The Obama Administration'S Response To The Housing Crisis: Hearing

THE OBAMA ADMINISTRATIONS
RESPONSE TO THE HOUSING CRISIS
HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
OCTOBER 6, 2011
Printed for the use of the Committee on Financial Services
Serial No. 11269
(
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON
72610 PDF
2012
For sale by the Superintendent of Documents, U.S. Government Printing Office

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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice Chairman
PETER T. KING, New York
EDWARD R. ROYCE, California
FRANK D. LUCAS, Oklahoma
RON PAUL, Texas
DONALD A. MANZULLO, Illinois
WALTER B. JONES, North Carolina
JUDY BIGGERT, Illinois
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
SCOTT GARRETT, New Jersey
RANDY NEUGEBAUER, Texas
PATRICK T. MCHENRY, North Carolina
JOHN CAMPBELL, California
MICHELE BACHMANN, Minnesota
THADDEUS G. McCOTTER, Michigan
KEVIN McCARTHY, California
STEVAN PEARCE, New Mexico
BILL POSEY, Florida
MICHAEL G. FITZPATRICK, Pennsylvania
LYNN A. WESTMORELAND, Georgia
BLAINE LUETKEMEYER, Missouri
BILL HUIZENGA, Michigan
SEAN P. DUFFY, Wisconsin
NAN A. S. HAYWORTH, New York
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO QUICO CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
BARNEY FRANK, Massachusetts, Ranking

Member
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
LUIS V. GUTIERREZ, Illinois
ZQUEZ, New York
NYDIA M. VELA
MELVIN L. WATT, North Carolina
GARY L. ACKERMAN, New York
BRAD SHERMAN, California
GREGORY W. MEEKS, New York
MICHAEL E. CAPUANO, Massachusetts
N HINOJOSA, Texas
RUBE
WM. LACY CLAY, Missouri
CAROLYN MCCARTHY, New York
JOE BACA, California
STEPHEN F. LYNCH, Massachusetts
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
AL GREEN, Texas
EMANUEL CLEAVER, Missouri
GWEN MOORE, Wisconsin
KEITH ELLISON, Minnesota
ED PERLMUTTER, Colorado
JOE DONNELLY, Indiana
CARSON, Indiana
ANDRE
JAMES A. HIMES, Connecticut
GARY C. PETERS, Michigan
JOHN C. CARNEY, JR., Delaware
LARRY C. LAVENDER, Chief of Staff
(II)
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SUBCOMMITTEE
ON
INSURANCE, HOUSING
AND
COMMUNITY OPPORTUNITY
JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice Chairman
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
SCOTT GARRETT, New Jersey
PATRICK T. MCHENRY, North Carolina
LYNN A. WESTMORELAND, Georgia
SEAN P. DUFFY, Wisconsin
ROBERT J. DOLD, Illinois
STEVE STIVERS, Ohio
LUIS V. GUTIERREZ, Illinois, Ranking

Member
MAXINE WATERS, California
ZQUEZ, New York
NYDIA M. VELA
EMANUEL CLEAVER, Missouri
WM. LACY CLAY, Missouri
MELVIN L. WATT, North Carolina
BRAD SHERMAN, California
MICHAEL E. CAPUANO, Massachusetts
(III)
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CONTENTS
Page
Hearing held on:

October 6, 2011 .................................................................................................
Appendix:
October 6, 2011 .................................................................................................
1
41
WITNESSES
THURSDAY, OCTOBER 6, 2011
Barofsky, Neil M., Senior Fellow and Adjunct Professor, New York University
School of Law ........................................................................................................
Calabria, Mark A., Ph.D., Director, Financial Regulation Studies, Cato Institute ........................................................................................................................
Galante, Carol J., acting Assistant Secretary for Housing/Federal Housing
Administration Commissioner, U.S. Department of Housing and Urban Development, accompanied by Yolanda Chavez, Deputy Assistant Secretary
of Grant Programs, Office of Community Planning and Development, U.S.
Department of Housing and Urban Development .............................................
Goodman, Laurie S., Senior Managing Director, Amherst Securities Group
LP ..........................................................................................................................
Jakabovics, Andrew, Senior Director, Policy Development and Research, Enterprise Community Partners .............................................................................
Kingsley, Darius, Deputy Chief, Homeownership Preservation Office, U.S.
Department of the Treasury ................................................................................
Trevino, Tammye H., Rural Housing Services Administrator, U.S. Department of Agriculture ..............................................................................................
24
26
9
28
30
10
7
APPENDIX
Prepared statements:
Barofsky, Neil M. ..............................................................................................
Calabria, Mark A. .............................................................................................
Galante, Carol J. ..............................................................................................
Goodman, Laurie S. ..........................................................................................
Jakabovics, Andrew ..........................................................................................
Kingsley, Darius ...............................................................................................
Trevino, Tammye H. .........................................................................................
ADDITIONAL MATERIAL SUBMITTED
FOR THE
RECORD
Biggert, Hon. Judy:

Written statement of the U.S. Department of Housing and Urban Development ...........................................................................................................
Written statement of the National Association of REALTORS .................
Letter from the National Low Income Housing Coalition .............................
(V)
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THE OBAMA ADMINISTRATIONS

RESPONSE TO THE HOUSING CRISIS
Thursday, October 6, 2011
U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INSURANCE,
HOUSING AND COMMUNITY OPPORTUNITY,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:30 a.m., in room
2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, Capito, Garrett, Duffy, Dold; Gutierrez, Waters, Velazquez, Cleaver, Watt, and
Sherman.
Also present: Representative Al Green of Texas.
Chairwoman BIGGERT. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order.
We will begin with opening statements, and it is great to see all
of the witnesses back here again. Thank you for coming.
I will recognize myself for 4 minutes.
Todays hearing is a continuation of our subcommittees work to
examine the Administrations refinancing and foreclosure mitigation initiatives and efforts to facilitate the return of the private sector into the housing market, and we will hear from senior Administration officials and several private-sector witnesses.
Earlier this year, the House voted to end a number of the Administrations housing programs because they were unsuccessful, costing taxpayers billions of dollars, and, in the case of HAMP, doing
more harm than good.
Nearly one month ago, President Obama offered two new initiatives as part as his jobs speech that he urgently requested to deliver to a joint session of Congress. These new housing programs
were: one, a modified version of an existing Fannie Mae and
Freddie Mac program to refinance mortgages called the Home Affordable Refinance Program, or HARP; and two, a $15 billion program that is a new iteration of the Neighborhood Stabilization Program, or NSP, which we will examine.
At a glance, both of these initiatives sound more like stimulus
spending. However, as we have learned, Federal spending doesnt
create jobs. Rather, it increases our deficit. That said, I look forward to hearing more details about them from the Administration
officials.
As for housing, it isnt clear to me how any of the Administrations initiatives or proposals have succeeded in facilitating a mar(1)
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ket recovery. In fact, the Administration never achieved its own
projections for success of these initiatives. In short, I think that
these programs have failed to deliver. Housing always leads us out
of recession, but the Administrations housing regulations and policies are expanding the role of government in the mortgage market
and forestalling our economic recovery.
First, Federal Government programs, FHA, Fannie and Freddie,
monopolize 90 percent of the mortgage market; second, failed
taxpayer- funded housing programs like HAMP are preventing the
market from hitting the bottom and prolonging our housing, economic, and job recovery; and third, businesses and the mortgage
market are threatened by the Administrations new costly regulations like the proposed QRM regulations. QRM will distort competition in the market, limit choice in credit, and increase costs for consumers and businesses. Businesses need regulatory certainty, relief, and common sense, not competition or indecisiveness from
Washington.
At todays hearing, we are going to talk about the fact that
Americans need jobs, which is what businesses, not government,
create; and today we have an opportunity to evaluate the last 3
years of the Administrations response to the housing crisis through
the numerous housing programs. It is my hope that we will get a
better understanding of the lessons learned before considering new
approaches.
I welcome todays witnesses and recognize the ranking member,
Mr. Gutierrez, for 5 minutes.
Mr. GUTIERREZ. Thank you, Chairwoman Biggert, and thank you
to all the witnesses for joining us this morning.
Once again, we are talking about the continuing housing crisis,
and I have seen this movie before. Millions of families are still facing default or foreclosure, vacant homes are dragging down communities, and we are still not sure we have seen the worst of it; and
we are taking another necessary look at housing programs implemented in response to the crisis, most of which have failed to live
up to our expectations.
While we can talk about these programs all day long, we cannot
refute the fact that we have squandered an opportunity. We had
a chance to force Wall Street banks to take responsibility for an
economic crisis they helped create but were too easy on them from
the start.
To make matters worse, banks have done far too little to help
families stay in their homes. Treasury, HUD, and FHFA decided
at some point that foreclosure prevention could be done with optional programs and incentives, and then the banks came back and
told us the incentive programs werent big enough. Then, mortgage
servicers turned their modifications that didnt work and robo-signing foreclosures and just hoped we werent looking.
I can say that I am encouraged by some of the promising new
ideas out there because I still believe there are many actions that
can help. For example, Project Rebuild could give neighborhood organizations more access to private capital to stabilize hard-hit communities. The agencies in charge could all be more creative, careful, and thoughtful in the way they manage all the foreclosed
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3
homes they have on their books. Changes to HARP could also allow
more people to refinance expensive mortgages.
But as we move forward with the next set of ideas, we must take
a good look and see what we can learn from our past mistakes. We
certainly cant afford to repeat them.
I look forward to the testimony of the witnesses, and I thank the
chairwoman.
Chairwoman BIGGERT. Thank you, Mr. Gutierrez.
Mr. Hurt, our vice chairman, is recognized for 1 minute.
Mr. HURT. Thank you, Madam Chairwoman.
Thank you for holding another important hearing in the subcommittee to conduct oversight of the Obama Administrations response to the housing crisis. I appreciate your leadership on these
issues and your commitment to responsible policies that will facilitate the return of private capital to the housing market.
This subcommittee has conducted a number of hearings examining the programs that the Obama Administration created in an
attempt to address the housing and economic crises. While these
programs were well-intended, our subcommittee has found these
initiatives have not yielded the results that the American taxpayers were promised at their inception. Billions of dollars were
committed to these programs. Yet, we have heard from GAO, the
TARP Inspector General, and other experts that these programs
have proven ineffective in assisting homeowners in an unwise use
of taxpayer dollars.
While the subcommittee has demonstrated how misguided this
approach is, the President is proposing to double down on these
flawed initiatives as part of his American Jobs Act. The best way
that we can help the homeowner in the 5th District of Virginia, my
district, and across the country stave off foreclosures is with a job.
Instead of trying to spend our way to an economic recovery, it is
critical that we continue to focus on supporting policies that remove barriers to job growth so that our job creators will have the
confidence necessary to put people back to work and move our
economy forward.
I thank the witnesses who are here today to share with us their
perspectives, and I look forward to hearing from you. I yield back
my time.
Chairwoman BIGGERT. Thank you.
The gentlelady from West Virginia, Mrs. Capito, is recognized for
1 minute.
Mrs. CAPITO. Thank you, Madam Chairwoman.
I would like to thank you for holding this hearing to examine the
Administrations efforts to ease the housing collapse that left so
many of our Nations homeowners devastated. The difficulties currently facing the housing market are certainly central to the health
of our overall economy.
As we know, the different programs that were createdHAMP,
HARP, NSP, the FHA refinance, and the emergency home loan programmay have provided relief to some, but they have fallen woefully short of their goals and failed to right a housing market which
is still struggling.
Earlier this year, after documenting the progress of homeowner
assistance, foreclosure prevention, and community development ef-
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forts, it became, I think, very apparent that too many taxpayers
dollars are being spent supporting ineffective programs. Not only
are these not reaching homeowners, but in some cases, the homeowners who did receive assistance have come out in a worse financial position than before.
This morning we have anotheryet another opportunity to shed
light on the failed initiatives and gain insight into how to proceed
in the recovery of our housing system. Unfortunately, the Administration is interested, I believe, in implementing new programs that
seem to mimic the old ones.
I would like to thank the chairwoman for bringing us together
and I look forward to the testimony of our witnesses.
Thank you.
The gentleman from New Jersey, Mr. Garrett, is recognized for
2 minutes.
Mr. GARRETT. I thank the Chair for holding this important hearing.
At the risk of stating the obvious, our Nations housing market
is hurting, and it is hurting badly. House prices are falling, we
have delinquencies, default rates are at record levels, and there is
a vast oversupply of properties hanging over the market.
It is important to remember that we did not get into this mess
overnight, and there is no magic elixir to cure all the ills. But as
policymakers, we can decide to prolong the pain and continue to
kick the can down the road, dragging the problem out for years to
come at a much greater cost to taxpayers, or we can confront the
problem and face it head on and begin to do the necessary work
of what? Clearing the excess inventory and reestablishing a more
sustainable housing finance system.
Ad hoc plan after ad hoc plan by this Administration has done
absolutely nothing but delay the eventual correction that our housing market and market participants have to endure. The current
new ad hoc plans being floated by this Administration appear to be
nothing more than a back-door stimulus plan by forcing the breaking of legal contracts and requiring the GSEs to basically forfeit
their legal standing on claims to the banks that sold them faulty
loans. This would potentially subject the GSEs to billions and billions of dollars of additional losses, the bills of which will go directly to whom? All of the American taxpayers.
Also, CBO has stated that taxpayers will stand to lose literally
billions of dollars through lower coupon payments that the Fed will
receive on its $1.25 trillion of agency mortgage-backed securities
that it purchased through its first round of quantitative easings.
Add that together, then.
As if these concerns were not enough, the most troubling aspect
of these proposals is what? It is the negative impact that it will
have on private mortgage investment from this point forward. At
a time when we are trying to bring more private investment banks
back into our Nations mortgage system, actions now being taken
by the Federal Government to reduce the value of investments currently being held by investors will act as an impediment, if you
will, to future investment. These actions will raise future rates as
investors will have to basically price this into the mix.
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Fannie and Freddie are not toys of this Administration to try out
their new social policy. Fannie and Freddie are two failed companies that have played a leading role in this financial crisis, and at
a time like this, the last thing we need to do is to give investors
another reason not to buy U.S. mortgage-backed securities.
Mr. Dold, the gentleman from Illinois, is recognized for 2 minutes.
Mr. DOLD. Thank you, Madam Chairwoman.
Obviously, we have a very serious housing problem in this country. When serious problems arise, whether they are in the private
sector or in the government, our first priority should be to thoroughly investigate the problem and correctly define what the actual
problem is. And then we think about possible solutions, and we try
to identify the most cost-effective solutions while also trying to
identify the potential unintended consequences and risks.
Once we settle on the most cost-effective solution, we need to
think about how best to implement and execute that solution. Certainly, that is what we do in the private sector. At all times, we
recognize that we are necessarily dealing with imperfect information, with imperfect institutions, and with frequently changing circumstances. And at all times, we recognize that mistakes are possible at any point in the problem-solving process, and we should expect that future changes and improvements will be made. So after
the implementation and execution, our next obligation is to continually reevaluate the results, while looking for necessary changes
and improvements. We dont do that very well.
So after we ask whether we correctly defined the problem in the
first place and whether our assumptions were valid, we also should
ask whether we chose the best solution, whether we properly implemented and executed the solution, and whether we created unintended negative consequences. Very simply, for any serious business problem or public policy problem, we must ask what worked
and what didnt work and, more importantly, why. And then, we
are obligated to make the necessary changes and improvements.
We are not rigidly tied at all costs to previous decisions. We are
not trying to prove at all costs that we were perfectly correct all
along and that nothing ever needs to change or that more of the
same is the only possible answer. Instead, changes and improvements and corrections are unquestionably a necessary and useful
part of the entire problem-solving process. That is the problem, and
that is why we are here today, to evaluate the historical results of
the Obama Administrations efforts to solve this very serious public
policy problem, which is the housing crisis in this country, and to
identify the possible changes and improvements to those efforts.
The country is depending on us to do this as we look at the excess glut of housing that is out there. So I look forward to having
our witnesses help us identify these issues and move forward for
the American public.
And I yield back.
Chairwoman BIGGERT. Thank you. Just in the nick of time.
Do you have an opening statement, Ms. Waters? Good morning.
The gentlelady is recognized for 5 minutes.
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Ms. WATERS. Thank you very much. Madam Chairwoman, I
would like to thank you for holding this hearing this morning.
There were a record 2.9 million foreclosure filings in 2010, up
from 2.8 million in 2009, and 2.3 million in 2008. Filings will be
20 percent higher in 2011, crossing the 3 million threshold.
With 3 million families at risk of losing their homes this year,
there is a clear need for programs that prevent foreclosures and
deal with the blight and disinvestment caused by abandoned and
foreclosed properties. The Administrations response to date simply
hasnt been bold enough. This is why I am pleased that, as part
of the American Jobs Act, the Administration has recommended expanding the highly successful Neighborhood Stabilization Program,
which I authored, to include commercial properties. Called Project
Rebuild, this targeted assistance to foreclosed and abandoned residences and commercial properties will alleviate blight and create
jobs and reinvestment in struggling communities. I am looking forward to learning more about this very promising program.
While I am encouraged by Project Rebuild, I am disappointed in
HUDs failure to properly implement the Emergency Homeowners
Loan Program. I believe that the program was the right solution
to the problems facing unemployed homeowners and shouldnt be
discounted simply because the agency we charged to implement it
dropped the ball. We have to hold HUD accountable for the mistakes it made in implementing this program, but we cant punish
the millions of homeowners who would have benefited from this
program by abandoning them to unemployment and foreclosure.
I have also had many issues with HAMP. I will be the first to
admit that I am dissatisfied with its performance thus far. However, the problem with the program is not its goal of helping homeowners. The problem is a lack of meaningful participation by
servicers and a lack of enforcement and willingness to change by
Treasury. Those are the problems we need to fix, and I believe that
the Administration is committed to fixing those problems.
However, the silence from my friends on the other side of the
aisle on how we can fix HAMP to make it work better for homeowners has been deafening. The Republicans have no answer on
how to fix HAMP and have offered no alternatives because they are
steadfastly unwilling to challenge the servicers. Instead, my friends
on the opposite side of the aisle like to say, The market must bottom out.
First, we dont even know what the bottom is yet. If we have
learned one thing, it is that foreclosures beget more foreclosures
and a spiral of declining home prices.
Second, letting the market bottom out is simply a euphemism for
letting more people lose their homes, causing children to have to
switch schools, and more families to be uprooted from their churches, neighbors, and other community institutions.
So, Madam Chairwoman, I would like to thank you; and I yield
back the balance of my time.
With that, without objection, all members opening statements
will be made a part of the record, and I will now introduce the first
panel of witnesses.
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First of all, we have Ms. Tammye Trevino, Administrator, Housing and Community Facilities Programs, U.S. Department of Agricultures Rural Development Agency. Thank you for being here.
Second, Ms. Carol Galante, acting Federal Housing Administration
Commissioner and Assistant Secretary for Housing, U.S. Department of Housing and Urban Development. And, finally, Mr. Darius
Kingsley, Deputy Chief, Homeownership Preservation Office, U.S.
Department of the Treasury.
For the record, I would also like to recognize Ms. Yolanda Chavez, Deputy Assistant Secretary of Grant Programs with the Office
of Community Planning and Development at HUD. Ms. Chavez is
accompanying Ms. Galante to answer any technical questions about
NSP or Project Rebuild.
I dont see her. Maybe when we get to the questions, she can
move up. That would be fine. Thank you.
Without objection, all of our witnesses written statements will be
made a part of the record, and you will each be recognized for a
5-minute summary of your testimony.
And, with that, we will start with Ms. Trevino. You are recognized for 5 minutes.
STATEMENT OF TAMMYE H. TREVINO, RURAL HOUSING SERVICES ADMINISTRATOR, U.S. DEPARTMENT OF AGRICULTURE
Ms. TREVINO. Thank you, Chairwoman Biggert, Ranking Member

