[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
 BAILOUTS AND THE FORECLOSURE CRISIS: REPORT OF THE SPECIAL INSPECTOR 
        GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 26, 2011

                               __________

                            Serial No. 112-1

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on January 26, 2011.................................     1
Statement of:
    Massad, Tim, Acting Assistant Secretary for Financial 
      Stability and Chief Counsel, U.S. Department of the 
      Treasury; and Neil Barofsky, Special Inspector General for 
      the Troubled Asset Relief Program..........................     4
        Barofsky, Neil...........................................    17
        Massad, Tim..............................................     4
Letters, statements, etc., submitted for the record by:
    Barofsky, Neil, Special Inspector General for the Troubled 
      Asset Relief Program, prepared statement of................    19
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   109
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of the American 
      Bankers Association........................................    86
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, American Banker article.............    43
    Massad, Tim, Acting Assistant Secretary for Financial 
      Stability and Chief Counsel, U.S. Department of the 
      Treasury, prepared statement of............................     7
    Norton, Hon. Eleanor Holmes, a Delegate in Congress from the 
      District of Columbia, article dated January 24, 2011.......    80
    Quigley, Hon. Mike, a Representative in Congress from the 
      State of Illinois, prepared statement of...................   114


 BAILOUTS AND THE FORECLOSURE CRISIS: REPORT OF THE SPECIAL INSPECTOR 
        GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM [SIGTARP]

