G). Based on information regarding the unprecedented 

disruption in credit markets and the resulting effects on the ability of banks to fund themselves 

and the likelihood that the FDIC's compliance with the ]east-cost requirements of the Federal 

Deposit Insurance Act (12 U.S.C. 1823(c)(4)(A) and (E)) would have serious adverse effects on 

economic conditions or financial stability by increasing market uncertainty, the Board of 

Directors of the FDIC and the Board of Directors of the Federal Reserve System made written 

recommendations to the Secretary of the Treasury that the FDIC's creation of the TLGP program 

to guarantee bank depositors and senior unsecured creditors against loss under certain described 

circumstances would avoid or mitigate such effects. After consultation with the President, as 

required by the statute, the Secretary of the Treasury made the systemic risk detennination that 

provided the FDIC with the authority to implement the TLGP. 

Q2. According to press reports, the emergency actions taken by the FDIC to guarantee 

unsecured senior debt issued by FDIC-insured depository institutions has bad the 

unintended conseqnence of driving up the costs of borrowing for Fannie Mae, Freddie Mac 

and the Federal Home Loan Banks (FHLBs). Was this.taken into account as a possible 

consequence as you formulated this course of action? 

A2. As noted in the press, the spread of debt issued by Government-sponsored enterprises 

(GSEs), including Fannie Mae, Freddie Mac and Federal Home Loan Banks (FHLBs), over 

Treasuries increased considerably in October and November although the overall cost of funding 

declined. According to MemJl Lynch data on U.S. bond yields, the spread between AAA-rated 

agency debt and Treasuries increased by nearly 40 basis points between September and 

November 2008. We believe these developments primarily reflect broad financial market 

uncertainty and a generally unfavorable market sentiment towards financial finns. In fact, the 

spread of debt guaranteed by the FDIC under the Temporary Liquidity Guarantee Program over 

Treasuries is larger than the spread on GSE debt. 

Financial firms, including those with a AAA-rating, saw their borrowing costs increase sharply, 

both in absolute tenns and relative to Treasury yields, during the same two months, even as the 

Federal Reserve continued to lower the federal funds target rate. MerriU Lynch data show that 

the effective yield on AAA-rated corporate debt issued by financial firms increased by 140 basis 

points between September and October, before declining somewhat in November. Lower~rated. 

corporate debt experienced even more significant increases over the same period of time. 
The primary purpose of the FDIC's Temporary Liquidity Guarantee Program is to provide 

liquidity in the inter-bank lending market and promote stability in the long-tenn funding market 

where liquidity has been lacking during much of the past year. While the FDIC's action was 

focused primarily on helping to restore a stable funding source for banks and thrifts, we believe 

that such liquidity can, in turn, help promote lend1ng to consumers and small businesses, which 

would have a considerable benefit to the U.S. economy, in general, and financial firms, including 

mortgage lenders and GSEs. Nevertheless, partly to mitigate any potential effect of the FDIC 

guarantee on funding costs for GSEs, the federal banking agencies have agreed to assign a 20.~ 

percent risk weight to debt guaranteed by the FDIC (rather than the zero risk weighting that is 

assigned to debt guaranteed by a U.S. Government agency that is an instrumentality of the U.S. 

Government and whose obligations are fully and explicitly guaranteed as to the timely 

repayment of principal and interest by the full faith and credit of the U.S. Government). 

Q3. The FFIEC has proposed a rule that would lower the capital risk weighting that 

banks assign to Fannie Mae and Freddie Mac debt from 20 to 10 percent, but does not 

change the treatment for FHLB debt. Has any consideration been given to giving the same 

treatment to FHLB debt? WiD FDIC-guaranteed unsecured bank debt have a comparable 

risk weight? 

A3. On September 6, 2008, the Treasury and Federal Housing Finance Agency (FHF A) 

placed Fannie Mac and Freddie Mac into conservatorship, administered by the FHFA. The next 

day, September 7, 2008, the Treasury announced the establishment of the Government Enterprise 

Credit Facility and entered into senior preferred stock purchase agreements (the Agreements) 

with Fannie Mae and Freddie Mac. These Agreements are intended to ensure that Fannie Mae 

and Freddie Mac maintain a positive net worth and effectively support investors that hold debt 

and mortgage-backed securities issued or guaranteed by these entities. 

On October 27, 2008, the Federal Deposit Insurance Corporation, Board of Governors of the 

Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift 

Supervision (together, the Agencies) published in the Federal Register a Notice of Proposed 

Rulemaking that would permit a banking organization to reduce to 10 percent from 20 percent 

the risk weight assigned to claims on, and the portions of cJaims guaranteed by, Fannie Mae and 

Freddie Mac (the NPR). 1 As proposed, the NPR would permit a banking organization to hold 

less. capital against debt issued or guaranteed by Fannie and Freddie. The preferential risk 

weight would be available for the duration of the Treasury's Agreements 

The NPRrcquested comment on the proposed regulatory capital treatment for debt issued or 

guaranteed by Fannie Mae and Freddie Mac and whether.the Agencies should extend this capital 

treatment to debt issued or guaranteed by other government-sponsored entities (GSEs), such as 

the Federal Home Loan Banks (FHLBanks). The comment period for the NPR closed on 

November 26, 2008, and the Agencies received more than 200 public comments. Most of the 

commenters support lowering the risk weight for debt issued or guaranteed by the FHL:Sanks to 

narrow the credit spread between Fannie Mae and Freddie Mac debt and FHLBank debt. The 

1 73 Fed. Reg. 63656. 
Agencies are reviewing the comments and detennining whether a 10 percent risk weight is 

appropriate for a banking organization's exposure to a GSE. 

On November 26, 2008, the FDIC published in the Federal Register a final ru]e implementing 

the Temporary Liquidity Guarantee Program.2 Under the Temporary Liquidity Guarantee 

Program, the FDIC will guarantee the payment of certain newly issued senior unsecured debt 

issued by banking organizations and other "eligible" entities. Consistent with the existing 

regulatory capita) treatment for FDIC-insured deposits, the Agencies will assign a 20 percent risk 

weight to debt guaranteed by the FDIC. 

Q4. I commend you for aggressively pursuing loan modifications of the IndyMac loans 

that the FDIC now services. Please elaborate on the following three points that you make 

in your testimony that I want to explore further: 

(a). You state that you have established a program to systematically modify troubled 

loans that IndyMac serviced. Please give us more details about this approach and how it 

differs from modifying loans on a case-by-case basis. ls there really such a thing as a 

systematic approach to loan modification, or do· you have to touch every loan as you wouJd 

on a case-by-case basis? 

A4(a). The FDIC's loan modification program at IndyMac provides a streamlined and 

systematic approach to implementing affordable and sustainable Joan modifications. By 

establishing clear guidelines for loan modifications detennined by an affordability metric based 

on mortgage debt-to-gross income, the loan modification program allows servicers to apply the 

model to thousands of mortgages quickly, while defining for each loan how to achieve the 

targeted DTI. By using a waterfall of three basic loan modification tools - interest rate 

reductions, term or amortization extensions, and principal deferment - it is relatively simple t~ 

run thousands of loans through a computerized analysis of the necessary combination of tools 

needed to achieve an affordable and sustainable payment. A standardized net present value 

analysis, also computerized, allows IndyMac to ensure that its modifications provide a better 

value to the FDIC or investors in securitized or purchased loans~ All IndyMac modifications are 

based on verified income infonnation from third party sources such ~ the Internal Revenue 

Service or employers. 

This is very different from the loan-by-loan approach used by most servicers, which seeks to 

gather detailed financial information from borrowers - usually based on verbal statements - and 

get the highest possible monthly payment while leaving the borrower with a set amount of 

'disposable income.' While this approach may appear to offer a more customized approach, it 

has often meant that servicers relied on stated income and stated expenses to achieve a shortterm solution that continued to place the borrower in a precarious and unsustainable payment. 

The difficulty with this approach is demonstrated by the high redefault rates reported by some 

servicers. 

2 73 Fed. Reg. 72244. 
The FDIC Loan Modification Program at IndyMac achieves an affordable payment through a 

three step waterfall process: 

• Interest Rate Reduction: Cap the interest rate at the Freddie Mac Weekly Survey Rate 

for the balance of the loan tenn and. if needed to reach the DTI target, reduce the interest 

rate incrementally to as low as 3 perc_ent and re-amortize the principal balance over the 

remaining amortization term. The interest rate charged will not be greater than the 

current Freddie Mac Weekly Survey Rate at the time of modification. The reduced rate 

remains in effect for at ]east 5 years. 

lfthe target debt-to-income ratio has not been achieved. proceed to the next step. 

• Extended Amortization Term: For loans with original terms of 30 years or less, reamortize the principal balance at the reduced interest rate (3 percent floor} over an 

extended amortization term of 40 years from the original first payment date. 

If the target debt-to-income ratio has not been achieved, proceed to the next step. 

• Partial Principal Forbearance: Defer a portion of the principal balance for 

amortization purposes. and amortize over a 40-year period at the reduced interest rate (3 

percent floor). The remaining principal balance remains as a zero interest, zero payment 

portion of the loan. The rep<!-ymc:nt of the deferred principal will be due when the loan is 

paid in full. 

Of the loan modification offers made at IndyMac thus far, 73 percent required rate reduction 

only, 21 percent r~uired rate reduction and tenn extension, and 6 percent required rate 

reduction, term extension, and principal forbearance. 

Q(b). Your testimony says that modifications are only offered where they are profitable to 

IndyMac or investors in securitized or whole loans. Are you finding that most 

modifications are profitable, and if so, please explain how you determine that they are 

more profitable than foreclosures? 

A(b). Yes. While there are always some proportion of delinquent mortgages where a 

modification will not provide the best alternative to preserve value for the mortgage, many 

mortgages can be modified successfully while gaining-the best value compared to foreclosure. 

One illustration of this fact is the net present value comparisons between the modified mortgage 

and foreclosure for the more than ~,500 completed modifications at IndyMac. To date, on 

average, the net present value of completed modifications at IndyMac has exceeded the net 

present value of foreclosure by $49,918 for total savings compared to foreclosure of more than 

S423 million. 

As conservator, the FDIC has a responsjbility to maximize the value of the loans owned or 

serviced by IndyMac Federal. Like any other servicer, IndyMac Federal must comply with its 
contractual duties in servicing loans owned by investors. Consistent with these duties, we haye 

implemented a loan modification program to convert as many of these distressed loans as 

possible into perfonning loans that are affordable and sustainable over the long term. This action 

is based on the FDJC's experience in applying workout procedures for troubled loans in a failed 

bank scenario, something the FDIC has been doing since the l 980s. Our experience has been 

that performing loans yield greater returns than non-performing loans. 

The FDIC's Loan Modification Program at IndyMac is primarily based on four principles: 

1) Affordable and sustainable modifications generally provide better value than forecJosure 

to lenders and investors, and to the IndyMac conservatorship and the FDIC's Deposit 

lnsur.mce Fund. Modifications that exceed the net present value of foreclosure generally 

are consistent with servicing agreements and protect the interests of investors in 

securitized mortgages. 

2) Sustainable loan modifications must be affordable for the life of the loan. As a result, the 

Loan Modification Program is based on a first lien mortgage debt-to-gross income ratio 

ranging from 3 8 percent to 31 percent. The modifications use a combination of inte_rest 

rate reductions, term extensions, and principal deferment to achieve affordable payments. 

The interest rate on the modified mortgages is capped at a prime conforming loan rate 

reported by the Freddie Mac Weekly Suivey. The interest rate can be reduced to as low 

as 3 percent for five years in order to achieve an affordable payment followed by gradual 

interest rate increases of 1 percent per year until the Freddie Mac Weekly Survey rate is 

reached. 

3) All modifications should be based on verified income infonnation, not stated income. 

This is essential to establish affordability. 

4) A streamlined and systematic modification process is essential to address the volume of 

delinquent mortgages in today's market. The FDIC, along with many mortgage 

servicers, has adopted a more streamlined process focused on modifying troubled 

mortgages based on a simple' debt-t.:,-income ratio since it is easy to apply and avoids 

costly and unnecessary foreclosures for many more borrowers. 

The Program results in a positive outcome for investors and borrowers as investor loss is 

minimized and the borrower receives a sustainable long-term modification solution. The 

Program requires full income documentation in order to minimize redefault and ensure the 

affordability standard is uniformly implemented. The gross monthly income for all borrowers 

who have signed the mortgage note must be supported by either the prior year's tax returns or 

recent pay stubs. 

Q(c). You state that securitization agreements typically provide servicers with sufficient 

flexibility to apply the modification approach you are taking for the IndyMac loans. Given 

this flexibility, why are so few loan modifications being made? 
A(c). While the sccuritization agreements do typically provide servicers with sufficient 

flexibility, many servicers have been reluctant to adopt the streamlined modification protocols 

necessary to stem the rate of unnecessary foreclosures due to concerns about challenges :from 

investors, a tendency to continue prior practices of focusing on loan-by-loan customized 

modi ficatio11s, and by staffing limitations. 

At IndyMac, of the more tlian 45,000 mortgages that were potentially eligible for modification, 

IndyMac has mailed modification offers to more than 32,000 borrowers. Some proportion of.the 

remainder do not pass the NPV test and others must be addressed through more customized 

approaches. So far, IndyMac has completed income verification on more than 8,500 

modifications and thousands more have been accepted and are being processed and verified. 

As the FDIC has proven at IndyMac, streamlined modification protocols can have a major 

impact in increasing the rates of sustainable modifications. However, even there, challenges in 

contacting borrowers and in getting acceptance of the modification offers can inhibit the 

effectiveness of modification efforts. These arc challenges that we have sought to address by 

working closely with HUD-approved, non-profit homeownership counseling agencies, such as 

those affiliated with NeighborWorks. In addition, we have sought to reach out to local 

community leaders and provide cooperative efforts to contact borrowers at risk of foreclosure. 

These efforts, which many servicers are starting to pursue, should be a focus of efforts by all 

servicers going forward. 

In addition, servicers • concerns over cha1lenges from investoi:s makes adoption of a national 

program to provide incentives from federal funds a critical part of the strategy to achieve the 

scale of modifications necessary to address our housing crisis. To address conflicting ·economic 

incentives and fears ofre-defaull risk, the FDIC has proposed that the government offer an 

administrative fee to servicers who systematically modify troubled loans and provide loss 

sharing to investors to cover losses associated with any redefaults. These financial incentives 

should make servicers and investors far more willing to modify Joans. This proposal addresses 

·the biggest disincentive to modify troubled mortgages - the potential for greater losses if a 

modified loan redefaults and foreclosure is necessary some months in the future in a declining 

housing market As a result, the FDIC proposal is designed to cover a portion of the losses that 

could result if the modified mortgage redefaults. This will provide practical protection to 

servicers by allowing easier proof for the value of the modification and eliminate investors' 

primary objection to streamlined modifications. We have estimated the costs of this program to 

be about $25 billion. To protect taxpayers and assure meaningful loan modifications, the 

program would require that servicers truly reduce unaffordable loan payments to an affordable 

i~...--~: ci.,d ·;:;::fy !:!.!.."!'l:'!'t income, and that borrowers make several timely payments on their 

modified loans before those loans would qualify for coverage. This proposai is cicrivcJ f1viii !;:;:;:; 

sharing arrangements the FDIC has long used to maximize recoveries when we sell troubled 

loans. We believe this or some similar program of financial incentives is necessary to achieve 

loan modifications on a national scale to halt the rising tide of foreclosures and the resulting 

economic problems. 
A2. When the FDIC proposed the Home Ownership Preservation (HOP) Loan program in 

May 2008, we noted that congressional action would be requited to authorize the Treasury 

Department to make HOP loans. We believe that the HOP Loan program could be an important 

tool for avoiding unnecessary foreclosures in combination with other tools. As the housing 

market and home prices have continued to decline, we have suggested the loss guarantee 

approach discussed above as a way of streamlining and increasing the scale of loan 

modifications. 
.. . :.:. 

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The ifonorahlc Shdla C. Bair 

Chainnan 

Fl!dl:!ml Vl!'p()sil Insur-,mi:e Corpor..ition 

S 50 I 7'11 Street. NW. 

Washington. DC 2U42<J 

Dc:ir tv1s. Bnir: 

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1"1,C~•-"'-7 ·•·:· ·: -: ·,:!"'• ·,--r-~,i;- ~fR'~ 1v,T1•. - V .. . _____ ft __. 

Thank you for testif!,1ing before the Committee on llanking.1 lousing. ar.d Urban Affairs 

011 Oclflhi:r 23. 2008. In order to complete the hearing record, we would apprcci:itc your answers 

to the encll1scd questions as won as possible. 

Pli~asc rcpl..'al thl! ~1u~s1ion. then your :mswer, singk spacing. both que-stion ..inJ .inswl:!r. 

Ple:isr::- dl1 not US(: all cupitals. 

SenJ your reply tu Ms. D.l\\n L. Ratlill: th.: commiucc·:- Chk-f Clerk. She will transmit 

copi~-s 10 thl..' appwprinte o!lkt'S. includi11g thi: Cl•nnnittc::e's publicutions ulfo:t:. Due 10 current 

proc,:durcs regarding ScnaLc mail, il is rcct,mmcm.led Lliat you send n:plies via ~-mail in a MS 

Wun.l. WordPi:rli:ct or .pdf attachmcnl lo !)awn Rmlil1\i',b:mking.sen::.tr!.!.!l'l\. 

ll'you have :.my questions abc>ut this k-llcr. plcas1.· contact \is. R.rtlifial (::!0::!)::!24-J(J43. 

Sinc1.•rc-lv. 

Chaim1an 

CJD/Jr 
Questions for the Hearing on "'Turmoil in the U.S. Credit :\iarkcts: Examining 

Recent Regulatory· Responses" 

Octoher 23, 2008 

Questions for The Honorable Sheila C. Bair, Chairman, Federal Deposit InsurJncc 

Corporation, from Seaator Enzi: 

I. I "w.is happy lo note in your testimony that yot. discussl!d the need to stop unnl!cessary 

foreclosures. You menlionc:d the FDIC"s work as conservator ofindrMac: and your 

participation in rhc Hope for lJomeownership program as recent examples of y0i1r dlort. 

Docs the FVIC plan to develop a ncwprogram lo exti::n<l Joun ml'~dific::ition!l to a brl);.tdc:r 

pool of mortgages than those held by fndyMac? How would such a program work and 

what \\'Ould its impact be on mortgagl! investors'! Where would the FDIC derive 

authority for such a progrc1m'? 

., I la::; ,he FDIC givc:n uny further considcratiQn to the FDIC's own I lomc o,-..ncrship 

Prcs-.:rvatiun Loan program'! I bclic,·c: this program is a good ,,,ay lo avoid fortclosurcs 

anJ severe mortgage mo<lilic.ations at the same time. If this prohrra.-n is no longer being 

co~sidcr1Xl. why'? 
Questions for the Hearing oo ''Turmoil in the U.S. Credit Markets: Examining 

Recent Regulatory Responses" 

October 23, 2008 

Qu~stion.s for The Honorable Sheila C. Bair. Chairman, •·ederal Deposit Insurance 

Corporation. from Senator Dodd: 

I. Pkasi: provide the legal justification for l!s:t~blishing. rhc Temporary Liquidity Guarantee 

Progr:i.m under th!! systemic risk exception in the Federal Deposit Insurance Acl. 

2. Acc.Jrding 10 press rt!ports. the emergency actions taken by the FDIC to guarantee 

unsccun:d s~11ior debt issued hy FDIC-insured depository institutions h:as had 6c 

uninll:m.lc:=d consequence of driving up the costs of borrowing for F;umk Mac. rrcddie 

Mac and the Fcd~ral Home Lonn Hanks (FHl.lls). Was Ibis tak~n into accou111 as a 

poss:ble consc4ucncc as you fonmllatcd this cours~ ur action'! 

3. The FFIEC has proposed a rule 1ha1 would low·cr lhi: capital risk weighting that banks 

as:;ign to Fannie Ma~ und Freddie Mac t!r:bt f~m ::rn to IO p¢rccnl. but docs not change 

the treatment for HILB debt. Has any consideration hccn given tu giving the same 

tn..M.1tment to FHLB d~bt'! WiII FDIC-guar.1ntcl!d uns1.-cured bank debt h.Jvr:= a comparable 

risk weight? 

4. I cor:11nend you for ag1,>Tessivcly pursuing loWl modifications uf the IndyMoc loans that 

th~ FDlC nl'l\\" :-crvices. Pknsc elaborate on the follO\\.ing three points that you make il'l 

your r.:stirnony that J \,,ant to explor~ further: 

• You state thal you have established a program to systematically modify troubled 

loans that Inuy~ac serviced. Please give us more detail;; ahm11 :his approach anJ 

how it dHTcrs frnm modilYing loans on a case-by-case basis. ls there really such a 

thing as a systcn:.atic approach to loan modificatic.m; or do you have tl, touch 

~V~l') loan as you \Vuuld on a case-by-<:asc basis? 

• Yt~ur teslimony·~ys !hat mouifications an~ only olforcd whcrl! thc:y arc· profitabl~ 

to l11dyMm: or inves.tors in scL.:uriti:lc:d or ,.,·hole loans. A:r~ you finding lhat most 

rmx!ilications arc pm Ii table. :mtl if so. picas~ explain how you detem:iinc th.it thl!y 

.ire more prnfital,le than forcclosun.•s? 

• You stat~ !hat securiti7.atiun agrc:tmcnts typically pro\idc scn·iccrs with sunid~nl 

ncxibiiily to apply the r.10dilkation approach you arc ta.king for the lndyMai.= 

loan!-. Given this ncxibility. why ~r~ ~o f cw loan modifications being much:'? 

., 
Questions for the Hearing on ••Turmoil in the U.S. Credit Markets: Examining 

Recent Regulatory Responses'' 

October 23, 2008 

5. Each agency represented a.I the hearing hes aggressi"dr tLc;cd the tools al lhdr ilisposul in 

dealing with Lhc crisis. However. sometimes tJ1c use of lhosi: tools has led 10 unintended,· 

l:onscquem:es. For instance, when the Treasury Departmcm guaranteed .nonc.-y market 

fonds. it letl to a concern on dcposit insurance and bank accounts. Wh\!n the FDIC 

guaranteed bank debt, it had an ~nect on GSE borrowing costs, which in tum ilirectly 

uffe.:ls mortgage rates. 

Acknowledging that there is oil~n il need to act quickly in th~se circumstances, plcasc 

explain \Vh:.u steps and proc~sscs you havc employed to inform other ag~nch..-s ahout 

signilkant uctions you undertake to casur~ th;,it then.: arc not serious ad\erse unimend,::d 

conscqut.-nccs and that your actions an~ working in concert with thdr.s. 

3 
FDII 

Federal Deposit Insurance Corporation 

550 171h Street NW, Washington, D.C. 20429-9990 

Honorable Jon Ky) 

United States Senator 

2200 East Camelback Road, Suite 120 

Phoenix. Arizona 85016 

Dear Senator Kyl: 

Office of Legislative Affairs 

January 15, 2009 

Thank you for transmitting information about Dominion Real Estate Investments, LLC (DREI). 

The email from Messrs. Dwyer and Freeman provides valuable infonnation about the company 

and its capabilities, and we wiIJ add this firm to our Contractor Resource List (CRL). 

When the FDIC begins the procurement process for good$ and/or services, we use market 

research data to identify potential contractors that can provide the needed goods or services. A 

repository for this market information is our CRL. This system organizes and maintains 

corporate capability statements submitted by firms seeking to do business with the FDIC, and 

our program managers and contracting officers use this system to identify sources for 

solicitation. 

While we cannot guarantee DREI or any other potential contractor submitting a corporate 

capabilities statement will be included on future source lists, once DREI has been added to the 

CRL, the information is available for consideration. 

-~ 

If Messrs. Dwyer or Freeman have further questions, they may contact Elizabeth Walker in our 

Acquisition Services Branch at 703-562-6295. 

Your interest in t!Jis matter is appreciated. If you have further questions. the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
Office of 

U.S. Senator Jon Kyl 

Facsimile Cover Sheet 

DATE:_1zl.......__z~L/f._<29 __ TIME: __ PAGES TO FOLLO~:~---

TO: 

OF: fDr<. zoz-S?S- 3-74S-(,g) 

RE: 

FROM: SenatorKyl Emi1y Pitha 

Clint Chandler Debbie Roberts 

Nancy Gilliam Sharon Varga 

Jane Grace Andrew Wilder 

Sandra Ledy Craig Wismer 

Liz Mascot Kimberly Wold 

Other 

2200 East Camelback Road, Suite 120 

Phoenix, Arizona 85016 

Phon~ : (602) 840-1891 FAX: {602) 957-6838 

Web: http://www.kyl.senate.gov 

t,_----

Tha Information contained in this facsimile is intonded only for the Individual or organization 

named above and may contain confidential or privileged inf armation. If you are not tho 

intended recipient, any copying, distribution or dissemination of this Is strictly prohibited. 

If you have received this transmission in error, please notify us by telephone immediately. 
Wismer, Craig (Kyl) 

From: 

Sent: 

To: 

Cc: 

Subject: 

Attachments: 

· Dear Craig, 

Richard Freeman [RichardF@dominionrealestate.com} 

Thursday; December 18, 20081:21 PM 

Wismer, Craig (Kyl) 

Chad WIiiems; rob@dominionrealestate.com 

FoUow-up (for the FDIC) 

Dominion Real Estate Investments July 2008.ppt 

\!)_ 38fl9 2 

Per your request, below is an explanation as to why we, Dominion Real Es1ate Investments (DREI), believe the 

FDIC needs a local presence for the most cost effective and orderly disposition and management of distressed 

real assets. We also believe that DREI offers the best choice for such services here in Arizona 

As we have indicated to you, since: the decline in Arizona real estate values began in late 2006 we have been 

involved 'With three _primary vendors used by the FDIC, banks or other financial institutions to seU distressed 

real estate-related debt or the underlying real estate. These vendors m: DebtX (Boston. MA), First Financial 

(Oklahoma City, OK) and CB Richard Ellis (Washington, D. C.; New York, NY). While we and our investors 

have generally been impressed with the ovi:rall professionalism of these organizations, we did observe: 

- Unfamiliarity with the market and area 

- Properties in various stages of disrepair with no apparent fencing or other safety and security 

enhancements, potentially 

resulting in a lower value basis in the property 

- An emphasis on speed to close rather than best price 

Often those investors whoie bids are accepted, and who have not performed proper due diligence before making 

a bid, do not ultimately purchase the properties after an on the ground inspection. As a result, these properties 

often are forced into foreclosure, fall in to disrepair and lower the value and safety of the: surrounding 

communities. 

' 

As we suspect that the federal government will get involved in the sale md :purchase of distressed. real estate, 

we believe it is important to keep in mind the· need for local involvement. Dominion Real Estate Investments 

(DREI) and its affiliated entities (real estate brokerage, home finance, home warranty and title) have the 

wherewithal to perform the· functions of any out-of-state entity. while keeping a local perspective. . . 

It is our understanding that the FDIC assigns the management and sale of the notes and deeds oftn>.st to one 

company, such as Fi~st Financial, and the management of the underlying re:tl estate collateral to another 

company. While DRE! is capable of managing both asset classes, the Firm would be interested in either or both 

tasks. 

As described more fully in the attached PowerPoint, DREI and ~ts affiliated entities have been operating in 

Arizona for over ten years. Its principals have been involved in Arizona real estate for more than twenty years. 

(As you may recall Rob Dwyer previously worked with the Resolution Trust Corporation.) Dominion bas more 

than 160 associated reaJ estate professionals and a presence in six western states. The Firm's comprehensive 

property management capabilities encompass office buildings, retail cenk~ industrial facilities.. multi-family 

properties and entitled and non-entitled land. In addition to the above, OREi and its affiliates have in-depth 

relationships with all major title companies, nwnerous local and national real estate investors, national :md 

regional commercial bsnks, regional security companies and other real estate-related service providers 

1 
';~NATOR JOH KYL 

Again thank you for meeting with us and please contact us should you need any additional information. 

Robert R. Dwya &: Richard Freeman. 

Owner/Managing Partners 

Dominion Real Estate Investments LLC 

Chad Willems 

Principal 

Summit Consulting Group 

2 
lowec-rated institutions bas been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority ofCPP applications will be processed by the regulators by June 30, 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TA.RP CPP request. However, we do not necessarily need to perform a new on-.· 

site examination to reach a viability assessment The regulators have a variety of off-site review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact. the FDIC has made favorable TARP CPP 

recommendations to Treasury b~ed, in part, on examinations that were less rece~t. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large ban.ks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
ft FEDERAL DEPOSIT INSURANCE CORPORAllON. Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Anibal Acevedo Vila 

Governor 

Commonwealth of Puerto Rico 

La Fortaleza 

San Juan, Puerto Rico 00902 

Deu Governor Vila: 

Jmuuy 15, 2009 

Thank you for contacting me about the participation of Puerto Rican financial 

institutions in the Troubled Asset Relief Program's [f ARP) Capital Purchase Program 

(CPP). I wholeheartedly agree with you that TARP CPP -capital subscriptions are 

necessary during this challenging time to keep credit available for consumeIS and 

business in Puerto Rico and across the natiot1. The Federal Deposit Insurance 

Corporation expects banks will use these funds to augment capital and responsibly make 

loans in their communities as a means of supporting economic growth. J) 

The FDIC received several TARP CPP applications from state nonmember ~ ~) 

financial institutions in Puerto Rico, including an application filed by - ~ 

- The FDIC reviews T~ CPP applications submitted by state nonmember \...._\r 

institutions. utilizing U.S. Department of Treasury's viability s~andards. If those 

standards are met, the FDIC will make a favorable recommendation; however, ultimate 

disposition is determined by the U.S. Department of Treasury. 

Thank you again for contacting me and be assured the FDIC understands the 

current state of the Puerto Rican economy and its impact on the Commonwealth's 

banking institutions. 

Sincerely, 

Sheila C. Bair 
ANi"UA1.AcEV1-:no Vn..i 

-

Dcccm.bcr 11, 2008 

The Honotablc Sheila Bair, Olm 

Fedetal Deposit ~ce Corporation 

550 17ds Street, NW 

Washington, DC 204.29-9990 

Dear Madame Chau: 

OC/J'I- 1/0/ 

FDIC 

I 

DEC 1 7 2008 

OFFICE OF THE CHAIRMAN 

I write to respectfully request necessary considea.tion be provided to Puerto Rican 

institutions in need of Fcdctal assistance through the Troubled Asset Relief Program 

(f ARP) enacted through the Emergency Economic Stabilization Act. We must work 

to cnsute that banks can bring about economic growth through lending in onlct to 

help lift the U.S. and Puerto Rican economies out from under this ovetwhdming 

recession and fiscal aisis. · 

Please provide necessary considetation and support for pending TARP applications 

filed by banks from Puerto Rico. Special del.toeration ought to be gi~ to the Puerto 

Rican institutions ciuc to the magnitude and length of the recession in Puerto Rico, 

where it a.uived ptior to the cffi:cts being felt on the mainland, and wb~ the 

cconomicchallcngcsremainseverc. · 

~de special consideration to the TARP request provided by- - which has a st-tied histo in Puerto Rico and is one o~ 

leading commercial lendexs. an otganially grown institution in Puerto 

Rico, is the largest minority-hel mstltution in the United Stares. Furthermore, -is the largest employer in the southwestem region of Puerto Rico - an 

~a particular need for jobs and for the commercial banking sector. 

-n:mains an integral part of the Puerto Rican economy. As the }ugest 

~der on the Island, it invests hcmly in an ~ctotS like 

infrastmctmc, hcalthcuc, agnbusiness and small business. - has some 

1500 employees throughout southwestcm Puerto Rico. 

LA ll'ORTALEZA. 
· 1bc Honorable Sheila Bair 

December 11, 2008 

Page2 

I undcntand that the New York Region of the FDIC has put forward 

TARP request. For the reasons identified abov~ I ask that you support this 

application pending before the FDIC and the United States Treasury. 

Sincerely, 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN January 16, 2009 

· Honorable John Shadegg 

House of Representatives 

Washington D.C. 20515 

Dear Congressman Shadegg: 

Thank you for your letter regarding the procedures of the Federal Deposit Insurance 

Corporation for dealing with loans acquired after the failure of a financial institution. 

I share your concerns regarding the current economic climate and can assure you that we 

are working diligently to reduce the economic hardship and impact faced by customers of 

financial institutions that are closed. Bank failures are unfortunate and can have a significant 

impact on communities and individual borrowers. 

As you noted in your letter, the FDIC has a Jegal responsibility as receiver for a failed 

institution to maximize !he recovery for the benefit of depositors and creditors who may have 

lost money when the institution failed. In accordance with this responsibility and, within the 

context of a real estate market in decline, the FDIC must carefuJly analyze any requests for 

additional funding, as well as evaluate the risks associated with the proposed transaction, to 

determine whether the funding will provide the best opportunity to achieve the best possible 

recovery for the failed institution's estate. Staff from the FDIC's Division of Resolutions and 

Receiverships reviews each funding request on a case-by-case basis. For example, if the 

advancement of funds for construction purposes will result in a net increase in the underlying 

collateral value or such funds will protect, preserve or allow for build-out so that marketing of 

the real estate project can immediately begin, the FDIC as receiver may adn.nce such funds. 