Gutierrez, and members of the subcommittee. It is my privilege
once again to be with you today.
As we discussed last month, the mission of the Rural Housing
Service (RHS) is to create vibrant, thriving rural communities, a
strong housing stock, access to safe, decent, and affordable rental
housing, and access to high-quality essential community infrastructure. For over 60 years, the Rural Housing Service has provided essential credit access to areas in which low population density has
hindered capital formation and infrastructure development. The
Rural Housing Service helps foster the economic stability needed to
sustain rural America, preserving its vital contribution to our Nations prosperity, security, and success.
To ensure the effectiveness of efforts to improve capital access in
rural areas, RHS over the past 2 years has reevaluated programs
from both delivery and beneficiary perspectives and made important enhancements, including: reengineering the Section 502 Single
Family Housing Guaranteed program such that fees are expected
to offset losses, allowing the program to facilitate rural borrowers
access to credit while mitigating costs to the taxpayer; increasing
flexibility in lending programs for better responsiveness to changing economic conditions; and actively emphasizing loan refinance
modifications and workout solutions designed to keep homeowners
in their homes.
Our programs, as you know, are far-reaching. The Single Family
Housing, Multi-Family Housing, and Community Facilities Services
areas are closely integrated through the 47 State offices and 500
offices that comprise our field structure.
With a budget authority of $1.3 billion, RHS leveraged a program
level of approximately $27.2 billion in loans, loan guarantees,
grants, and technical assistance in Fiscal Year 2011. In under-
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capitalized rural economies across the Nation, the significance of
this level of commitment can hardly be overstated. Since Fiscal
Year 2008, the program level for the Section 502 Single Family
Housing Guaranteed Program has increased almost fourfold. The
program expanded from $6.2 billion in Fiscal Year 2008 to the current program level of $24 billion.
For the single family housing direct program, in the 3 years from
2009 to 2011, more than 52,000 single family housing direct obligations totaling $4.79 billion were made to low- and very low-income
rural Americans. For families and individuals who often could not
qualify for single family housing loans during that period, the
Rural Housing Service multi-family housing programs invested
$648.8 million and attracted an additional $1.74 billion in thirdparty investments for rental housing in rural America. These improvements to multi-family housing stock benefited more than
460,000 Americans living in Rural Development units, with the
majority being our elderly and persons with disabilities. Actively
managing the cost of the housing and CF programs is more essential than ever, and the RHS is pursuing several strategies toward
that end.
In the area of portfolio management, RHS has compiled a superior performance record over the past decade. In the area of efficiencies, through asset redeployment and operational realignment,
RHS is pursuing streamlining initiatives in several key areas, including our State network and field office and the centralization of
core operations at our central servicing center in St. Louis.
And in the area of partnerships in the instances of shared interests, Rural Development has developed various partnerships with
entities, agencies, and private and nonprofit organizations. Of particular note is the collaboration with my partners at this table.
RHS has been working with HUD, Treasury, OMB, and other
Federal partners in an effort to better coordinate Federal rental
policy and identify administrative changes.
On September 29th, in Mount Pleasant, Michigan, USDA, HUD,
and the Michigan State Housing Development Authority signed a
three-party MOU to coordinate subsidy layering reviews for rental
housing developments funded by more than one source in Michigan. The MOU is designed to streamline and clarify the regulatory
process so that transactions can be approved faster and more efficiently and is the first written agreement in the Nation. We are expanding these MOUs to North Carolina, Ohio, Wisconsin, South
Carolina, Nevada, Pennsylvania, and Rhode Island.
The protracted economic downturn has had a profound effect on
poverty rates, and they are rising faster in rural America than in
urban America.
Thank you for the opportunity to address you today. More information can be found in the written testimony that we have submitted. Thank you.
[The prepared statement of Administrator Trevino can be found
on page 117 of the appendix.]
Ms. Galante, you are recognized for 5 minutes.
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STATEMENT OF CAROL J. GALANTE, ACTING ASSISTANT SECRETARY FOR HOUSING/FEDERAL HOUSING ADMINISTRATION COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT, ACCOMPANIED BY YOLANDA CHAVEZ, DEPUTY ASSISTANT SECRETARY OF GRANT PROGRAMS, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. GALANTE. Chairwoman Biggert, Ranking Member Gutierrez,