                              ----------                              


                      WEDNESDAY, JANUARY 26, 2011

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room HVC-210, Capitol Visitor Center, Hon. Darrell E. Issa 
(chairman of the committee) presiding.
    Present: Representatives Issa, Platts, Turner, McHenry, 
Jordan, Chaffetz, Mack, Walberg, Lankford, Amash, Buerkle, 
Gosar, Labrador, Meehan, DesJarlais, Walsh, Gowdy, Guinta, 
Farenthold, Kelly, Cummings, Towns, Maloney, Norton, Kucinich, 
Clay, Lynch, Connolly, Quigley, Davis, and Welch.
    Staff present: Kurt Bardella, deputy communications 
director and spokesman; Michael R. Bebeau and Gwen D'Luzansky, 
assistant clerks; Robert Borden, general counsel; Will L. 
Boyington, Drew Colliatie, Kate Dunbar, and Nadia A. Zahran, 
staff assistants; Molly Boyl, parliamentarian; Lawrence J. 
Brady, staff director; Sharon Casey, senior assistant clerk; 
Steve Castor, chief counsel, investigations; Katelyn E. Christ, 
research analyst; Benjamin Stroud Cole, policy advisor and 
investigative analyst; John Cuaderes, deputy staff director; 
Adam P. Fromm, director of Member liaison and floor operations; 
Linda Good, chief clerk; Tyler Grimm and Tabetha C. Mueller, 
professional staff members; Peter Haller, senior counsel; 
Christopher Hixon, deputy chief counsel, oversight; Hudson T. 
Hollister, counsel; Seamus Kraft, director of digital strategy 
and press secretary; Justin LoFranco and Cheyenne Steel, press 
assistants; Mark D. Marin, senior professional staff member; 
Laura L. Rush, deputy chief clerk; Jeff Wease, deputy CIO; Dave 
Rapallo, minority staff director; Carla Hultberg, minority 
chief clerk; Susanne Sachsman Grooms, minority chief counsel; 
Lucinda Lessley, minority policy director; Davida Walsh, Brian 
Quinn, and Donald Sherman, minority counsels; Amy Miller, Alex 
Wolf, and Jill Crissman, minority professional staff members; 
Mark Stephenson, minority senior policy advisor/legislative 
director; Chris Staszak, minority senior investigative counsel; 
Steven Rangel and Jason Powell, minority senior counsels; Jenny 
Rosenberg, minority director of communications; and Eddie 
Walker, minority technology director.
    Chairman Issa. Good morning and welcome to our first 
hearing of the full committee of the 112th Congress. Today's 
hearing is on the bailout and the foreclosure crisis, and 
specifically the report of the Special Inspector General for 
the Troubled Asset Relief Program, SIGTARP.
    This is the first hearing for both Chairman Issa and 
Ranking Member Cummings, so I ask all of your indulgence as we 
go through a number of first-time mistakes that undoubtedly I 
will make.
    The Chair notes that pursuant to the rules, there will not 
be opening statements. However, Members may have 7 days to 
submit opening statements and extraneous materials for the 
record.
    We will now recognize our panel.
    Mr. Cummings. Mr. Chairman.
    Chairman Issa. Yes.
    Mr. Cummings. Parliamentary inquiry, Mr. Chairman. I know 
this is our first meeting, and I just want to make sure we are 
clear. We had a lengthy discussion on opening statements----
    Chairman Issa. Would the gentleman state his purpose?
    Mr. Cummings. I am trying to do that. We had a lengthy 
discussion yesterday with regard to opening statements and I 
thought we had reached a wonderful agreement where the chairman 
had said that he would provide us notice with regard to opening 
statements, whether we were giving them or not. And this is our 
first hearing and some of the Members and, of course, I am just 
wondering exactly why we are not having opening statements and, 
two, we were given notice just about half an hour ago or so 
that there would not be opening statements. I am just 
wondering.
    Chairman Issa. I thank the gentleman. The Chair is waiving 
opening statements, including my own, and, as I said, all 
Members will have 7 days in order to place their opening 
statements into the record.
    On a very personal note, I felt that it was most important 
on this first hearing to start off by listening to the 
witnesses as though this--and I know that the Special IG, this 
is his 20th visit. However, for the purpose of all of us, 
including the freshmen, I wanted to start off by listening 
first. I recognize that tradition is that we hold the witnesses 
here for sometimes an hour through opening statements.
    That is a tradition that I intend to break. That doesn't 
mean that there won't be opening statements in the future, but 
for this first one I wanted to make it perfectly clear, if you 
will, that we are interested in listening to our witnesses 
first. And I appreciate the gentleman's problem.
    Mr. Cummings. Mr. Chairman, further parliamentary inquiry. 
Pursuant to what you said yesterday--and I have the 
transcript--will you be giving us more notice with regard to 
that? I mean, I thought we were very--we had a gentleman's 
wonderful discussion yesterday where you said you would give us 
proper notice, and I was just wondering what should we expect 
in the future, and that is all.
    Chairman Issa. As I said, we will intend to give notice to 
all things. In this case, we only organized yesterday, less 
than 24 hours ago. In the future, I would expect there would be 
greater notice. And I appreciate the gentleman's question.
    Mr. Kucinich. Would the chairman yield? Would the chairman 
yield for a question?
    Chairman Issa. At this time I am going to introduce the 
witnesses.
    Mr. Timothy----
    Mr. Kucinich. Mr. Chairman.
    Chairman Issa. For what purpose is the gentleman seeking 
recognition?
    Mr. Kucinich. An inquiry of the Chair with respect to 
procedure.
    Chairman Issa. The gentleman will state his inquiry.
    Mr. Kucinich. I have been in the Congress for 14 years and 
I have never, it is just unprecedented that the ranking member 
not be permitted to give an opening statement or for a chair to 
dispense with opening statements.
    Chairman Issa. Does the gentleman have a parliamentary 
inquiry?
    Mr. Kucinich. I didn't make a parliamentary inquiry. I 
would ask----
    Chairman Issa. Then the gentleman is no longer recognized.
    We will now introduce----
    Mr. Lynch. Mr. Chairman.
    Chairman Issa. We will now introduce----
    Mr. Lynch. On a point of order.
    Chairman Issa. Yes, a point of order.
    Mr. Lynch. I certainly understand if the chairman has 
decided that he has nothing to say, but can you cite one 
example, any single example in the history of the Congress, if 
you would, where a minority ranking member has not been 
afforded, not been given the respect of an opportunity to make 
a brief opening statement?
    Chairman Issa. The Chair will respond for the record with 
an appropriate list of the times in which opening statements 
have been waived or ranking members have not been able to----
    Mr. Lynch. But you can't think of one right now.
    Chairman Issa. The gentleman is no longer recognized.
    We now turn to our witnesses. Mr. Timothy Massad is the 
Acting Assistant Secretary of the Treasury Department's Office 
of Financial Stability and Chief Troubled Asset Relief Program. 
Mr. Massad assumed the title of Assistant Secretary on 
September 2010, after Herbert Allison stepped down from the 
position. Before that, Mr. Massad served as the Chief Counsel 
and Chief Reporting Officer for the Office of Financial 
Stability. Prior to starting his government work, he worked at 
the onset of the 2008 financial crisis. Mr. Massad was a 
partner at Cravath, Swaine & Moore, where he had a diverse 
international corporate practice with an emphasis on security 
offerings and bank financing, counseling underwritings and 
security issues. Mr. Massad received an B.A. degree magna cum 
laude from Harvard College in 1978 and his J.D. magna cum laude 
from Harvard Law School in 1984.
    Mr. Neil Barofsky, no stranger to this committee, was sworn 
into the office on December 2008 as the Special Treasury 
Department Inspector General to oversee the Troubled Asset 
Relief Program. Prior to that, Mr. Barofsky was a Federal 
prosecutor in the U.S. Attorney's Office for the Southern 
District of New York for more than 8 years. In that office, Mr. 
Barofsky was the senior trial counsel who headed the mortgage 
fraud group. Mr. Barofsky also has extensive experience as a 
line prosecutor leading white collar prosecutions during his 
tenure as a member of the Securities and Commodities Fraud 
Unit.
    Mr. Barofsky also led the investigation that resulted in 
the indictment of the top 50 leaders of the Revolutionary Armed 
Forces of Colombia [FARC], as it is better known, on narcotics 
charges, a case described by the then attorney general as the 
largest narcotics indictment filed in U.S. history. Mr. 
Barofsky received his B.A. from the Wharton School of Business 
and is a magna cum laude graduate of the New York University of 
Law.
    Pursuant to the committee rules, all witnesses will be 
sworn in before testifying. Please rise, raise your right 
hands.
    [Witnesses sworn.]
    Chairman Issa. Thank you. You may please be seated.
    As is the custom of this committee, we would ask that your 
full written statements be placed in the record and that you 
limit your opening statements as close as possible to 5 
minutes.
    As was the custom of my predecessor, you will see three 
lights. Green means continue to go, yellow is the warning that 
you should not run through our intersection, and red in all 50 
States means stop.
    Thank you, Mr. Chairman.
    The normal rule of committee is that we go in order of 
rank. Mr. Massad, I believe you would, by protocol, be first.