While the FDIC seeks to work with borrowers to resolve their loan obligations, we also 

seek to return failed bank assets to the private sector as quickly as possible .. Returning assets to 

the private sector preserves the value of the assets and provides an opportunity for borrowers to 

establish a new lending relationship. To facilitate a new lending relationship, the FDIC wilJ 

generally waive any prepayment fees at the borrowers request if they can find alternative 

financing .. In accordance with our statutory responsibility, the FDIC employs a variety of 

strategies to dispose of the assets of failed institutions. The sale of both performing and nonperforming loans is one of the methods that has consistently proven successful. To fulfill this 

responsibility, the FDIC frequently packages loans that we acquire from failed financial 

institutions, and sells them on a competitive basis at their current value as determined by the 

open market. Generally, the marketing of acquired loans begins approximately 60 to 90 days 

following the failure of a financial institution. It is important to note that the legal rights and 

ob]igations of borrowers are not changed when the FDIC sells these loans. 
Loans are negotiable instruments that are routinely sold in the financial markets on a 

daily basis. Although parties who purchase loans from the FDIC acquire the right to collect the 

full balance, their collection efforts are limited by the tenns to which the borrowers· agreed when 

they originally borrowed the funds. Additionally, the purchaser of a loan is bound by any .written 

agreement that ·may have been reached between the FDIC and the loan customer prior to the sale 

of the promissory note. 

Bank failures create difficult choices for the FDIC. The statutory requirement that the 

FDIC maximize recoveries and minimize losses in its management of failed bank assets is to 

ensure that uninsured depositors and other creditors recover their losses to the fullest extent 

possible. The statutory requirements also are designed. to reduce losses to the Deposit Insurance 

Fund which protects taxpayers from having to pay the cost of protecting depositors. In balancing 

our statutory responsibilities with the needs of the failed bank's borrowers, the FDIC strives to 

ensure that borrowers are treated fairly and responsively. 

If you have further questions, please do not hesitate to contact me at (202) 898-6974 or 

Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
DEC-23-2008 TUE 04:46 PH FAX NO. 6022487733 

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Off/CE OF LEGISLATIVE AFFAIRS 

The Honorable Sheila Bair 

Chairman 

Sent yia Mail and FAX.. 

Federal Deposit Insurance Corporation 

S50 Seventeenth Street, NW. Room 6076 

Washington, D.C. 20429-0002 

Re: FDIC Procedures for Dealing with Perfonning Construction Loans and Non-Construction 

Loans at Banks Taken Over by the FDIC 

Dear Chainnan Bair: 

~ you know, the nation currently faces significant economic difficulties. The purpose of 

this letter is to bring to your attention certain practices by the Federal Deposit Insurance 

Corporation (FDIC) which. r believe are causjng additional damngc to the economy and doing 

unnecessary financial damage to borrowers who are not in default and have done nothing wrong. 

Jam also inquiring to determine if legislation is necessary to correct \hcsc problems. 

i. lt is my understanding, both from staff at the FDlC and from constituents, tho.1 when the 

FDIC steps in and takes over a bank, il does not continue to operate that institution as a bank but, 

rather, immediately liquidates the outstanding loans of the bank. I am told by yow- staff that this 

practice is required by law. It is also my undcrs1anding that the FDIC is required. a1so by law, to 

minimize any fiD8llcial losses incurred in this process. 

The.specific issue I am concerned about is how the FDIC handles perfonning loans when 

i,t takes over a-bank. I ?&VC been approached by constituents who had performing Joans when the 

FDIC took over the financial institutions involved. These loans were cUJTenl and were neither in 

default at the time nor had ever been in default. The borrowers had done nothing wrong. By 

con~ the financial institution had apparently made a number ofba.d loans to other borrowers 

resulting in the FDIC ta.king over the institution. Although the holders of the Joans in question 

were perfonninc and remained willing to perform, the FDIC would not honor the bank's 

oomminnent under ihe Joans and FDIC personnel were not willing lo work with the borrowers to 

allow these loans to be purchased or taken over by another institution in a sufficiently 

expeditious manner so as not to ~use additional financial Josses. 
DEC-23-2008 TI.IE 04:46 PH 

The Honorable Sheila Bair 

December 23, 2008 

FAX NO. 6022481733 P. 03 

page2 

As I am sure you can understand, a borrower under these circumstances who can neither 

obtain the ongoing funds needed under the loan nor secure timely assistance from the FDIC for 

the loan 10 be sold to another financial 4isrltution, is exposed to dire finDI1cial consequences. 

This is particularly unfair w• as in the instances which have been brought to my attention, the 

borrower bas remained cun:cnt and not in danger of defaulting. 

In each of these instances, the FDIC staffbl.mdled the existing performing, and also nonperforming loans, and put them out for bid. In pursuing S1Jch sales the FDIC staff re.fused to 

work \Vith the individual borrowers. even though they had perfonning loans and expressed 

concern about the consequences of delay in this process. These practices caused the individuals 

involved significant economic damage, and if I.hey are occurring econom:y-wide. arc hindering 

the economic recovery which tl}e Administration and the Congress are trying to achieve as 

~1:licldy ~ possible.. . . 

I ~ould appreciate whatever infonnntion about these FDIC practices you can provide as 

t?(peditioU$Jy as possible so that.I can ~sist my constituents. promote the recovery of the 

economy as quickly as possible. and. if necessary, introduc:e legislation to protect borrowers with 

pcrformi~g loans. 

. . . Cc:· Pr.=sident George W. Bush 
FEDERAL DEPOSff INSURANCE CORPORATION, Washington. oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Charles E. Schumer 

United States Senate 

Washington, D.C. 20510 

Dear.Senator Schumer: 

January 16, 2009 

Thank you for your letter expressing concerns about how the current financial downturn 

may affect tenants of some multi-family affordable housing complexes. The Federal Deposit 

Insurance Corporation recognizes the critical need these projects serve and appreciates the 

unfortunate consequences that may occur when the owners of over)everaged properties struggle 

to meet high debt servicing levels. 

As you point out, a wide variety of funding sources are available for these projects. The 

transactions described in your letter typically involve investment bank securitizations and loan 

originations by organizations not supervised by the FDIC. However, prudent and responsible 

underwriting for commercial properties, particularly multi-family affordable housing, remains a 

critically important issue. 

The FDIC expects the institutions it supervises to follow prudent lending guidelines. 

Prudently underwritten real estate loans should reflect aU relevant credit factors, including the 

capacity of the borrower or"income from the underlying property, to adequately service the debt 

and should consider the value of the mortgaged property. Lenders should obtain appraisals to 

establish the value of collateral pledged on commercial real estate loans that exceed S1 million. 

In addition, appraisers should use rental rates consistent with prevailing market conditions when 

appraising income-producing properties, such as multi-family projects. 

The l1tteragency Appraisal and Evaluation Guidelines state that "the estimate of market 

value should consider the real property's current physical condition, use, and zoning as of the 

appraisal date." This is the value the FDIC expects institutions to use when deciding to enter 

into the transaction - not a value based on hypothetical conditions, such as the de-regulation of 

rent-controlled units or a higher than normal turnover rate. 

For those Joans that become troubled. the FDIC agrees that prudent loan modifications 

may be in the best interests of the borrower, the lender, and the tenants. As you acknowledge in 

your letter, such "properties are more complex than standard real estate deals because of the rent 

regulations and subsidies that ensure affordability." The complexities of these transactions 

typically do not lend themselves to unifonn guidance, as they require workout agreements 

tailored to each borrower's unique circumstances. 
Borrowers that bought or refinanced properties at the market's peak may now find 

themselves with cash flow problems that are exacerbated if the underwriting assumptions were 

faulty. In the November 2008 lnteragency Statement on Meeting the Needs of Creditworthy 

Borrowers, the FDIC, along with the other federal financial institution regulatory agencies, 

encourages all lenders and servicers to work constructively with borrowers who are financially 

unable to make their contractual mortgage obligations. The FDIC believes prudent workout 

arrangements consistent with safe and sound underwriting practices are generally in the long-_. 

tenn best interest of financial institutions and borrowers. 

J hope this infonnation responds to your concerns. If you have additional questions, 

please contact me at (202) 898-6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-

3837. 

Sincerely, 

Sheila C. Bair 
OiARI.ES E. SCHUMER 

NEWYOIIIC 

Ben S. Bernankc 

Chairman 

iinittd ~mtr.s ~rnett 

WASHINGTON, DC 20510 

Decembex: 2, 2008 

Jol:m C. Dugan 

.JOJNT ECONOMIC 

BANICING 

.JUDICIARY 

IIULES 

FINANCE 

FDIC 

The Federal Reserve Board 

20th Street and Constitution A venue, NW 

Wa.c.hington, DC 20551 

C'..omptroller of the Currency 

Administrator of National Banlcs 

Washington, DC 20219 

DEC - 2 , ::, , 

John M. Reich 

Director 

Office of Thrift Supervision 

1700 G. Street, NW 

Washington, DC 20552 

Richard Neiman 

Superintcndant of Banks 

New York State Banking Department 

One State Street 

New York, NY 10004-1511 

Dear Sirs and Madam: 

Sheila C. Bair 

Cha.innan 

OFFICE OF LEGISLATIVE AFFAl!\S ! 

Federal Deposit Insurance Corporation 

550 17th Street, NW 

Washington, DC 20429 

I am writing today regarding predatc,ry ~quity transactions on subsidized and rent 

regulated multifamily properties in New York City. It has recently come to my attention 

that many oftbe same predatory lending and securitization practices that cluirdCterized 

the single-family subprime mortgage market over the past few years also extended"into 

multifamily mortgage lending. Underwriting standards, especially for multifamily 

properties subject to rent regulation or receiving subsidies, deteriorated rapidly, and some 

real estate developers were able to justify higher purchase prices and larger loans by 

making unrealistic claims about operating costs, rent levels and tenant turnover rates. 

This problem, like the subprime mortgage crisis, emerged as a result of credit 

being too easy to come by, for too long. Real estate developers, backed by large pools of 

investor capital and enabled by weak lending standards at major financial institutions, 

began taking on unsustainable debt in order to pay inflated prices for subsidized and rentregulated buildings in the hopes of quickly flipping them at a profit. 

This strategy, like in the single-family market, is only sustainable while prices 

continue to rise, and while credit remains cheap and easily accessible. Over the past few 

months, as even the New York City housing market has softened., and credit markets have 

tightened, some real estate developers arc starting to feel the consequences. There arc a 

number of overleveragcd buildings in the New York City area that are already troubled, 
with Riverton Houses, a 1200 unit complex in Harlem receiving the most ~cntion. This 

property is reportedly already near default and efforts are underway to modify the 

mortgage. 

Unfortunately this is an ongoing problem, as predatory equity purchasers continue 

to target affordable housing across New York City. Despite the recent difficulties in the 

credit markets, lenders are continuing to provide large loans to speculative purchases of 

multifamily housing. Just at the end of September, General Sedgwick Houses in the 

Bronx was purchased by a private equity buyer at a price that will require him to double 

rents overnight just to break even. This is a practical impossibility under rent regulations 

which leaves the landlord having to find another way to recoup his investment 

This all too familiar pattern has disastrous consequences for the tenants of the 

targeted multifamily property. In order lo cover the high debl service on the property, 

owners are forced to either cut back on services and maintenance and let the building fall 

into disrepair, or harass tenants to try to get them to leave so that rents can be increased 

rapidly, or in many cases, both. Tenants. who unlike homeowners, have had ao say in any 

of the decisions that have led to these problems, pay the steep price for the poor decisions 

made by the developer and the lender. 

I respectfully ask that you act to respond to this emerging crisis in multifamily 

housing. One suggestion would be to work: to develop a joint guidance for Joan 

modifications on affordable multifamily properties. These properties are more complc,c 

than standard real estate deals because of the rent regulations and subsidies that ensure 

affordability. This guidance could establish clear and consistent UDderwriting standards 

that lenders and developers can use to ensure that the income derived from the property 

can sustain the modified loan given the affordability restrictions that are in effect at the 

property. Lenders and developers who arc able to work out loan modifications should not 

be allowed to maintain the perverse incentives that create difficult and unpleasant living 

conditions for the tenants. 

Second, you could also develop guidance on how banks should treat troubled 

multifamily properties that cannot be saved through modifications. There should be bestpractices to help your regulated lenders appropriately handle disposition of affordable 

multifamily properties and ensure that they arc transferred to landlords who have the 

experience and capability to manage affordable housing. Tenant advocacy groups in New 

York City are working with struggling property owners and lenders to facilitate 

preservation short sales. These favorable outcomes should be encouraged so that 

properties end up in stable hands, rather than being passed from one speculative buyer to 

the next. 

Finally, you could develop prospective lending standards lo ensure that this 

practice does not continue in tJ'}e future, especially as credit markets begin to recover in 

the coming months. We now know all too well the long-tenn costs of irresponsible 

lending. IL is incumbent on you as regulators to take steps now to prevent future asset 

bubbles. Loans for multifamily apartment buildings should be based on the same kinds of 
sound underwriting criteria that are now required for single-family lending. The current 

rent rolls, as well as any affordability restrictions in place, must be taken into account 

when determining the debt load that a building can handle. 

Thank you for your attention to these matters. I look foxward to hearing yoar 

responses. Please don't hesitate to contact my office at (202) 224-6542 with any 

questions or concerns. 

Charles Schumer 

United States Senator 
e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Barney Frank 

Chainnan 

Committee on Financial Services 

House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chairman: 

January 16, 2009 

Thank you for the opportunity to respond to questions submitted by Congressman Joe 

Donnelly, Congressman Lincoln Davis, and Congressman Kenny Marchant subsequentto my 

recent testimony at the hearing on °0versight of Implementation of the Emergency Economic 

Stabilization Act of2008 and of Government Lending and Insurance Facilities: Impact on the 

Economy and Credit Availability'' before the Financial Services Committee on November 18, 

2008. 

Enclosed are my responses for the hearing record. If you have further questions or 

comments, please do ,ot hesitate to-contact me at (202) 898-6974 or Eric Spitler, Director of 

Legislative Affairs, at (202) 898-3837. · 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions from the Honorable Lincoln Davis 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Q.J. Although much focus has been placed on increasing bank lending, according to 

Monday's Wall Street Journal, banks are lending at record levels, up 15% from a year ... 

earlier. Home equity loans are up 21 % from last year. If bank lending is rising, the real 

problem seems to be the decline of the securities market. Do you agree with this 

assessrneo_t, and if so, what are the precise steps that we can take to stimulate this market? 

A.1. Rising credit losses and heightened risk aversion have contributed to major disruptions of 

U.S. and global credit markets in recent months, including private asset-backed securitization, 

interbank lending, and other commonly used funding markets. For example, issuance of private 

mortgage-backed securities, which topped $1 trillion in 2006, slowed to virtuaUy zero in the third 

quarter of 2008. 

Amid these difficulties, federally-insured depository institutions stand out as a relatively reliable 

source of credit for the U.S. economy. While banks and thrifts have certainly experienced credit 

losses that have led to sharply reduced earnings for the industry as a whole, the industi:y' s 

reliance on insured deposits and relatively high overall capital ratios have lent stability to bank 

funding and the supply of bank credit Policy interventions undertaken since late September, 

including the Treasury's Capital Purchase Program. the FDIC Temporary Liquidity Guarantee 

Program, and the various Federal Reserve liquidity programs, have done much to strengthen the 

industry's capital position and access to funding, thereby ensuring that banks will be in a position 

to take up the slack for market-based funding vehicles, where the disruptions have been much 

more severe. 

Nevertheless, there is no question that as the economy has slowed, overall demand for credit to 

finance consumer spending and business investment also has slowed. As banks have moved to 

recognize losses, they also have become more selective in granting credit. These are normal 

reactions to the decline in business conditions and credit qμality, and are Iikeiy to push down the 

overall volume of bank credit growth from what it was during the economic expansion. 

However, we recognize the urgent need for banks to use the federal resources that have been 

offered them to preserve the availability of business and consumer credit to the maximum 

possible extent. Accordingly, federal regulators released supervisory guidance on November 12 

reminding banks of their obligation to "fulfiU their fundamental ro)e in the economy as 

inte_rmediaries of credit to businesses, consumers, and other creditworthy borrowers." In _coming 

months, we will continue to closely monitor the progress of the industry in meeting this 

obligation. 

With regard to recent growth in ovenul bank lending and home equity lending, I would note that 

on-balance-sheet holdings ofloans are influenced to a significant degree by factors such as the 

ability to sell and securitize loans, the obligation to bring sold and sccuritizcd Joans back onto the 

balance sheet, and the propensity of borrowers to draw on existing lines of credit. In the present 
environment, we expect that all of these factors are contributing to what may be termed 

"involuntary" loan growth. These represent factors that we wilJ need to account for as we make 

an overall assessment of bank lending patterns in coming months. 

Q2. The FDIC's newly modified home mortgage modification plan is a concerted effort 

to modify home mortgages, but why do you believe that servicers will be willing to breach 

their servicing contracts in order to restructure these loans? 

A2. In the present environment of rising mortgage foreclosures, the FDIC has been 

advocating a more systematic approach to modifying mortgages based on the program we have 

already instituted at IndyMac Federal Bank. where we are conservator. At IndyMac, the FDIC 

has already modified over 8,500 loans where we found that modification, rather than a policy of 

foreclosure, Jed to a greater expected financial return. Modifications based on this analysis have 

been undertaken both for Joans that IndyMac services for its own portfolio and for loans it 

services for outside investors. Based on this experience and our reading of most pooling and 

servicing agreements (PSAs) that govern third-party mortgage servicing. we believe that 

modifications of this type that enhance value and do not require the write down of principal are 

generally pennissible, and therefore do not breach the servicing contracts. In our opinion, it is 

the wide permissibility of this approach that makes it the best way to effect modifications on a 

large enough scale to achieve a significant reduction in the number of expected foreclosures and 

begin to restore a measure of order to U.S. housing markets. 

QJ. What has been the mos~ problematic structural hurdle to this point in implementing 

the Emergency Economic Stabilization Act? What would you· do differently? 

A3. The rather broad mandate created by the EESA legislation has led to three main types of 

proposed assistance. 

The original intent. to purchase troubled assets on the open market by way of reverse auctions, 

has not been actively pursued. The second approach, to purchase preferred shares in depository 

institutions, is now weJI underway, with capital purchases totaling approximately $18) billion at 

350 institutions. The third approach, as advocated by Members of Congress and suggested by 

the FDIC, is to use a portion of the appropriated funds to provide incentives for mortgage 

servicers to engage in a program lo systematically modify past due loans and prevent 

unnecessary foreclosures. 

With regard to a program to purchase troubled assets, The FDIC believes that the original intent 

of the TARP - to remove problem assets from the balance sheets of banks and related entities -

continues to be vitally important. Such a program is necessary lo expand banks' balance sheet 

capacity to undertake new lending as well as to attract private equity investment. Even with the 

various forms of government assistance that have been provided by the regulators and through 

EESA. troubled asset relief will still be necessary to enable financial institutions to address their 

inventories of troubled assets so that they can return to more nonnal lending activity. This 
program should be made available to banks of all sizes, rather than just large financial 

institutions, to address financial stresses that may be occurring at the regional and local levels. 

In the current market conditions, uncertainty about the potential losses embedded in the balance 

sheets of financial institutions is constricting lending between institutions and dissuading 

investors from providing the new capital essential to a recovery. In addition, government 

acquisition of troubled residential mortgages would facilitate action to restructure these loans and 

improve the performance of housing-related assets, providing the fotmdation both for a greater 

flow of credit and the investment of new capital into the financial system. However, because of . 

the sheer volwne of troubled mortgages, as well as the large number which are locked in 

securitization trusts, it is also vital to institute a specific program aimed at foreclosure 

prevention. 

With respect to the Capital Purchase Program, the federal bank regulators expect banks to 

actively seek ways to use this assistance by making sound Joans to household and business 

borrowers. The FDIC recognizes that banks will need to make adjustments to their operations, 

even cutting back in certain areas, to cope with recent adverse credit trends.- However, the goal 

of providing government support is to ensure that such cut-backs and adjustments are made 

mostly in areas such as dividend policy and management compensation, rather than in the 

volume of prudent bank lending. These considerations are consistent with the precept that the 

highest ~ best use by banks of CPP capital in the present crisis is to support prudent lending 

activity. 

Over 1,600 community financial institutions have applied to this program. In participating in the 

CPP program, as well as in launching the TLGP, it was the FDIC's express understanding that 

$250 billion would be made available for bank capital investments and that all eligible 

institutions, large and small. stock and mutual, would be able to participate. We strongly 

encourage both the Treasury Department and the Congress to make sure adequate funding is 

available for community bank participation. The FDIC also remains concerned that Subchapter 

S and mutual institutions have the opportunity to participate in this program. At present, these 

institutions do not have a corporate structure that would fit under the Capital Purchase Program's 

term sheets. 

We also bel_ieve it is important for the CPP to be implemented in a manner that encourages and 

rewards private capital investments to be made alongside TARP capital. Private capital 

investments serve as a powerful yote of confidence in the viability of a financial institution over 

the long term and that viability is enhanced by programs that match private funds with TARP 

capital. 

To this point, the difficulty with regard to mortgage loan modification has been d~signating 

TARP funds to provide incentives for servicers to modify loans at the least possible cost and 

with the fewest unintended consequences. We continue to work with our counterparts at other 

federal agencies and to discuss this issue with Members of Congress in the hope that these issues 

can be resolved quickly so that a workable plan can be implemented in early 2009. 
Response to question from the Honorable Joe Donnelly 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Qt. We need strong oversight to make sure that TARP funds are used to free up the 

credit markets and increase lending activity. What steps are in place to ensure that the--

institutions that receive TARP funds are using this money to increase lending activity? 

Have we seen a measurable increase in lending by recipients of TARP funds? 

Al. It is crucial that banking organizations track the use of the funds made available through 

federal programs and provide appropriate infonnation about the use of these funds. The FDIC 

has issued a Financia] Institution Letter advising insured institutions that they should track their 

use of capital injections. liquidity support, and/or financing guarantees obtained through recent 

financial stability programs as part of a process for detennining how these federa] programs have 

improved the stability of the institution and contributed to lending to the community. Equally 

important to this process is providing this infonnation to investors and the public. As a result, 

this Financial Institution Letter advises insured institutions to include information about their use 

of the funds in public reports, such as shareholder reports and financial statements. 

Internally at the FDIC,· we have issued guidance to our bank examiners for evaluating 

participating banks' compliance with EESA and the CPP securities purchase agreements. 

Importantly, this examiner guidance will focus on banks' use of TARP CPP funds and how their 

capital subscription was used to promote lending and encourage foreclosure prevention efforts. 

The banking agencies will measure and assess participating institutions' success in deploying 

TARP capital and other financial support from various federal initiatives to ensure that funds are 

used in a manner consistent with the intent of Congress and participants are held accountable. 

FDIC examiners will be reviewing the expectations that we have established in the recent 

Financial Institution Letter for banks participating in the CPP, including: 

• Establishment of a monitoring process for the use of TARP proceeds and a clear 

strategy from the institution's board of directors for deploying the capital subscription; 

• Increased lending efforts in the institution's market since receiving a TARP Capital 

Purchase Program subscription; 

• Down-streaming subscription proceeds to the insured depository institution (if a 

holding company structure is in place) to ensure that TARP funds can be intermediated 

into loans and bank capital is augmented; 

• Engagement in mortgage loan modification or foreclosure prevention efforts that re]y 

on systematic, proactive approaches that enhance the net present value ofindividuaJ 

mortgage loans versus foreclosure; 
• Utilization of executive compensation programs that exemplify good corporate 

governance and conform with EESA and other requirements; and 

• Implementation of the goals of the November 12 interagency statement to meet the 

needs of creditworthy borrowers in the institution's market area. 

During examinations, our supervisory staff will be reviewing banks' efforts in these areas and 

will make comments as appropriate in FDIC Reports of Examination .. Our examiners wilJ a1so 

be considering these issues when they assign CAMELS composite component ratings. 
Response to questions from the Honorable Kenny Marchant 

by Sheila C. Bair, Chairman 

Federal Deposit Insurance Corporation 

Creditors have experienced some difficulties in dealing with FDIC receivers subsequent to 

a receivership action. 

QI. If the receiver holds a construction loan that is current, and the project is under 

development, what policies or guidelines are in effect to ensure the project is completed? 

Al. There are no policies in place that stipulate the Federal Deposit Tnsurance Corporation as 

receiver for a failed financial institution must ensure that all construction projects (whether 

current or in default) that were originated by the failed financial institution wiJJ continue to be 

funded to ensure project completion foJiowing the failure. As receiver, the FDIC has a statutory 

responsibility to the depositors and creditors of a failed bank to minimize losses by obtaining the 

maximum recovery from the assets of the receivership. The FDIC's Division of Resolutions and 

Receiverships (DRR) carries out these statutory responsibilities. A principal concern ofDRR 

during its resolutions and disposition activities is to minimize adverse effects on the economic 

stability and well being of the impacted region or state, to the extent possible. However, it is our 

practice to review each construction loan funding request on a case-by-case basis and to make 

prudent business decisions based on the best interests of.the receivership estate. 

The Joans acquired by the FD[C following the financial institution failure are owned by the 

estate of the failed bank. and many of our asset disposition activities are similar to those of a 

bankruptcy trustee in that funds we recover benefit other creditors of the estate as well. We try 

to carry out those responsibilities in a way that balances our obligation. to maximize recoveries 

and minimize losses to the Deposit Insurance Fund. with the desire to work with borrowers as · 

they repay their loans. In this regard, the FDIC is willing to work with borrowers, whenever 

possible, to resolve their indebtedness . 

. , 

At times, the statutory responsibilities temporarily delay funding of construction draws for 

builders and developers as our receivership staff determine the value and viability of the 

construction project as well as the companies that have pledged to repay those loans. In some 

cases, following a detailed review of the project and after reviewing current financial information 

from the company and/or guarantors, the receiver will make difficult business decisions that 

continued funding of the project will not minimize Joses nor maximize recovery for the 

receivership estate and consequently will tenninate funding. 

Q2. Does a receivership have authority to provide additional funding under existing 

lines of credit? How does a receiver provide such funds? 

A2. Yes. Delegations of Authority to act within clearly defined parameters, including . 

budgetary matters, arc issued by the FDIC Board of Directors. As a result of this process, FDIC 

receivership personnel from our Division of Resolutions and Receiverships are given the 

authority to extend additional funding as necessary when the issuance of such monies is 
beneficial to the receivership estate. In other words, if the advancement of funds for construction 

purposes will result in a net increase in the underlying collateral value or such funds will protect, 

preserve, or allow for build-out so that marketing of the real estate project can immediately 

begin, the FDIC as receiver may advance such funds. The receiver provides these funds from an 

account established specifically for each failed bank receivership. 

The overarching goal of the receiver is to wind up the affairs of the failed financial institution. 

In order to achieve that goal, the receiver is given the right under 12 U.S.C. Section 1821 (e) to 

repudiate undertakings entered into by the failed financial institution where it finds such 

undertakings to be burdensome and where such repudiation will promote the orderly 

administration of the failed financial institutions affairs. 

Accordingly, our receivership personnel seek to balance making financial decisions that are in 

the best interests of the receivership estate while, at the same time, being cognizant of business 

decisions that may have an adverse financial impact upon construction companies, real estate 

developers, small business enterprises, and those they employ. 

Q3. Is the receiver obligated to seek the highest return on assets, even if it means 

continued funding of a project under development? 

A3. As receiver for a failed institution, the FDIC has a legal responsibility to maximize the 

recovery for the benefit of depositors and creditors who may have lost money when the 

institution failed. In accordance with this responsibility and within the context of a real estate 

market in decline, the FDIC must carefully analyze any requests for funding construction 

projects as well as evaluate the risks associated with the proposed transaction to determine 

whether the funding will provide the best opportunity to achieve the highest possible recovery 

for the failed institution's receivership estate. 

/ 
BARNEY FRANK. MA. CHAIRMAN 

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The Honorable Sheila C. Bair 

Chairman 

2129 Jup&urn J,101 ~fia Jhdlliag: 

11Lubmaton. »«: 2os1s 

December 4, 2008 

Federal Deposit Insurance Corporation 

550 17th Street, NW 

Wasbingt,on, DC 20429 

Dear Chairman Bair: 

FDIC 

DEC - 9 2008 

OFFICE OF LEGISLATIVE Aff.t: ., 

Thank you for testifying at the November 18, 2008, Committee on Financial Services 

hearing entitled. •Oversight of Implementation of the Emergency Economic Stabilization 

Act of 2008 and of Government Lending and Insurance Facilities: Impact on Economy and 

Credit Availability." 

A copy of your transcript has been provided should you wish to make any 

corrections. Please indicate these corrections directly on the transcript. Due to the 

disruption of mail service to the House of Representatives we ask that you fax the 

· transcript in lieu of majljng it. Please fax only the pages on which you have made 

corrections, within (15) business days upon receipt to: 

Committee on Financial Services 

ATI'N: Terrie Allison 

Fax (202) 225-4254 

Rule XI, clause 2(eXl)(A) of the Rules of the House and Rule B(a)(l) of the Rules of 

the Committee state that the transcript of any meeting or hearing shall be •a subsumtially 

verbatim account of the remarks actually made during the proceedings, subject only to 

technical, grammatical, and typographical corrections authorized by the person making the 

remarks involved."' We therefore ask that you keep your corrections to a mfoiroum. 

Also included are questions submitted by Representatives Davis, Donnelly, and 

Marchant. We ask that you respond to these questions in writing for the hearing record. 

Your responses may be faxed to the above number, along with your transcript corrections. 

Please contact Terrie Allison at (202) 225-4548 if there are no corrections to your 

transcript. 

If during the hearing you: (1) offered· to submit additional material; or (2) were 

requested to submit additional mate:ri.al; please submit this material via electronic mail by 

sending it to fsctestimony@msil..house.gov. If you are unable tQ submit the material 

electronically, please contact the Committee staff to arrange for submission. 
Pap2 

1bank you for ;our cooperation, and apin for your teatimmy. 

TGDlta 

Encloaure 

Youn truly, 

Thom•• G. Duncan 

GeneralCounael ., 
FROM THE OFFICE OF U.S. REP. LINCOLN DA VIS 

Re: Financial Services Full Committee Hearing: 11-18-08. 

Questions directed to l st Panel submitted for the record. 

Questions 

1. 

To All: Although much focus has been placed on increasing bank 

lending, according to Mondays Wall Street Jollr1la4 banks are lending at 

record levels, up 15% from a year earlier. Home equity loans are up 21 % 

from last year. Hbank lending is rising, the real problem seems to be the 

decline of the securities market. Do you agree with this assessment, and if 

so, what are the precise steps that we can take to stimulate this market? 

2. 

To Chairwoman Bair: The FDIC's newly modified home mortgage 

modification pl_an is a concerted effort to modify home mortgages, but why 

do you believe that servicers will be willing to breach their servicing 

contracts in order to restructure these loans? 

3. 

To All: What has been the most problematic structural hurdle to this 

point in implementing the Emergency Economic Stabilization Act? What 

would you do differently? · 
Of.ottgrt.li.6 uf tljt Buittb &tatu 

1luun af l!,iesratararu 

-~ N 2ltS15 

The Honorable Barney Fnmk 

Chairman 

House Financial Services Committee 

_2129 R.ayl,um House Office Building 

Washington, DC20515 

D.ear Chairman Fnmk: 

December 8, 2008 

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· Tbafik you for your 1.eadcnhip and for hosting the November 13, 2008' hearing on "Oversight of 

Iniplemenfation of the Emergency Eamomic Stabilization Act. of 200~ and of Government 

Lending-and Insurance Facilities; Impact on Economy and Credit Availability ... Below m-e 

sc~ questions that I would like to submit for the m:ord.. 

Question for Secretuy PaaJson, Chaimwl Berm.nte, and Chairwoman Bair: 

W c need strong oversight to make certain that TARP funds arc used to 'free up the-credit marlccts. 

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("~ , Question for Secretary Pa11Jsoa: \'( . 

To date, what kind of impact bas TARP had on Main Strect-stnnIJ businesses, home and car 

buyer!, and working funitics? Please, tefcrence at least one widely-used economic indicator to 

make your case. · 

-ONIB:\OIUD-
Congressman Kenny Marchant Qucsdons for HFSC He:u:ing on TARP 

November 18, 2008 

For the FDIC Chairman Bair; 

Creditors have experienced some difficulties in dealing with FDIC receivers subsequent to a 

receivership action. 

I. If the receiver holds a construction loan that is cw:rmt. and the project is under development. 

what policies or guidelines arc in effect to ensure fhe project is completed? 

2. Does a receivership have authority to provide additiODa.1 funding under existing lines of credit? 

How docs a receiver provide such funds? 