and members of the subcommittee, thank you for the opportunity
to testify today regarding HUDs response to the housing crisis.
As you know, when this Administration took office, our economy
was shedding 750,000 jobs per month, home prices had fallen for
30 straight months, and foreclosures were surging to record levels.
Critical to the Administrations response has been the FHA, which
even in the midst of this crisis has helped some 2 million first-time
home buyers realize the dream of homeownership; and with 60 percent of African Americans and Latinos using FHA insurance to buy
a home in 2010, FHA has been a particularly powerful pathway to
the middle class for minorities during this difficult time.
In addition, through one million loss mitigation actions and early
delinquency interventions, FHA has played an important role in
keeping families in their homes. Combined with Treasurys modification programs, including HAMP, we have set a standard for
mortgage modification efforts that is improving the way private
servicers provide assistance to borrowers. More than 5.1 million
families have received restructured mortgages since April 2009,
nearly twice the number of families who have lost their homes in
that time.
Critical to this progress has been housing counseling resources,
which, as you know, were eliminated in 2011. There is strong evidence that housing counseling works. Indeed, distressed homeowners who work with a counselor are nearly twice as likely to receive a mortgage modification than those who do not. With President Obamas proposal to restore HUDs housing counseling grant
funding and the changes we are making to get those dollars where
they are needed more quickly, we hope Congress will restore these
funds for 2012.
As the underlying cause for most foreclosures has shifted from
bad loans to unemployment, we are now requiring servicers of
FHA-insured mortgages to extend the forbearance period for unemployed borrowers to 12 months.
In addition, we are helping about 12,000 families who otherwise
might have lost their homes through the Emergency Homeowners
Loan Program. This is significantly less than the number we had
hoped to assist, in part due to the difficulties of program set-up and
the program statutory limitations.
In the face of these challenges, HUD worked closely with counseling agencies down to the last few hours before the September
30th deadline to make certain as many homeowners as possible
qualified for assistance. We have learned many lessons from this
process, and we know we could assist more borrowers if we had
more time.
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Another key challenge is the overhang of foreclosed properties,
which drag down home prices and destabilize communities. With
about a quarter of a million foreclosed properties owned by HUD,
the GSEs, FHA joined with FHFA and Treasury to issue a request
for information to generate new ideas for the disposition of this inventory. All three agencies are now evaluating the comments received.
This effort complements the Administrations Neighborhood Stabilization Program, which is on track to address more than 95,000
vacant and abandoned properties that comprise about 20 percent of
the REO in targeted areas.
Independent research has shown improvements in sales prices
and vacancy rates in communities with targeted neighborhood stabilization investments. These successes have led President Obama
to propose Project Rebuild as part of the American Jobs Act.
Project Rebuild would create almost 200,000 jobs and further contribute to the stabilization of neighborhoods and communities. This
reflects President Obamas belief that rebuilding neighborhoods is
essential to rebuilding our economy.
Obviously, there is still more to do. As the President emphasized
in his recent speech before Congress, a major challenge is the difficulty homeowners face in refinancing their mortgages. While FHA
has helped 1.5 million families refinance into safe, stable mortgage
products, HUD is now working with FHFA and Treasury to lower
barriers to refinancing, which will make it possible for more families to save an average of $2,000 each in the first year, providing
a critical boost to our economy.
We also know that we have a responsibility to restore private
capital to the housing market while ensuring Americans have access to quality housing they can afford. That is why the Administration delivered a White Paper to Congress earlier this year that
provides a path forward for reforming our Nations housing finance
system, and we look forward to working with you to accomplish
this.
We are by no means out of the woods, but with RealtyTrac reporting 11 straight months of year-over-year declines in foreclosure
activity and crediting the policies that the Administration has pursued as a major factor for this improvement, I am confident we are
making progress, and I look forward to working with you and the
subcommittee to continue that progress in the months to come.
Thank you, and I look forward to your questions.
[The prepared statement of Commissioner Galante can be found
Chairwoman BIGGERT. Thank you so much.
Mr. Kingsley, you are recognized for 5 minutes.
STATEMENT OF DARIUS KINGSLEY, DEPUTY CHIEF, HOMEOWNERSHIP PRESERVATION OFFICE, U.S. DEPARTMENT OF
THE TREASURY
Mr. KINGSLEY. Chairwoman Biggert, Ranking Member Gutierrez,

and members of the subcommittee, thank you for the opportunity
to testify today on the Administrations efforts to mitigate the effects of the most serious housing crisis since the Great Depression,
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and specifically Treasurys response to the Making Home Affordable program and the Hardest Hit Fund.
It is important to remember that when the Obama Administration took office in January 2009, home prices had fallen for 30
straight months. Home values had fallen by nearly one-third.
Fannie Mae and Freddie Mac had been in conservatorship for 4
months, and American families were struggling to stay in their
homes.
Treasury and other Federal agencies responded by taking a series of aggressive steps. Our strategy focused on stabilizing housing
markets and helping families prevent avoidable foreclosures. Under
the authority granted by the Emergency Economic Stabilization
Act, we launched the Making Home Affordable Program, of which
our first lien modification program, often referred to as HAMP, is
a key component. In 2010, we launched the Hardest Hit Fund.
These programs are designed to provide targeted relief to homeowners struggling to make their payments due to a financial hardship but who remain committed to avoiding a foreclosure. Through
August 2011, HAMP has enabled more than 800,000 homeowners
to secure permanent modifications of their mortgages. These homeowners save a median of more than $525 a month on their mortgage payments.
Today, homeowners who begin a trial plan under the program
have a high likelihood of achieving a permanent modification and
staying in it. Seventy-six percent of homeowners who started trial
modifications in the last 16 months converted to a permanent
modification, with an average trial period today of just 312 months.
HAMP modifications have also performed well over time. Based
on June 2011 data, after 6 months, more than 93 percent of homeowners remain in those permanent modifications.
For homeowners who do not qualify for HAMP, our guidelines require servicers to evaluate homeowners for other programs to prevent a foreclosure, such as the servicers own modification programs. Over 212 million of these modifications have been offered to
homeowners outside of the program at no expense to taxpayers.
But HAMPs impact goes far beyond the individual homeowners
it has helped, because it has set new standards and established key
benchmarks. These include placing limitations on the dual tracking
of homeowners by requiring servicers to evaluate homeowners for
HAMP and other mortgage assistance before starting foreclosure,
making servicers give homeowners looking for help a single point
of contact, and providing a resource for homeowners who are frustrated with their servicer by supporting both the Homeowners
HOPE Hotline and the HAMP solution center to fix servicer mistakes and resolve conflicts.
To ensure the maximum impact of these programs, Treasury is
committed to making homeowners aware of the resources that are
available to them. That is why Treasury continues to host events
across the country to connect homeowners with HUD-approved
housing counselors and their mortgage servicers. At these events,
homeowners are guided through their options to prevent foreclosure and can have their questions answered on site. Treasury
continues to host these events across the country, and we will host
our 60th event next week in Phoenix.
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Recently, we also launched the second phase of our public service
advertising campaign to reach struggling homeowners through television, radio, Internet, and billboard PSAs in English and in Spanish. These ads serve as a call to action for those homeowners who
feel overwhelmed by the challenges they face and reminds them
that free help is available at 888995HOPE.
We also recognize that the housing crisis is local. Through the
Hardest Hit Fund Program, we are empowering State housing finance agencies to craft new solutions to help homeowners cope
with unemployment and negative equity. Programs are now up and
running in 18 States and the District of Columbia. Seventy percent
of the Hardest Hit Fund dollars are committed to help unemployed
borrowers.
We also know that a modification isnt the right solution for everyone. That is why we have continued to improve our short sale
program to help those people for whom homeownership is no longer
desired or no longer an option. There is still a lot more work to do,
and the housing market remains fragile, but, as a result of the Administrations actions, struggling homeowners today have more viable tools available to avoid foreclosure than ever before.
Thank you for the opportunity to testify. I welcome your questions.
[The prepared statement of Deputy Chief Kingsley can be found
We will now proceed to members questions, and we will try and
stick to the 5 minutes each to ask questions, and with that, I will
yield myself 5 minutes.
My first question is for Ms. Galante: $1 billion was appropriated
for the Emergency Homeowners Loan Program, and the Administration originally projected that it would help around 50,000 homeowners. Yet my staff indicates that, to date, the program has
helped around 11,823 homeowners. Are those numbers correct?
Ms. GALANTE. Thank you for the question.
The 11,820 is an accurate number as far as we know to this date.
I think the original estimate was we would hope to help about
30,000 homeowners.
Chairwoman BIGGERT. Not 50,000?
Ms. GALANTE. That is my understanding.
Chairwoman BIGGERT. Should the taxpayers continue to support
more programs that dont meet the expectations?
Ms. GALANTE. Congresswoman
Chairwoman BIGGERT. The program has expired.
Ms. GALANTE. The deadline for obligating the funding was September 30th, and I would sayand I acknowledge that HUD could
have done a better job to get the program up and running more
quickly. There were many, many challenges to doing that; and we
helped as many families as we could during that period of time.
We certainly believe we could help more families if there was
some ability to extend the program. We do understand that in a
new fiscal year that that makesthere are some challenges in figuring out how one might do that, but we have learned a lot of lessons, and I would just say we have helped a number of families.
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Chairwoman BIGGERT. Is there any program that has met the expectations?
Ms. GALANTE. This is a difficult crisis, Congresswoman, and I
would say that we have tried a number of issues or tried a number
of solutions to these problems, and we are going to continue to
work vigorously at doing that.
Chairwoman BIGGERT. Have any of the programs met expectations? Yes or no?
Ms. GALANTE. Certainly, I would say the emergency home loan
program did not meet our expectations. Whether all other programs have, I really cant say.
Chairwoman BIGGERT. Okay. It seems like there is an awful lot
of administrative funds there that have been obligated for 11,823
people or properties. When you are looking at $72 million, it seems
like that is an awful lot of money to do that.
Ms. GALANTE. If I could just say, again, the final numbers for
what the administrative costs will be are tied to the final number
of families who are served. So there are certain funds set aside, but
the final numberthe counseling agencies are essentially reimbursed costs based on the number of families assisted.
Chairwoman BIGGERT. All right. How many foreclosures or defaults were prevented by the Neighborhood Stabilization Program?
Ms. CHAVEZ. Congresswoman, the NSP program actually does
not prevent foreclosures. It deals with properties that have been
foreclosed or abandoned. So it actually helps neighborhoods stabilize after being hit by foreclosures.
Chairwoman BIGGERT. Okay, thank you. The answer is zero
then?
Ms. CHAVEZ. The answer is that the program expectations are
being met, because expectations are to stabilize neighborhoods, not
to prevent foreclosures, to help neighborhoods recover from foreclosures.
Chairwoman BIGGERT. All right. I just wanted a yes-or-no answer. Thank you.
And then, Ms. Galante, the MMI fund has a mandatory capital
reserve ratio of 2 percent, but the fund was at 0.53 percent in 2009
and then dropped to 0.50 percent in 2010. At this time, what is the
current estimate of the balance in the capital reserve account and
what do you expect it to be by the second quarter of Fiscal Year
2012?
Ms. GALANTE. Again, thank you for the question.
The health of the MMI fund is obviously very important to us.
The actuarial for the capital reservewhat the capital reserve fund
requirement will be is due to Congress, I believe, mid-November,
so we are working on that actuarial now.
Currently
Chairwoman BIGGERT. Do you think that you will need to ask
Congress then for an appropriation during the next year?
Ms. GALANTE. Again, currently, that actuarial is under way. I
would say the third quarter report that we delivered to Congress
last week does show the balance in both the financing account and
the capital reserve account at the present time combined being
about the same amount as it was last year at this time.
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Chairwoman BIGGERT. What has contributed to the capital ratio
drop? Is it the poor performance of the portfolio again, which was
cited in the 2010 annual report?
Ms. GALANTE. There are a lot of things that go into calculating
the capital ratio, one of which is how much new business you have
done that is added to essentially the denominator.
Our new book of business is stellar, and the capital reserve ratio
is looking at what are the claim needs over the entire portfolio for
a 30-year period. So we are essentially needing to contribute to the
capital reserve as a result of problem loans earlier in FHAs
Chairwoman BIGGERT. Thank you. My time has expired.
Ms. GALANTE. Thank you.
Chairwoman BIGGERT. The gentleman from Illinois is recognized
for 5 minutes.
Mr. GUTIERREZ. Thank you so much.
I would like to ask Mr. Kingsley, you said that Treasury created
HAMP and the Hardest Hit Fund. I would like to ask you, did
Treasury ever make principal reductions mandatory for lenders
during the HAMP modification when calculations indicated it was
the best for the borrowers or the investors?
Mr. KINGSLEY. Congressman, thank you. You are absolutely correct that for many homeowners, getting a principal reduction on
their modification is the best way to achieve a more affordable and
a more sustainable modification. It is one of the reasons we rolled
out the principal reduction alternative program, which is a component to HAMP.
Mr. GUTIERREZ. The question is, did you insist?
Mr. KINGSLEY. Congressman, Treasury is not a regulator.
Mr. GUTIERREZ. So you agree thatyou went on to say it would
have been a good idea, but you didnt insist when you sat down
with them?
Mr. KINGSLEY. Congressman, Treasury does not have the regulatory ability to require servicers
Mr. GUTIERREZ. I think maybe we should remember that the
next time a Treasury Secretary comes before the Congress of the
United States to ask us to bail out the industry to the tune of $700
billion, including your boss, Mr. Geithner, who used to be at the
New York Federal Reserve, who came before, I think, members
who are here to ask us for $700 billion, and now you are saying
Because I am going to tell you the reason I voted for it was the
HAMP money. The HAMP money that you just took credit for in
your opening statement that you created, really you didnt create.
That was really an Act of Congress, wasnt it, and part of the negotiation that we entered into? So you are telling me that, although
you think it is a good idea, because you are not a regulatory agency, you never sat down with anybody and told them you should reduce?
Mr. KINGSLEY. Congressman, we dont have the ability to compel
banks to write down mortgages, but I do agree that negative equity
is a really big problem facing a lot of homeowners. We think it is
a very useful tool to help a lot of homeowners get to a more achievable modification.
Mr. GUTIERREZ. Let me move forward so I can ask better questions next time a Treasury Secretary, especially one who used to
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work for Goldman Sachs, comes before the Congress of the United
States to ask us for billions of dollars to bail out his buddies that
he then goes back to after he is not Treasury Secretary anymore.
Because in July 2010, the SIGTARP report says, Any incremental moral hazard implicated by making principal reductions for
homeowners mandatory pales in comparison to the moral hazard
caused by TARP assistance to Wall Street. What do you think of
that statement?
Mr. KINGSLEY. Congressman, I am here in my role as Deputy
Chief of the Homeownership Preservation Office. I am really here
and I work on programs, modification programs and refinance programs, ways to help homeowners stay out of foreclosure, and I
think
Mr. GUTIERREZ. Let me ask you another question. In your role
maybe I will ask the gentlelady to invite somebody else from Treasury who can answer these questions. We have all been watching
and waiting on the settlementand your boss has been very involved in itbetween the big mortgage servicers who are doing the
robo-signing and the State attorneys general. Now, a few States
are backing out because they thought the banks were going to get
off too easy. Let me ask you again, because I could be misinformed,
is Treasury involved in these conversations or in any way helping
in this litigation?
Mr. KINGSLEY. Congressman, we are. We are providing technical
advice to the States and the other parties.
Mr. GUTIERREZ. So what technical advice are you giving them?
Mr. KINGSLEY. We have learned a lot from our programs. We
have learned a lot on how to reach homeowners. We have learned
a lot about how difficult it is to modify loans, to help those homeowners achieve more sustainable modifications.
Mr. GUTIERREZ. Let me ask you a question. How do you think
things are going since there are States that are now saying they
are withdrawing because the mortgage lenders are getting off too
easy? Because in the beginning, many of us were heartened that
there would be tens of billions of dollars available, and there was
even an indication that the settlement would be across-the-board.
They did violate the law. It isnt like we are asking them for
something. There is a punishment. I am sure even the other side
agrees that theymaybe they wont agree they should be punished
sometimes, because they should be rewarded. But they did do this
terrible act of robo-signing. And so what do you think? Are things
going well?
Mr. KINGSLEY. Congressman, you are absolutely right. There
were very serious violations of law that were committed. The OCC
has found that. The State attorneys general have alleged that.
I think it is a litigation matter, and ultimately it is up to each
individual State to decide the degree to which they feel they can
bring the most relief to homeowners. That may require
Mr. GUTIERREZ. Since you are part of it and it is under litigation
and since you agreed that it was a good idea, in some cases, that
there be principal reductions and modifications, is Treasury giving
technical assistance so that we can reach that goal of having reductions in the principals that these mortgages owe?
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Mr. KINGSLEY. We are sharing the lessons that we have learned
through our principal reduction program and our other thoughts on
all of our modification programs, things the States are learning
through the Hardest Hit Funds. We are sharing those with the
State attorneys general.
Mr. GUTIERREZ. Thank you.
Mr. Hurt, you are recognized for 5 minutes.
Mr. HURT. Thank you, Madam Chairwoman.
I guess the first question is for Ms. Galante.
Ms. Galante, you indicated in response to the Chairs question
that there have been no foreclosures prevented by the Neighborhood Stabilization Program; is that right? Or I guess it was Ms.
Chavez. I am sorry.
Ms. GALANTE. Yes. Again, I think I can just echo the comment
that, again, the Neighborhood Stabilization Program is not designed to prevent foreclosures.
Mr. HURT. Is it true from what I read that not all the money that
has been authorized, appropriated, and obligated and so forth and
so on of the $7 billion that has been appropriated over thesince
2009, that not all that money has been used?
Ms. CHAVEZ. $7 billion has been obligated. In terms of NSP1,
that was $4 billion. Seventy-eight percent of that has been expended. I think you may remember that State and local governments had an 18-month deadline to obligate. They met that deadline at 99.7 percent. They have now expended 78 percent of that
money. NSP2, which is $2 billion, has an expenditure deadline of
50 percent after 2 years. Those grantees are on track to meet that
expenditure deadline in February.
Mr. HURT. But you have only spent 28 percent, is that what I
Ms. CHAVEZ. 2012. No. Again
Mr. HURT. For NSP2?
Ms. CHAVEZ. For NSP2, we are at 30 percent expenditure as of
this week.
Mr. HURT. Okay.
Ms. CHAVEZ. They have to expend 50 percent by February 2012.
I should also make clear that at this point, grantees have completed over 33,000 properties in terms of acquisition, demolition,
and home buyer assistance, new construction, and
Mr. HURT. How much of NSP3 has been spent?
Ms. CHAVEZ. As you know, NSP3 just started. It started this
summer. We obligated the money in, I believe, May, 100 percent
of that, to State and local governments; and they have obligated 13
percent of that. So they are doing well since the program was just
initiated.
Mr. HURT. It looks like to me that since the housing crisis of
2008, we have obligatedwe have spent or authorized the spending of $7 billion. Only $4 billion has been spent. Does that sound
about right, a little over half?
Ms. CHAVEZ. No, I think it is at this point, about a little over $5
billion.
Mr. HURT. So out of the $7 billion, $5 billion has been spent
since 2008 when we had the housing crisis, and with that money
we havent prevented one foreclosure?
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Ms. CHAVEZ. Again, I want to stress that the goal of the program
is not to prevent foreclosures. It is to help neighborhoods recover
after they have been hit with foreclosures.
Mr. HURT. After the people have been kicked out of the house?
Ms. CHAVEZ. That is the goal of the program.
There are programs, as Assistant Secretary Galante and our colleague at Treasury has stated, to prevent foreclosures. This program is to help communities stabilize. The initial results in terms
of impact of NSP, where there has been investment in neighborhoods when compared to neighborhoods that do not receive investment, show reduced vacancy.
Mr. HURT. But how does that help? By renovating the home that
the homeowner is no longer in, no longer has any interest in, how
does that help the homeowner?
Ms. CHAVEZ. Unfortunately, it doesnt help that homeowner.
Mr. HURT. Okay.
Ms. CHAVEZ. But it helps new homeowners. It helps that neighborhood. It helps those neighborhoods prevent further decline in
home prices and value. It creates jobs. It helps neighborhoods stabilize so that they dont decline further.
Mr. HURT. Okay. And weas you know, we are borrowing 40
cents on every dollar we spend in Washington. I am sure you have
heard that again and again, and you are well aware of that fact.
How is it that spending what we have, by my estimate, $3 billion
out of $7 billion that we havent even spent yet, how on earth can
you justify appropriating anotheran additional $15 billion for this
program, as the President has suggested to the Congress?
Ms. CHAVEZ. I think the way we justify it is NSP is on track to
create about 90,000 jobs, it is on track to impact about 100,000
properties, it leverages private resources, and Project Rebuild will
helpwill basically leverage not only other private resources in the
private sector and their capacity, but it will also really leverage the
capacity that State and local governments
Mr. HURT. Ms. Chavez, my time has expired, so let me just ask
you this: Those same promises are the same promises that were
made when the President sold us the first stimulus bill. Doesnt
that soundthe same thing that you are promising now, doesnt it
sound familiar to what the President promised us when he said
that unemployment would not go above 8 percent?
Ms. CHAVEZ. I can tell you the promises of NSP, it has delivered,
and it is on track to deliver the promises that were made in terms
of the outcomes of the program.
Mr. HURT. Thank you, Ms. Chavez.
Chairwoman BIGGERT. The gentlelady from California is recognized for 5 minutes.
Ms. WATERS. Thank you very much, Madam Chairwoman.
Let me just say that I am the first to say that I am disappointed
that the legislation that we were able to pass when we served on
the conference committee for Dodd-Frank to help unemployed
homeownersI am disappointed that weHUD was not able to get
that money out in a timely way, and because of that there are some
homeowners who are unemployed who could perhaps have stayed
in their homes if we had been able to implement that program