3. Is the receiver obligated to seek the highest return on assets, even if it means the co~ 

funding of a project under development? 
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FDII 

Federal Deooslt Insurance Corooration 

550 17th Slreel NW. Washinglon, DC 20429 

Honorable Carl Levin 

United St.ales Senate 

Washington, D.C. 2051 O 

Dear Senator Levin: 

Office of legislative Affairs 

January 29, 2009 

Thank you for your Jetter to Chairman Bair on behalf o~and its 

application to the Troubled Assets Relief Program's (TARP) Capital Purchase Progr.un. 

The Federal Deposit Insurance Corporation's Chicago Regional Office forwarded its 

analysis of the Bank's application to the FDIC's Washington Office, and it is currently being 

reviewed and discussed with Bank management 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
)EC. 9. 21108 5: :9PM 

CARL LEVIN 

NO :1032 '· i 

1/J o r: -- 7v9 MCHIGUI 

'llinittd ~tatts ~matt 

The Honorable Sheila Bair 

Chairwoman 

WAS'HJNGTON. DC 20510-2202 

D~mbe-r 9. 200& 

Federal Deposit Insurance COJporation 

550 17th St. NW 

Washington, DC 20429-9990 

V1A Facsjmile (202-898-3745) 

Dear Chairwoman Bair. 

I understand that the FDIC may be ~valved in re\liewing an application submitted 

b cquesting participation in the Tre~ury Capital Purchase Program 

(C ) m l 987~is the largest financial institution headquartered in 

Michigan and is a leading mortgage lender. It has 170 banking centers and assets in 

excess of S 14 billion. 

Community banks such tj · il t lay a critic.al role in Michigan •s economy. 

The CPP should treat all financi!l mstitutions equitably, regardless of their size or 

geographic: location. For the program to be a success, it should provide stability and 

liquidity to a large number of smaller financial institutions, not just to the larget banks. 

Th.at also means prompt action should be given to their requests_~ey not be put 

at the en~ of the line behind the bigger banks. I urge you to giv~ application 

all due and prompt consideration. 

Sincerely, 

Carl Levin 
FDII 

Federal Daooslt Insurance Corooration 

55D 171h Slreel t-lN, W.wiigcn, DC 20429 

1 lonorablc Carl Levin 

Unitecl Stales Senate 

Washington, D.C. 20510 

Dear Senator Levin: 

January 29, 2009 

Thank .you for your letter to Chairman Bair on behalf of and its 

application to the Troubled Assets Relief Program's (TARP) Capital Purchase Prognun. 

The Federal Deposit Insurance Corporation's Chicago Regional Office forwarded its 

analysis of the Bank's application to the FD I C's Washington Office. and it is currently being 

reviewed and discussed with BanJc management. 

Your interest in this matter is appreciated. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
OEt 4. 2008 5: 59PM 

c.A.RL LEVIN 

MICklCl,.N 

'mniUJ! ~tatts ~rnatf 

WASHINGlON. DC 20S10-2202 

December 41 2008 

NO. 0028 r. I 

FDIC 

I 

DEC - 5 ;::.J 

The Honomle Sheila Bair 

Chainvoman 

.Federal Deposit Insurance Corporation 

550 17th St. NW 

'F LEGISLATIVE Aff Alfi3 

Washington. DC 20429-9990 

VIA Facsimile (202-898-3745) 

Dear Chairv,.-oman Bair: 

l understand that the FDIC will be evaluating the. application submitted by 

equesting participation in the Treasury's Capital Purchase 

Program ( .. CPP"). oun ea in •••••• is headquartered in 

Michigan. At a time v.iien Mlchigan' s economy is in dire need of investment and a.ecess 

to capital, it is critical that financial institutiOD! that serve our state receive support from 

theCP:P. 

Community banks such as-play a critical role in Michigan's 

economy by supporting small business ventures and individual entrepreneurs who are key 

to our economic rebound. The CPP should trear all financial institutions equitably, 

regardless of their size or geographic location. For the pro:ram to be a success, it should 

provide stability and liquidity to a large numba of smaller financial institmions. not ju~ 

to the larger banks. That also means prompt action should be given to their requerts and 

~put at the end of1he line behind the bigger banks. I urge you to give 

--application all due and prompt consideration. 
® FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN January 30, 2009 

Honorable Charles E. Grassley 

United States Senate 

Washington, D.C. i0510 

Dear Senator Grassley: 

Thank you for your recent letter expressing-your concerns about the potential for future 

redefaults of mortgages modified at IndyMac Federal Bank. I share your concern about potential 

redefaults following loan modifications. From our experience, the best way to limit this risk is to 

provide borrowers with modifications that are affordable and sustainable based on their current, 

verified income. 

In your letter, you cite the recently published OCC and OTS Mortgage Metrics Report, 

which suggests that a high percentage of modified mortgages subsequently become delinquent. 

Unfortunately, the Report raised more questions than it answered. It broadly defined as 

.. modifications" any change in the contract terms, inc~uding modifications that were merely 

temporary or actual1y increased borrowers' payments. ·This makes comparisons ofrcdefault 

rates between different types of modifications impossible. In contrast, the mortgage 

modifications al IndyMac Federal lower a borrower's payment to an affordable payment for the 

life of the loan using several tools, including interest rate reductions. A Ci::edit Suisse Fixed 

Income Research Report on Subprime Loan Modifications, dated October 1, 2008, found 

redefault rates of 15 percent where modifications reduce interest payments. 

The Report also included a v,ariety of redefault statistics, including the 30-day 

delinquency rates cited in your letter. However, the industry nirely relies on 30-day 

delinquencies for reporting redefaults because many of those delinquencies cu.re. As a result, the 

industry standard for reporting on redefaults is based on ioans that are at least 60 days 

delinquent. The data in the Report regarding loans that are 60 days or more delinquent shows a 

redefault rate of 37 percent. Even at that stage between 10 to 20 percent ultimately cure. 

We believe that sustainable modifications wiJl produce lower redefault rates. Our early 

experience with the IndyMac Federal program indicates that focusing on affordability is the right 

approach. As of November 30, 2008, IndyMac Federal had completed processing and income 

verification on 3,615 loan modifications. Of these, 12 were 60 days or more past due, which 

translates to a redefault rate ofless than one percent. These statistics are preliminary given that 

the program at IndyMac Federal was only initiated in August 2008. 

Continued deterioration in economic conditions will certainly cause more mortgages to 

default, including those which have been previously modified. Il should be noted, however, that 
even with higher redefault rates. loan modifications stiJI make good business sense in many 

cases. This is because a successful loan modification generally provides much greater value than 

any incremental losses associated with delayed foreclosure from an unsuccessful modification. 

At IndyMac, the projected value of modified mortgagcs--even assuming that more than a third 

redefault--has exceeded the value achievable through foreclosure by an average of $50,000. I 

believe this provides a strong business case for sustainable mortgage modifications. 

I fuJly share your concerns about taxpayer exposure under any loan modification ,., 

program. Applying workout procedures for troubled loans in a failed bank scenario is something 

the FDIC did during the 1980s and continues to do today. Our experience has been that turning 

troubled·loans into performing loans enhances the overall value of the loans and minimizes costs 

for the Deposit Insurance Fund. For example. the net present value of loans that we have 

modified at Indy Mac exceeds foreclosure value by an aggregate savings of over $400 million 

even assuming a relatively high level of defaults. 

Thank you again for your letter. I very much appreciate your continued interest in this 

important issue. If you have further questions or comments or if we can be of assistance in any 

way. please do not hesitate to contact me at (202) 898-6974. You also may have your staff 

contact Mike Krimminger at (202) 898-8950 or Eric Spitler at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
Via Electronic Transmission 

Sheila C. Bair 

Chairman of 1he Board 

JanU3IY 12, 2009 

Federal Deposit Insurance Corporation 

550 17th Street, NW 

Washingto~ DC 20429 

Dear. Chairman Bair: 

The Office of the Comptroller of the Currency (OCC) and the Office of Thrift · 

Supervision (OTS) recently published the most recent "Mortgage Metrics Report'' (the 

Report). The Report stated, to my disappointment, 1hat approximately 55% of loans 

modified in the first quarter of2008 were at least 30 days delinquent or in the process of 

foreclosure after six months. CIJ While the FDIC has stated that, as of 1he end of October 

2008. not one of its modified IndyMac loans has re-defaulted, I question the long-term 

success of the program 

To address my concerns, please provide my staff with summary statistics of1he 

status ofindyMacs's loans modified under the FDIC's cumm.t program. I am particularly 

interested to know how many of those modified loans are past due or delinquent 

Additionally. please address how the expected results of the FDIC's proposed 

modification program will differ from the current state of modified mortgage loans as 

conveyed in the Report. 

Please respond to this letter by Janmuy 23, 2009. If you have any additional 

questions, you can contact Jason Foster or Eben Roberts of my Committee staff at (202) 

224-4515. Any formal correspondence should be sent in PDF format to 

Brian _Downey@finance-rep.senate.gov. Thank you for your consideration. 

Sincerely, 

Charles E. Gras~ley 

Ranking Member 

Committee on Finance 

[II The Report based its observations on a sampling of the «nine national banks and the five thrifts with 1hc 

largest mortgage servicing portfolios." 
FDII 

Federal Deoosit Insurance Cof'DOration 

550 17th Streel HW, Washington, DC 20429 

Honorable Russell D. Feingold 

United States Senator 

Office of Legislative Affairs 

January 30, 2009 

517 East Wisconsin A venue, Room 408 

Milwaukee, Wisconsin 53202 

~) :i)~ 

Dear Saiator Feingold: L~ Li;f.} ~ 

Thank you for your letter on behalf of~gardinglllllllllllilil 

application to the Troubled Asset Reli~Capital Purchase Program. As you 

may know, the FDIC is actively engaged with the U.S. Department of Treasury and the other 

federal banking agencies in considering TARP applications filed by banking institutions. In our 

role as primary federal supctvisor for state nonmember institutions, the FDIC makes a 

recommendation on each TARP application it receives to the Treasury, which ultimately 

determines if an institution may participate in the Program. 

The FDIC believes it is critically important that community banks participate in the TARP and 

supports requests from viable, well-managed community banks. Although community banks as 

a sector continue to be viable, the TARP offers an·opportunity for individu.aJ institutions to 

strengthen balance sheets and continue providing banking services and credit to their 

communities. \.~ ~J 

The FDIC received a TARP application from . This 

application ·is being processed by our Kansas City Regional Office. When our Kansas City staff 

completes-its analysis of this applicati~ the results will be considered by the FDIC's 

Washington Office and a recommendation will be made to the Treasury. Once a detennination 

has been reached. the Bank will be notifi~d of the disposition of its application. 

We acknowledge that the processing of applications has been somewhat protracted because of 

the extended submission deadline for privately owned institutions, follow-up inquiries on 

applications, and the absence of a term sheet for Subchapter S institutions. However, the term 

sheet for the Subchapter S institutions is now available. 

Your interest in this matter is appreciated.. If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

· Eric J. Spitler 

Director 

Office of Legislative Affairs 
Ul•0

J.:.·.:uui, .10:Jlll r.-L\. •U.•l .:10 1.:'>•• 

RUSSEU D. FEINGOLD W:!CDNS .. 

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WASHINGTON. DC 20510-4904 

Eric Spitler 

Director, Office of Lei;islative Affairs 

Federal Deposit Insurance Corporation 

550 Seventeenth St., NW 

Washington. DC 20429 

Dear Mr. Spitler: 

January 9, 2009 

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My office was recently contacted by requesting information abou~i') 

eligibility for TARP funds for the , ~ ~ ;) \.: l\> 

I have enc:losed letter which details his specific questions. Please forward 

information in r sp ncerns to the attention of Hilary De Blois in my Milwaukee 

office. 

Thank you for your assistance with this matter. 

Sincerely, 

United States Senator 

Enclosure 

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I Federal DeDosit Insurance CorDoration 

550 17th Street WM, Washington, DC 20429 

Honorable Gary L. Ackerman 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Ackerman: 

Office of Legislative Affairs 

January 30, 2009 

Thank you for your comments on the treatment of the certificates of deposit placed through the 

Certificate of Deposit Account Registry Service in the Federal Deposit Insurance Corporation's 

risk-based deposit insurance assessment system. 

We can assure you that your comments and concerns will be taken into account as the FDIC's 

Board of Directors consider a final rule relating to this issue. 

We appreciate your interest in this issue. If you have further questions, the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515 

(202) 22&-2601 

(202) 225-1589 Fax 

http:Dwww.housa.gov/actarman 

COMMITTEE ON 

FOREIGN AFFAIRS 

CHAIRMAN, 

SUBCOMMITTEE ON 

lHE MIDDLE EAST AND SOUTH ASIA 

SUBCOMMITTEE ON ASIA. THE PACIRC, 

AND 'THE GlOBA1. ENVIROMMENT 

~arp lL §dttnnan 

C!ongress of tbt fflnittb ~tatts 

5tb ~istrict, Jllttn !}ork 

December 16, 2008 

The Honorable Sheila C. Bair 

Chainnan 

Federal Deposit Insurance Corporation· 

550 17th Street, N.W. 

Washington, DC 20429 

R,e: FDIC Notice of Proposed Rulemaking RIN 3064-AD35 

Dear Chairman Bair. 

LA09-02to 

218-14 NORTHERN BOULEVARD 

SUllE204 

BAYSIDE, tN 11361 

(71B) 423-2154 

{71B) 423-5053 Fax 

COMMITTEE ON 

FINANCIAL SERVICES 

SUBCOMMITll:E ON CAPITAL MARICE'TS, 

INS!.plANCE.. ~ GOVERNMENT 

SPONSORED ENTERPRISES 

SUBCOMMITTEE ON ANANCIAL 

INSTITIJT1ONS AND CONSUMEft CREDIT 

I am writing in response to the Federal Deposit Insurance Corporation's (FDIC) request 

for comments on proposed rule RIN 3064-AD35, specifically regarding the merits of treating 

reciprocal deposits placed through a network differently than traditional "brokered" deposits. 

As the country's financial crisis continues to deepen, I am concerned that the FDIC's 

proposed rule could make it significantly more difficult for smaller financial institutions, such as 

community banks, to attract funding. I agree with the approximately 3,000 financial institutions 

and bankers that have submitted comments to the proposed ntle, all of which have raised 

concerns regarding the rule's assessment ofhigher insuranc;c fees on deposits that arc currently 

included in the definition of ''brokered deposits," even though these deposits are not invested by 

a traditional deposit broker, but rather are exchanged among banks on a reciprocal basis. 

Small businesses and individuals, throughout both my district and the country, rely on 

community banks for loans and access to credit. Community banks, in tum, depend on the 

availability oflarge deposits in order to provide loans and credit to their customers. The 

assessment of higher insurance fees for these institutions could negatively and significantly 

affect the availability of credit at a time of when our credit markets are already seized. 

I hope that you and the FDIC Board of Directors will strongly consider the concerns of 

the community banks as you consider the implementation of this rule. 

Sincerely, 

GLA:sb 

ACKERMAN 

fCongress 
FDII 

Federal DeDOsit Insurance Corcoration 

550 171h Street NW, Washington, OC 20429 

Honorable Robert Wexler 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Wexler: 

Office d legislative Affairs 

January 30, 2009 

Thank you for your comments on the treatment of the certificates of deposit placed through the 

Certificate of Deposit Account Registry Service in the Federal Deposit Insurance Corporation's 

risk-based depQsit insurance asses~ent system. 

We can assure you that yo.ur comments and concerns will be taken into account as the FDIC's 

Board of Directors consider a final rule relating to this issue. 

We appreciate your interest in this issue. Hyou have further questions, the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

SU?-cerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
D~i:. 11. 2008 5: liPM 

HoUSr. OF REl'RES&ITATIVES 

I 5ml Or.mucr, fI.OIUDI, 

December 19. 2008 

ROBERT WEXLER 

CONGRESS OF THE UNITED STATES 

The Honorable Sheila C. Bair 

Chairman 

Federal Deposit Insw-ance Corporation 

550 17th Street, N.W. 

Washington, DC 20429 

Re: FDIC Notice of Proposed Rulemaking RIN 3064-AD35 

Dear Chairman Bair. 

More than 900 Florida bankers have found it necessary to write the FDIC on an agency proposal 

that could make it significantly more difficult for community banks to attract funding for local 

lending. I join them in their concern. · 

The proposal would impose a higher insurance assessment on a type of deposit that is cUIT01.tly 

included in the definition of '"brokered deposits,~ although these deposits axe not invested by a 

traditional deposjt broker, but rather are exchanged among banks on a fully reciprocal basis. 

The Promontory Interfin.ailcial Network provides such reciprocal placement through the 

Certificate of Deposit Account Registry Sm-ice (CDARS). I am informed that almost all of the 

Network's 2,750 members arc community banks. Of the 312 FDIC-insured institutions in 

Florida, 140- or 45 percent- are members of this Network. 

Florida bankers are wonied about this proposal for two reasons. First, the proposal does not 

distinguish these reciprocal deposits from standard brokered nm.els, even though they behave 

nothing like standard brokered deposits. CDARS deposits come from local depositors; 80 

percent of all CDAR.S placements are made by customers within 25 miles of their bank's 

location. Also, the cost to banb for CDARS Reciprocal deposits is substantially less than 

standard brokered fimding - 20 to 40 basis points on av~rage, depending on maturity. CDARS 

deposits also have a high reinvestment rate - more than 83 percent across the Promontory 

Network, quite unlike a standard brokered deposit In short, CDARS Reciprocal deposits cannot 

fairly be considered '=Jlot money.,, Sccon~ as a result of the potential imposition of a premium 

surcharge on CDARS reciprocal deposits, banken fear these deposits will be unnecessarily 

stigmatized by the market, impeding their efforts to raise capital or other funds. 

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Cllainnan Bair Letter 

Page2 

This proposal could have broad consequences. 

i-kllj/1 r. j 

The CDAR.S Reciprocal service keeps local money JocaL Recent events - the effective failure' 

and near failure of some of our country's largest .financial instirutions - have only con.finned that 

capital allocation decisions are best made locally. If our local commwuty banks cannot attract 

large deposits. however, their role will deteriorate. 

The importance of keeping capital local is also reflected in the laws of Florida, where the state 

legislature in early 2005 passed a law that enables local governments there to invest in CDARS 

to keep local money local. Cities, towns and counties prefer to keep money in the community. 

where it can be used to fund economic growth. 

In addition. the Cb.A.RS service is particularly essential to the Community Development Banl:: 

(or CDFI) sector, which also relies on the Network to bring much-needed capital to some of the 

nation's most economically distressed and credit-starved. communities. The Community 

Development Bankers Association and several of its individual members.have written the FDJC 

to discuss their specific concerns. 

Finally, I hope the FDIC also will talcc into account today's extraordinary economic 

circumstances when finalizing its rule on deposit assessments. Depositors are fearfu]. They 

kno~ well that community banks are not too big to fail. Yet every day, community banks must 

compete against large institutions that are favored with implicit and explicit government 

support. This is, therefore, also an issue of fairness. Reciprocal deposits help community banks 

compete with the.large banks that are now being favored with direct, and enormous, government 

assistance. 

In conclusion, I urge the FDIC to exclude reciprocal deposit services such as CDARS from the 

definition of brokered deposits in its pending assessment proposal, and r thank you for your 

thoughtful consideration ofmy comments. 

With waon regards, 
FDII 

Federal De00sit Insurance CorDoration 

550 171h Sbeet NW. Washington. DC 20429 

Honorable Hany Reid 

United States Senator 

Double R Boulevard. 

Reno. Nevada 89521 

Dear Senator Reid: 

Office ol Letjslalive Affairs 

January 30. 2009 

Thank you for your Jetter on behalf ~-regarding its application to the 

Troubled Asset Relief Program's (TARP) Capital Purchase Program. As you know, the Federal 

Deposit Insurance Corporation is actively engaged with the U.S. Department of the Treasury and 

the other federal banking agencies in considering TARP applications filed by banking 

institutions. 

The FDIC supports the TARP and believes it is critically important that community banks 

participate. Although commumty banks as a sector continue to be viable. the TARP offers an 

opportunity for individual institutions to strengthen their balance sheets and continue providing 

banking services and credit to their communities. 

In our role as primary federal supervisor for state nonmember institutions, the FDIC makes a 

recommendation on each TARP application it receives to the Treaswy. which ultimately 

determines· if an institution may participate. The FDIC received a TARP application from 

on October 27, 2008. Upon completing our review and 

after careful conSl cration. we WI orward our recommendation to Treasury. When Treasury 

makes a determination on this request, the Banlc will be notified. 

Your interest in this matter is appreciated. · If you have further questions, the Office of 

Legislative Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
FDl8 

Federal Deoosit Insurance Con>oration 

55017th S1ree1 NW, Washinglcn, DC 20429 

Honorable Harry Reid 

United States Senator 

Double R Boulevard 

Reno. Nevada 89521 

Dear Sena.tor Reid: 

January 30, 2009 

Thank you for your letter on behalf o regarding its application to the 

Troubled Asset Relief Program"s (T ) Capital Purchase gram. As you know, the Federal 

Deposit Insurance Corporation is actively engaged with the U.S. Department of the Treasury and 

the other federal banking agencies in considering TARP applications filed by banking 

institutions. 

The FDIC supports the TARP and believes it is critically important that community banks 

participate. Although community banks as a sector continue to be viable, the TARP offers an 

opportunity for individual institutions to strengthen their balance sheets and continue providing 

banking services and credit to their communities. . 

In our tole as primary fedc:ral supervisor for state nonmember institutions, the FDIC malces a 

recommendation on each TARP application it receives to the Treasury, which ultimately 

determines if an institution may participate. The FDIC received a TARP application from 

~ Nevada, on October 27, 2008. lJpon completing our review and 

after care consideration, will forward our recommendation to Treasury. When Treasury 

makes a determination on this request, the Bank will be notified. 

Your interest in this matter is appreciated. If you have further questions, the Office or" 

Legislative Affairs can be reached at {202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
itnittd ~tatts ~matt 

WASHINGTON, DC 20510-7012 

December J 8, 2008 

Eric Spitler . 

Federal Deposit Insurance Corporation 

550 Seventeenth Street, NW 

Room 6076 

Washington, DC 20429 

Dear Mr. Spitler: 

LA DB -8(oo 

MAJORTN LEADER 

I 

I am VvTiting on behalf of which has applied for funds from the 

Troubled Asset Relief Program under the Capital Pu-cd by the 

Treasury Department. As the agency that undertak.cs ............ initial review of 

this application. I respectfully request that the Federal Deposit Insurance Corporation give 

appropriate c1,msideration to this application within the program guidelines. 

lf you have any additional ques~ons regarding this matter. pl~ase contact Mark Wetjen at 

(202) 224-6964. 

Thank you for your cooperation and assistance. 

My best wishes to you. 

HR:cs 

Reply to: 

Sincerely, 

Double R Boulevard 

Reno, Nevada 89521 

{TT5) 853-2050 

(775) 853-2058 Fax 
HARRY REID 

NEVAQ.e. 

L-A-08-13lo0 

ilnittd- ~tatts oSmatt 

WASHINGTON, DC 20510-7D12 

December 18, 2008 

Eric Spitler 

Federal Deposit Insurance Corporation 

550 Seventeenth Street. NW 

·Room 6076 

Washington. DC 20429 

Dear Mr. Spitler. 

MAJORITY LEADER 

I am writing on behalf o~ which has applied for funds from the 

Troubled Asset Relief Program under the Capital P Program admini tered by the 

Treasury Department. As the agency that undertake ••· initial review of 

this application. I respectfully request that the Fede eposit Insurance rporation give 

appropriate consideration to this application within the program guidelines. 

If you have any additional questions regarding this matter, please contact Mark Wetjen at 

(202) 224-6964. ~ ,. . 

Thank you for your cooperation and assistance. 

My best wishes to you. 

HR:cs 

Reply to: 

Sincerely. 

United States Senator 

Nevada 

Double R Boulevard 

Reno. Nevada 8952 l 

(775) 853-:2050 

(775) 853-2058 Fax 
SHEILA C. BAIR 

CHAIRMAN 

e FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

February 4, 2009 

Honorable Peter J. Roskam 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Roskam: 

Thank you for your letter on behalf of the National Bank of Commerce of Berkeley, 

Illinois. 

On January 16, 2009, the Office of the Comptroller of the Currency (DCC) closed the 

National Banlc of Commerce (NBC) and the Federal Deposit Insurance Corporation was named 

receiver. To protect depositors, the FDIC entered into a purchase and assumption agreement with 

Republic Bank of Chicago, Oak Brook, Illinois, to assume all deposits of NBC. 

Although the FDIC is legally authorized to consider providing direct .financial assistance 

to open insured institutions pursuant to 12 U.S.C. §1823(c)(8), several limitations must be met 

before making that determination. Generally, the "least cost test" must be met. meaning that any 

such expenditure made by the FDIC must result in the least cost to the Deposit Insurance Fund of 

all possible methods of handling the; situation [12 U.S.C. §1823(c)(4)). In addition, open bank 

assistance may not have the effect of benefiting uninsured depositors [12 U.S.C. § 1823(c)(4)(E)] 

and the expenditure may not have the effect of benefiting shareholders of the institution [12 

U.S.C. §1821(a)(4)(C)]. Congress originally imposed these limitations on the FDIC in order to 

prevent the Deposit Insurance Fund from being used to protect uninsured depositors, 

shareholders, and even third-party creditors, rather than its primary role to protect insured 

depositors. The proposal for open bank assistance provided by NBC would have protected the 

interests ofNBC's shareholders and therefore would not meet the statutory restrictions. 

Toe law does provide an exemption to these requirements in the event that the FDIC, the 

Board of Governors of the Federal Reserve System, and the Secretary of the Treasury (in 

consultation with the President) determine that compliance with the least cost test would have 

serious adverse effects on economic conditions or financial stability [12 U.S.C. §1821(c)(4)(G)]. 

Toe FDIC was not able to make that determination in the case of NBC and, therefore, could not 

provide open bank assistance. 

If you have any questions regarding this issue, please do not hesitate to contact me at 

(202) 898-6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

. Sheila C. Bair 
PETER J. ROSKAM ll'Jtl Dllndet, iuCOMMITTEE ON FINANCIAL 

SERVICES ' 

CAMl'AI. MAIIICITI, INSIAWfCE, AND 

OOVEIINMENT-Cl'ONSORiD 

ENTEJll'RISES 

DOMESTI: AND INTEIIIIATlDNAL 

Ml:N:T>JIYPOU:Y, TIIAD£ AHO 

TECHNOLOGY 

<ltnngnss nf • t4t l!tnttth ~at.es 

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January 8, 2009 

Chairman Sheila C. Bair 

Federal Deposit Insurance Cmporation 

.MB-6028 

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FDIC 

JA'-J - 9 2009 

SSO 17°' Street NW 

Washington. D.C. 20429 OFFICE OF LEGISLATIVE AFFAIRS 

Dear Chairman Bair, 

I am ~ting to express support for the application for Open Bank Assistance (OBA). submitted 

by th~ational Bank of Commerce (NBC), Bcdcley, IDin°!8J The NBC has roughly 100 

employees. an asset portfolio of approximatel}f$400 mil1.u>d. and with a branch ht.Addison. 

Illino~ in the Congressional District I reprcsen1; it serves t}(e Chicago land area wi1h retail, realestate and small business banking. · 

Providing OBA to thdNBC~~ill enable it to continue its service and provide substantial cost 

savings to the FDIC. l3iven the tremendous economic difficulties facing our nation and its 

financial institutions, the cost savings tQ the FDIC will preserve needed flexibility to respond to 

the ever-evolving exigencies in our national economy. 

Up until the third quarter of 2008, thdNB~as a well-capitalized financial institution with a 

consistent record of positive eamings~CII=· ry_ ofloan losses for the past ten years stands 

out amongst their peers. At the same time, th NBOis very supportive of small businesses, a 

number of which have grown to become si • cant employers within my district A review of 

the bank's third quarter 2008 financial statement shows that b~ for the ~ve:~in GSB 

preferred stock a,nd the cx:ccptionaJ downturn in the value of that stock, tllef_ NBC · a safe and 

sound institution. The bank's investment in the OSE preferred stock was not sual as such 

investments were considcred~1iv~y safe, holding a risk-weighting of only 20%, the lowest 

rating next to cash. Indeed, NBC has demonstrated good-faith and sincerity in their 

application, offering unrestrict on- ito due diligence reviews and monitoring. 

Given thefu:s~rrmance history and demonstration that OBA is tho least-costly alternative, 

I encoura:fethc IC's support of their application·far OBA. The extraonlinary circumstances 

surrounding the devaluation of tho GSB preferred stock should not jeopardize the existence of a 

community bank that plays a significant role within my district. 
I appreciate your consideration of this request. If you ha.ve any questions, or require additional 

in.formation. ploaac feel .free to contact mo or D~ ~orlr on my staff at 202-225-4561. 
EMANUEL CLEAVER, II 

ANANCIAL SERVICES COMMITTEE 

SUBCOMMITT'E£ ON HOUSING AND 

COMMUNrTY OPPORTUNrTY 

SUBCOMMfTTEE ON 

FINANCIAL. &NSTlTIJTDNS AND 

CONSUMER CREDIT 

SELECT COUMITTEE ON 

ENERGY INDEPENDENCE AND 

GLOBAi.. WAAUING 

REGIONAL. \YHIP (Region 4) 

a!nugrt.s.s of • tI,t llbtittb .§tat.ea 

lfnu.s.t of :lepns:tntafutt.11 

Emamul O!ltaurr, ll 

February 4. 2009 

Honorable Shelia C. Bair 

Federal Deposit Insurance Corporation 

55017th Street, NW 

Washington, DC 20429 

Dear Chairwoman Bair: 

~alYOFFEE 

101 WEsT 31ST STIEET 

io.-Cll'l',M0641D9 

l11Sl~545(1'HarE) 

1816) '71-5215 (F.u) 

It is my understanding thafe j !{has applied to the Federal Deposit 

Insurance Coqx>ration's {FDIC) cmporary Liqwdity Guarantee Program (TLGP}. 

Specifically {g j has applied under the discretionary provisions set forth in 

the program. . 

·la] g} ,perates a manufacturing facility in Kansas City, MO which is 

charg~th powertra.m operations and final assembly of three motorcycle platforms. A 

good number of the~ployces Id Kansas City facility reside the Fifth District of 

Missouri. Retaining jobs would be an economic benefit to the Kansas 

City area and the ov region. 

·: According to~ their ability to take part in the TLGP program 

would allow them ~ured debt They contend it would be especially 

helpful to the ••- • and their ability to survive this tumultuous 

economic time and ,rctai~ some employees, as well as support its dealers, suppliers, and 

customers. 

Your consideration o~ application would be appreciated. 

r-----F·Sl 

£.'T!l •• re .... 4 _..__,.J 

OFFICE OF LEGISLATIVE AFFAIRS 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN February 9, 2009 

Honorable John J. Duncan, Jr. 

House of Representatives 

Washinglon, D.C. 20515 

Dear Congressman Duncan: 

Thank you for your letter on behalf of several bankers in Tennessee. I assure you the 

Federal Deposit Insurance Corporation is sensitive to the critical role that credit availability plays 

in the Tennessee and national economies, and we are balancing those considerations with 

prudential safety and soundness requirements. 

The FDIC and our counterparts at the other federal banking agencies are concerned about 

the availability of credit because of the rapid slowdown in the nation's real estate seclor and ' 

serious disruptions in the credit market. Through published guidance and in discussions with the 

industry, we have encouraged banks to continue extending credit Enclosed are copies of two 

recent regulatory releases: lnteragency Statement on Meeting the Needs of Creditworthy 

Borrowers and Monitoring the Use of Funding from Federal Financial Stability and Guaranty 

Programs. Both letters encourage depository institutions to continue making loans to 

creditworthy borrowers. Furthermore, the FDIC is actively engaged with the Department of the 

Treasury and the other federal banking agencies in considering capital subscriptions under the 

Temporary Asset Relief Program's Capital Purchase Program. There is a significant expectation 

from the FDIC that banks will use these federal monies to provide credit to individuals and 

businesses. In our transmittal of the November 12 Statement to state non-member institutions, 

we articulated this expectation and advised banks that our examiners will be reviewing their 

performance in this regard. We are encouraged that over 1,600 state nonmember institutions 

have already applied to participate in the Capital Purchase Program. 

FDIC examiners have considerable flexibility in conducting field examinations where 

they assess overall risk and evaluate.compliance with applicable laws and regulations. Our 

examiners serve solely in a federal oversight role and do not instruct banks to make business 

decisions on individual credit relationships. Our policies recognize that a customer can have a 

problem and the bank can work with them to return the loan to performing status. For example, 

on consumer loans, if a bank ••re-ages" a delinquent Joan and it subscqueritJy performs 

adequately for 120 days, we do not subject it to criticism. In other words, the FDIC understands 

that consumers and businesses run into financial obstacles in slowdowns and we give banks 

flexibility to work with these customers. 

In the normal course of examinations, FDIC examiners may offer recommendations 

relative to asset or business line diversification. or the write-down/.provisioning for weakened 
assets. However, we do not tell institutions what loans to make, how to deploy their capital or 

how to manage their operations. In addition., we do not direct institutions to take specific actions 

regarding customer relationships. In practice, bank management has great latitude in dealing 

with its loan customers. We leave the business of banking to bankers, who are in the best 

position to know their customers and communities. However, it is important to recognize that 

regardless of how banks deal with individual borrowers, the banks' financial statements must 

accurately reflect their financial condition. 

AI; federal supervisor for mo~ lhan 5,000 institutions, most of which are community 

banks, the FDIC uniquely understands the vital role of bank lending on Main Street. The banks 

we supervise are often the lifeblood of credit in their communities, and these institutions have a 

tradition of working with local customers when times get tough. The FDIC recognizes the 

importance of financial institutions to the economy, and our practices as a bank supervisor reflect 

those priorities. · 

We appreciate the opportunity to address your concerns on this important issue. If you 

have further questions, please do not hesitate to contact me at 898-6974 or Eric Spitler, Director 

of our Office of Legislative Affairs, at 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosures 
FDIC: FIL-1-2009: Financial Stability and Guaranty Programs 

Home > News & Events ,. Financial Institution letters 

Financial Institution Letters 

• . Monitoring the Use of Funding from Federal 

Financial Stability and Guaranty Programs 

Summary: 

Highlights: 

State nonmember institutions should implement a process to 

monHor their use of capital injections, liquidity support and/or 

financing guarantees obtailed through recent financial stability 

programs established by Department of the Treasury, the Federal 

Deposit Insurance Corporation (FDIC) and 1he Federal Reserve. 

In particular, the monitoring processes should help to determine 

how participation In these federal programs has assisted 

institutions in supporting prudent lending and/or supporting efforts 

to won: with existing borrowers to avoid unnecessary foreclosures. 

The FDIC encourages institutions to include a summary of this 

information In shareholder and public reports, annual reports and 

financial statements, as applicable. 

Page 1 of2 

FIL-1-2009 

January 12, 2009 

• A number of federal programs have recently been instituted to promote financial stabiHty and 

rnprove liquidity conditions for insured depository institutions. These initiatives consist of direct 

capital injections, federal guarantees on financing, and expanded borrowing facilities. 

• Given that government funds, capital and guarantees are being used to support banking 

Institutions, banks are expected to document how they are continuing to meet the a-edit· needs of 

creditworthy borrowers, as described in the November 10, 2008, •1nteragency Statement on 

Responsible Lending• (see FIL-128- 2008). 

• The FDIC expects that state nonmember institutions (or their parent companies) will deploy 

funding received from these federal programs to prudently support credit needs in their man:et 

and strengthen bank capital. 

• In order to assess how participation in these federal programs has helped the Institution support 

lending and/or support efforts to work with existing mortgage borrowers to avoid unnecessary 

foreclosures, FDIC-supervised institutions should implement a process to document how these 

funds were used. State nonmember institutions should describe their utilization of this federal 

funding during bank examinations and are encouraged to summarize such information In 

published annual reports and financial statements. Including such information in pu'">lic reports 

will provide Important information for shareholder and public evaluation of participation in these 

programs. 

Distribution: 

FDIC-Supervised Institutions 

Suggested Routing: 

Chief Executive Officer 

Chief Financial Officer 

Chief Credit Officer 

Contact: 

For questions related to the Department of 

Treasury's Troubled Asset Relief Program, 

please contact Steven L. Fritts, Associate 

Director, at (202) 898-3723 or sfrit1s@fdic.gov. 

For all other questions, please contact Mindy 

West, Chief, at (202) 898-7221 or 

miwest@fdic.gov 

http://www.fdic.gov/news/news/financial/2009/fil0900l.html 1/15/2009 
FDIC: FIL-128-2008: Interagency Statement on Meeting the Needs of Creditworthy Borr... Page 2 of2 

3723 and sfritts@fdic.gov 

Printable Format: 

FIL-1,28-2008 - PDF (PDF Help) 

Note: 

FDIC financial institution letters (Fils) may be accessed from the FDIC's Web site at 

'!t'#.:fl,fqi~,gov/news/n~l'.l1'!J~i§..l/.2QQ8li11.dex.hb!II. 

To receive Fils electronicalfy, please visit httQ://www.fgig.ggyJ~bout!subscriplions/fil.html. 

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information 

Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226. 

Last Updated 11112/2008 

Home Contact Us Search li~lp SiteMap Fonns 

Fr~edi;,m of lnfo_rrn~ti.9.n.Ai;t !fQIA) S~M(:~_Gt:mru W~Q$ite Polici~s l)SA,gQY 

FDIC Office.of lr"!SQ~_c;tor G~11e~! 

http://www.fdic.gov/news/news/financial/2008/fil08J28.html 1/15/2009 
FDIC: FIL-128-2008: Interagency Statement on Meeting the Needs of Creditworthy Borr ... · Page 1 of2 

HQme > News & Events > Financial Institution letters 

Financial Institution letters 

lnteragency Statement on Meeting the Needs of 

Creditworthy Borrowers 

FIL--12B-2008 

November 12, 2008 

Summary: 

Highlights: 

The FDIC joined the other federal banking agencies in issuing the 

attached •1nteragency Statement on Meetilg the Needs of 

Creditworthy Borrowers• on NQvember 12, 2008. 

Several federal programs have recently been instituted to promote ·financial stability and mitigate the 

effects of current market conditions on Insured depository institutions. These efforts are designed to 

improve the functioning of credit markets and strengthen capital in our financial system to improve 

banks' capacity to engage in prudent lending during these times of economic distress. 

The agencies expect all banking organizations to fulfill their fundamental role in the economy as 

intermediaries of credit to businesses, consumers, and other creditworthy borrowers. Lending to 

creditworthy borrowers provides sustainable returns for the organization and is constructive for the 

economy as a whole. 

The agencies urge all lenders and servicers to adopt systematic, proactive, and streamlined mortgage 

loan modification protocols and to review troubled loans using these protocols. Lenders and servicers 

should firstdetermine whether a loan modification would enhance the net present value of the loan 

before proceeding to foreclosure, and they should ensure that loans currently in foreclosure have been 

subject to such analysis. 

In implementing this Statement, the FDIC encourages institutions it supervises to: 

• lend prudently and responsibly to creditworthy bom1Ners; 

• work with borrowers to preserve homeownership and avoid preventable foreclosures; 

• adjust dividend policies lo preserve capital and lending capacity; and 

• employ compensation structur~s that encourage prudent lending. 

State nonmember institutions' adherenc;e to these expectations will be reflected in examination ratings 

the FDIC assigns for purposes of assessing safety and soundness, their compliance with laws and 

regulations, and their performance in meeting the requirements of the Community Reinvestment Act 

(CRA). 

Distribution: 

FD IC-Supervised Institutions 

Suggested Routing: 

Chief Executive Officer 

Senior Cr~it Officer 

Attachment: 

"ll)t~ragency $t~t£ITT)er:,t on M~~tlng ~~ 

Need!ii of Creditworthy Borrowers" 

Contact: 

Institution's contact person (Case Manager 

or Field Supervisor) at applicable FDIC 

Regional Office, or Associate Director 

Steven D. Fritts in Washington at 202-898-

http://www.fdic.gov/news/news/financial/2008/fil08128.htrnl 1/15/2009 
FDIC: FIL-1-2009: Financial Stability and Guaranty Programs 

Printable Format: 

Fll,.-1-20()9- PDF (PDF Help) 

Note: 

FDIC financial institution letters (Fils) may be accessed from the FDIC's Web site at 

www.fdic.gov/news(news/finan<.ial/2009/index.html. 

To receive Fils electronically, please visit http://www.fdii;,gpy/ab.o.vVsubscriptions/fil.html. 

Page 2 of2 

Paper copies of FDIC financial Institution letters may be obtained through the FOIC's Public lnformatiQn 

Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226. -

Last Updated 1/1212009 

Home G9n~ct Us Se~rcti t:t,_lp ~it~f,,'Jap Forms 

Fr:~edom of ln..fi>@ation Act (FOl~l.SelYi~G~.ter W~i2s.iteJ:'q!icies. USA . .90.v 

fOJC Offi~ of lnsp~clor General 

http://www.fdic.gov/news/news/financial/2009/fil09001.hfml 1/15/2009 
JOHN J. DUNCAN, JR. 2ND Dosnllc:r, TLA09-0~ 

TRANSl'ORTATION 

~ 

~ 

AND INFRASTRUCTURE 

ltG_,.YS AND T--a..-Mul-

'Z2117 a.-Holm Dl'l'a 111.JuaNG 

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11nost of 'Rqnumtatiots 

DehingtDD, !JO: 2051H202 

January 6, 2009 

The Honorable Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17th Street, NW 

Washington, D.C. 20429 

Dear Chairman Bair: 

NATURAL RESOURCES 

......_ ,._ -l'0IIU11I. Mm l'U8Uc '-"'-

OVERSIGHT AND GOVERNMENT REFORM 

SUIC0MloSnlS; 

NATICINAL~AIID'-1GM-

~W-PP4P"f,~10C, ,.,.,,,,_.._ 

FDIC 

JAN 1 4 2009 

OffJCE OF LEGISLATIVE Ar~•!~ 

I know most of the top bankers from East Tennessee and several 

others throughout the State. 

They are all telling me _the same thing in stronger terms than I 

have ever heard before. As the President of one bank, with which 

I- have no .connection whatever, said, holding one hand up much 

h,tgher than the other: "What they are saying at the top is not 

getting down here to the bottom.• · 

In other words, when the President, the Secretary of the 

Treasury and other top officials are trying to unfreeze the 

credit market and urging banks to make loans, the bank examiners 

at the local level are making it almost impossible to do so. 

The examiners, almost none of whom have ever been in the banking 

business and thus do not fully appreciate how difficult it is, 

are writing up the best, safest loans on the books. They are 

doing. this even though all payments are current and even on 

loans to upper income people who have more ~han sufficient 

assets to cover the loan. 

A banker who used to do a lot of business with Senator Corker in 

Chattanooga when the Senator was in business there said he 

talked to him about it and gave him some specific examples. But 

when Sen. Corker asked him to put it in writing he said he could 

not because the examiners then would have destroyed his bank. 

Another bank official told me recently that there are 230 banks 

in Tennessee that are having serious problems. Now· I believe he 

probably was exaggerating but someone from almost every bank in 
East Tennessee has told me over the last three months or so that 

the examiners have just gotten ridiculous. 

Another bank.er said banks cannot make even very good loans now 

~strictly because of the examiners• and their wcrA• attitude. 

In 2000, Fortune Magazine said the Knoxville area had become ·the 

most popular place to move to in the whole Country based on the 

number moving in in relation to the number moving out. Almost 

all of East Tennessee has very large numbers moving here from 

the Midwest and Florida. 

The economy here is still strong and will continue to be unless 

these bank examiners shut us down. If you think I am 

exaggerating, please have some independent polling firm ask 

bankers all over the Nation to tell you their stories in a way 

they can be assured there will not later be repercussions. 

If you do not do this, I am afraid the troubles we are having 

now are going to grow much worse. 

With kindest regards, I am 

JJD:jg 
FDII 

Federal Deooslt Insurance Corooration 

550 171h Sreel lffl, Washington, DC 20429 

Honorable Mel Martinez 

United States Senate 

Washington, D.C. 20510 

Dear Senator Martinez: 

February 24, 2009 

Thank you for your letter on behalf of Mr. - regarding 

-s 

~ regulated by the Office of the Comptroller of the Currency. have taken the liberty of foiwarding your inquiry to the OCC for 

consideration. 

The Federal Deposit Insurance Corporation insures deposits at most of the nation's banks and 

savings associations and promotes the safety and soundness of these institutions by 

identifying, monitoring, and addressing risks lo which they are exposed. The FDIC aJso is the 

primary federal regulator of state chartered banks that are not members of the Federal Reserve 

System. 

cc: Congressional Liaison 

Office of the Comptroller 

of the Currency 

250 E Street, S.W. 

Washington, D.C. 20219 

Sincerely, 

Mab)e T. Baggage 

Congressional Administrator 

Office of Legislative Affairs 
Mr. Eric Spitsler 

Director, Office of Legislative Affairs 

Federal Deposit lnsurapce Corporation 

550 Seventeenth Street, NW 

Room6076 

February 3, 2009 

Washington, District of Columbia 20429 

Dear Mr. SpitsJer: 

I am contacting you on behalf ofmy constituent. Mr. 

Mr .• is concerned about commercial )ending. I am enclosing his correspondence for 

your review. Please address your response to him directly. 

Thank you for your attention to this matter. Please do not hesitate to contact me with any 

· questions or comments. 

MM/tlj 

Enclosure 

•,. 

Sincerely, 

Mel Martinez 

United States Senator 

fCIC 

I•~ 

rt.! '• . .. .:, 

OFFICE OF lEGl~LATrvE AFFAIRS 
0 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20-429 

SHEILA C. BAIR February 24, 2. 009 CHAIRMAN 

Ms. Elizabeth Warren 

Chairperson, Congressional Oversight Panel 

732 North Capitol Street, N.W., Room C-320 

Washington, D.C. 20401 

Dear Ms. W an:·en: 

This letter is in response to your request for information regarding federal efforts at foreclosure 

mitigation. 

Per your request, we have structured our response in six parts: Part I discusses the FDIC's and 

IndyMac Federal Bank's collection of data on troubled and modified loans, while Part II through Part 

JV pertain solely to IndyMac Federal Bank. Specifically, Part II discusses the makeup and status of 

IndyMac Federal Bank's loans serviced; Part Ill discusses delinquencies; Part IV discusses 

modification efforts; Part V addresses redefault experience to date; and Part Vl discusses loss 

severities. 

As you know, l[ndyMac Bank, F.S.B., was closed on July 11, 2008, by the Office of Thrift 

Supervision and the Federal Deposit Insurance Corporation was appointed conservator. As 

conservator, the FDIC has operated IndyMac Federal Bank to m~ximize the value of the institution 

for sale, including identifying best practices in reducing unnecessary foreclosures. 

Should you or your staff have additiqnal questions; you may contact me at 202-898-6974 or 

Mr. Mike Krimminger, Special Advisor to the Chainnan for Policy, at 202-898-8950. 

Enclosure 

cc: Senator John E. Sununu 

Congrc:ssman Jeb Hensarling 

Mr. Richard H. Neiman 

Mr. Damon A. Silvers 

. . 

Sincerely, 

Sheila C. Bair 
Congressional Oversight Panel 

Mortgage Foreclosure Mitigation Survey 

Response by the 

Federal Deposit Insurance Corporation 
Part I - Agency Information Gathering 

The following responses by the Federal Deposit Insurance Corporation are based on the 

residential mortgage loan data that the FDIC collects from FDIC-supervised banks in the 

Consolidated Reports of Condition and Income (Call Report) as of the end of each calendar 

quarter. The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board 

(FRB) collect these same data from the banks under their supervision in the Call Report 

Residential mortgage loan data is reported in the Call Report as aggregate dollar amounts at 

the Institution level, not at the individual loan level. No data is collected on numbers of 

residential mortgage loans. 

Additional data,· as specified below, has been provided from IndyMac Federal Bank, in FDIC 

Conservatorship. 

For clarity, responses will be labeled "Call Report• or "IndyMac Federal.• 

· 1. Does your agency collect infonnation on mortgage delinquencies? (Y/N) 

Call Report: Yes. In responses for the Call Report, each bank reports the dollar amount of (1) 

loans past due 30 through 89 days and still accruing, (2) loans past due 90 days or more and 

still accruing, and (3) nonaccrual loans for the following categories of residential mortgages 

held as assets for purposes other than trading: 

• Revolving, open-end loans secured by 1-4 family residential properties and 

extended under Ones of credit 

• Closed-end loans secured by first liens on 1-4 family residential properties 

• Closed-end loans secured by junior liens on 1-4 family residential properties 

In addition, for the three past due and nonaccrual categories, each bank separately r:eports the 

dollar amount of loans secured by 1-4 family residential properties that have undergone 

troubled debt restructurings that are included in the three residential mortgage categories 

identified above, but without a breakdown of such loans into these three categories. This data 

collection began March 31, 2008. 

For residential mortgage loans that a bank has sold and securitized with servicing retained or 

with recourse or other seller-provided credit enhancements, the bank reports the dollar amount 

of securltized loans that are (1) 30 through 89 days past due and (2) 90 days or more past 

due. For each of these two past due categories, the bank separately reports the dollar amount 

of {1) closed-end loans secured by 1-4 family residential properties and (2) revolving, open-end 

loans secured by 1-4 family residential properties and extended under lines of credit. 

IndyMac Federal: The Bank does collect data on delinquencies as part of its risk management 

and servicing operations. . 

2. Does your agency collect infonnation on mortgage foreclosures? (Y/N) 

can Report: No. However, beginning March 31, 2008, each bank began to report the dollar 

amount of (1) loans held as assets for purposes other than trading that are secured by 1-4 

family residential properties and are ir:i process of foreclosure and (2) loans serviced for others 

that are secured by 1-4 family residential properties.and are in process of foreclosure. 

2 
IndyMac Federal: Yes 

3. Does your agency collect infonnatJon on mortgage loss mitigation efforts 

(repayment plans, modifications, short sales, etc.)? (YIN) · 

Call Report: No. 

IndyMac Federal: Yes 

4. If the answer to any of the three previous questions was yes, please detail the 

lnfonnatlon collected, Including the source of the data and a listing of all data fields. 

Please be sure to explain if the data Is collected directly from regulated entitles or via 

data vendors like First American/Loan Perfonnance or McDash, and whether it Is loanlevel or survey-level data. Please also detail any estimates of the data's market 

coverage. 

Call Report: See the introductory comments before Question 1 and the responses to 

Questions 1 and 2 above. · 

IndyMac Federal: The information is retrieved from various sources including the Servicer 

Portfolio Analytics System C-SPA.), Lender Processing Services C-LPs· f/k/a Fidelity), and SBO 

2000. 

5. If you collect data on delinquencies, foreclosures, mitigations and/or 

modifications, please submit any data code books or data dictionaries. 

Call Report: As noted above, the Call Report collects aggregate dollar amounts at the 

institution level. The specific Call Report schedule and line item references and MicroData 

Ref ere nee Manual numbers for the data .items identified in the responses to Questions 1 and 2 

above are available on request. 

IndyMac Federal: Attached is a copy of the current Investor Report, which provides detail on 

delinquencies and loss mitigation actions. 

6. Please detail any coordination your agency has taken to date with other federal 

or state regulatory agencies in collecting lnfonnation on mortgage delinquencies, 

foreclosures, and loss mitigation. including any steps taken to standardize data 

collection or to collect or analyze data jointly. 

Call Report: The Call Report is a unifonn interagency report shared by the FDIC, the OCC, 

and the FRB. The three agencies jointly detennine the data that banks report in the Call 

Report in accordance with the Paperwork Reduction Act. 

If your agency directly collects Jnfonnatlon on mortgage delinquencies, foreclosures, 

mitigations and/or modifications, please answer the questions In Parts II-VI as of 

December 31, 2008, unless otherwise directed. Please indicate If your agency does not 

possess the Information necessary to answer the particular question. 

Can Report: As noted above, the FDIC collects only aggregate dollar amounts for residential 

mortgage loan data at the institution level in the Call Report, not data on numbers of residential 

mortgage loans. Therefore, the Call Report does not provide the FDIC with the data necessary 

3 
to answer any of the questions in Parts II-VI of this suNey. This infonnation is maintained by 

IndyMac Federal Bank, FSB (IndyMac) as provided below for Parts II - VJ. 

If your agency uses multiple data sources, please be sure to indicate the data sources 

used in replying to each question. 

Also, if your sample includes government-insured (FHANA) loans, please run the 

analysis separately for those loans. 

Please indicate if you are unable to respond to the questions on a numeric basis, but 

can respond on a percentage basis, and then provide a respond on a percentage basis. 

Part II. The Mortgage Loans 

7. How many mortgage loans are in the data that you collect? 

IndyMac Federal: IndyMac Federal Bank's portfolio consists of 708,766 loans with a UPB of 

$17 4.4 billion with Alt-A loan count of 653,679 representing the majority of the portfolio. 1 

8. How many of these loans are classified as subprime? Please note if the reporting 

institution makes this classification or, if the classification is made by your agency, 

what definition of subprime you use. 

9. How many of these loans are alt-A? Please note if the reporting institution makes this 

classification or, if the classification Is made by your agency, what definition of alt-A do 

you use. 

1 O. How many of these 16ans are: 

a. Government-insured (FHAN A) loans? 

b. Jumbos? 

c. Junior mortgages? 

d. 2-4 family residences? 

1 The population excludes Finanelal Freedom Senior Funding Corporation (a subsidiary of IndyMac Federal Bank, FSB 

specializing In reve"e mortgages) and charged off HELDC loans as of 12/31/0B. 

4 
IndyMac Federal: Combined answers to Questions 8-1 O below. 

700.000 

500,000 

500,000 

400,000 

300,0011 l. 

200,000 -

100,000 -

.. 

0-----1- I - I 

Subpriml AJl,.A Gavamllllnl Agency Jutrboa Junbr m:ir1Qalla 2- 4fanily 

(~/VA) ruidences 

1.-,s 

I-Loan Count .. UPB (OOO's) I 

$1IO,D00,DDO 

$160,000,DDO 

$140,000,000 

$120,000,000 

$100,00D,OOO 

$80,DOO,OOO 

SSD,000,000 

$4D.000,000 

$2D,000,000 

$0 

Refer to Appendix for Product Definitions Loan Count 2 UPB (OOO's) 2 %of Tot.al 

UPB 

Subprime 42,672 $5,436,937 3.12% 

~-A 653,679 $166,387,645 95.41% 

Government-insured (FHA/ V~ Loans 4,467 .$1,026,530 0.59% 

~encv 7,948 $1,544,545 0.89% 

Total 708,766 $174.395.657 100.00% 

Jumbos 3 92,744 $54,840,881 31.45% 

Junior M)rtgages 100,ng $5,702,867 3.27% 

2 - 4 family residences 46,018 $13,693,327 7.85% 

2 Data is as of 12/31/08. 3

• Jumbo balance as of origination date, not as of 12/31/08. 

s 
11. How many of these Joans have a junior mortgage att2ched to the same property? 

12. How many of these loans were identified as "owner-occupied" at origination? 

13. How many of these loans are currently listed as "owner-occupied"? 

14. How many of these Joans were "low doc" or "no doc"? 

Questions 15 & 16 are reproduced and answered following the responses to Questions I 1-24. 

17. HQw many loans had a CL TV at origination of 290%? 

18. How many loans currently have negative equity? 

19. How many Joans are: 

a. ARMs (including hybrid 2/28s and 3/27s)? 

b. Interest only? 

c. Negatively amortizing (including pay-option ARMs)? 

20. How many of the ARMs: 

a. Are currently at a teaser rate? 

b. Will reset for the first time in the next 12 months? 

c. Have already reset? 

21. How many loans have prepayment penalties? 

22. How many of the Joans are securitized and how many are portfolio? 

23. How many of the securitized loans are agency and how many are private-label? 

24. How many of these loans were refmancings and how many were purchase-money? 

6 
Responses to Questions 11, 12, 13, 14, 17, 18, 19, 20, 21, 22, 23, & 24 

Loan Count UPB (000's) 

Properties with junior mortgages attached 185,73f $56,456,228 

!Originated as •0wner-Occupied• 555,46€ $149,586, 17f 

Currently Listed as Non-Vacant Status 1 698,08~ $171,392,551 

111Low Doc" or "No Doc"? 2 425,141 $114,419,229 

Have Prepayment Penalties 234,34€ $67,714,754 

In Securitizations 3 629,61( $157,570,179 

In Portfolio 70,192 $14, 123,67E 

In Agencv 292,22~ $62,922,79( 

~n Private Label 337,385 $94,647,389 

Refinancinqs 449,371 $113,025,432 

Purchase-Money 259,395 $61,370,225 

CllV~ 90% 243,364 $53,509,250 

Negative EQuitv (current CL TV~ 100%) 190,72~ $59,640,757 

ARMs (including hybrid 2/28s and 3/27s) 347,240 $98,560,065 

Currently at a Teaser Rate or Initial Rate 4 287,644 $82,196,729 

Reset For the First Time in the Next 12 25,344 $7,711,936 

Months" 

Have Alreadv Reset 4 34,241 $8,661,400 

Interest Only 210,78€ $69,316,801 

Negatively Amortizing (including pay-option 81,833 $30,625,956 

ARMs) 

, Properties are tracked for vacancies for the 60+ day delinquencies 2 Includes Limited Doc, Stated Doc, Streamline, No Ratio, NINA, No Doc loans. 

3 Includes Agency, 1MB REMICS arid Non-lMB REMICS 4 % is % UPB of total ARM Loans (including hybrid 2/28s and 3/27s) 

% ofUPB 

32.37°/c 

85.87% 

GS.27% 

65.61% 

38.83% 

90.35o/i 

8.10°/r 

36.08% 

54.27% 

64.81'1⁄2 

35.19% 

30.68% 

34.20o/i 

56.51o/i 

83.393⁄4 

7.823⁄4 

8.7_9% 

39.75% 

17.56% 

15. How many of these loans, when originated, had front-end debt ratio (monthly housing 

debt, as Pm, to income) of: 

a. Greater than or equal to 38%? 

b. Greater than 31 % and less than 38%? 

c. Greater than 28% and less than 31 % ? 

d. Less than or equal to 28%? 

16. How many of these loans, when originated, had back-end debt ratio (total monthly 

debt to income) of 

a. Greater than 65%? 

b. Greater than 55% and less than or equal to 65%? 

c. Greater than 45% and less than or equal to 55%? 

d. Less than or equal to 45%? 

7 
Responses to Questions 15 & 16: 

IndyMac Federal: Following the launch of the FDIC loan modification program on August 20, 2008, 

IndyMac Federal has verified incomes for loan modification proposals that have been accepted by 

borrowers who have forwarded income information for verification by IndyMac Federal. IndyMac staff 

have compared verified incomes with the incomes at origination ( either stated or verified if full doc 

loans). However, prior to the appointment of the FDIC as Conservator on July 11, 2008, IndyMac ~ank 

predominantly originated no or low documentation loans. As a result, the origination DTls are not • 

considered reliable except for full documentation loans. 

This Is illustrated by the information in the following tables for the entire population of loans. The tables 

compare the origination DTI with the actual verified OTI completed during the FDIC loan modification 

process. In the first table, the numbers highlighted in yellow are the percentages of loans that stayed In 

the DTI bucket originally reported once their income was verified for a modification. For example, while 

57.7% of the loans reported a <31% DTI at origination (shown in 3"' Table), only 36.02% had verified· 

income at the time of a modification that gave the borrowers a <31 % DTI. The first table also shows that 

only 26. 77% of the borrowers had DTls <31 % once their incomes were verified for a modification. While 

there are likely to be changes in income from origination to the date of a modification, these variations 

are not consistent with accurate reporting of origination incomes. 

!pocUlyENTATION TYPE CODE 

% D fE ac h 0 rlQ . ln11 B UC lea I 

Count a SERVICER LOAN NUIY'Bffi 

Orio DTI Bucket 

<31% 

31 -40% 

>-i0% 

Grand Tota I 

(OOCUM:NTATION TYPE CODE 

ii Loans 

Count ri SFRVICER IOAN NUt.'13~ 

Oria DTI Bucket 

<31% 

31--40% 

~0% 

Grand Total 

!D0CUM:NTATION TYPE CODE 

'4 DfTatll P uladon 

Count it SERVICER LDAN NUIY'BER 

Ori DTI Bucket 

<31,. 

31 -.f0% 

>40% 

l[AID 

Verified DTI Bucklt 

<31% 31 --40% 

36.CQ% 

16.S:,% 

to.16% 

26.77% 

Verified DTI Bucket 

<31" 31 -.f0% 

1,188 

2'7 

95 

1 530 

!{.AIQ 

Verified DTI Buckat 

<31 % 31 .·-40% 

211.78% 

4.3!% 

1. ,. 

17.98% 

22.C6% 

17.43% 

1B.95% 

593 

'5Il 

163 

1 [E3 

10.37% 

5.72% 

. % 

>40'% 

>40% 

>40% 

GrandTdal 

.f6D0% 1CXUD% 

6129% 1Cll.CD% 

72.,'1', 1Cll.lD% 

5.429% 100.CD% 

GrandTdal 

1 f,17 3,218 

909 1 ,-133 

677 S35 

3103 5 716 

Essentially, the bottom chart shows that at origination, 57.7% of IndyMac loans were originated with a 

housing ratio below 31%, an additional 25.94% were between 31-40% and 16.36% were above 40%. 

However, once IndyMac verified the income at the back-end under modifications, only 26.TT3⁄4 had a 

front-end ratio below 31%, an additional 18.95% were between 31-40% and 54.29% were above 40%. 

Interestingly, the migration patterns depicted In the top chart indicate that a full 46% of the loans that 

orlglnany claimed to have a front-end ratio of below 31 %, ended up having verified front-end ratios 

above40%. 

g 
As expected full documentation loans are more consistent within their original buckets: 

iDOCUIIENTATION TYP~ CODE IF 

I of Each Orlafnal Budat 

Count d SERVICER LOAN NUlvSER Vtrified DTI Bucket 

Orin DTI Bucket <31% 

<31% 59.54% 

31 -40% 25.CE% 

>40% 12.E% 

G11nd Total 38.'15% 

!DOCUM:NTATIDN TYPE CODE lF 

# Loans 

Count dSERVICER LOAN NU~ffi Verified DTI Bucket 

Oria DTI Budcel c:31% 

<31% 721 

31 -40% 196 

>40% 76 

Grand Tola! !B3 

lDOCUh'ENTATION TYPE CODE IF 

'II. af T atal P ulatio n 

Count d SERVICER LOAN NUM3ER Verified DTI Bucket 

Ori Tl Buckel <31 % 

<31% 

31 -40% 

>40% 

31- AO% >.CO% GrandTmal 

16.27% 24.19% 100.CD% 

29.8)% -45.1'% 100..CD% 

20.98% 66.56% 100.0)% 

2U.C% '40.41% 1fJ0.ID% 

31 -40% >.CO% Grand Tmal 

197 293 1 ,211 

233 353 782 

128 ,4flj 610 

55B 1 D52 2.ED3 

Here, 46.52% were originally <31% front-end DTI, and a full 38.15% were verified to be below 31% 

front-end DTI. You can see here, that almost 60% of the loans originated below a 31 % front-end ratio 

maintained that ratio through the modification process. 

PART Ill. DELINQUENCIES 

Please exclude modified loans from your answers to this section. If this is not possible 

given your data set, please indicate so. 

25. How many of the loans you track are: 

a. 30+ days delinquent? 

b. Bo+ days delinquent? 

c. 90+ days delinquent? 

d. In foreclosure? 

lndvMac Federal: 

Delinquencies Loan UPB (000's) % ofUPB 

30+ Days DQ 110,254 $28,092,035 16.11% 

: ·: - . ....,. . . .. 

90+ Days DQ 47,937 $12,301,441 7.05% 

In foreclosure 43,422 $13,733,852 7.88% 

9 
120,000 

10D,000 

80,000 

60,000 

-40,000 

20,D00 

0 

30+ Dav• DQ 110+ Days OQ 90+ Days oa In Foreclosunt 

1- Loan CQn UPB (OOO'sl 

$30,000,000 

S25,000,000 

$2O,DOD,DOD 

$15,000,000 

S\0,000,000 

$5,000,000 

so 

26. How many foreclosure sales, short sales or deeds-in-lieu occurred over the last 

quarter for the loan pool your agency tracks? 

IndyMac Federal: 

Loan Count UPB (000's) 

Foreclosure Sales 1 6,917 $2,108,190 

Short Sales 1,897 $582,125 

Deeds-in-Lieu 59 $15,829 

1 Includes only properties ·sold at foreclosure sale to 3111 parties. 

27. How many of the 60+ days delinquent loans: 

a. Had a CL TV at origination of ~90%? 

% of UPB 

n.90% 

21.51% 

0.59% 

b. Are currently negative equity {current CL~100%}? 

c. Are ARMs? 

d. Are ARMs where the interest rate has reset? 

e. Are hybrid ARMs (2/28s, 3/27s, etc.)? 

f. Are hybrid AR Ms where the teaser rate has reset? 

g. Have prepayment penalties? 

h. Ara jumbos? 

i. Are subprime? 

J. Are alt-A? 

k. Are interest only? 

I. Negatively amortizing (including pay-option ARMs)? 

m. Have a junior mortgage? 

n. Are 2-4 family residences? 

o. Were listed as owner-occupied at origination? 

p. Are owner-occupied currently? 

q. Are low-doc or no-doc? 

t Were refinancings? 

u. Were purchase-money mortgages? 