properly.
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Having said that, I am sorry that my friends on the opposite side
of the aisle do not understand the Neighborhood Stabilization
Project. It was signedit is my bill that I created, and it was
signed into law by President Bush, not Obama but President Bush.
It is one of the best things that has happened in this meltdown
that we have had with these foreclosures.
The gentleman on the opposite side of the aisle keeps asking,
how many people did it help to stay in their homes, and I think
the panel more than one time this morning have said it was designed to stabilize neighborhoods. That is why it is called the
Neighborhood Stabilization Project.
We recognize that many of these homes were foreclosed on, and
in some communities where you have a lot of houses that have
been foreclosed on and the cities were not able to keep up those
foreclosed housing that it was a big cost to the cities and their fire
departments and their police departments. We have discovered
that the weeds had grown up, animals had taken over some, on
and on and on, and it was driving down the value of other homes
in the neighborhood. And we have been able to stabilize those
neighborhoods and keep those property values up of those other
homes with this Neighborhood Stabilization Project.
It is a good program. I am glad President Bush signed it into
law, and I am pleased that you have been able to move this program in a way where you have not only spent the money well but
you have obligated that money, and it is moving well. So I compliment you on that.
Here is what I want to ask all of you about today. You can help
me. We have people who are coming forward to talk about spending
huge sums of money to buy up large numbers of properties. They
want to invest in these nonperforming assets, and they have all
kinds of ways of talking about what they will do with them.
What I like about what I am hearing is many of them want to
buy up large numbers of properties, they want to renovate them,
repair them if they need it, and some they would put back on the
market. But others are talking about renting the properties back
to the homeowners who are in trouble before the foreclosure takes
place. Have you heard any of these proposals? And, if so, what do
you think about them? Anybody?
Mr. KINGSLEY. I can go first, Congresswoman.
Right now, as you may be aware, the FHFA has put out its proposal forthe FHFA, the regulator of the GSEs for the REO property on its balance sheets, and it is exploring opportunities to offer
these homes for rental. As you know, these homes are sitting vacant. That is a wasting asset for the taxpayer. Meanwhile, there is
a lot ofrents are going up, and it really could be a win-win situation for everybody involved.
Ms. WATERS. Excuse me. We know that. But what I am saying
is, I have heard at least 5 or 6 proposals where people wanted to
buy up100, 200, 300, businesspeopleand renovate them, put
them back on the market. And the way they describe it is they
would maintain some for rentals, they would put together programs rent-to-own, or they would put them back on the market.
And I dont see anything happening, but you are saying that FHA
is doing this already? They are looking at this possibility?
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Mr. KINGSLEY. FHFA, the Federal Housing Finance Authority,
the regulator of the GSEs
Ms. WATERS. Yes.
Mr. KINGSLEY. with respect to the real estate owned by Fannie
Mae and Freddie Mac. And, absolutely, right now, they have put
out a request for information, for ideas, and they are evaluating
those ideas. We are working together with them on that. We are
evaluating all options. The opportunities you suggested are certainly some of the options that have been proposed.
Ms. WATERS. If you would get that to my office, I would like to
see what you have put out. Because I would like to direct people
somewhere who are coming up with these proposals. Could you see
that my office gets that information?
Mr. KINGSLEY. We will be happy to follow up with your office.
Ms. WATERS. Thank you very much.
One other thing before my time is up, Bank of America
Chairwoman BIGGERT. Your time is up.
Ms. WATERS. Oh, I thought I hadoh, it started over again.
Thank you very much. I yield back.
Chairwoman BIGGERT. The gentlelady yields back.
The gentleman from New Jersey, Mr. Garrett, is recognized for
5 minutes.
Mr. GARRETT. I thank the Chair.
And I also appreciatewell, the ranking member is not here
right now, but his recognition of the fact, albeit a little late, that
while it was this Treasury Secretary in his former position over at
the New York Fed and then as Treasury Secretary who was part
and parcel with leading up to the crisis that we are in right now
and then, as the ranking member has now experienced, the fact
that he helped author and bring forth the very same programs
which failed in their attempts as far as recovery from this, through
the TARP program and the like.
It is unfortunate that the ranking member only recognizes now,
as Mr. Kingsley points out, that the Treasury is not a regulator,
and they did not have the authority to compel the banks to do anything with the $700 billion that the TARP bailout program initiated. The best the Treasury could do is, I guess, encourage, suggest
to the banks to do so, but they did not have the authority.
Now, for those who supported the TARP, as apparently the ranking member did, for those who voted in favor of TARP as opposed
as I imagine the ranking member did, that is something I guess
that they could have included in that legislation, if they had wanted to, to give the Treasury Secretary or some other entity in the
government that authority to compel the banks, but it was absent
in there.
So it is a little bit disingenuous to say, after the fact, this is the
bill I voted on, and I didnt know what was in it, and now complain
to Mr. Kingsley here or the Department or the Treasury Secretary
for not doing what the legislation did not give them the authority
to do.
To the panel or I guess maybe Ms. Galante, first of all, I know
there are a lot of numbers that have been thrown out because there
are a number of different programs that are out there, and Ms.
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Biggert asked some as far as how many were in this program and
that program and what have you, but let me just give you one.
There was a housing wire story on Tuesday. Today is Thursday,
so day before yesterday, right? They note that there was an $8 billion FHA short refi program, and in that story it said it was supposed to help over 500,000 to 1.5 million people, but it only helped
around, according to that wire story, 301 folks. That is different
from what we were talking about before. Can you comment on
those numbers? Are they ballpark correct numbers?
Ms. GALANTE. Certainly, Congressman. Those are roughly correct
numbers. I do want to put the short refi, the FHA short refi program in context, however. It is one program that does deal with
this negative equity problem that we all agree is severe. But, in addition to that, FHA has refinanced FHA borrowers through a
streamlined refinance program to deal with some of the FHA borrowers underwater activities. But I would say that FHA short refi
is for people who are in non-FHA who want to refi into a sustainable mortgage with FHA.
Mr. GARRETT. Okay. I appreciate that. At the end of the day, the
numbers obviously are nowhere near where they anticipated they
were going to, which is obviously a real problem.
You heard my testimony also when I asked, arent a lot of these
programs where you are either encouraging or forcing the breaking
of legal contracts going to have an implication with regard to the
GSEs for the loans that go through them and the claims that they
have outstanding and for the investors on the other side of those
deals, where what their return will be in those situations? It will
hurt them presently. It will hurt the Fed, because the Fed owns a
lot of these securities, upwards to the tune of $1.25 trillion, so it
will hurt the Feds balance sheet, and it will hurt future investors
and therefore discourage future investors to get into this marketplace. So there are one, two, three, three different problems that
could be caused by these programs. Do you want to comment?
Ms. GALANTE. I will comment again. With respect to short refi,
it is a voluntaryit goes back to one of the other questions, it is
a voluntary program. The lenders do need to take some principal
reduction essentially in order to avail themselves or avail the borrowers of the short refi program, and they wouldnt do that if they
didnt feel as if that were ultimately the best solution and the best
resolution economically both for the borrower and for the investor
lender.
Mr. GARRETT. I have 7 seconds. Really quick, the FHA is supposed to be helping home buyers start out, usually at very bottom
of the rung of the economic ladder. Isnt it best to only help out
first-time home buyers though as opposed to those who want to buy
second or larger homes after the fact? Shouldnt that be the focus
of the FHA, first-time home buyers only?
Ms. GALANTE. The focus of the FHA is first-time home buyers
and new buyers, but refinancing existing borrowers in todays low
interest rates to help them achieve a more sustainable monthly
payment is certainly also
Mr. GARRETT. Exclusively to first-time.
Ms. GALANTE. It is not exclusively.
Mr. GARRETT. Shouldnt it be?
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Ms. GALANTE. I dont think so, no.
Chairwoman BIGGERT. The gentlemans time has expired.
The gentlelady from New York is recognized for 5 minutes.
Ms. VELAZQUEZ. Mr. Kingsley, in your opinion, would full utilization of every program have been enough to stabilize the housing
market and stop the crisis, and where would we be today if it
wasnt for those programs?
Mr. KINGSLEY. Congresswoman, thank you. And I think you have
hit upon a great point, which is where we were in 2007, 2008, and
2009 when the housing crisis started and where we are today are
vastly different. In 2007, when the subprime loans started to melt
down and rates started to reset, servicers were completely unprepared. They didnt have the staff, they didnt have the resources,
they didnt know how to engage homeowners. There was really nowhere homeowners could go for help. They would call up their
servicer and receive an answering machine. They would send in
documents, which would be lost. We recognized those problems.
In 2009, when we rolled out HAMP and other modification programs started, we faced those very challenges. We have worked
very hard at them. Where we are today is vastly different. As I
mentioned in my oral testimony, 76 percent today of the people
who get a trial modification convert to a permanent.
Ms. VELAZQUEZ. Ms. Galante, regarding the Emergency Homeowners Loan Program to unemployed homeowners at risk of foreclosure, what specific steps are you taking to make sure that you
maximize the participation in the program during the extension period?
Ms. GALANTE. Congresswoman, we did a number of things in the
waning days before the September 30th deadline for applicants to
ensure that as many potential borrowers as possible could get into
the program. We worked very closely with the housing counseling
agencies on the ground. We are now in the process of beginning the
process of actually closing on those loans that are being made to
borrowers, and we will work vigorously to do that as quickly as
possible.
Ms. VELAZQUEZ. Are you satisfied with the outreach and response?
Ms. GALANTE. I would say this. We got tremendous response for
the program. The pull-through rate, as we call it, the number of
folks who were ultimately eligible, was not nearly as high as we
would have liked and we didnt assist as many people as we would
have wanted to. But we are helping approximately 12,000 unemployed homeowners, and we think that is positive.
Ms. VELAZQUEZ. Mr. Kingsley, the Hispanic community faces a
foreclosure rate that is nearly double the national average, and this
is especially troubling in New York, where we have 56 percent of
Hispanic and African Americans at risk for foreclosure. Have any
of the Administration programs been successful in helping Latinos
and other minority groups?
Mr. KINGSLEY. Congresswoman, through our HAMP outreach
events, as I mentioned, we have had 59 them, we have one in Phoenix next week, we launched a PSA campaign, and we actually have
a lot of Spanish materials, Spanish radio advertisements. We have
staff who have appeared on
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Ms. VELAZQUEZ. Give me numbers.
Mr. KINGSLEY. Congresswoman, I can have my staff follow up
with you. We have had, like I said, 59 outreach events. We have
had more than 60,000 homeowners come to those outreach events.
A lot of those have been in cities such as Phoenix or in Texas,
where there are large Latino communities.
Ms. VELAZQUEZ. I didnt hear New York.
Mr. KINGSLEY. I believe we had an outreach event in New York,
Ms. Velazuez. I can follow up with you.
Ms. VELAZQUEZ. You could have a second one.
Mr. KINGSLEY. I apologize?
Ms. VELAZQUEZ. You could have a second one.
Mr. KINGSLEY. We are going to continue those outreach events
all into next year.
Ms. VELAZQUEZ. Thank you.
I recognize the gentleman from Illinois, Mr. Dold. This will be
the last question, because we have pesky votes coming up. So with
that, then we will dismiss this panel and be ready to start the next
one when we come back.
Mr. DOLD. Thank you all for being here. Thank you, Madam
Chairwoman.
Ms. Galante, if I could, just looking at the Emergency Home
Loan Program, certainly I have some statistics in front of me, the
States, in terms of how they are administering these loans and also
how it is done through the Federal Government. And I am just
looking at some statistics from Connecticut, Delaware, Idaho,
Maryland, PennsylvaniaI dont have Illinois in front of me, which
is where I am from.
But the thing troubling to me coming from the private sector is
just actually the costs of administering these. I look at Connecticut.
They have done about 1,000, a little over 1,000 home loans, basically to the tune of about $45,000 that are being put in there. In
terms of how it is administered, they are administering each and
every one of those at about $2,600 worth of administrative cost. If
I move that down on administrative cost to Pennsylvania, it is
about $2,800. But yet when I look at what HUD does, those average costs, administrative costs, are about $7,400, almost $7,500, almost 3 times what they are doing in Pennsylvania.
Can you give me an idea why the American taxpayer shouldnt
be extraordinarily frustrated with the cost that HUD is doing this,
when other government agencies and the States are doing it for a
fraction of the cost?
Ms. GALANTE. Congressman, let me respond in a couple of different ways. First, the State program was set up for agencies. They
were allocated funding because they already had substantially
similar programs up and running in their States, and so they were
allocated this funding so that they could
Mr. DOLD. But they are doing it for a fraction of the cost. Per
loan, they are doing it at almost a third of the cost.
Ms. GALANTE. Yes. So to my point, because they already had programs up and running, this was an additive pot of funding for
them. On the HUD side, we were starting from ground zero with
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all the other States and counseling agencies and contracting, so
there were startup costs for
Mr. DOLD. So we should see next year this drop precipitously to
fall in line then, because it has been going on for a period of time?
Am I correct in saying that? Up-front costs have been taken care
of, so next year it should fall back in line?
Ms. GALANTE. Unfortunately, the program ended. There is no additional funding, unless there is some kind of extension of the program. If there were an extension, then, yes, the up-front costs have
been taken care of.
Mr. DOLD. Excluding the up-front costs though, other administrative costs. And that is part of the complaint that I hear from taxpayers all the time, is that the government is just inefficient in
how it does things. And certainly having to deal with the government from a previous life, I would certainly concur.
Let me switch gears, if I may, Ms. Galante, and go over to the
FHA refinance program. To what extentcertainly when we look
at the amount of activity, does the lack of activity within the FHA
refinance program speak to the practicality or the usefulness of the
FHA refinance program?
Ms. GALANTE. I guess I would want to make sure I understand
your question. Are you talking about the FHA short refi? Because
the FHA global refinancing for FHA borrowers, FHA streamline financing has helped 700,000
Mr. DOLD. I am talking about the program that basically has had
about 242 applications and about 44 loan remodifications in a period of about 8 months. That, to me, would be dismal.
Ms. GALANTE. Thank you. So that is the FHA short refi program,
which as I mentioned earlier is a program for non-FHA borrowers
to have the opportunity to refinance into FHA mortgages. It is a
voluntary program on the part of lenders.
Mr. DOLD. We have obligated $8 billion for it. My question is, is
this program one we should scrap, according to HUD?
Ms. GALANTE. I would say absolutely not. This is a program we
want to build on. My colleague from Treasury can talk about how
the $8 billion works. We have notthere have been no losses under
this program and there have been no direct expenditures on loan
losses for the program at this time.
Mr. DOLD. I have under a minute, so please excuse me on that
one. I am going to shift over.
Ms. Chavez, you talked before about the NSP, talking about how
it has created or stabilized an additional 90,000 jobs and 100,000
properties, is that correct?
Ms. CHAVEZ. It will. That is the goal when the $7 billion are expended. We are a third of the way there in terms of properties.
Mr. DOLD. I just want to make sure that those who are tuned
in and watching this thing, because back in the private sector, we
will look at this thing and say, I am going to go 90,000 jobs and
100,000 properties. So you know what I am saying? It is almost one
job per one property, almost a one-to-one. It is a little bit less than
that. Is that an effective use of our dollars? Are we getting the
most out of it?
Ms. CHAVEZ. Yes, we are. We can give you the data on the jobs
that are
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Mr. DOLD. You and I might disagree in terms of how we are effectively using that. But I want to make sure you think that is an
effective use.
Ms. CHAVEZ. Yes, it is. And early results in terms of impact of
vacancy reduction and stabilizing home prices are very positive.
Mr. DOLD. Madam Chairwoman, I know that I am running out
of time, but I want to just follow up if I could for Mr. Kingsley, just
food for thought on this, why should taxpayers continue to support
additional programs that dont meet expectations? That would be
just a general thing that I have not only for this panel, but for panels across the government coming again. Taxpayers are looking for
the Federal Government to make the biggest bang for the buck, because we desperately need to make sure we are stretching those
dollars because we are in a financial crisis right now.
I thank you all for your time.
Chairwoman BIGGERT. This concludes our first panel. The Chair
notes that some members may have additional questions for this
panel which they may wish to submit in writing. Without objection,
the hearing record will remain open for 30 days for members to
submit written questions to these witnesses and to place their responses in the record.
I would like to thank you all for being here, and we will dismiss
this panel. When we will come back, as soon as votes have ended,
we will start with the second panel, which will probably be around
11:30, 11:25. I hope sooner than that.
[recess]
Chairwoman BIGGERT. The hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order
and resume. Thank you for your patience for those votes, those
pesky votes that seem to come up when we dont expect them.
Thank you to the second panel. I would now like to introduce
you: Mr. Neil Barofsky, senior fellow, New York University School
of Law, and he was our former SIGTARP Special Inspector General, so it is nice to see you back on the witness stand: Dr. Mark
Calabria, director of financial regulation studies at the Cato Institute, thank you for being here; Ms. Laurie Goodman, senior managing director, Amherst Securities Group, LP.; and Mr. Andrew
Jakabovics, senior director of policy development and research, Enterprise Community Partners.
Without objection, your written statements will be made a part
of the record and you will each be recognized for 5 minutes to
present a summary of your testimony. We will start with Mr.
Barofsky. You are recognized for 5 minutes.
STATEMENT OF NEIL M. BAROFSKY, SENIOR FELLOW AND ADJUNCT PROFESSOR, NEW YORK UNIVERSITY SCHOOL OF
LAW
Mr. BAROFSKY. Thank you. It is always a privilege to be on a

panel where I dont have the hardest-to-pronounce name. It is rare,
but it is kind of nice.
Madam Chairwoman, members of the subcommittee, it is truly
a privilege and an honor to be back testifying before this committee
once again on the Administrations foreclosure mitigation efforts.
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When I was last here a little bit more than 7 months ago, the
state and outlook for HAMP and its related programs was quite
bleak, and at that time I pleaded with the Administration to make
the wholesale necessary reforms so that Treasury could keep the
promise it made to Congress and the American people that TARP
funds would be used not only to generously bail out the largest
Wall Street financial institutions that caused the crisis, but also
struggling homeowners.
Unfortunately, 7 months later, my plea, along with many others
and members of this committee, have been flat out ignored. Rather
than change, we have the status quo. Rather than seeing a meaningful increase in the number of participants in the HAMP program, it continues to trail off, with just about 13,000 new trial
modifications in the last month. And rather than being candid
about the problems and committing to reform, we see the type of
obfuscation that we saw in this mornings session, with Treasury
continuing to declare success against ever-changing and meaningless goals. HAMP has failed, and with it, it has crushed the hopes
of millions of homeowners.
Due to the ongoing foreclosure crisis, there is now consideration
of potential new programs or expanding old programs, and I
thought I would share some very basic lessons we have learned
from HAMPs failure.
First, the necessity for comprehensive planning. Too often, the
Administrations response has been to rush out a program that
promises great results and looks great on paper but ends up being
a failure. This ready, fire, aim approach has problems that are
still ricocheting through the system. For example, in the HAMP
program, which was originally announced to help up to 4 million
homeowners get the benefit of permanent government-sponsored
mortgage modifications, here we are 212 years later with the program limping along with fewer than 700,000 ongoing modifications,
a program that has been plagued by bad planning, rushed implementation, and incompetent management.
But that program actually looks great compared to the FHA
short refinance program. That was supposed to help up to 1.5 million homeowners. And here we about a year later after implementation with 301 families helped. Good planning matters, and the
poor planning for these programs has had devastating effects and
lost opportunities.
Second, it is a basic and good tenet of good government, any program, that you have clear articulable goals, you measure performance against those goals, and then you change the program if it is
not working to meet those goals. What Treasury has done is the
exact oppositechanging its goals to meet performance no matter
how anemic it is and declaring it a success. They have convinced
no one. All they have really done is further damage the already impaired credibility of Treasury.
And, third, these programs generally rely on third parties, like
the mortgage servicers in the HAMP program, so it is essential to
have the right balance of incentives and penalties. Secretary
Geithner testified in February of this year that the incentives in
HAMP were, in his words, not powerful enough. And by that, I
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take it he is referring to the conflicts of interest that are baked into
the HAMP model by the way Treasury designed it.
But rather than address that problem, Treasury has ignored it.
Even worse, they have given a free pass to the mortgage servicers
who have had just an abysmal performance, in their words, with
not complying with the programs rules and regulations. Rather
than having a meaningful penalty regime, they backtrack and really come up with a bunch of political gimmicks and tricks that give
them a free pass for having really committed egregious abuses on
homeowners through the implementation of this program.
Part of me still believes that the government should have a role
in foreclosure mitigation, if for no other reason than that this was
the necessary promise that Treasury made in order to get TARP
passed in the first place. But it is becoming harder and harder to
support these measures. Whether it is through sheer incompetence,
undue deference to the banks or just missed opportunities, the Administration has demonstrated itself to be an incompetent manager
of these programs, and it is a real question of whether they can effectively manage any mitigation program. And when they come out
as they did this morning and suggest that they have had success
in completely unrelated areas, it really raises a question of whether
we can trust them to do so.
Madam Chairwoman, members of the committee, again I thank
you for this opportunity and I look forward to answering any questions that you may have.
[The prepared statement of Mr. Barofsky can be found on page
42 of the appendix.]
Chairwoman BIGGERT. Thank you very much.
Dr. Calabria, you are recognized for 5 minutes.
STATEMENT OF MARK A. CALABRIA, PH.D., DIRECTOR,
FINANCIAL REGULATION STUDIES, CATO INSTITUTE
Mr. CALABRIA. Chairwoman Biggert, distinguished members of