10 
IndyMac Federal: 

Loan Count UPB %of 60+ DQ 

UPB 

60+ Day Delinquent Loans 1 116,477 $32,624,116 18.71% 

Originated with a CL lV ~ 90%? 58,325 $14,929,168 45.76% 

Negatiw Equity (current CLlV ~ 100%) 56,698 $17,588,671 53.91% 

60+ day delinquent ARMs: 71,558 $23,106,994 70.83% 

Hybrid ARMs 2 47,049 $14.752,056 63.84% 

Monthly Adjustable Option ARMs 2 20,376 $8,037,945 34.79% 

HELOCs 2 4,133 $316,933 1.37% 

Interest rate reset 9,713 $2,544,676 7.80% 

Hybrid ARM Loans {2/28s, 3/27s, etc) 1,619 $707,016 2.17% 

Hybrid ARMs where the teaser rate has reset 8,777 $2,155,557 6.61% 

Negatively amortizing Loans 0ncluding pafOption AR.Ms) 30,463 $11,384,261 34.90% 

Loans with prepayment penalties 56,986 $17,45?,683 53.50% 

Jumbo Loans 18,202 $10,652,828 32.65% 

Subprime Loans 12,279 $1,943,140 5.96% 

Alt-A Loans 102,338 $30,205,583 92.58% 

Interest Only Loans 43,396 $14,171,312 43.44% 

Ha\e junior mortgages 43,202 $14,092,352 43.19% 

2-4 family residences 7,345 $2,409,596 7.39% 

Originated as •0wner-Occupied• 98,267 $29,024,616 88.97% 

Currently classified as Non-Vacant · 8,312 · $2,395,363 7.34% 

Low .. Doc or No-Doc? 87,959 $26,397,754 81.90% 

Refinances 64,472 $19,125,244 58.62% 

1 % is% of total servicing UPB as of 12/31/08 

2 % Is% of 60+ day delinquent ARM UPB as of 12/31/08 

27. (continued) 

r. Had front-end debt ratio (monthly housing debt, as PITI, to income) when 

originated of: I. Greater than or equal to 38%? 

Ii. Greater than 31% and less than 38%? 

iii. Greater than 28% and less than 31%? 

iv. Less than or equal to 28%? 

s. Had back-end debt ratio (total monthly debt to income} when originated of 

i. Greater ~an 65%? · 

ii. Greater than 55% and less than or equal to 65%? 

Ill. Greater than -45% and less than or equal to 55%? 

II 
iv. Less than or equal to 45%? 

IndyMac Federal: The Bank's data on front-end and back-end DTls at origination is heavily 

skewed by the predominant number of low and no-documentation loans originated. As shown 

above, 81.9% of the 60+ day delinquent loans were no or low doc loans. The origination data 

is inconsistent with the DTI data revealed during the FDIC loan modification process, which 

relied on verification of income based on Internal Revenue Service information or other third 

party information. Accordingly, the FDIC places no reliance on the Bank's origination DTtdata 

and does not believe it to be accurate. · 

A more accurate assessment of the front-end and back-end DTls at origination is provided by 

the responses to Questions 15 and 16. 

PART IV. MODIFICATIONS 

If your data permits, please answer the questions in this section separately for: 

(1) securitized and non-securitized loans; and (2) modifications occurring before October 

1, 2008, and modifications occurring between October 1, 2008 and December 31, 2008. 

28. How many loans have been modified or placed into a repayment plan? 

a. How many have been modified? 

b. How many have been placed in were repayment plans? 

IndyMac Federal: On August 20, 2008, IndyMac Federal implemented a streamlined loan 

modification program under the direction of the FDIC, as Conservator for IndyMac Federal. 

The FDIC loan modification program achieves an affordable, sustainable mortgage payment 

for eligible borrowers by reducing their first mortgage debt-to-income ratio (principal, interest, 

taxes, and insurance) ta as low as 31% through a combination of interest rate reductions, term 

or amortization extensions, and deferment of payments on portions of the principal. 

Experience to date demonstrates that converting nonperforming mortgages into stable 

performing mortgages will return greater value than foreclosure. All modifications are subject 

to the terms of existing contracts governing servicing of the mortgages. In addition, all aspects 

of the modifJCations must provide a positive net present value compared to foreclosure 

alternatives. 

As of 12/31/09, IndyMac Federal had completed, fully verified income information, and updated 

into the reporting system 5,225 FDIC loan modifications. As of that date an additional 1,an 

had been completed and fully verified income information, but had not been updated into the 

reporting system. This provides a total of 7,417 completed and verified loan modifications. As 

of that date, an additional 3,305 FDIC loan modifications had been accepted by the borrowers 

and IndyMac Federal was in the process of verifying the borrowers' Income. As of February 

17, 2009, a total of 10,422 FDIC loan modifications had been completed with fully verified 

income information. 

An additional 11,907 non-FDIC loan modifications were completed between January 1, 2008 

and the launch of the FDIC's loan modification program on August 20, 2008. 

Prior to the FDIC's Conservatorship, which Initiated on July 11, 2008, IndyMac Bank reffed 

extensively on repayment plans as a central feature of its loss mitigation program. In addition, 

forms of repayment plans were a focus of loss mitigation for the many loans owned by Freddie 

12 
Mac and Fannie Mae, but serviced by IndyMac. As a result, during 2008, IndyMac Bank 

Implemented 73,236 repayment plans. 

While repayment plans continue to be used for temporary interruptions in income, the FDIC 

loan modification program is focused on providing a long-tern, sustainable loan modification for 

the life of the loan and not towards shorter term repayment plans. 

29. Of the modifications reported in question 28, how many resulted In the following · 

(monthly payment inclusive of P&I): 

a. A lowering of the monthly payment for life of the loan? 

b. A temporary lowering of the monthly payment? 

c. A lowering of the monthly payment by more than 10% for life of the loan? 

d. A temporary lowering of the monthly payment by more than 10%? 

e. An increase of the monthly payment for the life of the loan? 

f. A temporary increase in the monthly payment? 

g. Monthly payment remaining the same for life ~f the loan? 

h. A temporary freeze of the monthly payment? 

30. Of the modifications reported In question 281 above, how many resulted in: 

a. A fully amortizing loan? 

b. A loan with less than full amortization (some additional payment at 

conclusion)? 

c~ Loss/profit sharing arrangements? 

ldM 0 IVI ac Fd e era: 

FDIC Loan Modifications Non- Securitized 

Securitized 

Lower Monthly Payments for Life of loan 934 6,040 

Temporary Lower Payment a 0 

Life of Loan Payment Reduction > 10% 480 2,855 

Payment Reduction> 10o/a (for first 5 years) 272 1,496 

Payment Reductions Between 0% & 10% 182 1,689 

Life of loan Increase in the Monthly Payment 1 26 

Temporary Increase in the Monthly Payment 0 0 

No Payment Change 29 387 

Temporary Freeze of the Monthly Payment 0 0 

Fully Amortized loans NIA NIA 

Less Than Full Amortization NIA NIA 

Loss/Profit Sharing Arrangements NIA NIA 

Total 

6,974 

0 

3,335 

1,768:l 

1,871 :t 

27 4 

0 

416:. 

0 

5,656 

1,761b 

0 

13 
Footnotes for preceding table: 1 FDIC Modifications completed between 10JD1108 and 12/31/08 2 1,768 loans have a temporary payment reduction > 10%. For these, interest rates go as low as 3% for 5 years 

foDowed by gradual 100 bps. annual increa&eS until capped at the FHLMC survey rate. 3 Beginning October 2008, all FDIC modification offers required a 1 D°Ai minimum payment reduction. 

"' Borrowers for 27 loans accepted a small (<10%) payment increase as part of a pUot program for Pay Option 

ARMs. The modification capped the interest rate at the Freddie Mac rate and provided life of loan stable;-· 

sustainable payments, rather than the potentially large increase under the original loan. 

5 These 416 loans did not have a payment deaease, but ~ceived a sustainable payment for the life of the loan 

by eliminating any future interest rate variations by capping the rate at the Freddie Mac Weekly Survey Rate. 6 These modifications Involve extension of the loan term to 40 years, but due to restrictions in the servicing 

agreements must be payable in 30 years and, consequently, have a baUoon due on sale, refi, or maturity. 

14 
31. Of the modifications reported in question 28,that reduced monthly payments, 

inclusive of prlnclpal and Interest, how many Involved: 

a. Solely a deferral (forbearance) on some amount of principal or arrearage? 

b. Solely a write-down of principal? 

c. Solely a reduction in interest rates? 

d. Solely an increase In the loan's term with a reamortization (tenor)? 

e. Solely a change to the loan's amortization schedule? 

f. A combination of (a) and (c) (above)? 

g. A combination of (a) and (d)? 

h. A combination of (b) and (c)? 

i. A combination of (b) and (d)? 

j. A combination of (b) and (e)? 

k. A combination of (c) and (e)? 

I. A combination of (a), (c), and (d)? 

m. A combination of (b), (c), and (d)? 

n. A combination of (b), (c), and (e)? 

Response to Question 31: 

I n dM 1v1 ac Fd e era: I 

Forbearance 

Principal Write Down 

Interest Rate Reduction 

Term Extension 

Amortization Extension 

Forbearance and Interest Rate Reduction 

Forbearance and Term Extension 

Write Down and Interest Rate Reduction 

Write Down and Term Extension 

Write Down and Amorti~tion Extension 

Interest Rate Reduction and Amortization Extension 

Forbearance. Interest Rate Reduction and Term . 

Write Down. Interest Rate Reduction and Term 

Write Down. Interest Rate Reduction and Amortization 

Additional Modification Combinations: 

Interest Rate Reduction and Term Extension 

Interest Rate Reduction. Amortization Extension 

Total FDIC Modifications through 12/31/08 

Non-Securlt:lzed 

-

-

663 

-

-

-

-

-

-

-

-

148 

-

-

153 

-

964 

Securltlzed 

-

-

4.777 

-

-

-

-

-

-

-

1,000 

-

-

-

63 

613 

6,453 

Total 

-

-

5.440 

-

-

-

-

·-

-

-

1.000 

148 

-

-

216 

613 

7,417 

15 
32. Of the modifications reported in question 28, how many involved 

a. An up-front payment of fees? 

b. An up-front payment of arrearages? 

c. A waiver of fees? 

d. Changing a variable ~ate loan into a fixed rate loan? 

IndyMac Federal: None of the FDIC loan modifications involve an up-front payment of fees or 

arrearages. All past due amounts are capitalized into the principal balance of the modified 

mortgage. 

Unpaid fees due to IndyMac Federal or any related entity are waived. 

All modifications involve an interest rate capped for the life of the loan at the Freddie Mac 

Weekly Survey Rate, so the modifications do change any variable rate loan into a loan with an 

interest rate cap. 

33. Of the modifications reported in question 28, how were on properties with junior 

mortgages? 

34. Of the modifications reported in question 28, how many that had junior mortgages at 

the time of origination still have a Junior mortgage? 

35. Of the modifications reported in question 28, how many are negative equity postmodification? 

36. Of the modifications reported in question 28, what is the average origination CL TV 

loans? 

37. Of the modifications reported In question 28, above, what Js the average postmodification CLTV of modified loans? 

IndyMac Federal: Since IndyMac Federal's loan modifications are not based on the loan to 

value ratio of the mortgage after modification, the Bank does not maintain comprehensive 

Cl TV data on the modified mortgages. 

38. Of the modifications reported in question 28, how many were no-0oc or low-doc 

loans? 

39. Of the modifications reported in question 28, how many were jumbos? . . 

40. Of the modifications report in question 28, how many were on mortgages with 

private mortgage insurance? 

16 
Responses to Questions 33, 34, 35, 361 38. and 40: 

Please note that the following table includes both FDIC and non-FDIC loan modifications 

completed during 2008. 

Of the modifications reported in Response to Question 28: Securitized NonSecu ritized 

Properties with Jr. Mortgages - 2,367 1,197 

loans originated with junior mortgages that still have a junior 2,065 967 

mortgage 

Loans with negative equity post-modification 601 115 

Average origination Cl TV? 79.73% 85.90% 

•No-Doc· or •Low Doc• Loans 6,726 3,810 

Jumbo Loans 1,898 754 

Mortgages with private mortgage insurance 1,389 1,053 

PART V. REDEFAULTS 

If your data permits, please answer the questions in this section separately for. 

Total 

~ 

3,564 

3,032 

716 

NIA 

10,536 

2,652 

2,442 

( 1) securitized and non-securitized loans; and (2) modifications occurring between July 1, 2008 

and September 30, 2008, and modifications occurring between October 1, 2008 and 

December 31, 2008. 

41. How many modified loans (Including modifications conditional on successful 

payments) redefaulted before making their fl~t modified payment? 

42. How many modified loans are: 

a. 30+ days delinquent (including "rolling 30s")? 

b. 60+ days delinquent? 

c. 90+ days delinquent? 

43. How many modified loans are 60+ days delinquent and for which: 

a. MontJtly payments were reduced? 

b. Monthly payments were not reduced? 

c. Monthly payments were reduced by less than 10%? 

d. Monthly payments were reduced by 10% or more? 

44. How many modified loans are 60+ days delinquent and for which: 

a. There was a principal write-down (regardless of interest rate reduction)? 

b. There was an interest rate reduction (but not a principal reduction)? 

17 
c. CL TV on the loan is currently ~100%? 

d. CL TV on the loan is currently ~5%? 

e. There Is a junior mortgage on the property? 

f. The original loan was no-doc or low-doc? 

45. How many modified loans are 60+ days delinquent forwhich the front-end debt ratio 

(monthly housing debt. as PITI, to income) immediately post-modification is: 

a. Greater than or equal to 38%? 

b. Greater than 31% and less than 38'%? 

c. Greater than 28% and less than 31%? 

d. Less than or equal to 2Bo/.? 

46. How many modified loans are 60+ days delinquent for which the back-end debt ratio 

(total monthly debt to Income) immediately post-modification Is: 

a. Greater than 65%?. 

b. Greater than 55% and less than or equal to 65%? 

c. Greater than 45% and less than or equal to 55%? 

d. Less than or equal to 45%? 

Responses to Questions 41, 42, 43; 441 45, and 46: 

IndyMac Federal: For performance data on FDIC modifications, please refer to the 

attached IndyMac Federal Investor Report, as of December 31, 2008 . 

.1Jf1-Sep30 Oct 1- Dec 31 

Non-FDIC 2 Secwilized Nan,Securillzed Securltlzed Non-Securitized 

Count % Count % Count % Count 

Cimnt 2,559 67.9% 479 52.5% 1,884 89.2% TM 60+ 1.209 32.1% 434 47.5% 229 10.11% 99 

90. 706 1l7% 310 34.0% 1D7 5.1% 78 

Total l,711 913 2,113 333 

RE-defaults prior to 1st Mod Pml 331 8.80% 142 15.60% 455 21.50% 101 

Reductlan of Monthly Payment 712 28.00% 221 42.70% 133 8.40% 29 

No ReclJctlon af Monthly Payment 497 40.50% 213 53.80% 96 18.211% 70 

Payment Reduced l1f < 10% 96 23.10% 36 0.110% 13 7.10% 0 

Payment Reduced l1f > 10% 616 29.00% 185 46.50% 120 8.60% 29 

Principal Wt..ed!Mlns NIA NIA NIA NIA NIA NIA NIA 

Interest Rate Reducli011 ns 29.80% 234 -40.411'.4 130 7.80% 70 

CL1V c:tmlnlly :a 100% 693 34.SO"h 206 51.00% 123 10.10% 6B 

CL1Vctmrily:t95% 7B9 34.60% 260 51.70% 146 10.60% 75 

mar mor11J8!111 attached 422 36.20% 105 52.00% 84 5.20% B 

"No ea:• a "Low Doc" 904 33.30% 320 46.80% 165 10.00% 78 

Had imt-end debt ratio (monthlV housil"Q debt, u Pm, to incoma) inmeciately post-modification of: 

G19111er than a 8',al to 38% lfl 36.7% 24 0.0% 26 21.7% 5 

Greater than 31% and less than 38% 109 33.C% 24 50.0% 21 12.1% 2 

Gll!!ller than 28% and less tllan 31 % 78 33.0% 18 51.4% 16 14.4% 0 

Less than ,x l!Cla 10 28% 937 31.5% 368 -46.9% 166 9.7% 92 

Had back-«ld debt 111!0 (total rnorthly debt lo Income) Immediately post-modificalicn ot 

Greater thin ar equal lo 65% 1 1 0 0 

Greater lhan 55% and lau than or equal to 65% 3 3 3 1 

Gl8lller than 45% and less than a equal to 55% 299 109 29 23 

Less than or equal lo 45% m 321 197 75 

1 % Is % of category that was 60+ days delinquent as of 12/31/08. 2 The high number of early payment defaults for non-FDIC mods is influenced by requirements of some 

owners to use repayment plans, such as Fannie Mae's •Home Saver Advance• which do not reduce 

payments. 

% 

70.3% 

29.7% 

23.4% 

30.30% 

16.10% 

'45.80% 

0.00% 

17.90% 

NIA 

26.90% 

40.20% 

35.00% 

4.60% 

29.80% 

62.S"h 

4D.0".4 

0.0% 

2!.8% 

18 
PART VI. LOSS SEVERITIES 

47. In the fourth quarter of 2008, what was the mean and the median loss 

severity, after accounting for Insurance recoveries, (both in absolute dollar terms and 

as a percentage of loan value) for: 

- a. Mortgages that were foreclosed? 

b. Mortgage that were modified (assuming no future redefaults)? 

c. Mortgages that were modified previously (including modifications contingent 

upon successful payments), but redefaulted and were foreclosed? 

IndyMac Federal: The following table reflects the total servicing portfolio and modifications to 

REC only for no,,.:.FDIC modifications. None of the FDIC loan modifications have redefaulted 

and resulted in REO. 

Descriotlon Tvoe Loss Severitv 

Simole Mean 137 240 46.1% 

Total Servicing Portfolio WeiQhted Ava. n/a 43.1% 

Median 161,551 45.8% 

Simole Mean 110,302 45.5% 

Mod to REO WeiQhted Ava. n/a 44.2%. 

Median 91424 43.3% 

For FDIC modifications at IndyMac Federal, the net present value of the 5,225 modifications 

completed, with fully verified income infonnation, and updated into the reporting system 

exceeded the net present value of foreclosure by an average of 35.6%. The modifications 

provided aggregate estimated net savings of $187,275,236. 

19 
Ms. Sheila Bair 

Congressional Oversight Panel 

732 North Capitol Street, NW 

Rooms: C-320 and C-617 

Mailstop: COP 

Washington, DC 20401 

February 4, 2009 

Chairman, Board of Directors 

Federal Deposit Insurance Corporation 

550 17th Street, NW, Room 6028 

Washington, DC 20429-9990 

Dear Ms. Bair: 

I am writing to request that the Federal Deposit Insurance Corporation (FDIC) assist the 

Congressional Ovezsight Panel (Panel) in its oversight over federal efforts at foreclosure 

mitigation. 

The Panel was created pursuant to section 125 of the Emergency Economic Stabilization 

Act of 2008, Pub. L. No. 110-343 (EESA). EESA vested the Panel with broad oversight 

authority and duties, including the requirement to make regular reports to Congress on the 

effectiveness of foreclosure-mitigation efforts. Congress also empowered the Panel to "secure 

directly from any department or agency of the United States information necessllI}' to enable it to 

cany out" its oversight responsibilities. 

As part of its effort to evaluate the effectiveness of foreclosure mitigation efforts, the 

Panel requests that FDIC respond to the following survey about foreclosure-mitigation efforts. 

The Panel recognizes that FDIC may not possess data sufficient to answer all the 

questions in the survey. IfFDIC does posses such data, however, the Panel is requesting that 

FDIC perform the data analysis necessary to answer the questions in the survey, even if FDiC 

does not routinely perform such analysis of the data The Panel requests that you provide 

separate survey responses for mortgage loans currently held by IndyMac Federal Bank, FSB 

(IndyMac). unless IndyMac loans are the only mortgage loans about which you are providing 

information. 

The Panel requests that you provide this information as soon as possible, but in no case 

later than 5:00 p.m. on Wednesday, February 18, 2009. 
Ms. Sheila Bair 

February 4, 2009 

Page2 

If you have any questions or would like additional information, please contact Charlie 

Honig at charles_honig@cop.senate.gov or (202) 224-1656. 

Thank you for your attention to this request 

cc: Rep. J eb Hensarling 

Sen. John E. Sum.mu 

Mr. Richard H. Neiman 

Mr. Damon A Silvers 

Sincerely, 

Elizabeth Warren 

Chairperson 

Congressional Oversight Panel 
CONGRESSIONAL OVERSIGHT PANEL 

MORTGAGE FORECLOSURE MrrlGATI0N SURVEY 

Please answer the following questions regarding information that yon directly collect 

regarding mortgage delinquencies, foreclosures, and modifications. 

PARTI. AGENCYINFORMATIONGATHERING 

1. Does your agency collect information on mortgage delinquencies? (YIN) 

2. · Does your agency collect information on mortgage foreclosures? rt IN) 

3. Does your agency collect information on mortgage loss mitigation efforts (repayment 

plans, modifications, short sales, etc.)? rt IN) 

4. If the answer to any of the three previous questions was yes, please detail the information 

collected. including the source of the data and a listing of all data fields. Please be sure to 

explain if the data is collected directly from regulated entities or via data vendors like 

First American/Loan Performance or McDash, and whether it is loan-level or surveylevel data Please also detail any estimates of the data's market coverage. 

5. If you collect data on delinquencies, foreclosures, mitigations and/or modifications, 

please submit any data code books or data dictionaries. 

6. Please detail any coordination your agency has taken to date with other federal or state 

regulatory agencies in collecting information on mortgage delinquencies, foreclosures, 

and loss mitigation, including any steps taken to standardize data collection or to collect 

or analyze data jointly. 

H your agency directly collects information on mortgage delinquencies, foreclosures, 

mitigations and/or modifications, please answer the questions in Parts II~ VI as of 

December 31, 2008, unless otherwise directed. Please indicate if your agency does not 

possess the information necessary to answer the particular question .. 

If your agency uses multiple data sources, please be sure to indicate the data sources used 

in replying to each question. 

Also, if your sample includes government-insured (FHA/VA) loans, please run the analysis 

separately for those loans. 

Please indicate if you are unable to respond to the questions on a numeric basis, but can 

respond on a percentage basis, and then provide a respond on a percentage basis. 

PART Il. THE MORTGAGE LOANS 

1 
7. How many mortgage loans are in the data that you collect? 

8. How many of these loans are classified as subprime? Please note if the reporting 

institution makes this classification or, if the classification is made by your agency, what 

definition of subprime you use. 

9. How many of1hese loans are alt-A? Please note if the reporting institution makes this 

classification or, if the classification is made by your agency, what definition of alt-A you 

use. 

10. How many of these loans are: 

a Government-insured (FHAN A) loans? 

b. Jumbos? 

c. Junior mortgages? 

d. 2-4 family residences? 

11. How many of these loans have a junior mortgage attached to the same property? 

12. How many of these loans were identified as "owner-occupied" at origination? 

13. How many of these loans are currently listed as "owner-occupied''? 

14. How many of these loans were ''low doc" or "no doc''? 

15. How many of these loans, when originated, had front-end debt ratio (monthly housing 

debt as PITI, to income) o:f. 

a Greater than or equal to 38%? 

b. Greater than 31% and less than 38%? 

c. Greater than 28% and less than 31 % ? 

d. Less than or equal to 2~%? 

16. How many of these loans, when originated, had back-end debt ratio (total monthly debt to 

income) of 

a Greater than 65%? 

b. Greater than 55% and less than or equal to 65%? 

c. Greater than 45% and less than or equal to 55%? 

d Less than or equal to 45%? 

17. How many loans had a CLTV at origination of~O%? 

18. How many loans currently have negative equity? 

19. How many loans are: 

a ARMs (including hybrid 2/28s and 3/27s)? 

b. Interest only? 

2 
c. Negatively amortizing (including pay-option ARMs)? 

20. How many of the ARMs: 

a Are currently at a teaser rate? 

b. Will reset for the first time in the next 12 months? 

c. Have already reset? 

21. How many loans have prepayment penalties? 

22. How many of the loans are securitized and how many are portfolio? 

23. How many of the securitized loans are agency and how many are private-label? 

24. How many of1hese loans were refinancings and how many were purchase-money? 

PART fil DELINQUENCIES 

Please exclude modified loans from your answers to this section. If this is not possible 

given your data set, please indicate so. 

25. How many of the loans you track are: 

a 3o+ days delinquent? 

b. 6o+ days delinquent? 

c. 9o+ days delinquent? 

d In foreclosure? 

•·· 

26. How many foreclosure sales, short sales or deeds-in-lieu occurred over the last quarter for 

the loan pool your agency tracks? 

27. How many of the 6o+ days delinquent loans: 

a Had a CL TV at origination of~90%? 

b. Are currently negative equity (current CL~100%)? 

C. AreARMs? 

d. Are ARMs where the interest rate has reset? 

e. Are hybrid ARMs (2/28s, 3/27s, etc.)? 

f. Are hybrid ARMs where the teaser rate has reset? 

g. Have prepayment penalties? 

h. Are jumbos? 

i. Are subprime? 

j. Are alt-A? 

k. Are interest only? 

1. Negatively amortizing (including pay-option ARMs)? 

m Have ajuniormortgage? 

n Are 2-4 family residences? 

o. Were listed as owner-occupied at origination? 

p. Are owner-occupied currently? 

3 
q. Are low-doc or no-doc? 

r. Had front-end debt ratio (monthly housing debt, as PITI, to income) when 

originated of 

i. Greater than or equal to 3 8%? 

11. Greater than 31 % and less than 38%? 

iii. Greater than 28% and less than 31%? 

iv. Less than or equal to 28%? 

s. Had back-end debt ratio (total monthly debt to income) when originated of 

i. Greater than 65%? 

11. Greater than 55% and less than or equal to 65%? 

m. Greater than 45% and less than or equal to 55%? 

iv. Less than or equal to 45%? 

t Were refinancings? 

u Were purchase-money mortgages? 

PART IV. MODIFICATIONS 

If your data permits, please answer th.e questions in this section separately for: 

(1) securitized and non-securitized loans; and (2) modifications occurring before 

October 1, 2008, and modifications occurring between October 1, 2008 and 

December 31, 2008. 

28. How many loans have been modified or placed into a repayment plan? 

a How many have been modified? 

b. How many have been placed in were repayment plans? 

29. Of the modifications reported in question 28, how many resulted in the following 

(monthly payment inclusive of P&I): 

a A lowering of the monthly payment for life of the loan? 

b. A temporary lowering of the monthly payment? 

c. A lowering of the monthly payment by more than 10% for life of the loan? 

cl A temporary lowering of the monthly payment by more than l 0%? 

e. An increase of the monthly payment for the life of the loan? 

f. A temporary increase in the monthly payment? 

g. Monthly payment remaining the same for life of the loan? 

h. A temporary freeze of the monthly payment? 

30. Of the modifications reported in question 28, above, how many resulted in: 

a A fully amortizing loan? 

b. A loan with less than full amortization (some additional payment at conclusion)? 

c. Loss/profit sharing arrangements? 

31. Of the modifications reported in question 28,that reduced monthly payments, inclusive of 

principal and interest, how many involved: 

a Solely a deferral (forbearance) on some amount of principal or arrearage? 

b. Solely a write-down of principal? 

4 
c. Solely a reduction in interest rates?-

d. Solely an increase in the loan's term with areamortization (tenor)? 

e. Solely a change to the loan's amortization schedule? 

f A combination of (a) and (c) (above)? 

g. A combination of (a) and (d)? 

h. A combination of (b) and (c)? 

i. A combination of (b) and ( d)? 

1, A combination of (b) and (e)? 

k. A combination of ( c) and ( e )? 

1. A combination of (a), (c), and (d)? 

m A combination of(b), (c), and (d)? 

n. A combination of (b), (c), and (e)? 

32. Of the modifications reported in question 28, how many involved 

a An up-front payment of fees? 

b. An up-front payment of arrearages? 

c. A waiver of fees? 

d Changing a variable rate loan into a fixed rate loan? 

33. Of the modifications reported in question 28, how were on properties with junior 

mortgages? 

34. Of the modifications reported in question -28, how many that had junior mortgages at.the 

ti.me of origination still have a junior mortgage? 

35. Of the modifications reported in question 28, how many are negative equity postmodification? · 

36. Of the modifications reported in qu~tion 28, what is the average origination CLTV 

loans? 

37. Of the modifications reported in question 28, above, what is the average postmodification CL TV of modified loans? 

38. Of the modifications reported in question 28, how many were no-doc or low-doc loans? 

39. Of the modifications reported in question 28, how many were jumbos? 

40. Of the modifications report in question 28, how many were on mortgages with private 

mortgage insurance? 

PART V. REDEFAULTS 

If your data permits, please answer the questions in this section separately for: 

5 
(1) securifu.ed and non-securitized loans; and (2) modifications occurring between July 

1, 2008 and September 30, 2008, and modifications occuning between October 1, 

2008 and December 31, 2008. 

41. How many modified loans (including modifications conditional on successful payments) 

redefaulted before making their first modified payment? 

42. How many modified loans are: 

a 3o+ days delinquent {including "rolling 30s")? 

b. 6o+ days delinquent?· 

c. 9o+ days delinquent? 

43. How many modified loans are 6o+ days delinquent and for which: 

a Monthly payments were reduced? 

b. Monthly payments were not reduced? 

c. Monthly payments were reduced by less than 10%? 

d Monthly payments were reduced by 10% or more? 

44. How many modified loans are 6o+ days delinquent and for which: 

a There was a principal write-down (regardless of interest rate reduction)? 

b. There was an interest rate reduction (but not a principal reduction)? 

c. CLTV on the loan is currently~100%? 

d CL TV on the loan is currently ~5%? 

e. There is a junior mortgage on the property? 

f The original loan was no-doc or low-doc? 

45. How many modified loans are 6o+ days delinquent for which the front-end debt ratio 

(monthly housing debt, as PITI. to income) immediately post-modification is: 

a Greater than or equal to 38%? 

b. Greater than 31 % and less than 3 8%? 

c. Greater than 28% and less than 31%? 

d Less than or equal to 2?%? 

46. How many modified loans are 60+ days delinquent for which the back-end debt ratio 

(total monthly debt to income) immediately post-modification is: 

a Greater than 65%? 

b. Greater than 55% and less than or equal to 65%? 

c. Greater than 45% and less than or equal to 55%? 

d. Less than or equal to 45%? 

PARTVI.LossSEVERITIES 

47. In the fourth quarter of 2008, what was the mean and the median loss severity, after 

acc01.mting for insurance recoveries, (both in absolute dollar terms and as a percentage of 

loan value) for: · 

6 
a. Mortgages that were foreclosed? 

b. Mortgage that were modified (assuming no :future redefaults)? 

c. Mortgages that were modified previously (including modifications contingent 

upon successful payments). but redefaulted and were foreclosed? 

7 
F1b-27·ZDO! 10:IZia Fronr- + I 7065(99590 T-568 P OOZ/00( F-,21 

PAUL C.. BROUN, M.O. 

10,,~ o.s ... oCT. G..:...a,,. 

COMMITTEE 01'¢ 

H01.1El.All!0 SECURITY 

COMMITTEE ON 

SCIENCE ANO TECHNOLOCV 

COMMITTEE ON NA TI.IRAI. RESOURCES 

Mr. Eric Spitler 

L/1.a 'I, 21ft 

ctongress of tf)e ~niteb ~tatrs 

JE}ou5t of ~presmtatiht5 -

1i!Iasbin«rnn, ~t: 20515-1010 

February 27, 2009 

DirccLor, Office of Legislative: Affairs 

Federal-Deposi c Insurance Corporation 

550 Seventeenth Strcer, NW, Room 6076 

Washington, DC 20429-0002 

Dear Mr. Spit..ler, 

•ASNWl«ON -Htt., 

Jzi, c.u.. ..... 1C1;1 e..-.-: s-~ ..... _..._G'Tt:'fif. cc ~,s 

'·-"' .~~21 r.~•01 f • .- ,>G:! lH-!!'171 

WES: BROUN.HOUS~GOV 

I am writing on behalf of Mr. Mr. -has 

conractc:d me for assistance in a matter conceming the Federal Deposit Insurance 

Corporation. 

Enclosed are lhe Privacy Act Release Fonn and 3ny ad.:liticoal correspondence "~ 

thar I have received fT~m Mr. - I would greatly appreciate your assistance in (_ l, J 

rcvie~ing this m:mcr and providing an:, assistance possible. 

Thank you in advance for your assistance wirh this ma1ter. If you or your staff is 

in need of il.ny idditional information, please conracL Dessie Mill'tin in my Athens District 

Office via mail at 3706 Atlanta High\ltay, Suite 3B, Athens, GA 30606 or by phone at 

(706) 549-9588. Also, please be so lcind as to contact my off,c.e promptly when any 

development occurs. 

I appreciate your helpPB/dm 

Enclosure 

,oi:cea l!l&i.c--...t:Tat!T 

TCoCaA. GJI JDo"7? .. -.,>oe1 ~,- ~-,1111 .... ,= 

Paul C. Broun. ~ l.D. 

Member of Con!:,TCSS 

AUeucT& 

I' .Q lac Z1 15'1 

....__" la :IOIIJ u .. w-....0:.-.11,,..noAO ,. .... , c .. ....,c,,.~MQ f'~G'-C ,,-~, ...:7-iot, 

l=•s..t1'CII .......... .;1 

--~NC 

nos AT.,,iUtY,. ~ .... 