the subcommittee, to evaluate the effectiveness of the Administrations response to the housing crisis, I believe one first must look
to the conditions of the housing market. Intentions are one thing;
outcomes are quite another.
The first market condition to keep in mind is that despite large
price declines, housing in many parts of the country still ranks expensive relative to income. Historically, median home prices tend
to be 3 times the median incomes. We are close to this relationship
at the national level. Many cities, such as San Francisco for instance, still have median home prices almost 8 times median income. Such prices remain out of reach for the typical family.
We should also recognize that new home prices still remain well
above construction costs. Over the long run, in a competitive market, prices fall to meet the price of production. Up until about 2003,
this was the trend in the housing market. This relationship is likely to reassert itself over the next few years.
It is also worth noting that existing home sales in 2010 were only
5 percent below their 2007 level, while new home sales remain almost 60 percent below their 2007 level. The primary reason for this
difference in my opinion is that existing home prices have declined
by a much greater degree, more than twice that of new home
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prices. I believe this clearly illustrates that housing markets work
like every other market. If you want to eliminate excess supply,
you have to allow prices to drop.
As prices have continued to slowly decline, sales activity has
slowly increased. On a seasonally adjusted basis, existing home
sales for the first half of 2011 were 12 percent above home sales
for the second half of 2010. I am expecting further minimal price
declines at the national level. And while none of us have a crystal
ball in terms of sales activity, I believe we have come close to hitting bottom and are slowly working our way towards a recovery in
the housing market.
That said, it is important to keep in mind, I believe, we are years
away from seeing anything like the activity of 2005 and 2006.
I believe there is some consensus that there is a considerable
pent-up demand for housing, perhaps as much as 2 million units.
The question is, what it will take to elicit that demand? As we have
tried a variety of incentives, such as the home buyer tax credit,
with I believe at best mixed results, I believe this pent-up demand
will not really show itself until we see further price declines, even
if those price declines are small.
So, again, to emphasize one of the points that I am trying to
make, we should not be afraid of further price declines. We should
actually welcome that as a way of trying to clear the housing market.
I will say as an aside that I look at shelter, housing, as one of
lifes basic necessities, so not only should we see price declines as
helping to clear the market, we should also see price declines as
helping to make one of lifes basic necessities actually more affordable, cheaper.
To get to this point touches on what I see as the central flaw in
most of the Administrations response to the housing crisis, which
is rather than accept the fact that perhaps we built too much housing, perhaps we encouraged buyers to get into homes they could
not afford, the Administration has consistently viewed the housing
market through a Keynesian lens of lack of adequate demand, and
it is just one policy after another trying to create artificial demand
in the housing market through one stimulus after another, rather
than actually allowing the market to clear via prices reflecting fundamentals.
We must also recognize that owners equity or lack thereof has
little to do with their ability to pay their mortgage, but simply impacts their willingness to pay their mortgage. The primary driver
of mortgage delinquency is job loss. Putting an artificial floor under
housing prices will not turn the labor market around. I cannot
overemphasize this point. I think the primary driver of the housing
market at this point is the labor market, and turning the labor
market around will be the best thing we can do to get the housing
market moving again.
It is also important to keep in mind that subsidizing the unemployed to remain in place will not turn around either our mortgage
market or our housing market. Current foreclosure policies as well
as the elevated rate of homeownership entering the crisis in my
opinion have injected significant rigidities into our labor market.
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It should also be recognized we do not have a national housing
market. We have lots of regional and local housing markets. The
housing vacancy rate, for instance, is a useful gauge of excess supply and illustrates this point. At one extreme, Orlando has a owner
vacancy rate approaching 6 percent, whereas on the other extreme,
cities like Allentown, Pennsylvania, have owner vacancy rates of
about 0.5 percent. So, again, vast differences across the country.
Even vast differences within the same State. If one looks at Riverside compared to San Jose in California, the differences in market
conditions are dramatically different.
One point to keep in mind, because of these dramatic differences,
markets react differently to the same Federal policies. Markets
where supply is tight and building is difficult react very differently
than markets where it is relatively easy to bring forth additional
supply. The importance of this distinction is that policies that attempt to increase demand are likely to increase prices in tight markets rather than increase volumes, where in looser markets such
as Phoenix, these demand things will actually add additional supply and result in further pricing declines. So, again, we need to
make sure that we are not making the most expensive markets
more expensive by making those with a glut have additional gluts.
I will end by saying that it is also important to keep in mind that
so much of the discussion among policies in our housing market
has focused on the middle class and those better off. We should not
forget those who dont have homes at all. While the quality of data
on homelessness is not what it is in the rest of the housing market,
every indicator seems to suggest that we have seen a tremendous
increase in homelessness over the last couple of years, particularly
among families. And so again, I think because our traditional assistance programs have focused on individuals and focused on central cities, I would suggest to the committee to reevaluate the current structure of our McKinney-Vento Homeless Assistance Act
programs in light of current market conditions.
I thank you for your indulgence and welcome your questions and
comments.
[The prepared statement of Dr. Calabria can be found on page
Ms. Goodman, you are recognized for 5 minutes.
STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING
DIRECTOR, AMHERST SECURITIES GROUP LP
Ms. GOODMAN. Chairwoman Biggert and members of the subcommittee, thank you for your invitation to testify today. My name
is Laurie Goodman and I am a senior managing director at Amherst Securities Group, a leading broker-dealer specializing in the
trading of residential mortgage-backed securities. I am in charge of
strategy and business development for the firm.
We perform data intensive research as part of our efforts to keep
ourselves and our investors informed of critical trends in the residential housing market. That work has shaped our view of the
housing crisis and I will share some of our results with you today.
The Obama Administration has pursued a number of measures
to try to stabilize the housing market. In February 2009, the Ad-
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ministration announced the Home Affordability and Stability Plan.
This plan included both HAMP, the Home Affordable Modification
Program, a loan modification program designed to help at-risk borrowers; and HARP, the Home Affordable Refinancing Program, a
program designed to eliminate frictions to refinancing and allow
existing GSE borrowers to take advantage of lower mortgage rates.
I would like to focus on the success of these two programs.
The HAMP program was originally estimated to reach 4 million
borrowers. As of the end of July, there have about been 1.66 million trial modifications extended. Of these, there are now 675,000
active permanent modifications and another 106,000 in active trial.
So even if all these active trial modifications were to become permanent and there were no further defaults, the success rate on this
program would have been less than 50 percent. To date, the program overall has achieved less than 20 percent of the original stated goals.
The HAMP program has done a good job reaching eligible borrowers. The problem is the programs success rate is relatively low.
The largest reason for the failure of HAMP has been the fact that
the borrower has not been re-equified.
Our research has shown that redefault rates are significantly
lower when principal reduction and not just payment reduction
modifications have been made. To improve modifications for success, we would suggest making the principal reduction alternative
under HAMP mandatory, as long as it represents the highest net
present value alternative. Exclusions would apply only if that action is expressly prohibited by either the pooling and servicing
agreement or the ultimate holder of the risk. In addition, treating
the second lien pari-passu to the first is a subversion of the lien
priority and a hindrance to successful modification as it impedes
the re-equification of the borrower.
In recognition of the fact that a disproportionate number of delinquent borrowers have second liens, we suggest that if the first lien
is modified, second liens should be eliminated or at the minimum
take a disproportionate writedown. However, modification activity
alone is insufficient to bridge the supply-demand gap in the housing market. It is necessary to encourage investor activity. The
FHFA-HUD-Treasury request for information acknowledged this
and asked for the best way to design the program. In our view, this
can best be done by conducting bulk sales of real estate-owned
properties and of nonperforming loans owned by the GSEs and
FHA. Providing conservative financing would raise the sale price
on these assets even further.
The Home Affordable Refinance Program was created to facilitate the refinancing of Freddie- and Fannie-insured mortgages.
This program was originally supposed to reach 4 to 5 million borrowers with GSE mortgages. In fact, the number of HARP refinances is actually 838,000 through June 30th. Why the limited
reach?
In this case, it was not one factor, but a bunch of different factors. The real issue is that the GSEs are not the only bearer of risk
on a defaulted GSE loan. Many of these loans have mortgage insurance. Moreover, the GSEs have the right to put back the loan to
the originator if it contained a violation of the representations and
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warranties that were made at the time when the GSE initially insured the loan.
The three largest impediments to the success of HARP are, first,
the mortgage insurance (MI) issue. If the loan is refinanced by a
different servicer, the mortgage insurer will lose the reps and warrants they have with the old servicer. Thus, loans with MI tend to
refinance more slowly than loans without, as loans with MI are dependent solely on same servicer refis.
Second, the rep and warrant issue. Many lenders are reluctant
to refinance high LTV, low FICO borrowers as the new lender must
bear the rep and warrant risk on the refinance loans.
Third, capacity constraints. With the drop in interest rates, mortgage lenders face capacity constraints, but they are not adding capacity. The result is, they are reaping excess profits and keeping
mortgage rates to the borrower consistently higher than they
should be.
To make HARP successful, we believe it is important to introduce
competition by reducing the frictions to different servicer refinances. Other actions that have been discussed to improve HARP
effectiveness include the elimination of loan level pricing adjustments, the elimination of the 125 ceiling, and the elimination of all
appraisals on HARP refinancing. We believe these actions will have
a limited impact.
Again, thank you for the opportunity to appear before the subcommittee. We look forward to working with you on practical solutions to ease the housing crisis, promote housing market stability,
and allow homeowners to take advantage of lower rates to refinance.
[The prepared statement of Ms. Goodman can be found on page
Mr. HURT. [presiding]. Thank you, Ms. Goodman.
Mr. Jakabovics is recognized for 5 minutes.
STATEMENT OF ANDREW JAKABOVICS, SENIOR DIRECTOR,
POLICY DEVELOPMENT AND RESEARCH, ENTERPRISE COMMUNITY PARTNERS
Mr. JAKABOVICS. Thank you. That was excellent pronunciation,

by the way. That rarely happens.
Congressman Hurt, thank you so much for having me here today
and providing me the opportunity to testify, to discuss mechanisms
and policy options to facilitate bringing the private sector back into
the housing market in a supportive and sustainable way.
I act as senior director for policy development and research at
Enterprise Community Partners, which is a national nonprofit organization that creates opportunities for low- and moderate-income
people through affordable housing and diverse thriving communities. For nearly 30 years, Enterprise has provided financing and
expertise to organizations around the country to build and preserve
affordable housing and to revitalize and strengthen communities.
Enterprise has invested more than $11 billion and created more
than 280,000 affordable homes in hundreds of American communities by bringing public and private capital together to meet local
needs.
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In addressing the housing crisis, the solutions we must talk
about must address the needs of individual borrowers and their
families. But a comprehensive approach to stabilizing the broader
housing market must include preventive efforts as well as remedial
ones. The old adage, An ounce of prevention is worth a pound of
cure certainly applies here.
The cost of providing counseling or offering foreclosure mediation, both of which have proven successful in keeping borrowers
in their homes compared to individuals navigating the complicated
and often frustrating modification process without help, is far, far
less than the cost of foreclosure borne by families, communities,
municipalities, lenders, and investors.
A theme that will recur through my testimony is that successful
interventions in the housing market require deliberate coordination. There are too many moving pieces and too many overlapping
interests to act unilaterally. Collaboration is key. So while I am
going to focus most of my testimony on the pressing need to continue minimizing the impact of foreclosures, I would be remiss if
I did not mention that the best option for avoiding a costly foreclosure is to provide a distressed borrower with an affordable mortgage payment, as we have heard up till now.
With better coordination in mind, however, bulk note purchases
by entities or consortia with the capacity and flexibility to restructure notes where possible, including through principal reduction,
and the ability to transition properties with minimal disruption or
vacancy, either through negotiating a deed for lease with the current owner or quickly repairing and renting to new tenants into affordable rental portfolios may yet hold the most promise for stabilizing the Nations housing markets.
You have already heard about changes that could improve
HARP, so without going into that again, I would point you to my
written testimony on that.
But if we consider that refinancing is one end of the mortgage
process, REO disposition is at the other end. Stabilizing the housing market means more than being effective in keeping people in
their homes. It means dealing with the impact that foreclosures
have on communities across the country.
Vacant and blighted properties have terrible effects on neighbors
of foreclosed properties and whole communities. Research has
found the contagion effect with price declines increasing with each
additional foreclosure in an area. The impact of a foreclosed property increases the longer that property sits unsold.
The Neighborhood Stabilization Program was designed specifically to address that contagion. Through targeted interventions to
acquire properties in hard-hit communities, NSP has created jobs
when houses are restored to good quality and helped put families
back into formerly distressed properties. The most successful programs have been those that have brought private capital into their
efforts to stabilize neighborhoods, and in places like New York,
Cleveland, and Sacramento, those funds have been leveraged more
than one-to-one with private capital.
Those programs, however, focused on narrow communities in
small areas in order to maximize the potential impact. But to address the need of foreclosed properties across the country, we have
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to bring responsible private capital back into the housing market
for broader stability.
There are issues with the NSP recipients being able to revolve
their funds when they cannot sell homes because lenders are not
lending even to creditworthy borrowers, and this has significantly
limited the potential scope of NSPs efforts to restore those communities.
We heard a little bit this morning from the first panel about
Project Rebuild and the fact that it is intended to create or support
190,000 jobs and addressing 80,000 foreclosed, vacant or abandoned properties nationwide. But the problem is much, much larger than just those 80,000 properties.
As we have heard, based on the RFI put forward by FHFA, HUD
and Treasury, we need to find a better way of disposing of properties that the GSEs and FHA acquire in foreclosure. The current
REO disposition process for everybody, both the private sector and
public agencies, is designed to treat individual properties one at a
time, assigning it to a broker for sale and then writing off the
losses after closing.
The process rarely takes into account how any individual property might impact other properties, and we have to be far, far more
strategic, again both on the individual side as well as on the private side, as to how best approach the process. So by removing
REO properties from the forced sale inventory by converting them
to rental in bulk, there is an opportunity not only to quickly increase the supply of rental homes, most of which will be affordable,
but downward pressure on prices from excess forced sale inventory
for owner occupants would also be alleviated, allowing for a faster
housing market recovery.
To be successful, an REO rental program must address the initial sales process, buyer qualifications, post-purchase treatment of
properties, and ultimately excess strategies for the buyer. I point
you to my written testimony for recommendations. But very, very
briefly, buyer qualifications are absolutely critical. You have to ensure that the buyers have sufficient capital to acquire and maintain the properties and that asset managers are in place to treat
the properties with the respect that those properties and their tenants deserve as well as the communities in which they are found.
I look forward to taking any questions you might have.
[The prepared statement of Mr. Jakabovics can be found on page
Mr. HURT. Thank you, Mr. Jakabovics. I recognize myself for 5
minutes.
I am glad that you talked a little bit about the Neighborhood
Stabilization Program. Maybe my question, I really have one question for everybody, but I would like to start with you since you
spoke about it.
Obviously, foreclosure mitigation is something that I think as far
as everyone here is concerned, is something that we want to
achieve. We want to prevent people from being put out of their
homes under these circumstances. I guess the Neighborhood Stabilization Program comes to our attention, particularly because expanding that program is part of the Presidents jobs plan, as you
call it, Project Rebuild.
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I think from my standpoint, the fact that the Neighborhood Stabilization Program has not prevented any foreclosures, and I understand that is perhaps not the primary purpose, but at a time
when we are borrowing 40 cents on every dollar that we spend and
we have to prioritize what money we do have coming into our
Treasury in order to maximize the return, I wonder about the efficiency, the efficacy of this program. One of the things that I also
note is that the Neighborhood Stabilization Program since 2008
has been given $7 billion. It appears to me from my math that it
has only used between $4 billion and $5 billion of that, and that
is since the crisis in 2008, and it has not mitigated any foreclosures.
So I guess my question for you is, how do we justify another $15
billion into this program when it is not mitigating foreclosure? And
I also wanted you to speak to the fact that it is my understanding
that the Presidents proposal would extend this to commercial properties as well.
Could you talk about that? And then, I would like to maybe go
to Mr. Barofsky, Dr. Calabria, and Ms. Goodman.
Mr. JAKABOVICS. Sure. I think it is important to recognize the
sort of flow of ways properties end up in foreclosure. And what
NSP is really designed to do is address post-foreclosure, minimize
the impact on everybody else around them. So one of the things
thatthe way I think it has been incredibly successfuland we
have seen this in a number of placesis that as those properties
get rehabilitated, they are no longer blights on the community.
They dont drag down neighboring prices.
On the one hand, job loss is certainly a critical component in
terms of ultimately delinquency, default and thendelinquency
and then default. The probability of a property going ultimately
through to foreclosure is very, very closely tied to the value of that
property relative to how much the homeowner owes on that mortgage. And so, as homes go into foreclosure, the more foreclosures
that are in an area and the more properties are sitting on the market that are vacant and abandoned and blighted, the less value everybody else associates with those properties. The idea is that by
bringing those properties back into productive use, getting people
into propertiesit is not designed at all to address pre-foreclosure
issues.
Mr. HURT. And I get that. But I guess if you are dealing with
a limited amount of resources, would it be wiser to use those resources to prevent that in the first place and keep somebody in the
home? That would be the question. But maybe
Mr. JAKABOVICS. Optimally, you want to keep everybody in their
homes. But if people dont have jobs, and cant make mortgage payments, there is very little that we can do. People are not finding
jobs, so at some point foreclosures do happen. And the idea behind
NSP specifically is very, very closely targeted to dealing with the
impact of those foreclosures that are going to be inevitable.
Mr. HURT. Thank you.
I would like to just give the other panelists the opportunity to
answer briefly, if you can.
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Mr. BAROFSKY. Sure. One of the things that is striking, as you
said, it sounds like it has been about $4 billion to $5 billion out
of a projected
Mr. HURT. $7 billion that has already been allocated.
Mr. BAROFSKY. $7 billion. So, once again, you have these very
strong predictions of a wide application of a program that fall
short. Now, compared to other programs, that is remarkably good.
When you look at HAMP, which had $50 billion allocated, and we
spent $2 billion, and that was supposed to help 4 million people.
Or the $8 billion allocated to FHA short refinance, and I think it
spent $50 million, helping 301 people out of the 112 million.
So I think it is very important to sort of, before allocating money
or obligating money, to look at whether or not that money can actually be spent in an effective manner. It is not just in housing programs. We had the small business lending fund, $30 billion was
needed, and they ended up spending $4 billion. So I think it goes
back to my original point of having good, comprehensive planning
so we are not just putting money into a program that can maybe
go elsewhere if it is not actually going to be spent and used.
Mr. HURT. Thank you.
Dr. Calabria?
Mr. CALABRIA. There are a couple of assumptions buried in NSP
that I think are worth pointing out. Because this is where I would
have a disagreement. One assumption, of course, is that cities and
nonprofits are going to be better landlords, with a better ability to
get these properties back on the market than private investors.
To me, that is a questionable assumption, certainly one that
hasnt been proven. I think if you let prices fall far enough, you will
have investors out there. A tremendous amount of the sales now
are cash anyhow, so I am not sure that I think it makes a good
use of taxpayer funds to put cities, localities directly in competition
as buyers with private investors who will themselves get these
properties back onto the marketplace. And again, the desire is to
get these properties back onto the marketplace.
I also again question the intention that we have to be able to
prop up prices. What you want to be able to do is get sales volume.
You want to get buyer confidence. To get buyer confidence, we need
to get to a point where buyers simply believe that prices will go no
lower.
Mr. HURT. Right.
Mr. CALABRIA. Another assumption in this, again, much of NSP
is aimed at rehabilitating existing properties. In the Detroits and
the Buffalos and the Clevelands of the world, as well as the
Phoenixes of the world, the problem is not a lack of supply.
Mr. HURT. Right.
Mr. CALABRIA. The problem is excess supply. So adding to that
supply only further does that. If we are going to spend this sort of
money, perhaps we should be looking at destroying properties,
rather than rehabilitating properties in excess markets.
Mr. HURT. Thank you, Dr. Calabria.
Without objection, I would like to recognize Ms. Goodman just for
an additional 60 seconds.
Ms. GOODMAN. Okay. If no further actions are taken, about 1012
million borrowers could be in danger of losing their homes. I think
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it is very, very important to keep focus on the few actions that can
help the most: first, keeping borrowers in their home by doing principal reductions and by explicitly recognizing the second lien issue;
and second, to close the supply-demand gap, you have to do bulk
sales to get investors involved in the market. Those are the things
that will really, really help; and I think we need to focus on doing
fewer programs well.
Mr. HURT. Thank you, Ms. Goodman.
Now, it is my pleasure to recognize the gentleman from Wisconsin, Mr. Duffy, for 5 minutes.
Mr. DUFFY. Thank you, and I appreciate the panel for coming in.
I just want to make sure the record is clear, Mr. Barofsky. I
heard in your testimony you said that, with the FHA refinance, the
goal was for 1.5 million homeowners to be helped, and I think you
actually said there were 301 actual people helped. Did you mean
to say 301,000 people helped or 301 actual people helped?
Mr. BAROFSKY. No, no, it is 301. It was about 254 when I stepped
down, so I think they have added about 50 in the last 6 or 7
months.
Mr. DUFFY. So those who were helped from this program could
actually fit in this room?
Mr. BAROFSKY. It might be a little tight, but, yes, I think so.
Mr. DUFFY. Yes. Okay, I wanted to be clear on that, that I didnt
misunderstand your testimony. I think under the backdrop of
Solyndra right now, the American people look around and ask, is
my government effectively using my tax dollars or are they effectively using the money they are borrowing from China on my behalf and my kids behalf? And then they will ask, if you are not
using my money effectively, are you still accomplishing the goals
that you are setting out when you are wasting my money? And I
think with Solyndra they would say, no, you wasted our tax dollars, number one, but, number two, you didnt even accomplish the
goal you told me you were setting out to accomplish, which was
giving seed money for good, green start-ups.
If you look at what is happening, say, with HAMP, if Treasury
was a private corporation, would they be fired? Would they continue to exist in the private sector if they have accomplished the
goalsif we are reviewing their accomplishments per the goals
they set out at the start of the mission?
Mr. BAROFSKY. I think there is no question they have fallen embarrassingly short of the goals. If there is any silver lining to this
incredibly dark cloud, it is that at least they havent spent a lot of
money on it. They have obligated a lot of money for it$50 billion
was supposed to be spent, and not to say that $2 billion isnt a lot
of money, but in comparison this hasnt been a sinkhole because it
has been such a failure. So that is the one silver lining to all this.
At least it hasnt cost as much money in not accomplishing their
goals as just throwing money at the problem with similar results.
Mr. DUFFY. And similarly, broadly speaking, if we are looking at
these programs, I would guess that many of you would agree that
many of them are underperforming, to say the least?
Mr. BAROFSKY. Failing.
Mr. DUFFY. Failing, yes, okay, that is a little more aggressive.
Are any of the programs working? Can you sit here and say, listen,
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we have some hope; there is a little light out there shining that can
help?
Tuly, Americans who are in some very difficult times and I think
to find some programs that can help them out, are any of these
possibly going to get that job done, helping the American homeowner?
Mr. BAROFSKY. Again, I think, rather than just do opinion, you
just look at the numbers. So HAMP is supposed to help 4 million,
691,000 ongoing, almost 900,000 fails. The FHA program we talked
about, the principal reduction program which was rolled out as
part of HAMP, which we heard about in the testimony this morning, that has helped 10,000 people. Second lien modification is such
a huge problem, as Ms. Goodman described, 35,000. The HAFA
program to help people leave with dignity through short sales,
16,000. Unemployed program, this is supposed to help the millions
of unemployed with our tremendous unemployment, 14,000. It is
not just for me to say that its a failure. These numbers are unambiguous. They are failing.
Mr. DUFFY. And are there programs the government canoh, I
am sorry?
Ms. GOODMAN. Yes, I just wanted to mention, the one thing that
could potentially help a lot which has been introduced is Treasury,
HUD, and FHFA did a joint request for information on bulk sales
to investors, sort of a deed for lease; I think that a program facilitating bulk sales to investors with the express purpose of renting
out those properties could potentially help a lot. I think that is the
most important initiative that has been taken, and should be definitely encouraged.
Mr. DUFFY. It could work?
Ms. GOODMAN. And that could work. You could actually put stipulations on it like investors cant sell those properties for a number
of years or can only sell 20 percent of those properties in the first
3 years or whatever to make it even more effective, and I think
that program should be pushed.
Mr. JAKABOVICS. If I may, also, I think that a lot of the reasons
for failures that have been identified both by Mr. Barofsky and Ms.
Goodman are largely private-sector failures. I think part of the
problem has been an overreliance on the private sector to act as
agents for the government without sufficient oversight and sufficient sticks to ensure compliance.
So to put the blame entirely at the feet of government for coming
up with efforts to help homeowners, I think if you would ask those
nearly 700,000 people who have been able to stay in their homes
as a result of the modification efforts or the communities where the
blighted property next door has not only created a job for them but
also made the neighborhood a little bit more attractive, I think
from that perspectivethere is enoughthere is certainly enough
blame to go around, but I think it would be a mistake to write all
of this off as a failure simply because it hasnt met potentially outsized expectations from the get-go.
Mr. HURT. Do you want more time?
Mr. DUFFY. Could I have
Mr. HURT. Without objection, the gentleman is recognized for an
additional 2 minutes.
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Mr. DUFFY. Thank you.
I think as we sit back and look, Mr. Calabria, you have indicated
that, if I am understanding your testimony, if we just step back
and let the market work, maybe the market could more effectively
find a floor so then we have sufficient demand to step in and see
the market then take off again. Is that your position?
Mr. CALABRIA. That is very much the case. I would characterize
a lot of the actions as somehow trying to get back to 20052006.
That was not a sustainable situation. We need to accept we built
too much housing. We need to accept that the way that works
going forward is you try to clear the market by prices coming down.
I want to draw out a point that I think was implicit in something
you said earlier about tax dollars. So much of the reaction has been
that we need to maintain housing wealth, we need to maintain
housing values because that is peoples wealth. We need to keep in
mind that homeowners and taxpayers are the same people. Taking
a dollar out of my left pocket and putting it into my right pocket
does not make me better off just because you switched it around
on my balance sheet. So it is important to keep that in mind.
If we can find ways, like bulk sales, which I do think is one of
the things that can be done effectively, something I would add,
maybe a little of the difference is I think we do need to resist the
temptation of micromanaging those bulk sales. If we put too many
restrictions like, you have to have income requirements or so much
of it needs to go to nonprofits, you will make the process more cumbersome.
I think all you need to do is look at, for instance, FHAs asset
control area program they have been running for over a decade. It
has been a disaster, in my opinion. So, again, resist the temptation
to micromanage. Get the properties out there in the market.
Mr. DUFFY. Right. And if we have a philosophy of letting the
market work, but then, also, if someone is going to say Congress
should also try to do something to move the process along, do you
have any ideas on where we would go if we are relying on the market but also a little Miracle Gro as well? I dont know
Mr. CALABRIA. I think there are a number of areas you need to
look at. The bulk services is one area. I think we need to parse out
some of the discussions on foreclosures. The Administration, the
President himself has said this. We cant save everybody. We need
to be more honest about that. I think you need to have essentially
a two-tiered process
Mr. CALABRIA. Those homeowners who can be saved, move forward, those who cant
It is now my pleasure to recognize the gentleman from California
for 5 minutes, Mr. Sherman; and we will certainly give him more
time if he needs it.
Mr. SHERMAN. Okay. I dont think what the American people
want is to get into this room and have a shouting match, less fillingwhat is the other side of thatbetter tasting or whatever? Or
governments at fault, private sectors at fault.
The fact is, Americans are mad because the system isnt working.
They know that the private sector either caused it and/or hasnt
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solved it. They know government either caused it and/or hasnt
solved it or, as some of our witnesses have pointed out, has solved
it for tens of thousands of people at a time when we wanted to
solve it for hundreds of thousands of people.
I would point out that the fact that the various programs adopted in the last Congress have helped a lot fewer people than anticipated also means they have cost an awful lot less than anticipated.
And so those who oppose those programs should regard that as an
unintentional compromise, halfway between what Democrats wanted both in terms of number of people helped and cost to the Federal Government and what the other side wanted.
People have been urging compromise on me for a long time.
Things being ineffective and too slow is probably not the way they
wanted to achieve that compromise.
As to bulk sale, Ms. Goodman, what do we need to do governmentally to facilitate investors buying these homes in bulk and
renting them out?
Ms. GOODMAN. We basically have to make the program available
on a scale that works. So, basically, my recommendation would be
that you get together, say, 200 properties in a given MSA, and you
sell it as a bulk sale, and you will get excellent execution. Because
basically what you have to do is encourage large investors to build
out an infrastructure for renting out these properties, for managing
these properties, and they are going to pay more for bulk. If you
can accumulate five properties in Indianapolis, that doesnt allow
you to build out a structure. If you can accumulate 200 properties,
it does. You dont need legislation. You have to basically put the
program into place.
Mr. SHERMAN. You need a program. What is the matter with the
private sector, Wells Fargo and Bank of America saying, Hey, lets
get together. You have 100 homes in Indianapolis, I have 100
homes in Indianapolis, we will put them up for bid.
Ms. GOODMAN. Because most of the propertiesor at least half
of the loans in the United States are either Freddie, Fannie, or
FHA/VA properties; and so the government actually has to be willing to dispose of these properties in bulk and put a program into
place to do so. You dont need legislation. You need action.
Mr. SHERMAN. And this bulk sale idea is the only thing I have
seen at least three witnesses, if not four, testify in favor of, and it
is consistent with what I see in my district, which is there is a surplus of homes for sale or will be as soon as they grind through their
foreclosure process and a dearth of rental housing. And in fact,
many of the people who want to rent would prefer a single family
home since that is what they bought back when they could afford
to buy it.
Ms. GOODMAN. Very well said.
Mr. SHERMAN. The focus here in part is, how do we maintain
home values without costing the Federal Government a lot of
money?
One of the ways to do that is to, in my area, which is a highcost area, is to maintain the $729,000, $750,000 conforming loan
limit. Ms. Goodman, what do we expect to happen to homes that
were selling for $800,000, $900,000, even a million dollars now that
the conforming loan limit has dropped to $625,000?
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I know the homes that sell for $20 million down in Malibu arent
going to be affected. If you buy one of those, you probably own a
bank. But for those homes which, believe it or not, in my area are
called middle-class homes but sell for over $700,000, what is this
decline in the conforming loan limit going to do to home values and
the ability of buyers to purchase?
Ms. GOODMAN. It is important to realize that credit availability
is constrained across the spectrum to begin with. Freddie and
Fannies average FICO score is 762 for recent origination. The average LTV is 67. Bank portfolios have similar origination standards.
Mr. SHERMAN. The LTV is 67?
Ms. GOODMAN. On average.
Mr. SHERMAN. That is a one-third downpayment? Wow.
Ms. GOODMAN. Yes, yes. Credit availability is very, very limited
as it is, and what that will do is constrain credit availability even
more.
Taking a step back, you have this huge supply and demand gap.
As you pointed out, you have a lot of homes that havent been foreclosed on but will be. The borrower just cant afford to be in that
home. You have to transition to someone. Your choice is you either
transition to another owner occupant who has less good credit because he couldnt make the payments on his prior home or you are
going to have to transition to investors.
So it just makes a case that at the margin, the loan limitsthe
recent decrease in the loan limits makes credit availability tighter
for that sector.
Mr. HURT. Without objection, the gentleman is recognized for an
additional 2 minutes.
Mr. SHERMAN. I appreciate that.
Is there any evidence that the private sector is ready without
any kind of government guarantee to make the loans of $700,000,
$725,000 to middle-class or upper-middle-class families trying to
buy homes?
Mr. CALABRIA. If I could add to that for a second, and I will start
withI am always loathe to generalize from anecdote, but I will
use myself.
I was just qualified for a jumbo loan in Washington, D.C., that
would have been below that limit if it had not been changed; and
I will say the difference in cost to me is 25 basis points of what
I would have gotten otherwise. But I did get the loan, and again,
that is just one example.
Mr. SHERMAN. With all due respect, some Republicans would say
that Washington, D.C., because its bleeding the rest of the country
dry, is the only hot housing market in the country, and you have
qualifications in terms of your ability to manage your finances that
the average constituent or Member of Congress does not have.
The next issue is with regard to homes where people just want
to refinance. That will enhance their equity. They are not able to
refinance because they are underwater. At least, they dont have a
huge amount of equity in the property.
It has been proposed that we allow these people to refinance because the Federal Government is already on the hook for the loan.
You have a $500,000 loan at 8 percent interest, and the govern-
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40
ment is on the hook, and there is no equity in the property. And
you convert that into a $500,000 loan, nobody is allowed to take out
any money$500,000 loan, the government is still on the hook,
and it is 3 percent interest or 4 percent interest.
Ms. Goodman, what do we have to do to allow people to refinance? Wont we reduce the governments risk if the interest rate
is 4 percent instead of 8 percent, and obviously we enhance a life
for the homeowner who is able to refinance?
Ms. GOODMAN. Absolutely. Where Freddie and Fannie already
own the risk, there is absolutely no reason other than the series
of frictions I delineated why the borrower shouldnt be able to refinance to take advantage of lower rates. Almost everybody is better
off. It should be able to happen.
Mr. SHERMAN. And if I can just comment, what you have now is
an unjustified profit where the current holder of that loan is earning 8 percent, government guaranteed, at a time when, if you buy
it from Mr. Bernanke, he will pay you a quarter of a pointwell,
2 percent.
I yield back.
Mr. HURT. Thank you, Mr. Sherman.
I ask unanimous consent to insert the following material into the
record: the October 3, 2011, letter from the National Low Income
Housing Coalition; the October 6, 2011, statement from the National Association of REALTORS; and the October 6, 2011, statement from Mercedes Marquez, Assistant Secretary for Community
Planning and Development, U.S. Department of Housing and
Urban Development.
The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing.
Without objection, the hearing record will remain open for 30 days
for members to submit written questions to these witnesses and to
place their responses in the record.
I would like to thank the witnesses for joining us today; and,
without objection, this hearing is adjourned.
[Whereupon, at 12:35 p.m., the hearing was adjourned.]
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APPENDIX
October 6, 2011
(41)
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The Obama Administration'S Response To The Housing Crisis: Hearing

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The Obama Administration'S Response To The Housing Crisis: Hearing

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THE OBAMA ADMINISTRATIONS

RESPONSE TO THE HOUSING CRISIS

COMMITTEE ON FINANCIAL SERVICES

Printed for the use of the Committee on Financial Services

Serial No. 11269

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

VerDate Nov 24 2008

16:59 Apr 25, 2012

HOUSE COMMITTEE ON FINANCIAL SERVICES

BARNEY FRANK, Massachusetts, Ranking

LARRY C. LAVENDER, Chief of Staff

VerDate Nov 24 2008

16:59 Apr 25, 2012

JUDY BIGGERT, Illinois, Chairman

LUIS V. GUTIERREZ, Illinois, Ranking

VerDate Nov 24 2008

16:59 Apr 25, 2012

VerDate Nov 24 2008

16:59 Apr 25, 2012

Hearing held on:

Biggert, Hon. Judy:

VerDate Nov 24 2008

16:59 Apr 25, 2012

VerDate Nov 24 2008

16:59 Apr 25, 2012