~--Tt l! .,_ ..... c.&:,a,.oc 

...._, ll'IX:I ?;tf-951!& 

,_ ,~11&1 ;.wsso 
I TIM JOHNSON 

S0Ul'li DAY.OT,_ 

RAND CITY OFFICJ:: llill5l 341-333P 

PO-Box 111.1s; RAl'IDCITY.sb 57709 

~!:EN OFFICE: ltiVS\ 226-~ 

PO BOX 1554. Allcl!DEEN. SD 574112 

SIOUX FAUS OffU;E: /&05)-~ 

PO BO)( 142'(. ~0lJX FAUS. $ti !i7i01 

Sheila Bair 

Ch~innan 

ii.nittd ~tatm ~matt 

WASHINGTON, DC2051!)-4104 

March 13. 20Q9 

Federal Deposit Insurance Corporation 

550 17th Street. N.W. 

Washington~ D.C~ 20429 

Dear Chairman Ea..ir: 

WASHINS'raH Ofi'ICE: 

136 HAm° SEl>l"""Rl OJ=l!lce 8U,U:,1Nll· 

W1<SH1Ni:.TON, DC !U1'51""410.4 . (2fi2} 2l4.5i{4~ 

TODl' l2021 ll4-S279 

TCILLF85E· 

E-UIJL: ,~- t&n0~11i.Qov 

WEB SITE:' hnp:lljol>s«kl.sensto,IJOV 

On beh~f ~f th~ Sen~ Committ.e(t on Banking, Housi~g atid Ii.rha:n Affairs' Firtanclal 

1nstitutiorrs Subeontmittce. lam wfitirrg to ·invite you. or ji<mt destgn¢e, tp testify b.«;fo~ the 

Sub~ommiij~ at a ~earini eptitled ''Current Issues in I):epo$i~ l®rmtt.~." The hearing is stheduled · for ThurSday, March t 9th at 2:00 P.M. in Room 538 of the Dirkseri Sen,μ~ Offu;e Buildi1'g . 

. Thi! Subcomli'littee requests that 1our testimony di~cl_l$$ c~rrent-~ul'!s:. in d~~~t i~ut4nce. 

As our ~conorny faces e$ordinary~i~~~ .. we must ettsur~ thai gurba,n1ctns·sy~m remain$ safe and 

fiOPnd, dcpt>-siw~ are protected, and failing_ bank$ and credit unititiS ate-appropriate!Y d~lt ,;vith~ We 

,..,oi.dd ~pptec:f~~~ your viev~1s on a nirig¢.• of ~pies includ~g the d~o.sit t~sμllllJ~ provj~}i:mS. 

c9ntlline~ in H.R. l l.Q6, $.. 541, the. temporary in~rees¢ of depositor l;O"verage fr.om $1001000to 

$250~000 mand~\ed i~ the Emergdncy Eoon6miQ Stabili~oti ~ct CE_ESA.}, tpe i;p_ei:;i~t l!SSoSSment 

ann,;nm~d by the;. f'DIG on. Fel;,ruiμ-y 21'1, 2009, and ma.nO!ltocy re~~- afl'Joiig other topic-s. 

For purpo~es· of the Committ® ~cord an~ printjng, your wri~n $.tem~nt m1,1St be 

submitted in.~lectronie fonn-by ¢rttbil to-laura swanson@j'obnson.scnatc.:.gov a\nd 

dawn .rafliff@b~ng.senatc~gov, or Q~ a CDR.W in W~icwe.rf¢t (()r;Qth.tir. ~.pa,;a_bl~-pfQgra01) 

formfl~ cf9~~l~ spao¢<lJ. ~Q, twC1 OIUGJNAL ~oplet of tbe· statement rflilst be included tor-the 

printers; alop_g wlth 73 copies for the ti$'~ Qf Committee qieipbm· .a~~ st:aJ'.f, Yqur· ~t~ -s~q_μ}d 

ho sent no l~~rthan 24 hou~ prior to~ hearing. Your o~ ~tem~at should b~-~pproximately. Sminutes in duration. Your full st.atc:ment-wHI he made part of the b~lig ~rd. 

If you ha.Ve any questiortS re~ardihg the hearing. pf ~e -cotitf{ct La\,lril Swanson at i-02-Z24-

1~46. 

$incerely, 

Tim John 

Chainn , Financial Institutions Subcommittee 

COMMITTEES: AP-P.ROPRJATIOJ,!S: BANKING, HOUSING. AND URBAN AFFAIRS: ENERGY AND NATURAL RESOURCES: INDIAN AFFAIRS 
FDII 

Federal Deooslt Insurance Con>oratlon 

550 17th Street NW, Washlnglcn, DC 20429 . 

Honorable Mike McIntyre 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman McIntyre: 

Office of Legislative Affars 

March 16, 2009 

licalions to the Troubled Asset Relief Program's Capital 

Purchase Program by ••• As you may know, the Federal 

Deposit Insurance Corporation is actively engaged with the .S. Department of Treasury (Treasury) 

and the other federal banking agencies in considering TARP applications filed by banking 

institutions. In our role as primary federal supervisor for state nonmember institutions, the FDIC 

makes a recommendation on each TARP application it receives to the Treasury, which ultimately 

detennines if an institution may participate. 

~

he FDIC received TARP a lications frorrJi North Carolin~ and · 

North C~~a. Both applications are b mg evaluated under the 

igibility and participations ds prescribed by Treasury. The FDIC has been in regular contact 

with management at both institutions to discuss their capital augmentation plans and strategic 

initiatives for 2009. We expect to complete our processing of these TARP applications shortly, but 

the ultimate outcome will be driven by the eligibility and participation standards established by 

Treasury. 

Th~ FDIC has received 54 applications from state nonmember institutions headquartered in North 

Carolina. The great majority of these applicants are small community banks that provide essential 

loan and deposit services lo their local economies. We have recommended 31 of these institutions to 

Treasury for approval, 27 of which have already received TARP CPP award notifications from 

Treasury. The FDIC is a strong advocate for community banking across the country as most of the 

institutions we supervise are sma11er institutions that focus on consumer and small business lending 

in their local markets. 

Your interest in this matter is appreciated. [f you have further questions, the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J. Spitler 

Director 

Office of Legislative Affairs 
MIKE MclNTYRE 

COMMITTEE ON AGRICULTURE 

SullCCIMUITTIO! 0N SnOA<.TY C•urs. 

RullAL l:>EvEu>rMEN1 

A VD FM,,r-,N AGIIICUL TUlll 

COMMITTEE ON ARMED SERVICES 

Su-=-T1E£ ON AJII AND LANO fultcH 

S~"TU ON TEIUIDOISIA. 

~Al T-..rs AND c,.,,,... mu, 

U.S. H!.-. CoMMlamONrll 

ORGANIZATION FOR SECURliY AND 

COOPERATION IN EUROPE 

IIC»JID~-

UNITED STA.Tes NAVAL ACADEMY 

Mr. Eric Spitler 

(!ongrtss of tbe Wniteb ~tates 

~oust of l\tprtstntatibe~ 

: Dasl;Jington, me 20515-3307 

WESl'AGE: 

-.hoPse..gnwmcinlyn 

SENIOR WHIP 

i:o-c-11..-

SPECIAL OPERATIONS FORCES CAUCUS 

eo-c.,,.-

CONGRESSIONA.L WATERWAYS CAUCUS 

COALITlON 

~ 

1" ASK FORCE ON 

BUSINESS AND 11:CHNOLOGV 

February 13. 2009 

.., F::'; CONGRESS NALCAUCUS ON 

[-~ ~J-_i/ YO SPORlS 

Director, Office of Legislative Affairs 

Federal Deposit Insurance Corporation 

550 17th Street. NW 

Off !CE OF u/,s~~-...... ,. Ar 1:..~...,, 111c rfA::"::: 

Washington, D.C. 20429 

Dear Mr. Spitler: 

l am writing on behalf of several banks in my district that are experiencing problems 

securing TARP fundin due to de~ys with their ending ap lications. Specifically. I am writing 

in regards •-•- • both which are located in my 

district and fall under the Federal Deposit Insurance Corporation's jurisdiction. 

While I understand that larger institutions have received this fimding, smaller banks are 

the financial lifeline of our communities, and it is imperative that they remain solvent. 

Therefore. I would respectfully · est, pursuant to all ap licable rules and regulations, 

information regarding the status 0£1'••••• plication for TARP 

funding, in addition to details on how these fi.mds 8J'C being distributed to both small and large 

banking institutions. There appears to be confusion among many oftbe local banks in my 

district who have applied for funding and. it would be of great assi~ce to have adequate 

information to address these issues. 

Thank you for your timely attention to this matter. I look forward to hearing from you 

soon. ~ 

MM:bm 

24:17 IIAYIOU1IN H0UR 0fflC£ 8UILl>INII 

. WASHINGTON, DC ?OS1S-l:ID7 

1202122s-zn, · Fuc (2D2) 225-577J 

Sincerely, 

Mike McIntyre 

Member of Congress 

310 GD\IDINMOHT ~-D~M. NE 

~S.UNrrl 

301 ~ S'n!En, ROOM 211 

F .. -rITTl'Vllil. NC 2130'1-SIIA 

111111 !U-C2IIO 

Fiuc:1910ll2>-«>69 

llouvoo. NC 21Cl2 

t11D125J-01511 

Fu: 1910) 253-4159 

500 Noom, CF..,_,. STM.ET 

LUMIEIITI)N, NC~ 

191D)~I0 

F,-x: 111017311-5095 

Z01 NOll'TW F-Sntt t, 51 Wu,.....,..,,., NC 21401-J 

191 D) 1!5-4151 

f,-x: (11011115450 
FDII 

Federal Deoosit Insurance Corooratlon 

550 1711'1 Streel NW, Washington, DC 20429 

Honorable Mike McIntyre 

· House of Representatives 

Washington, D.C. 205 l 5 

Dear Congressman McIntyre: 

Office of Legislative Affairs 

March 16. 2009 

Than~ you for your le-arding the applications to the Troubled Asset Relief Program's Capita) 

Purchase Program by •••- ••• I· As you may lcnow, the Federal . 

Deposit Insurance Corporation is actively engaged with the U.S. Department ofTre11.Sury (Treasury) 

and the other federal banking agencies in considering TARP applications filed by banking 

institutions. In our role as primary federal supervisor for state nonmember institutions, the FDlC 

makes a recommendation on each TARP application it receives to the Treasury, which ultimately 

dctcm1ines if'an institution may participate. 

The FDIC received TARP applications from and 

Both applications are being evaluated under the 

eligibility and participation standards prcscnb by Treasury. The FDIC has been in regular contact 

with management at both institutions to discuss their capital augmentation plans and strategic 

initiatives for 2009. We expect to complete our processing of these TARP applications shortly, but 

the ultimate outcome will be driven by the eligibility and participation standards established by 

Treasury. 

The FDIC has received 54 applications from state nonmember institutions headquartered in North 

Carolina. The great majority of these applicants arc small community banks that provide essential 

loan and deposit services lo their loc~J economics. We have recommended 31 of these institutions to 

Treasury for approval, 27 of which have already received TARP CP~ award notifications from 

Treasury. The FDIC is a strong advocate for community banking across the country as most of the 

institutions we supervise arc sma11er institutions Lhat focus on consumer and small business lending 

in their local markets. 

Your interest in this matter is appreciated. If you have further questions, the Office of Legislative 

Affairs can be reached at (202) 898-7055. 

Sincerely, 

Eric J: Spitler 

Director 

Office of Legislative Affairs 
MIKE MclNTVRE 

COMMITTEE ON AGRICULTURE 

CMAalOAII 

5-nH 011 ~ TY C--

flluui,a. Ol"'-1.UflMI.N1 

A'ill> Fallt ...... AGlllrUL T\1111 

COMMITTEE ON ARMED SERVICES 

S..C--TTEI ""All .uonl.....,f<Mt.t• 

~ 

s.->ur.,,.Tu..-. 

.. ,.,... ,. ... ,,s. Mc> c,.,.,....,.:l 

ORGANIZATION U.S.···- c:-r-• FOR SEOJRITY AND 

COOPERATION IN EUROPE -Mt-• UNITED STATES NAVAL ACADEMY 

Mr. Eric Spitler 

f!ongrtss of tf,Je 'Mnittb ~tatts 

J}oust of :Rq,rtstntatibts 

IIL1"1ingtan. me 20515-3307 

SENIOR WIIP 

eo-c--- SPECIAl OPERATIONS FORCES CAUCUS 

C.0-C.WWAAN 

CONGRESSIONAL WATERWAYS CAUCUS 

~ ... WE• l'#.GE: COALITION TASK FORCE ON 

February 1 J. 2009 

- - ... D...,,_...,.. ,__ 8USINESS AND TECHNOLOGY ----=------..cn,c-- F .. . : CONGRESS NAL CAUCUS ON 

r 1 s: ::.:: • RL HEA CARE COALITION L '· • • 1 - •, ~w"J] 

Director, Office of Legislative Affairs 

Federal Deposit Insurance Corporation 

550 17dt Street. NW 

-·-·--- __j orr:c£ vf , T'"' p-:.,,.. LL--~ .... ,:;, AFFA!~ 

I 

Washington, D.C. 20429 

Dear Mr. Spitler: 

I am writing on behalf of several banks in my district that are experiencing problems 

securing TARP fundin due to delays with their pending applications. Specifically, I am writing 

in regards to both which are located in my 

district and fa]] undCT" the Federal Deposit Insurance Corporation's jurisdiction. 

While I understand that larger institutions have received this funding, smaller banks are 

the financial lifeline of our communities, and it is imperative that they remain solvent 

Therefore, I would respectfully request. pmsuant to all applicable rules and regulations, 

information regarding the status o ••• ••• I •-laP·plication for TARP 

ftmding. in addition to details on how these funds are being distributed to both small and large 

banking institutions. There appears to be confusion among many of the local banlcs in my 

district who have applied for funding and it would be of great assistance to have adequate 

information to address these issues. 

Thank you for your timely attention ~o this matter. r look forward to hearing from you 

soon. ..,..-

MM:hm 

1'71 IIA-l-l0usl OoJa lluu>••u w_,_._ DC :taSHt-»ol 

l202JU~zn, 

hr 12G11 n5-!i."7T.J 

Sincerely, 

Mike McIntyre 

Member of Congress 

JID G~Nf O!ttn• DolM. NE ...__S,l.MTI 

a..-,NC21G2 

!Sllllm-41151 F,uc 191112Sl-Cl19 

JIii GM111 S-, IIOOM Z11 

F&..,.,.."ftLLNI:~ 

191111 JD.4?IO F-111DIJD.411U 

soa Nollno D.,... STiwn I.UMnin-.NCZDY-OJ5 

19111 ns--.11D 

FAJC 111111 7n-!il0• 5 

2111 N0111Mf-,STMtt,Su,Tt411 

--NC n-o,.:1957 111111 •1- Fu: ll"llll •l!t-450 
IL £t. ~out of l\qirwntatlbeg 

~mmitttt onjfinandal ~etbft~ 

2129 .l\Atltum jJj.oun $fffct Jlluflbfnn 

t'4luf,rngton. ;me: 20515 

March 16, 2009 

The Honorahla Martin J. Gruenberg 

V1C8~ . 

Federal Deposit Insurance Corporation 

650 1711a Street, NW 

Washington, DO 20429 

Dear Mr. Gruenberg: 

{j) D --.... 

MAR 16 2000 

OFFICE OF LEGISLATIVE A~FAJ 

The Committee on Financial Services will hold a hearing entitled "Federal and State 

Enforcement of lilnanciel Consumer and Investor Protection Laws• at 10 a.m. on Friday, 

March 20, 2009, in room 2128 Raybarn HoUBa Office Building. I am. writing to confirm an 

invi.tatiOll to yoa to participate at this w}>lic proceeding. 

This hearing will focns on the criminal and civil enforcament of financial COD$umer 

and investor prot.ectian statutes. Your testimony shonld address the following specific 

issues or qaeationa: 

1. Discuaa the criminal or civil eniurcament and other supervisory actions yom 

agency has taken, is now taking, and plans to take against individuals and companies 

engaged in ~nancial fraud (including mart.gage fraud and securities :fraud) and other 

violation& af finaDclal consumer protection laws and regulations. Include. in 'Y(JlIC 

discuasion the actual penalties you have songht or are seeking in these cases. 

2. Discuss any impedimenta that your agency :faces t.o effective enforcement of fraud 

and other financial consumer protection laws and regulations. Axe there legal :impediments 

that lhnit your authority to enforce these laws? In addition, does yuur agency face budget 

or funding restraints that pre\Tents your agency from devoting the resources necessary to 

fully enforce these laws. 

3 . .Responsibility fur the criminal and civil ~l'C8lll8nt of financial :fraud and other 

consumer protection laws and regulaiiona is the responsi"bility of a broad rang~ of federal 

and state agencies. Discaas your coordination an~ cooperation with these agencies in 

carrying out your enfurcement activities. Describe any gaps you see in this enforcement 

net or rmderlymg law that may enable financial institutions or other persons to engage in 

abusiVfl financial practices without repercussion. 

Please reed the following material carafully. It is int.ended as a guide to your right.a 

and obligat.i.ODJJ as a witness under the rules of the Committee on Financial Services. 

The Form of :,our Testimony. Under the Rules of the· Committee on Financial 

Services, eac:b. witness who is to testify before the Committee Qr its subcommittees must file 
The Honorabl& Martin J. Gruenberg 

Page2 

with. the Clerk of tha Committee a written rlate:ment of proposed testimony of any 

reasonable length. Please also include with the testimony a carrent resume Emmms:rizing 

education. experience and affiliations pertinent to the subject matt-a- of the hea:ring. This 

moat be filed at least two business daya before your ~ance. Please note that changes 

to the written stat.ement will not be permitted after the meeting begins. Failure t.o comply 

with. this reqairement may result in the exclwdon of yonr writt.en testimony from the 

record. Yom oral testimony should not ezx:eed five minut&a and should summarize your 

written ·remarks. Tha Chair reserves the right to exclma from the printed record my 

aupplem.ental materials submitted with a written stat.em.ant due to space limitations or 

printing upense. 

Submiuion. of your Testimony. Putase snbmit at least 100 copies of your proposed 

writtan atat.ement t.o the Clerk of tha Committee not less than two business days in 

advance of your appearance. These copies should ba delivered to: Clerk, Committee on 

Financial Services, 2129 Rayburn Hou.ea Office Building, Washington, D.C. 20515. 

Due to heightened security restrlctiona, many common forms of delivery experience 

·significant delays in delivery to the Co~ttee. ·This includes paclcages sent via th.e·U.S. 

Postal Service," Federal Expre.as, UPS, and other similar carriers, which typically arrive S to 

6 days later thart normal The United States Capitol Police have ~ci5ca1Jy requested that 

the Committee refuse deliveries by courier. The bSBt method for delivery of your testi:zpony 

is to have an employe.e from your organization deliver your testimony in an onsealed. 

package to the address above. If you are anable to com.ply with this procedure, please 

contact the Committee t.o discuss altem.a.tive _methods for delivery of your t.eatimony. 

The Rules of th.a Committee require, to the extent practicable, tJ:iat you also submit 

your written testimony in electronic form. The prefeued method of submission of testimony 

in electrpnig form is to send it via elactronic mg,1 to fsc;testimon:y@mail.house.gqy. The 

electronic copy of your testimony may be in any major file format, including WordPerfect, 

Microsoft Word, or ASCll text for either W-mdows or Macintosh. Your electronic mail 

mesaage shOtJld specify in th.a subject line the da.te and the Committee or subcommittee 

before which you 87'8 scheduled to testify. You may also snbmit testimony in electronic form 

on a disk ctr CD-ROM at tbs time of clelivmy of the copies of your written: testimony. 

Submission of tastimony in electronic form fac:ilitat.es the production of the printed hearing 

record and posting of your testimony on the Committee's Internet site. 

Your Ri,ghta as a WitneBB. Under tha Rules of the House, witnesses may be 

accompanied by their own counsel to advise them concerning their constitutional rights. I 

reserve the right to plai;e any witness under oath. Finally, a witness may obtain a 

transcript CtJPY of his testimony given in open, public session, or in a closed session only 

when authorized by the Committee or subcommittee. However, by appearing before the 

Committee or its subcommittees, you autbmv.e the Committee to make tedrnieal, 

grammatical, and typographical corrections to the transcript in accordance with. the roles of 

the Committee and the House. · 
The Honorable Martin J. Gruenberg 

Pages 

The Roles of the Committee on Financial Services, and the applicable rules of the 

Bouse, are available on the Committee's web.Bite at http://financialservices.house.gov. 

Copies can also ha sent to you upon request. 

The Committ.ee on Fimmci el Services endeflVOrs to ma.lee its facilities acceSS1'bla to 

persons with disabilities. If you m-e in need of special accommodations, or have any 

questions regarding special accommodations generally, please contact the Committ.ee in 

advance of the scheduled event (4 bnrinasit days notice is reqaeat.ed) at (202) 225-4247; 

'ITY: 202-226-1591; or write tn the Committ.ee at the address above. 

Please note that space in the Committee's hear.mg room ia extremely limited. 

Therefore,_ the Committee will only reaerve 1 seat for staff ~anying you during your 

appearance (a total of 2 seats). In order to :maintain olll" obligation under the Rules of the 

House to ensure that Committee hearings are open to the public, we cannot deviate from 

this policy. 

Should you or your·staffhava any questions or need additional in:fbrmation, please 

contact Andrew Miller at (202) 225-4247. 

Sincerely, 

BF/mb 

cc: Th.e1Ionorable Spencer Bachus 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429· 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Michael E. Capuano 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Capuano: 

March 17, 2009 

Thank you for your letter expressing concern about actions proposed by the federal 

government to assist Citigroup. N. you probably are aware, on February 27, 2009, Citigroup 

announced plans to strengthen its capital structure through conversion of a significant portion of 

its preferred securities to C<?mmon equity in a series of exchange offers. On the saine day, 

Treasury announced it would participate in Citigroup's exchange offering. 

As we discussed recently, I agree that during these unprecedented times, regu]ators and 

policymakers must identify appropriate actions to address deterioration in large, systemic 

financial institutions. Please be assured that the Federal Deposit Insurance Corporation wil1, at 

the same time, continue to take into account the impact of these difficult decisions on the 

taxpayers and other key stakeholders. 

If you have further questions or comments, please do not hesitate to contact me at (202) 

898-6974 or Eric Spitler, Director of Legislative Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 
Commit!-• on FJn•ncial Servfcas 

Cornmlttto on Transportellon end 

lnfr11,tructu111 

• Committee on House Administration 

Democratic Sraaring & Policy 

Committal 

O.moc:r91lc Caucus; Chair, Commlne• on Organization, Study & Review 

www.housa.govkapuana 

Congress of the United States · House of Representatives 

Michael E. Capuano 

The Honorable Timothy Gcithner 

Secretary 

U.S. Department of the Treasury 

1500 Pennsylvania AvCDUe; NW 

Washington, DC 20220 

The Honorable Sheila Bair 

Chairman 

8th Dlsfrlct. Massachusetts 

February 24, 2009 

The Honorable John C. Dugan 

Comptroller of the Currency 

1414 Loll~ --IIIAU1UIO 

WUIIIHCITDN. DC 201516-21111 

12112)%2~111 

F.- 12112) 225--9222 

Federal Deposit Insurance Coxporation 

sso 17th Street, NW 

Office of the Comptroller of the Currency 

Independence Square 

Washington, D.C. 20429 250EStreet, fIW 

Washington, D.C. 20219 

Dear Secretary Geithncr, Chainnan Bemankc, Chaimum Bair, and Comptroller Dugan: 

Recent news reports indicate that the federal government is considering exchanging its nonvoting prcfc:rred stock in Citigroup. which enjoys both a guaranteed return and a preferred status, 

for common voting stock, the value of which will rise or fall with the market. Reports also suggest 

that the federal government may increase its investment in certain large banks. including m·easing 

ownership in Citigroup to 40% • .If these reports arc incorrect, please clarify what actions arc being 

considered regarding Citigroup end other large institutions. If in fact these accounts arc accurate and 

the government plans to swap the types of shares it holds. I am writing to strongly urge that you not 

forgo taxpayer protections currently enjoyed without obtaining absolute control of the institution. 

Obtaining 400/4 instead of St% of Citigroup's stock is a half-hearted approach. It exposes 

taxpayers to market fluctuation risks and docs not provide the federal g_ovcmment with a voice in 

tbe leadership of the failing banking institution. 1 understand the desire to have voting rights after 

suc.h large investments. If the federal government wishes to exchange its stock in order to gain a 

vote, it should take effective control of tho failing banking institution so it can change its leadership 

and policies as needed. Exchanging preferred. stock for a minority position while simultaneously 

giving up the guaranteed rctum. is a significant disservice to taxpayers as it puts their stake in these 

companies at risk and removes their only form of financial protection. No invcnor would seriously 

considcc such an approac;h-there is no reason why the taxpayers' representatives should follow a 

different, less protected path. 

. I understand that there are accounting obstacles regarding how 1o va.lu.c the assets of our 

banking institutions and many ways to handle this issue. I believe the measurements used in 
~-

can.ducting the new stress tests should account for tho new world we arc in. For example, 

govemment preferred stock could be counted as if it were common stock, pools of assets could be 

reviewed to determine what percentage are still likely to perform. or federal. regulators could 

provide additional ti.me to allow assets to fully mature before requiring additional capital. In a11 · 

instances, the val'DCS of the assets have not changed. bat we arc merely changing the way we 

measure those assets in order to :fairly address a temporary crisis. 

Again, if these reports are incorrect, please clarlfy what actions arc being considered in 

rcgmda to Citigroup and other large institμtions. If the reports me a~curatc, I request that you 

clarify the taxpayer benefits in taking this approach. 

Cc: The Honorable Bamey Frank 

Michael E. Capuano 

Member of Congress 

Cbainnan, House Financial Services Committee 

I 

i 

I 

~ ·1 
IIAIINEY FRANK. liA. CHAIRMAN 

The Honorable Sheila Ba:ir 

Chairman. 

'it. i;,. ~ouse of 3.\rpres"cntntibu 

€:ommittee on jffmmdal .i>trbictlt 

2129 l\apf,ttrtt ~oUl't tt,f((ce 1Suflbfnn 

Dlut,lnaton. ~c 20515 

March. 17, 2009 

Federal Deposit Insurance Corporation 

550 Seventeenth. Street, NW 

Washington, DC 20429 

Dear Chairman Bair: 

SPENCER IIACHUS. Al, RANICIMG MEMBER 

The Committee on Financial Services will hold a field hearing en.titled "Seeldng 

Solutions: Finding Credit for Small and Mid-Size Businesses in Ma.ssachusett.a• at 10 a.m. 

on Monday, March 23, 2009, in Gardner Audit.orium, Masaachusetts State House, Boston, 

Massachusetts. I am writing to confirm an invitation to you, or your designee, to 

participate at this public proceeding. 

•The purpose of this hearing is to ascertain the condition of credit availability for 

working capital and capital investments for small and medium size businesses in 

Massachusetts. 

The Committeo is interested in foderal and state programs th.at exist or are planned 

for the purpose of making more credit available for small and medium size businesses. If 

federal laws or regulations are making credit availability more difficult, please address 

these regulations and laws with recommendations, if any, to change or modify th.em. 

Lenders should inform the Committee of efforts they are undertaking t.o address this 

problem and relate n.ny institutional policies that may be relevant. If there are fedoral laws 

or regulations that make such lending moro difficult, please inform the Committ.cc of these 

regulatory policies or legal restraints and suggest any changes that may make lending 

easier. 

Borrowers should inform the Committee of any difficulties they may have had in 

securing credit and funds and any suggestions you may have to make borrowing easier. 

All participants should be expected to address the Committee with prepared 

testimony for five minutes and then be prepared to discus9 the subject and answer 

questions following the opening statements. Mr. Rosengren will be given fifteen minutes for 

his presentation. Written testimony, which may be longer than the ornl testimony should be 

submitted to the Committee at the time of the hearing. 
The Honorable Sheila Bair 

Page2 

Please read the following material carefully. It is intended as a guide to your rights 

and obligations as a witness under the rules of the Conunittee on Financial Services. 

The Form of your Testimony, Under the Rules of the Committ.ee on Financial 

Services, each witness who is to testify before the Committee or its subcommitt.ees must file 

with the Clerk of the Committee a. written statement of proposed testimony of any 

reasonable length. Please also include with the testimony a current resume summarizing 

educationt experience and affiliations pertinent to the subject matter of the hearing. Tb.is 

must be filed at least two business days before your appearance. Please note th.at changes 

to the written statement will not be permitted. after the meeting begins. FB11ure to comply 

with this requirement may result in the exclusion of yom written testimony from the 

record. Your oral tcstimonY. should not exceed five minutes and shonld summarize your 

written remarks. The Chair reserves the right t.o exclude from the print.cd record any 

supplemental materials submitted with a written statement due to space limitations or 

printin~ expense. 

Subniission of your Testimon~. Please bring at least 100 copies of your proposed 

written statement t.o the henr.ing site on the day of the hearing. 

The Rules of the Committee require, to the extent practicable, that you also submit 

your written t.cst.imony in. electronic form. The preferred method of submission of testimony 

in electronic fonn is to send it via electronic mail to ;fi;ctestimon.y@mail.house.gov. The 

electronic cr,py of your testimony may be in any major file format. including WordPerfect, 

Microsoft Word, or ASCII text far either Windows or Macintosh. Your electronic mail 

mossage should specify in the snbject line the date and the Committee or sahcommittee 

boforo which you are scheduled to testify. You may also submit testimony in electronic form. 

on a disk or CD-ROM at the time of delivery of the copies of your writt.en testimony. 

Submission of testimony in electronic form facilitates th& production of the printed hearing 

record and posting of your testimony on the Committeets Internet site. 

Your Rights tu a Witnes-s, Under· the Rules of the House, witnesses may be 

accompanied by their own counsel to advise th.em concerning then- constitutional rights. I 

reserve the right to place- any witness under oath. Finally, a witness may obtain a 

transcript copy of bis testimony given in open, public session, or in a closed session only 

when authorized by the Committee or subcommittee. However, by appearing before the 

Committee or its subcommittees, you authorize the Committee to make teclmice.l, 

grammatical, and typographical corrections to the transcript in accordance with tho rulos of 

the Committee and the House. 

The Rules of the Committee on Financial Services, and the applicablo·rulcs of the 

House, are available on the Committee's -website at http://financialserviees.house.gov. 

Copies can also be sent to you upon request. 
The Honorable Sheila Bair 

Page3 

Should you or your staff have any qnestioll3 or need additional infoqnation, please 

contaetJamos Segel at (202) 226-4247. · 

Chairman 

BF/mb 

cc: The Honorable Spencer Bachus 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BA.IA 

CHA.IRMA.N 

Honorable Bob Riley 

Governor 

State of A]abama 

State Capitol 

Montgomery, Alabama 36130 

Dear Governor Riley: 

March 18, 2009 

Thank you for your letter in support of Colonial BancGroup (Colonial). I 

appreciate your concerns regarding the impact of the Colonial banking organization on 

the Alabama economy. 

The Federal Deposit Insurance Corporation continues to encourage Colonial's 

capital-raising efforts related to its Troubled Asset Relief Program application with the 

Treasury Department. Let me assure you that should other banking programs become 

available during these turbulent economic times, the FDIC will consider Colonial as a 

potential participant, consistent with established criteria, for any such program. 

Sincerely, 

Sheila C. Bair 
OmCE OF THE GOVERNOR 

BOB RILEY 

GOVERNOR 

February 9, 2009 

The Honorable Sheila Bair 

Chairman 

STATE OF ALABAMA 

Federal Deposit Insurance Corporation 

550 17th Street NW 

Washington, DC 20429-0002 

Dear Madam Chairman: 

STATE CAPITOL 

MONTGOMERY, ALABAMA 36130 

(334) 242-7100 

FAx: {334) 242-0937 

I want to thank you for meeting with Colonial Bank's people last week. As we have 

discuss~ Colonial is a significant presence in Alabama's economy, and with what has 

occurred to SouthTrust (Wachovia), Compass (BBV A) and the merger of AmSouth and 

Regions, its continuance as an Alabama-based bank is now essential. 

I know that Colonial's leadership wants to work closely with the FDIC, and anything you 

can do to facilitate that work, particularly including Colonial in what I understand is 

being called ''TARP II," will be especially appreciated by me. 

Bob Riley 

Governor 

BR/ps/rs 
~ifw ~tahs • ~truth 

Mr. Eric Spitler 

WASHINCiTON. DC !0510--090.5 

March 18, 2009 

Federal Deposit Insurance Corporation 

550 17th Street Northwest, Room 6076 

Washington. DC 20429-0002 I 

Dear Mr. Spitler: -- - Uol 

l~ I am referring the enclosed inquiry from my constituent. regarding 

TARP application to your office. 

My constituent wouJd appreciate your careful consideration of these r~arks, and your 

thoughts on what remedies there are for trus situation. Please respond directly io him and send a 

copy to me. 

The Honorable Bill Nelson 

United States Senate 

Washington. DC 20510 

Attention: Stephanie Mick.Jc- 202-224-1554 

I thank you for your attention to this matter. 

Sincerely, 
'i!!J • .§. J,ouse of E.epre$tntatibe!{ 

el:onnnitttt on jfinancial ~ttbices 

2129 l{ap&urn ~oiue emu ~uflllfng 

tllU{Jfngton, 3Bt: 20515 · 

March 20, 2009 

The Honorable Martin J. Gruenberg 

Vice Chairman 

Federal Deposit Insurance Corporation 

550 1781 Street, NW 

Wash:mgton, DC 20429 

Dear Mr. Gruenberg: 

SPENCER BACHUS. AL. RANKING MEMBER 

The Committ.ee on Financial Services will hold a hearing entitled "Exploring the 

Balance between Increased Credit Availability and Prudent I.ending Standards• on 

Wednesday, March 25, 2009, at 10:00 a.m.. in room 2128 Rayburn House Office Bwlding. I 

am writing to confirm your invitation to testify at this hearing. 

A recent AP article entitled ~ederal Government Gives Mixed Messages" outlined a 

dilemm11 faced by many banks: how to :increase quickly lending to creditworthy borrowexs 

when suc.b borrowers ere scarce in some areas, the b&Dk.s' balance sheets are constnrlned by 

impaired assets, and the regulators are pressuring banks to increase capital and reserves 

and improve unJtμwtiting standards. This hearing will focus on the challeDgBS for 

financial .institutions, and particularly for recipients of funds through the Troubled Asset 

Relief Program (TARP), in increasing credit availability whil~ roaint.aining prudent lending 

and other operational standards. The Committee would like to hear yom views on the 

following, where applicable: 

• What J.-3gislative, regulatory or other impediments are hindering the ability of 

banks to increase the availability of credit? 

• What more can be done on either a regulatory or legislative basis to help banks 

increase credit availability generally? Is there a scarcity of creditworthy 

borrowers? I£ so, is that because credit p.f.andards have become more strmge.nt, 

potential borrowers are more :financially constrained, or some combination of 

those factors? What effect, jf any, does the application of mark-to-market 

accounting e~ards have on the credit crunch? 

• Are bank regulators requ:irlng full reappraisals of properties subject to loan 

modifications? What are the implications for borrowers - e.g., would distressed 

market conditions lead to depressed appraisal values th.at could impair a 

borrower's ability to obtain meaningful ~Oen modifications, and what can be done 

to mitigate such outcomes? . 

• As a practical matter, how can banks best fulfill their :nmdemental role as 

in.termedi.eries in the credit markets consistent with prudent lending standards 
The Honorable Martin J. Gruenberg 

Page2 

and strong capital requirements in a period of extreme financial and economic 

stress? 

• Other than the November 121 2008 Interagency Statement on Meeting the Needs 

of Creditworthy Borrowers, have regulators provided sufficient guidance 

regarding the need to :inc:rease credit aviμlability while maintaining prudent 

lending standards? Has such guidance been halpful? Has bank supervision been 

· consistent with the guidance? Should the staildard.s ar guidance be different fOl' 

TARP recipients than it is for non- recipients, and if so, how? 

• What metrics are used to evaluate progress in improving credit ava:ilability and 

the level of Jandine activity by regulated financial institutions? What evidence 

do you have about the extent to which (1) creditworthy comnnners and 

· businesses a:re seeking credit; (2) consumer and commercial credit otherwise has 

become more available; (8) creditworthy bonowers are able to get credit. 

• There is considerable an.ecdcital evidence, partitularly in the commercia1. real 

estate and sniail business sectors, and in other businesses generally, that longstanding customers of banks with existing lines of credit are having that credit 

pulled altogether, or significantly reduced on roll-over, even for projects or 

businesses in which substantial capital investments have been made. Please 

discuss. 

Please read the following material carefully. It is intended as a guide to yolll' rights 

and obligations as a witness under the rules of the Committee on Financial Services, 

The Farm of your Testimony. Under role 3(d)(2) of the Rules of the Committee on 

Financial Services, each ·witness who is to testify before the Committee· or its 

subeommitt.ees must file with the Clerk of the Committee a written statement of proposed 

testimony of any reasonable length. This must be filed at least two· business days before 

your appearance. Please note that changes to the written sta.t.ement will not be permitted 

after the hearing begins. Failure to comply with tlris requirement may result in the 

exclusion of your written testimony from the hearing record. Your oral testimony should not 

exceed five minutes and should summarize your written remal'.ks. The Chair reserves the 

right to exclude from the printed hearing record any supplemental m1tterials submitted 

with a written statement due to spa~~ limitations or printing expense. · 

Submission. of ,,our Testimon.,,. Please submit at least 100 copies of your proposed 

written statement to the Clerk of the Committee not less than two husiness days in 

advance. of yom appearance. These copies should be delivered to: Clerk, Committee on 

Financial Services, 2129 Rayburn House Office Building, Washington, D.C. 20616. 

Due t.o heightened security restrictions, many common forms of delivery experience 

significant delays in delivery to the Committee. This includes packages sent via the U.S. 

Postal Service, Federal Express, UPS, and other similar carriers, which typically arrive 3 to 

5 days later than normal. The United States Capitol Police have specifically requested that 

the Committee refuse deliveries by courier. The best method for delivery of your testimony 

is to have an employee from yom organization deliver your testimony in an unsealed 

package to the address above. If you a:re miahle to com.ply with this procedure, please 

contact the Committee to dis_cuas alternative methods for delivery of your testimony. 
The Honorable Martin J. Gruenberg 

Page3 

The Rules of the Committee require, to the extent practicable, that you also submit 

your writt.en testimony in electronic form. The preferred method of submission of testimony 

in electronic form is to send it via electronic mail to fsctestimony@mailhouse.gov. The 

electronic copy of your testimony may be in SD.Y major file format, including WordPerfect, 

Microsoft Word, or ASCII text for either Wmdows or Macint.osh. Your electronic mail 

message should specify the date and which committee pr subcommittee you are scheduled 

to testify before. You may also submit ~timony in electronic form. on a disk or CD-ROM at 

the time of delivery of tbe copies of your written testimony. Submission of testimony :in 

electronic tm.-m facilitates the production of the printed hearing record and posting of yonr 

testimony on the Committee's Internet site. 

Your Rights as a WitnesB. Under clause 2(k) ofntle XI of the Rule~ of the House, 

witnesses at hearings may be accompanied by their own counsel to advise them co~ 

their constitutional rights. I reserve the right to place any witness under oath. Finally, a 

witness may obtain a transcript copy of bis testimony given in open, public session, or in a 

closed session mily when authorized by the Committee or subcommittee. However, by 

appearing before the Committee or its subcommittees, you authorize the Comn:μttee t.o 

make tecbnical, grammatical, and typographical corrections to the transcript in. accordance 

with the rules of the Committee and the House, 

The Rules of the Committee on Financial Services, and the applicable rules of the 

House, are available on the Committee's website at http://fi:b.ancialservicesihouse.goy. 

Copies can also be sent to ¥OU upon request. 

The Committee on Financial Services endeavors to make its facilities accesBihle to 

persons with diaahili.ties. If you . are in need of special accommodati.cma, or have any 

questions regarding special accDmmodations generally, please contact the Committee in 

advance of the scheduled event (4: business days notice is re~ted) at (202) 225-4247; 

Tl'Y: 202-226-1591; or write to the Committee ai; the address above. 

Please note that space in the Committee's hearing room is extremely limited. 

Therefore, the Committee will only reserve 1 seat for staff accompanying you during your 

appearance (a total of 2 seats). In order to mainta:in our obligation under the Rules of the 

House to ensure _that Committee he's.rings are open to the public, we C:tmnot deviate from 

this policy. 

Should you or your staff have any questions or need additional information, please 

contact Deborah Silberman, Michael Beresik, or Lawranne Stewart at (202) 226-4247. 

Smcerely, 

BF/els 

cc: The Honorable Spencer Bachus 
I)c.;.,:7 f •· t ,._ 'rf? 

• -l, 

,e~: 1..,-- . ._ . i ~:;> ti- s •~l i-, ,_: 1-. 

@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable Jon Kyl 

United States Senate 

Washington, D.C. 20510 

Dear Sena,tor Kyl: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately determines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC's Division of Supervision and Consumer Protection. 

If we can provide further information, please do not hesitate to contact me at (202) 898-

.6974 or Eric Spitler, Director, Office of Legislative Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

Ql. Are banks in states like Arizona disadvantaged in applying for CPP? 

A 1. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDIC has encouraged all state 

non.member institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

A2. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. All applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decisionmaking. 

Q3. What are the steps in approving a bank's participation in CPP? Specifically, what is 

the timeline and in what order are applicatlons considered? 

A3, Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory information. Wellperforming institutions with the highest examination ratings are generally recommended to 

Treasury for approval. Institutions with lower examination ratings or weaker performance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its final 

determination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant 

The timeline for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
(t.crugrtss of fl1e Jluiu-h .. ~hd.rs 

WA.SHING'fCN, DC 70"110 

March 05, 2009 

Sheila C. Bair 

Chairman 

F cderal Deposit Insurance. Corporation 

550 17th Street, NW 

Washington. DC 20429 

Ben &. Bemanke 

Chairman 

Board of Governors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington. DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

W ashing1o.n. DC 20219 

We ar.e writing to express our concern about the Administration -of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of administration. Specifically, we believe that such a program should be fair. 

equitable and transparent. 

According to the Arizona Department of Financial Institutions, at least 11 state--chartered 

banks have applied for CPP funds, but to date, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is·precisely where 

funds are needed most as our banks work to serve customers and restart our economic engine. 

While Arizor;ia banks have been shut out of the program, distressed banks in Massachusetts have 

received funds as have banks in states with real estate stress similar to Ari.7.ona such as Nevada 

and Georgia. This raises several questions: 

1. Are banks in states like Arizona .disadvantagtd in applying for CPP? 

2. Why have some banks received funds when healthier A.ri7.0na banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can banks get expedited exams in the case of banks that have "stale" exams? 

5. Are you taking into account the local competitive implications ·of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

· business is chiefly or entirely limited to the state are delayed? 

FDIC 

,, 

MAR 6 2009 

OFFICE OF LEGISLATfVE AFFAIRS 
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© FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable Trent Franks 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Franks: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately determines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC's Division of Supervision and Consumer Protection. 

If we can provide further information, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office ofl,egislativc Affairs at (202) 898~3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

QJ. Are banks in states like Arizona disadvantaged in applying for CPP'! 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDlC has encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

A2. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. AJI applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decisionmaking. 

QJ. What are the steps in approving a bank's participation in CPP? SpecificaUy, what is 

the timeline and in what order are applications considered? 

AJ. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, sL1ch 

as examination ratings, selected perfonnance ratios, and other supervisory info1111ation. Wellperforming institutions with the highes_! examination ratings are generally recommended to 

Treasury for approval. Institutions with lower examination ratings or weaker perfonnance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

info1111ation from the regulators or the CPP Council. Once Treasury reaches its final 

dctennination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant. 

The timeline for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition. the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications wil1 be processed by the regulators by June 30, 2009. 

Q4. Cao banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request. However, we do not necessarily need to perform a new onsite examination to reach a viability assessment. The regulators have a variety of off-site review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

A5. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17m Street, NW 

Washington, DC 20429 

Ben S. Bemanke 

Chairman 

Board ofGovemors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, DC 20219 

We are v.Titing to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of administration. Specifically, we believe that such a program should be fair, 

equitable and transparcr:.t. 

According to the Arizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to da1c, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds a'i have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Arc banks in states like Arizona disadvantaged in applyh1g for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can banks get expedited exams in the case of banks that have "stale" exams? 

5. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed'? 

rn;c 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
As members ofthe·Arizona CongressionaI·delegation, we·ate not interested.in preferential 

treatment for our banks, but we certainly expect that federal policy Wlll be applied fairly. We 

loo]( forward to your responses. 

ely, 
(!) FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, cc 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable Ann Kirkpatrick 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Kirkpatrick: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

· each request individually and make a recommendation to Treasury which ultimately determines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC' s Division of Supervision and Consumer Protection. 

lf we can provide further information, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office of Legislative Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

Ql. Are banks in states like Arizona disadvantaged in applying for CPP? 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDIC bas encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

A2. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. All applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decisionmaking. 

Q3. What are the steps in approving a bank's participation io CPP? Specifically, what is 

the timeline and in what order are applications considered? 

AJ. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory information. Wellperfonnin ~ institutions with the high~st examination ratings arc generally recommended to 

Treasury for approval. Institutions w1th lower examination ratings or weaker perfonnance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its final 

determination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant 

The timeline for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury lllltil mid-December 2008 because of the 

timing of the tenn sheet far privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications wiJI be processed by the regulators by June 30, 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request. However, we do not necessarily need to perform a new onsite examination to reach a viability assessment. The regulators have a variety of off-site review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance. Corporation 

550 17:Ji Street, NW 

Washington, DC 20429 

Ben S. Bernanke 

Chairman 

Board of Governors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, DC 20219 

We are v.,7iting to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of administration. Specifically, we beTieve that such a program should be fair, 

equitable and transparer:t. 

According to the Arizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to date, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds ac; have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Arc hanks in states like Arizona disadvantaged in applying for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can ban..1(.-, get expedited exams in the case of banks that have "stale" exams? 

5. Are you taking into account the local competitive implications ·of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

fD1C 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
As members of the Arizona Congressional delegation, we ·lire not interested· in preferential 

treatment for our banks, but we certainly expect that fedexat policy will be applied fairly. We 

1001<: forward to your responses. 

ely, 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable John McCain 

United States Senate 

Washington, D.C. 20510 

Dear Senator McCain: 

Thank you for your Jetter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consuJtation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately determines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC's Division of Supervision and Consumer Protection. 

lf we can provide further information, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office of Legislative Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

Ql. Are banks in states like Arizona disadvantaged in applying for CPP? 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and v1rill continue to receive the same 

objective consideration as institutions from other states. The FDIC has encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

Al. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. Al] applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decision• 

making. 

Q3. What are the steps in approving a bank's participation in CPP? Specifically, what is 

the timeline and in what order are applications considered? 

A3. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory information. Wellperforming institutions with the highest examination ratings are generally recommended to 

Treasury for approval. Institutions with' lower examination ratings or weaker performance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its fmal 

determination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicanL 

The time line for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications will be processed by the regulators by June 30, 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request. However, we do not necessarily need to perform a new onsite examination to reach a viability assessment. The regulators have a variety of off-slle review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance. Corporation 

550 17th Street, NW 

Washington, DC 20429 

Ben S. Bernanke 

Chairman 

Board of Govemors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, DC 20219 

We are ~Titing to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of administration. Specifically, we believe that such a program should be fair, 

equitable and transparcr:.t. 

According to the J\rizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to date, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds a'> have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Are banks in states like Arizona disadvantaged in applying for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can banks get expedited exams in the case of banks that have "stale" exams? 

5. Are you talcing into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed'? 

rn;c 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
':"--

As members of the Arizona .Congressional delegation, we ·are not interested in preferential 

treatment for our banks, but we certainly expect that fedc.ral policy will be applied fairly. We 

look: forward to your responses. 

ely, 
8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. DC 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable John Shadegg 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Shadegg: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately detennines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. --

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FD I C's Division of Supervision and Consumer Protection. 

If we can provide further information, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office of Legislative Affairs at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capita) Purchase Program 

QI. Are banks in states like Arizona disadvantaged in applying for CPP? 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligioility and participation criteria are the same for alJ 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDIC has encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

A.2. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. All applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's awn CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decisionmaking. 

Q3. What are the steps in approving a bank's participation in CPP? Specifically, what is 

the timeline and in what order are applications considered? 

A3. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory information. Wellperforming institutions with the high~t examination ratings are generally recommended to 

Treasury for approval. Institutions with lower examination ratings or weaker performance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its final 

detennination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant. 

The time line for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications wi11 be processed by the regulators by June 30. 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request. However, we do not necessarily need to perform a new on-

·site examination to reach a viability assessment. The regulators have a variety of off-site review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance. Corporation 

550 17-.h Street, NW 

Washington, DC 20429 

Ben S. Bemanke 

Chairman 

Board of Governors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

W .ashingto.n, DC 20219 

We are VvTiting to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of administration. Specifically, we believe that such a program should be fair, 

equitable and transparent. 

According to the Arizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to date, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds a'> have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Arc banks in states like Arizona disadvantaged in applying for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can banks get expedited exams in the case of banks that have "stale" exams? 

5. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

FD1C 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
As members of the Arizona Congi;essional delegation; we ·are not interested in preferential 

treatment for our banks, but we certainly expect that fede.ral policy will be applied fairly. We 

loo!< forward to your responses. 

ely, 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable Ed Pastor 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Pastor: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation with the federal banking agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately determines 

program participation. The FDIC has received 13 TARP CPP applications from state 

nonmember Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We are processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC's Division of Supervision and Consumer Protection. 

If we can provide further information, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office of Legislative Affairs at {202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

QI. Are banks in states like Arizona disadvantaged io applying for CPP? 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDIC has encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Q2. Why have some banks received funds when healthier Arizona banks have not? 

A2. As stated above, we have not yet detennined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. All applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of a)) applications considered by Treasury in its investment decisionmalcing. 

Q3. What are the steps in approving a bank's participation in CPP? Specifically, what is 

the timeline and in what order are applications considered? 

A3. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. The federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory infonnation. Wellperforming institutions with the highest examination ratings are generally recommended to 

Treasury for approval. Institutions with lower examination ratings or weaker performance 

incticators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended lo Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banking regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its final 

dctennination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant. 

The timcline for and order of processing TARP CPP applications have varied. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications will be processed by the regulators by June 30, 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request. However, we do not necessarily need to perform a new onsite examination to reach a viability assessment. The regulators have a variety of off-site review 

processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
'' !. 1!1 ;,:, ,4

f 

March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 l 7'.i, Street, NW 

Washington, DC 20429 

Ben S. Bemanke 

Chairman 

Board of Governors of the 

Federal Reserve System 

20th and Constitution A venue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20.552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

W ashingto.n, DC 20219 

We are \.\Titing to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of adn:i.inistration. Specifically, we believe that such a program should be fair, 

equitable and transparcr:.t. 

According to the Arizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to date, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds ac; have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Are banks in states like Arizona disadvantaged in applyLrig for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can banks get expedited exams in the case of banks that have «stale" exams? 

5. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

fDlC 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
As members of the Arizona Coo,gressional delegation~ we ·are not interested in preferential 

treatment for our banks, but we certainly expect that federal policy will be applied fairly. We 

loolc forward to your responses. 

ely, 
@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN March 26, 2009 

Honorable Gabrielle Giffords 

House of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Giffords: 

Thank you for your letter regarding the Federal Deposit Insurance Corporation's role in 

the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). The FDIC 

strongly supports Arizona community banks, and we have encouraged institutions headquartered 

in your state to file applications for the TARP CPP program. 

As you know, the TARP CPP is a federally funded program led by the U.S. Department 

of the Treasury (Treasury) in consultation \Vith the federal banking_agencies. State nonmember 

institutions submit TARP CPP applications to the FDIC for initial consideration. We process 

each request individually and make a recommendation to Treasury which ultimately detennines 

program participation. The FDIC has received 13 TARP CPP applications from state 

norunc:mber Arizona institutions. We have recommended four Arizona CPP applicants to 

Treasury for approval; however, two of those applicants withdrew their requests. One other 

application that had not yet been processed has been withdrawn. The other eight applications are 

being considered by our regional and Washington offices. We arc processing TARP CPP 

requests using a standardized approach that treats applicants across the country fairly and 

objectively. 

I am enclosing responses to the questions you posed regarding the TARP prepared by the 

FDIC's Division of Supervision and Consumer Protection. 

If we can provide further infonnation, please do not hesitate to contact me at (202) 898-

6974 or Eric Spitler, Director, Office of Legislative Affairs at (202) 898-383 7. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to Questions about the 

Participation of Arizona Institutions 

in the Capital Purchase Program 

Ql. Arc banks in states like Arizona disadvantaged in applying for CPP? 

Al. We do not believe Arizona-based institutions are at a disadvantage for CPP 

consideration. Treasury's CPP eligibility and participation criteria are the same for all 

institutions across the country. Arizona institutions have and will continue to receive the same 

objective consideration as institutions from other states. The FDIC has encouraged all state 

nonmember institutions to consider participation in the CPP to augment capital and enhance 

credit availability. 

Ql. Why have some banks received funds when healthier Arizona banks have not? 

Al. As stated above, we have not yet determined our recommendation for the majority of the 

applications received from Arizona-headquartered institutions. All applicants are subject to an 

objective regulatory review process as well as an evaluation by Treasury's own CPP Investment 

Committee. We believe that the standardized CPP review process ensures a methodical and 

objective assessment of all applications considered by Treasury in its investment decisionmaking. 

Q3. What are the steps in approving a bank,s participation in CPP? Specifically, what is 

the timeline and in what order are applications considered? 

A3. Treasury, in consultation with the federal banking supervisors, has developed a 

standardized process for applying to the CPP and evaluating the financial strength and viability 

of applicants. Toe federal banking regulators assess applications based on certain factors, such 

as examination ratings, selected performance ratios, and other supervisory information. Wellperforming institutions with the highest examination ratings are generally recommended to 

Treasury for approval. Institutions with lower examination rd.tings or weaker performance 

indicators require further review and may be referred to the CPP Council which consists of 

representatives from the four federal banking agencies with Treasury officials as observers. If an 

application cannot be recommended to Treasury for approval, the primary federal regulator 

generally requests the applicant withdraw its CPP request. The institution's primary federal 

banldng regulator or the CPP Council forwards an approval or denial recommendation to 

Treasury, which further reviews the application and may request additional analysis or 

information from the regulators or the CPP Council. Once Treasury reaches its final 

determination on awarding a CPP subscription, either Treasury or the primary federal regulator 

advises the applicant. 

The tirneline for and order of processing TARP CPP applications have varied.. Some 

applications were not eligible for referral to Treasury until mid-December 2008 because of the 

timing of the term sheet for privately held institutions. In addition, the processing of some 

applications has been protracted because of deteriorating credit quality conditions and a desire of 

the banking regulators to conduct an on-site review. The vetting process for applications from 
lower-rated institutions has been comprehensive as these applications generally must be 

presented to the CPP Council for consideration before Treasury will review them. It is our hope 

that the great majority of CPP applications will be processed by the regulators by June 30, 2009. 

Q4. Can banks get expedited exams in the case of banks that have "stale exams?" 

A4. Recent on-site examinations are very helpful when evaluating a bank's condition for the 

purposes of a TARP CPP request However, we do not necessarily need to perform a new onsite examination lo reach a viability assessment. The regulators have a variety of off-site review 

.processes that are based on a combination of financial and supervisory information that 

complement previous examination results. In fact, the FDIC has made favorable TARP CPP 

recommendations to Treasury based, in part, on examinations that were less recent. 

QS. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed? 

AS. Treasury's CPP application review guidelines do not consider local competitive 

implications. However, the FDIC is sensitive to the current challenges facing Arizona-based 

financial institutions. These banks are afforded the same consideration for TARP CPP 

participation as large institutions or applicants from other states. 
March 05, 2009 

Sheila C. Bair 

Chairman 

Federal Deposit Insurance Corporation 

550 17.1, Street, NW 

Washington, DC 20429 

Ben S. Bernanke 

Chairman 

Board of Govemors of the 

Federal Reserve System 

20th and Constitution Avenue, NW 

Washington, DC 20551 

Ladies and Gentleman: 

Scott M. Polakoff 

Acting Director 

Office of Thrift Supervision 

1700 G Street, NW 

Washington, DC 20552 

John C. Dugan 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, SW 

Washington, DC 20219 

We are V.Titing to express our concern about the Administration of the Capital Purchase 

Program ("CPP"). A program that commits billions in tax payer dollars should be held to the 

highest standards of adniinistratibn. Specifically, we believe that such a program should be fair, 

equitable and transparcr:.t. 

According to the J\rizona Department of Financial Institutions, at least 11 state-chartered 

banks have applied for CPP funds, but to da1c, only a single Arizona bank has received TARP 

funds. Ironically, we have heard that Arizona banks are a low priority to receive funds ostensibly 

because real estate is such a large part of our local economy. But, Arizona is precisely where 

funds arc needed most as our banks work to serve customers and restart our economic engine. 

While Arizona banks have been shut out of the program, distressed banks in Massachusetts have 

received funds as have banks in states with real estate stress similar to Arizona such as Nevada 

and Georgia. This raises several questions: 

1. Arc banks in states like Arizona disadvantaged in applyLrig for CPP? 

2. Why have some banks received funds when healthier Arizona banks have not? 

3. What are the steps in approving a bank's participation in CPP? Specifically, what is the 

timeline and in what order are applications considered? 

4. Can ban..l.cs get expedited exams in the case of banks that have "stale" exams? 

5. Are you taking into account the local competitive implications of providing CPP 

investments to large banks operating in our state while CPP investments in banks whose 

business is chiefly or entirely limited to the state are delayed'? 

fDlG 

MAR 6 2009 

OFFICE OF LEGISLATIVE AFFAIRS 
As members of the-Arizona Congressional delegation~ we ·ate not interested in preferential 

treatment for our banks, but we certainly expect that federal policy wt11 be applied fairly. We 

look forward to your responses. 

ely, 
SHEILA C. BAJA 

CHAIRMAN 

@ FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

March 26, 2009 

Honorable David P. Roe 

House of Representatives 

Washington, D.C. 20515 

Dear Congressman Roe: 

I am writing in response to your letter raising questions about the ei:nergency special 

assessment recently approved by t.he FDIC' s Board of Directors and regulatory reform as it 

relates to the pro-cycficality of deposit insurance assessments. As you may know, the special 

assessment was adopted as an interim rule with request for comments. The comment period 

closes April 2, 2009. The Board of Directors will consider all the comments received before 

adopting a final rule. 

As you noted.in your letter, recent and anticipated failures of FDIC-insured institutions 

resulting from deterioration in banking and economic conditions _have significantly increased 

losses to the Deposit Insurance Fund (DIF). The reserve ratio of the DIF declined from 1.22 

percent as of December 31, 2007, to 0.40 percent (preliminary) as of December 31, 2008. 

Because the fund reserve ratio had fallen beiow 1.15 percent as of Jlllle 30, 2008, and was 

expected to remain below 1.15 percent, applicable law required the FDIC to establish and 

implement a restoration plan that would restore the reserve ratio to at least 1.15 percent within 

five years, absent extraordinary circumstances. On October 7, 2008, the FDIC established a 

restoration plan for the DIF that called for the FDIC to set assessment rates such that the reserve 

ratio would return to 1.15 percent within .five years and proposed higher rates in accordance with 

the plan. · 

In February 2009, the FDIC made several very difficult decisions intended to ensure that 

our nation's deposit insurance system remains sound. First, in recognition of the severe stress 

facing banks and the financial system, the FDIC extended the period of the restoration plan from 

five to seven years. Second. the FDIC adopted assessment rates effective beginning the second 

quarter of2009 that are higher, but only slightly so, than those proposed in October 2008, despite 

a large increase in projected losses. Finally, the FDIC adopted an interim rule that sets a special 

assessment of20 basis points to be collected September 30, 2009. 

The FDIC realizes that these assessments are a significant expense, particularly during a 

.financial crisis and recession when bank earnings are under pressure. Banlcs face tremendous 

challenges right now even without having to pay higher assessments. We also recognize that 

assessments reduce the funds that banks can lend in their communities to help revitalize the 

economy. For that reason, the FDIC continues to consider alternative ways to alleviate the 

pressure on the deposit insurance fund that are consistent with our statutory authority. We 

recently imposed a surcharge on guaranteed bank debt under the Temporary Liquidity Guarantee 

Program and will use the surcharge to reduce the proposed special assessment. We also asked 
for comments on whether the FDIC should base the special assessment on assets (which wouid 

place more of the assessment burden on larger institutions) or some other measure rather than 

domestic deposits and whether assessments should take into account the assistance being 

provided to systemically important institutions. 

The FD IC has requested that Congress increase the FDIC' s authority to borrow from 

Treasury from $30 billion to $100 billion. In addition, the FDIC has requested temporary 

authority to increase its borrowing authority above Sl 00 billion (but not to exceed $500 billion) 

based on a process that would require the concUITCI\ce of the FDIC, the Federal Reserve Board, 

and the Treasury Department, in consultation with the Prcsiden_t. 

An increase in the FDIC's borrowing authority of this magnitude would give the FDIC a 

sufficient margin of error for unforeseen bank failures and allow it to reduce the size of the 

special assess-:ient while still assessing at a level that maintains the DIF through industry 

funding. Although the industry would still pay assessments to cover projected losses and rebuild 

the fund over time, a lower special assessment would mitigate the pro-cyclical effects of 

assessments. 

One of the most important goals of the reforms included in the Federal Deposit Insurance 

Reform Act was to make the deposit insurance assessment system less pro-cyclical. To achieve 

this result, the FDIC was provided with greater flexibility to assess institutions based on risk and 

to build up the DIF in good ti.mes. Howev~. the legislation included restrictions on the growth 

of the DIF that may still contribute to higher assessments against financial institutions during 

times of economic stress. 

Under current law, when the DIF reserve ratio is at or above 1.35 percent, but not more 

than 1.5 percent, the FDIC is required to dividend one,.half of the amount in the DIF that 

maintains the reserve ratio at 1.35 percent. In addition, the FDIC is required to dividend all 

amounts in the DIF that keep the reserve ratio above 1.5 percent. The result of these mandatory 

dividends is to limit the ability of the DI,F to grow in good times and to effectively cap the size of 

the DIF. 

These restrictions on the size of the D IF will limit the ability of the FDIC to rebuild the 

fund in the future to levels that can offset the pro-cyclical effect of assessment increases during 

times of economic stress. Limits on the size of the DIF of this nature will inevitably mean that 

the FDIC will have to charge higher premiums against the industry when conditions in the 

economy are causing significant numbers of bank failures. 

Thank you for writing. We will be including your letter in the public comment file for 

consideration in the development of the final rule on the emergency special assessment Please 

do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of Legislative Affairs, at 

(202) 898-3837 if you would like to discuss this matter further. 

Sincerely, 

Sheila C. Bair 
03/11/2009 17:16 

DAVID P. ROE 

tn!>isffic:T.,.__ 

2022255714 REP ROE 

QJ:nngre.es nf t~r 11lttit.eh ~tntrs 

i)iJJU5t Df l.epresentrtiu.es 

llasf]ingtJJtt, i]Qr 205l:i-42Dl 

The Honorable Sheila Bair 

Chairwoman 

Federal Deposit Insurance Corporation 

550 17th Street, NW Room 6028 

Washington. DC 20429 

Dear Chairwoman Bafr: 

PAGE 01/01 

~1,e--~~ot;~q,, 12Q2l226-«J&,8 

March 11, 2009 

00 ll 

UAR 11 3)09 

OFFICE Of LEGl~L~TI.VE AP-:f.t::~ ,_ 

Last week, Congresswoman Lynn Jenkins wrote you regarding recent declines to the Deposit 

Insurance Fund '1!1d the Federal Deposit Insurance Corporation's (FDIC) decision to make an 

emc::rgency across-the-board assessment. I believe the answers to her questions would provide 

valuable insights in evaluating legislation currently pending before Congress. and would 

appreciate your informing me about: · 

1) Why did the FDIC opt for an across-the-board emergency assessment? The Federal Deposit 

Insurance Reform Act of 2005 requires the agency to establish and implement a DIF 

restoration plan when the reserve ratio falls below 1.15 percent within five ycays, absent 

extraordinary circumstances. What in your view are ~•extraordinary circumstances? 

2) Does forcing institutions to pay increased assessments in the midst of continuing economic 

hardship counterproductive and lead to further insolvency? If so, does this reveal a 

fundamental flaw in our financial regulatory system 

3) Congress ... is beginning to debate regulatoryrefonn. How would you recommend altering 

the regulatory system particularly as it relates to what appears to be pro-cyclicality of the 

deposit insurance system? · 

In addition to the concerns Congressv..-oman Jenkins raised specifically, l would be interested in 

your thoughts or. the merits of assessing banks based on their total assets (minus. their tangible 

capital) as opposed to the FDIC's current practice of assessing banks based on total domestic 

deposits. My understanding is the FDIC has the authority to do this ifit so chooses. It seems lo 

me the current shortfall in the DIF is less a function of deposits than it is a function of other 

activi.tieS that some banks engaged in. As one banker put it, "Deposits don't cause banks to fail 

but assets do." Ultimately, it seems to me lhat any plan to raise the reserve ratio should be funded 

in the fairest manner possible and I would appreciate any direction you can provide us as we 

consider a way out of this depression. 

I appreciate your attention to this matter and hope you won ·t hesitate to contact me or my staff if 

you have any questions. 

. David P. Roe 

Member of Congress 

l'lllNnD QN II~ 1'-"'(lt 
SHEILA C. BAIR 

CHAIRMAN 

FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

March 26, 2009 

Honorable Lynn Jenkins 

Haus~ of Representatives 

Washington, D.C. 20515 

Dear Congresswoman Jenkins: 

Thank you for writing and I appreciate the kind words from a feJJow Kansan. 

11tls is in response to your questions about the emergency special assessment recently 

approved by the FDIC's Board of Directors and regulatory reform as it relates to the procyclicality of deposit insurance assessments. As you may know, the special assessment 

was adopted as an interim rule with request for comments. The comment period closes 

April 2, 2009. The Board of Directors will consider all the comments received before 

adopting a final rule. 

As you noted in your letter, recent and anticipated failures of FDIC-insured 

institutions resulting from deterioration in banking and economic conditions have 

significantly increased losses to the Deposit Insurance Fund (DIF). The reserve ratio of 

the DIF declined from l.22 percent as ofDecembcr 31, 2007, to 0.40 percent 

(preliminary) as of December 31, 2008. 

Because the fund reserve ratio had fallen below 1.15 percent as of June 30, 2008, 

and was expected to remain below 1.15 percent, applicable law required the FDIC to 

establish and implement a restoration plan that would restore the reserve ratio to at least 

1.15 percent within five years, absent extraordinary circumstances. On October 7, 2008, 

the FDIC established a restoration plan for the DTF that called for the FDIC to set . 

assessment rates such that the reserve ratio would return to 1.15 percent within five years 

and proposed higher rates in accordance with the plan. 

In February 2009, the FDIC made several very difficult decisions intended to 

ensure that our nation's deposit insurance system remains sound. First, in recognition of 

the severe stress facing banks and the financial system, the FDIC extended the period of 

the restoration plan from five to seven years. Second, the FDIC adopted assessment rates 

effective beginning the second quarter of2009 that are higher, but only slightly so, than 

those proposed in October 2008, despite a large increase in projected losses. Finally, the 

FDIC adopted an interim rule that sets a special assessment of20 basis points to be 

collected September 30, 2009. 

The FDIC realizes that these assessments are a significant expense, particularly 

du.ring a financial crisis and recession when bank earnings are under pressure. Ban1cs 

face tremendous challenges right now even without having to pay higher assessments. 
We also recognize that assessments reduce' the funds that banks can lend in their 

communities to help revitalize the economy. Far that reason, the FDIC continues to 

consider alternative ways to alleviate the pressure on the deposit insurance fund that are 

consistent with our statutory authority. W c recently imposed a surcharge on guaranteed 

bank debt under the Temporary Liquidity Guarantee Program and will use the surcharge 

to reduce the proposed special assessment. We also asked for comments on whether the 

FDIC should base the special assessment on assets (which would place more of the 

assessment burden on larger institutions) or some other measure rather than domestic --

deposits and whether assessments should take into account the assistance being provided 

to systemically important institutions. 

Recent experience has shown that bank failures arc difficult to predict and the 

possibility of additional, unforeseen failures is significant. The size of the special 

assessrne)lt reflects the FDIC's need to maintain adequate resources to cover potential 

unforeseen losses. The FDIC has a thin margin for error in this regard because its $30 

billion borrowing authority from Treasury for losses from bank failures has not increased 

since 1991, although industry assets have more than tripled. 

The FDIC has requested that Congress increase the FDJC's authority to borrow 

from Treasury from $30 billion to $100 bill.ion. In addition, the FDIC has requested 

temporary authority to increase its borrowing authority above $100 billion (but not to 

exceed $500 billion) based on a process that would require the concurrence of the FDIC, 

the Federal Reserve Board, and the Treasury Department, in consultation with the 

President. 

AI). increase in the FDIC's borrowing authority of this magnitude would give the 

FDIC a sufficient margin of error for unforeseen bank failures and allow it to reduce the 

size of the special assessment while still assessing at a level that maintains the DIF 

through industry funding. Although the industry would still pay assessments to cover 

projected losses and rebuild the fund over time, a lower special assessment would 

mitigate the pro-cyclical effects of assessments. 

One of the most important goals of the reforms included in the Federal Deposit 

Insurance Reform Act was to make the deposit insurance assessment system less procyclical. To achieve this result, the FDIC was provided with greater flexibility to assess 

institutions based on risk and t-o build up the DIF in good times. However, the legislation 

included restrictions on the growth of the DIF that may still contnbute to higher 

assessments against financial institutions during times of economic stress. 

· Under current law, when the DIF reserve ratio is at or above 1.35 percent, but not 

more than 1.5 percent, the FDIC is required to dividend one-half of the amount in the DIF 

that maintains the reserve ratio at 1.35 percent. In addition, the FDIC is required to 

dividend all amounts in the DIF that keep the reserve ratio above 1.5 percent. The result 

of these mandatory dividends is to limit the ability of the DIF to grow in good times and 

to effectively cap the size of the DIF. 
These restrictions on the size of the DIF will limit the ability of the FDIC to 

rebuild the fund in the future to levels th.at can offset the pro-cyclical effect of assessment 

increases during times of economic stress. Limits on the size of the DIF of this nature 

will inevitably mean that the FDIC will have to charge higher premiums against the 

_industry when conditions in the economy are causing significant numbers of bank: 

failures. 

Thank you for writing. We will be including your letter in the public comment ~-

file for consideration in the development of the final rule on the emergency special 

assessment. Please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, 

Director of Legislative Affairs, at (202) 898-3837 if you would like to discuss this matter 

further. 

Sincerely, 

Sheila C. Bair 
M.CIR-11-2009 16:34 From: 

L VNN J£NICINS, CN, ,.., ,_..ICT it...,;,.,; 

To:98987062 

ASSISTANT WHIP 

COr.lMIT'TEE ON FINANCIAL Sl;RVICES 

~ ......... ,,.. rwr.AI ...... M.-,a-, n: 

-"'"'-•· ~ G.)vs_,., !,QNIOJllo c .. n-u1 

Congress of tbt llnittb ~tate~ 

;tJo~t of l\tprtstntatibrs 

!luaco .. ..,l'TI! °" ~NG AMI> 

c.-.. ...... .., n"'"'"'""'" 

The Hnnonble. Sheik Bair 

fcdc:al Uq,ostt l ni.uancc C :orporation 

550 17~ Si:., N\'CI .K.oom 602H 

\Vuhington, DC 20429 

Dnr Ch2.UWoman Bw: 

UJ,1s1)ingron, ~< 205l5-1602 

Match 04, 2009 

Page:1'1 

[#09--~55 

1:111 L_,,. MNJliJ On"-• a.,.....,.. 

I.It--.;•<»,. De 1111,):, 

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ll.'iO SW SN S"Ut T-....,1-$ua:o, 

1mq~111a 

1111,,i a•- ... sr•i~• l',11"1•-. ICI: Mis, 

(llOUll ~ 

tarn proud that 2 fc-Uow Iun.s2n such .u yours~lf hu risen to play such : lccy role in lc:awng our n::u:inn rhmugh one of the 

'1170J:Ct .tin.anew do'l:IIDt:u.ms in recent histO')'- l know that wt 211 have Amaic.ns' best iru:ere11t1 ~t h~tt :ai we confront the 

challenges facing om ru.don. 

1 write to you today on belwf of the l1l2.l1J c:ommunic, fuwic:ial institutions which t represent in Kansa.s' Second l)1sttict. 

Gtowing up in rw:a.l K:ansu, you know as well 21 1 do the cloce-lcnit c:ummunitic:s ia which thue imtirurions ope.ate, fuith.fully 

investing rhe hud-e2med doD.,n of their ncighboxs to the bettermenr of i:hc community ancl the depositors.. 

tr is clcu th.'\t rccc:nr b.tnk &ilura h:z,r~ signific:uirly increued losses tQ the Dcpu5it Imu::mcc fund (DTF). resulting in : 

decline in the reserve r.:1rio. T .am conc:tmcd that, :\t .40 pc:tceat.. the .reserve atio for the combinc.-J bank 111d thrift in,mrsncc 

fund is at its lowest level since 1993. H~er, u yo11 lcnow, the bllllks in my community did aotcsuse this economic tnum:a 

and they believe due they arc being un&idf s2ddled with higher premiums to compcns:a.tc for the misw:e.c nf others. 'With 

thei:e cnnccmt1 in mind, J have a few qutttions: 

1) Why did the FDIC opt for :m acros.s-the·bcr.u:d. emergency a:sidsmcnt? The Fc.-da:il Deposit Jn~uranc-.c Rcfoon 

Aa of 2005 require.'! rhc agency ro C$ttblish and implement a Dll1 re$towion pl:i.n when the: rcsavc: u.tio Falls 

below 1.15 ptta:ntwichin five yeant, :a.h1ent C%1T:\Ordinuy circumstances. Wh2t in your view :uc: ••cxtaordinacy 

circumstances'' that might trigger ttgul:ato.cy forbe:annce? 

2) Docs forcing inui.nuinnA ro pay inCtca-sc4 :mcs:smmcs in the midst of couLiuuing ccunumic h:udship cnunrerproductivc and lead to further in.solvency? If 110, docs th.is ICTcal a fund:unenw flaw iu uur fimnci.al rcgul2toty 

'-Y'tcm? 

3) Congrci:s, p,..rticul:a.rly rhe House Finan~l Services Committee on which l serve, is ~~ to dcb:uc cegularnry 

reform. How wouJd ynu recommend alrering the ngulato.ty Sf$Cem puricululy as il td:.tt.cs to wh:at appon to be 

pt0-cyclic:aliry of the: deposit i.nsllr.lncc synem? 

Your ins.ighr into these issues would be very helpful u our conunillcc wn:sllc:; with these: ii.~ue,1. Thank you for your time :ind 

con!.idemnon of rheJe ,1uesrions. 

CC:: 

'l 'reasury Secretary Tim Gc:itlmc:t 

f-cdc:rnl Reserve Chaimw1 Beu 'Bcm2nkc 

Comptrollu of the Cum:ucy Juhn DuL':lll 

Office- of Th.rift Supervision Director John Reich 

Sinccrdy. 

LynnJ~nkins. CPA 

Member of Con_Kro.s 

1'111Nlt0 ON N:cYi1 ro '""FA 
THAD _,. 

COCHRAN 

tlnittd ~nitts ~matt 

WASHINGTON, DC 20510-2402 FDIC 

L;fo'?-??l{ 

COMMITTEE ON 

Al'l'ROl'RIATIONS __ ,. 

COMMITTEE ON 

AGRICIJL llJRE. NUTRITION. 

AND FORESTRY 

APR 10 ID09 

Ms. Sheila C. Bair 

Chairman of the Board 

March 27, 2009 

Federal Deposit Insurance Corporation 

550 17th Street. NW 

Washington, D.C. 20429 

Dear Chairman Bair. 

losed is correspondence s-ne of my constituents, Mr. 

and his business partner, detailing their views and concerns over 

administration of the Trou sset elief Program. As a courtesy to me, I 

would appreciate you reviewing the issues raised in his letter. 

Any assistance you can provide this important matter would be deeply appreciated. 

TC/wt 

Enclosure 

~COCHRAN 

-'-~ United States Senator 
- FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, oc 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Christopher J. Dodd 

Chairman 

Committee on Banking, Housing, 

and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

January 12, 2009 

Thank you for your letter, received December 1, 2008, enclosing your questions and 

those from Senator Enzi subsequent to my testimony on "Turmoil in the U.S. Credit Markets: 

Examining Recent Regulatory Responses" before the Committee on October 23, 2008. 

Enclosed are responses to those questions. If you have further questions or comments, 

please do not hesitate to contact me at (202) 898-6974 or Eric Spitler, Director of Legislative 

Affairs, at (202) 898-3837. 

Sincerely, 

Sheila C. Bair 

Enclosure 
Response to questions from the Honorable Christopher J. Dodd 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Ql. Please provide the legal justification for establishing the Temporary Liquidity 

Guarantee Program under the systemic risk exception in the Federal Deposit Insurance 

Act. 

Al. The legal authority for establishing the Temporary Liquidity Guarantee Program (TLGP) 

is set forth in 12 U.S.C. 1823(c)(4)(G). Based on information regarding the unprecedented 

disruption in credit markets and the resulting effects on the ability of banks to fund themselves 

and the likelihood that the FDIC's compliance with the )east-cost requirements of the Federal 

Deposit Insurance Act (12 U.S.C. 1823(c)(4)(A) and (E)) would have serious adverse effects on 

economic conditions or financial stability by increasing market uncertainty, the Board of 

Directors of the FDIC and the Board of Directors of the Federal Reserve System made written 

recommendations to the Secretary of the Treasury that the FDIC's creation of the TLGP program 

to guarantee bank depositors and senior unsecured creditors against loss under certain described 

circumstances would avoid or mitigate such effects. After consultation with the President, as 

required by the statute, the Secretary of the Treasury made the systemic risk determination that 

provided the FDIC with the authority to implement the TLGP. 

Q2. According to press reports, the emergency actions taken by the FDIC to guarantee 

unsecured senior debt issued by FDIC-insured depository institutions has bad the 

unintended consequence of driving up the costs of borrowing for Fannie Mae, Freddie Mac 

and the Federal Home Loan Banks (FHLBs). Was this taken into account as a possible 

consequence as you formulated this course of action? 

A2. As noted in the press, the spread of debt issued by Government-sponsored enterprises 

(GSEs), including Fannie Mae, Freddie Mac and Federal Home Loan Banks (FHLBs), over 

Treasuries increased considerably in October and November although the overall cost of funding 

declined. According to Merrill Lynch data on U.S. bond yields, the spread between AAA-rated 

agency debt and Treasuries increased by nearly 40 basis points between September and 

November 2008. We believe these developments primarily reflect broad financial market 

uncertainty and a generally unfavorable market sentiment towards financial firms. In fact, the 

spread of debt guaranteed by the FDIC under the Temporary Liquidity Guarantee Program over 

Treasuries is larger than the spread on GSE debt. 

Financial firms, including those with a AAA-rating, saw their borrowing costs increase sharply, 

both in absolute terms and relative to Treasury yields, during the same two months, even as the 

Federal Reserve continued to lower the federal funds target rate. Merrill Lynch data show that 

the effective yield on AAA-rated corporate debt issued by financial firms increased by 140 basis 

points between September and October, before declining somewhat in November. Lower-rated 

corporate debt experienced even more significant increases over the same period of time. 
The primary purpose of the FDIC's Temporary Liquidity Guarantee Program is to provide 

liquidity in the inter-bank lending market and promote stability in the long-term funding market 

where liquidity has been lacking during much of the past year. While the FDIC's action was 

focused primarily on helping to restore a stable funding source for banks and thrifts, we believe 

that such liquidity can, in turn, help promote lending to consumers and small businesses, which 

would have a considerable benefit to the U.S. economy, in general, and financial firms, including 

mortgage lenders and GSEs. Nevertheless, partly to mitigate any potential effect of the FDIC 

guarantee on funding costs for GSEs, the federal banking agencies have agreed to assign a 20 

percent risk weight to debt guaranteed by the FDIC (rather than the zero risk weighting that is 

assigned to debt guaranteed by a U.S. Government agency that is an instrumentality of the U.S. 

Government and whose obligations are fully and explicitly guaranteed as to the timely 

repayment of principal and interest by the full faith and credit of the U.S. Government). 

Q3. The FFIEC has proposed a rule that would lower the capital risk weighting that 

banks assign to Fannie Mae and Freddie Mac debt from 20 to 10 percen~ but does not 

change the treatment for FHLB debt. Has any consideration been given to giving the same 

treatment to FHLB debt? Will FDIC-guaranteed unsecured bank debt have a comparable 

risk weight? 

A3. On September 6, 2008, the Treasury and Federal Housing Finance Agency (FHF A) 

placed Fannie Mae and Freddie Mac into conservatorship, administered by the FHF A. The next 

· day, September 7, 2008, the Treasury announced the establishment of the Government Enterprise 

Credit Facility and entered into senior preferred stock purchase agreements (the Agreements) 

with Fannie Mae and Freddie Mac. These Agreements are intended to ensure that Fannie Mae 

and Freddie Mac maintain a positive net worth and effectively support investors that hold debt 

and mortgage-backed securities issued or guaranteed by these entities. 

On October 27, 2008, the Federal Deposit Insurance Corporation, Board of Governors of the 

Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift 

Supervision (together, the Agencies) published in the Federal Register a Notice of Proposed 

Rulemaking that would pennit a banking organization to reduce to IO percent from 20 percent 

the risk weight assigned to claims on, and the portions of claims guaranteed by, Fannie Mae and 

Freddie Mac {the NPR). 1 As proposed, the NPR would permit a banking organization to hold 

less capital against debt issued or guaranteed by Fannie and Freddie. The preferential risk 

weight would be available for the duration of the Treasury's Agreements 

The NPR requested comment on the proposed regulatory capital treatment for debt issued or 

guaranteed by Fannie Mae and Freddie Mac and whether the Agencies should extend this capital 

treatment to debt issued or guaranteed by other government-sponsored entities (GSEs), such as 

the Federal Home Loan Banks (FHLBanks). The comment period for the NPR closed on 

November 26, 2008, and the Agencies received more than 200 public comments. Most of the 

commenters support lowering the risk weight for debt issued or guaranteed by the FHLBanks to 

narrow the credit spread between Fannie Mae and Freddie Mac debt and FHLBank debt. The 

1 73 Fed. Reg. 63656. 
Agencies are reviewing the comments and determining whether a l O percent risk weight is 

appropriate for a banking organization's exposure to a GSE. 

On November 26, 2008, the FDIC published in the Federal Register a final rule implementing 

the Temporary Liquidity Guarantee Prograrn.2 Under the Temporary Liquidity Guarantee 

Program, the FD IC will guarantee the payment of certain newly issued senior unsecured debt 

issued by banking organizations and other "eligible" entities. Consistent with the existing 

regulatory capital treatment for FDIC-insured deposits, the Agencies will assign a 20 percent risk 

weight to debt guaranteed by the FDIC. 

Q4. I commend you for aggressively pursuing loan modifications of the IndyMac loans 

that the FDIC now services. Please elaborate on the following three points that you make 

in your testimony that I want to explore further: 

(a). You state that you have established a program to systematically modify troubled 

loans that IndyMac serviced. Please give us more details about this approach and how it 

differs from modifying loans on a case-by-case basis. Is there really such a thing as a 

systematic approach to loan modification, or do you have to touch every loan as you would 

on a case-by-case basis? 

A4(a). The FDIC's loan modification program at IndyMac provides a streamlined and 

systematic approach to implementing affordable and sustainable loan modifications. By 

establishing clear guidelines for loan modifications determined by an affordability metric based 

on mortgage debt-to-gross income, the loan modification program allows servicers to apply the 

model to thousands of mortgages quickly, while defining for each loan how to achieve the 

targeted DTI. By using a waterfall of three basic loan modification tools- interest rate 

reductions, term or amortization extensions. and principal deferment - it is relatively simple to 

run thousands of loans through a computerized analysis of the necessary combination of tools 

needed to achieve an affordable and sustainable payment. A standardized net present value 

analysis, also computerized, allows IndyMac to ensure that its modifications provide a better 

value to the FDIC or investors in securitized or purchased Joans. All IndyMac modifications are 

based on verified income information from third party sources such as the Internal Revenue 

Service or employers. 

This is very different from the loan-by-loan approach used by most servicers, which seeks to 

gather detailed financial information from borrowers - usually based on verbal statements - and 

get the highest possible monthly payment while leaving the borrower with a set amount of 

'disposable income.• While this approach may appear to offer a more customized approach, it 

has often meant that servicers relied on stated income and stated expenses to achieve a shortterm solution that continued to place the borrower in a precarious and unsustainable payment. 

The difficulty with this approach is demonstrated by the high redefault rates reported by some 

servicers. 

2 73 Fed. Reg. 72244. 
The FDIC Loan Modification Program at IndyMac achieves an affordable payment through a 

three step waterfall process: 

• Interest Rate Reduction: Cap the interest rate at the Freddie Mac Weekly Survey Rate 

for the balance of the loan term and, if needed to reach the DTI target, reduce the interest 

rate incrementally to as low as 3 percent and re-amortize the principal balance over the 

remaining amortization term. The interest rate charged will not be greater than the 

current Freddie Mac Weekly Survey Rate at the time of modification. The reduced rate 

remains in effect for at least 5 years. 

If the target debt-to-income ratio has not been achieved, proceed to the next step. 

• Extended Amortization Term: For loans with original terms of 30 years or less, reamortize the principal balance at the reduced interest rate (3 percent floor) over an 

extended amortization term of 40 years from the original first payment date. 

If the target debt-to-income ratio has not been achieved, proceed to the next step. 

• Partial Principal Forbearance: Defer a portion of the principal balance for 

amortization purposes, and amortize over a 40-year period at the reduced interest rate (3 

percent floor). The remaining principal balance remains as a zero interest, zero payment 

portion of the loan. The repayment of the deferred principal will be due when the loan is 

paid in full. 

Of the loan modification offers made at IndyMac thus far, 73 percent required rate reduction 

only, 21 percent required rate reduction and term extension, and 6 percent required rate 

reduction, term extension, and principal forbearance. 

Q(b). Your testimony says that modifications are only offered where they are profitable to 

IndyMac or investors in securitized or whole loans. Are you finding that most 

modifications are profitable, and if so, please explain how you determine that they are 

more profitable than foreclosures? 

A(b ). Yes. While there are always some proportion of delinquent mortgages where a 

modification will not provide the best alternative to preserve value for the mortgage, many 

mortgages can be modified successfully while gaining the best value compared to foreclosure. 

One illustration of this fact is the net present value comparisons between the modified mortgage 

and foreclosure for the more than 8,500 completed modifications at IndyMac. To date, on 

average, the net present value of completed modifications at IndyMac has exceeded the net 

present value of foreclosure by $49,918 for total savings compared to foreclosure of more than 

$423 million. 

As conservator, the FDIC has a responsibility to maximize the value of the loans owned or 

serviced by IndyMac Federal. Like any other servicer, IndyMac Federal must comply with its 
contractual duties in servicing loans owned by investors. Consistent with these duties, we have 

implemented a loan modification program to convert as many of these distressed loans as 

possible into performing loans that are affordable and sustainable over the long term. This action 

is based on the FDIC's experience in applying workout procedures for troubled loans in a failed 

bank scenario, something the FDIC has been doing since the 1980s. Our experience has been 

that performing loans yield greater returns than non-performing loans. 

The FDIC's Loan Modification Program at IndyMac is primarily based on four principles: 

1) Affordable and sustainable modifications generalJy provide better value than foreclosure 

to lenders and investors, and to the IndyMac conservatorship and the FDIC's Deposit 

Insurance Fund. Modifications that exceed the net present value of foreclosure generally 

are consistent with servicing agreements and protect the interests of investors in 

securitized mortgages. 

2) Sustainable loan modifications must be affordable for the life of the loan. As a result, the 

Loan Modification Program is based on a first lien mortgage debt-to-gross income ratio 

ranging from 38 percent to 31 percent. The modifications use a combination of interest 

rate reductions, term extensions, and principal deferment to achieve affordable payments. 

The interest rate on the modified mortgages is capped at a prime conforming loan rate 

reported by the Freddie Mac Weekly Survey. The interest rate can be reduced to as low 

as 3 percent for five years in order to achieve an affordable payment followed by gradual 

interest rate increases of 1 percent per year until the Freddie Mac Weekly Survey rate is 

reached. 

3) All modifications should be based on verified income information, not stated income. 

This is essential to establish affordability. 

4) A streamlined and systematic modification process is essential to address the volume of 

delinquent mortgages in today's market. The FDIC, along with many mortgage 

servicers, has adopted a more streamlined process focused on modifying troubled 

mortgages based on a simple debt-to-income ratio since it is easy to apply and avoids 

costly and unnecessary foreclosures for many more borrowers. 

The Program results in a positive outcome for investors and borrowers as investor loss is 

minimized and the borrower receives a sustainable long-term modification solution. The 

Program requires full income documentation in order to minimize redefault and ensure the 

affordability standard is uniformly implemented. The gross monthly income for all borrowers 

who have signed the mortgage note must be supported by either the prior year's tax returns or 

recent pay stubs. 

Q(c). You state that securitization agreements typically provide servicers with sufficient 

flexibility to apply the modification approach you are taking for the IndyMac loans. Given 

this flexibility, why are so few loan modifications being made? 
A(c). While the securitization agreements do typically provide servicers with sufficient 

flexibility, many servicers have been reluctant to adopt the streamlined modification protocols 

necessary to stem the rate of unnecessary foreclosures due to concerns about challenges from 

investors, a tendency to continue prior practices of focusing on loan-by-loan customized 

modifications, and by staffing limitations. 

At IndyMac, of the more than 45,000 mortgages that were potentially eligible for modification, 

IndyMac has mailed modification offers to more than 32,000 borrowers. Some proportion of the 

remainder do not pass the NPV test and others must be addressed through more customized 

approaches. So far, IndyMac has completed income verification on more than 8,500 

modifications and thousands more have been accepted and are being processed and verified. 

As the FDIC has proven at IndyMac, streamlined modification protocols can have a major 

impact in increasing the rates of sustainable modifications. However, even there, challenges in 

contacting borrowers and in getting acceptance of the modification offers can inhibit the 

effectiveness of modification efforts. These are challenges that we have sought to address by 

working closely with HUD-approved, non-profit homeownership counseling agencies, such as 

those affiliated with NeighborWorks. In addition, we have sought to reach out to local 

community leaders and provide cooperative efforts to contact borrowers at risk of foreclosure .. 

These efforts, which many servicers are starting to pursue, should be a focus of efforts by all 

servicers going forward. 

In addition, servicers' concerns over challenges from investors makes adoption of a national 

program to provide incentives from federal funds a critical part of the strategy to achieve the 

scale of modifications necessary to address our housing crisis. To address conflicting economic 

incentives and fears of re-default risk, the FDIC has proposed that the government offer an 

administrative fee to servicers who systematicaI1y modify troubled loans and provide Joss 

sharing to investors to cover losses associated with any redefaults. These financial incentives 

should make servicers and investors far more willing to modify loans. This proposal addresses 

the biggest disincentive to modify troubled mortgages - the potential for greater losses if a 

modified loan redefaults and foreclosure is necessary some months in the future in a declining 

housing market. As a result, the FDIC proposal is designed to cover a portion of the losses that 

could result if the modified mortgage redefaults. This will provide practical protection to 

servicers by allowing easier proof for the value of the modification and eliminate investors' 

primary objection to streamlined modifications. We have estimated the costs of this program to 

be about $25 billion. To protect taxpayers and assure meaningful loan modifications, the 

program would require that servicers truly reduce unaffordable Joan payments to an affordable 

level and verify current income, and that borrowers make several timely payments on their 

modified loans before those loans would qualify for coverage. This proposal is derived from loss 

sharing arrangements the FDIC has long used to maximize recoveries when we sell troubled 

loans. We believe this or some similar program of financial incentives is necessary to achieve 

loan modi ti cations on a national scale to halt the rising tide of foreclosures and the resulting 

economic problems. 
QS. Each agency represented at the bearing bas aggressively used the tools at their 

disposal in dealing with the crisis. However, sometimes the use of those tools has led to 

unintended consequences. For instance, when the Treasury Department guaranteed money 

market funds, it led to a concern on deposit insurance and bank accounts. When the FDIC 

guaranteed bank debt, it had an effect on GSE borrowing costs, which in turn directly 

affects mortgage rates. 

Acknowledging that there is often a need to act quickly in these circumstances, please 

explain what steps and processes you have employed to inform other agencies about 

significant actions you undertake to ensure that there are not serious adverse unintended 

consequences and that your actions are working in concert with theirs. 

AS. The FDIC's Temporary Liquidity Guarantee Program was created during intensive 

discussions between the FDIC, the Department of the Treasury and the Federal Reserve over the 

Columbus Day weekend (October 11 - 13) and announced on October 14. Over the next several 

weeks, the FDIC adopted an Interim Rule, an Amended Interim Rule and a Final Rule. The 

FDIC's Interim Final Rule adopted on October 23 specifically requested comments on the 

Temporary Liquidity Guarantee Program and the FDIC received over 750 comments, including 

comments from other government agencies. During this process, the FDIC had frequent 

discussions with the Treasury, the Federal Reserve, the Office of the Comptroller of the 

Currency and the Office of Thrift Supervision about various aspects of the program and its 

potential consequences. 

With regard to concerns that the actions by the FDIC to guarantee bank debt had an effect on 

GSE borrowing costs, as discussed above, the spread of debt issued by Government-sponsored 

enterprises (GSEs), including Fannie Mae, Freddie Mac, and Federal Home Loan Banks 

(FHLBs), over Treasuries increased considerably in October and November although the overall 

cost of funding declined. According to Merrill Lynch data on U.S. bond yields, the spread 

between AAA-rated agency debt and Treasuries increased by nearly 40 basis points between 

September and November 2008. We believe these developments primarily reflect broad 

financial market uncertainty and a generally unfavorable market sentiment towards financial 

firms. In fact, the spread of debt gu~nteed by the FDIC under the Temporary Liquidity 

Guarantee Program over Treasuries is larger than the spread on GSE debt. 

Financial firms, including those with a AAA-rating, saw their borrowing costs increase sharply, 

both in absolute terms and relative to Treasury yields, during the same two months, even as the 

Federal Reserve continued to lower the federal funds target rate. Merri11 Lynch data show that 

the effective yield on AAA-rated corporate debt issued by financial firms increased by 140 basis 

points between September and October, before declining somewhat in November. Lower-rated 

corporate debt experienced even more significant increases over the same period of time. The 

primary purpose of the FDIC's Temporary Liquidity Guarantee Program is to provide liquidity 

in the inter-bank lending market and promote stability in the long-term funding market where 

liquidity has been lacking during much of the past year. While the FDIC's action was focused 

primarily on helping to restore a stable funding source for banks and thrifts, we believe that such 

liquidity can, in tum, help promote lending to consumers and small businesses, which would 
have a considerable benefit to the U.S. economy, in general, and financial firms, including 

mortgage lenders and GSEs. Nevertheless, partly to mitigate any potential effect of the FDIC 

guarantee on funding costs for GSEs, the federal banking agencies have agreed to assign a 20 

percent risk weight to debt guaranteed by the FDIC (rather than the zero risk weighting that is 

assigned to debt guaranteed by a U.S. Government agency that is an instrumentality of the U.S. 

Government and whose obligations are ful1y and explicitly guaranteed as to the timely 

repayment of principal and interest by the fuJI faith and credit of the U.S. Government). 
Response to questions from the Honorable Michael B. Enzi 

by Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation 

Ql. I was happy to note in your testimony that you discussed the need to stop 

unnecessary foreclosures. You mentioned the FDIC's work as conservator of IndyMac and 

your participation in the Hope for Homeownership program as recent examples of your 

effort. Does the FDIC plan to develop a new program to extend loan modifications to a 

broader pool of mortgages than those held by IndyMac? How would such a program work 

and what would its impact be on mortgage investors? Where would the FDIC derive 

authority for such a program? 

Al. In mid-November, the FDIC announced a new proposal for loan modifications that is 

similar to the program we developed at IndyMac. Both target borrowers who are 60 days or more 

past due, and both seek to apply a consistent standard for affordable first-lien mortgage payment. 

The new FDIC proposal has a 31 percent debt-to-income ratio, whereas IndyMac modifications 

are designed to achieve a 38 percent debt-to-income ratio, but can go as low as 31 percent. 

The FDIC's proposal is designed to promote wider adoption of systematic loan modifications by 

servicers through the use of payment incentives and loss-sharing agreements, and thus reach 

more troubled borrowers. Specifically, to encourage participation, funds from the Troubled 

Asset Relief Program (TARP) would be used to pay servicers $1,000 to cover expenses for each 

loan modified according to the required standards. In addition, TARP funds would be used to 

provide guarantees against the losses that lenders and investors could experience if a modified 

loan should subsequently redefau.1t. The guarantee would be paid only if the modification met all 

prescribed elements of the loan modification program, if the borrower made at least 3 monthly 

payments under the modified loan, and if the lender or servicer met the other elements of the 

program. 

The impact of this new proposal will be less costly than the lengthy and costly alternative of 

foreclosure, where direct costs can total between 20 and 40 percent of a property's market value. 

We expect about half of the projected 4.4 million problem loans between now and year-end 2009 

can be modified. Assuming a redefault rate of33 percent, this plan could reduce the number of 

foreclosures during this period by some 1.5 million at a projected program cost of $24.4 billion. 

We believe that Section 109 of the EESA provides authority for this proposal. Section 109 

provides that "the Secretary may use loan guarantees and credit enhancements to facilitate loan 

modifications to prevent avoidable foreclosures." 

Q2. Has the FDIC given any further consideration to the FDIC's own Home Ownership 

Preservation Loan program? I believe this program is a good way to avoid foreclosures 

and severe mortgage modifications at the same time. If this program is no longer being 

considered, why? 
A2. When the FDIC proposed the Home Ownership Preservation (HOP) Loan program in 

May 2008, we noted that congressional action would be required to authorize the Treasury 

Department to make HOP loans. We believe that the HOP Loan program could be an important 

tool for avoiding unnecessary foreclosures in combination with other tools. As the housing 

market and home prices have continued to decline, we have suggested the loss guarantee 

approach discussed above as a way of streamlining and increasing the scale of loan 

modifications.