   STATEMENTS OF TIM MASSAD, ACTING ASSISTANT SECRETARY FOR 
 FINANCIAL STABILITY AND CHIEF COUNSEL, U.S. DEPARTMENT OF THE 
TREASURY; AND NEIL BAROFSKY, SPECIAL INSPECTOR GENERAL FOR THE 
                 TROUBLED ASSET RELIEF PROGRAM

                    STATEMENT OF TIM MASSAD

    Mr. Massad. Thank you, Mr. Chairman. Chairman Issa, Ranking 
Member Cummings, members of the committee, thank you for the 
opportunity to testify today about the Troubled Asset Relief 
Program [TARP], as it is commonly known. I am the Acting 
Assistant Secretary for Financial Stability at the Treasury, 
which means I am responsible for overseeing the program on a 
day-to-day basis.
    I recognize that TARP has not been popular. There is good 
reason for that: no one likes using taxpayer dollars to rescue 
financial institutions. Nonetheless, sitting here today, more 
than 2 years after a bipartisan Congress passed the legislation 
that created TARP, it is clear that the program has been 
remarkably effective by any objective measure.
    First and foremost, TARP helped prevent a catastrophic 
collapse of our financial system and our economy. In the fall 
of 2008 we were staring into the abyss. Lending by banks had 
practically stopped, our credit markets had shut down, and 
countless financial institutions were under severe stress. This 
was a crisis not only for Wall Street, but also for Main 
Street. Simply put, we were at the risk of going into a second 
Great Depression.
    Today people no longer fear that our major financial 
institutions or our financial system is going to fail. Banks 
are much better capitalized and the weakest parts of our 
financial system no longer exist. The credit markets on which 
small businesses and consumers depend, for auto loans, credit 
cards, student loans and other financing, have reopened. 
Businesses are able to raise capital and mortgage rates are at 
historic lows.
    Of course, the economy has not yet fully recovered and 
there is still much work to be done. Unemployment is 
unacceptably high and the housing market remains weak. But the 
worst of the storm has passed.
    Second, we will not use all the money Congress made 
available for TARP, and we are existing our investments and the 
private sector far faster than anyone thought possible. Let me 
briefly summarize a few key facts.
    Congress originally authorized $700 billion for this 
program. We will spend no more than $475 billion. And of the 
money spent to date, much of it has been repaid, approximately 
$270 billion. We still have about $166 billion invested in 
various institutions and I am hopeful that we will recover much 
of that over the next 2 years, depending on market conditions.
    Finally, the ultimate cost of TARP will be far less than 
anyone expected. The total cost was initially projected to be 
approximately $350 billion. That number, however, has steadily 
declined over the past 2 years. According to the most recent 
estimates from both Treasury and the nonpartisan Congressional 
Budget Office, the overall cost of TARP will be in the range of 
$25 billion to $50 billion. And the direct fiscal cost of TARP, 
as well as all the other interventions to address this crisis, 
is far less, as a percentage of GDP, than the cost of resolving 
the S&L crisis in the 1980's.
    In addition, the TARP cost will be primarily attributable 
to what we spend on our housing programs and our efforts to 
help responsible American families keep their homes. We expect 
that all the other TARP programs and investments, when 
considered as a whole, will result in very little or no cost to 
the American taxpayers, and possibly a profit.
    In all of these efforts, TARP has been subjected to 
unprecedented oversight. When Congress created TARP, it also 
directed four different oversight bodies, including the Special 
Inspector General for TARP, Mr. Barofsky, who is sitting with 
me today, to carefully review all of our programs. In addition, 
TARP has been subject to vigorous congressional oversight by 
this committee and several others. We welcome this oversight. 
Individually and collectively, it has helped us to develop, 
implement, and constantly improve our TARP programs. And we 
have strived to be transparent by providing a wealth of 
information about the program to the public.
    In particular, I look forward today to discussing Mr. 
Barofsky's most recent quarterly report. I am pleased that the 
report concluded that TARP helped, as he put it, head off a 
catastrophic financial collapse and that the program's 
financial prospects are today far better, as he says, than 
anyone could have dared to hope just 2 years ago.
    The other oversight agencies have reached similar 
conclusions. The report also raises a number of concerns about 
the HAMP program and the so-called too big to fail issue, and I 
am happy to discuss those as well.
    Mr. Chairman, TARP succeeded in what it was designed to do: 
it helped stabilize the financial system and lay the foundation 
for economic recovery. It was not designed to solve all our 
problems, and we recognize that many Americans are still 
suffering. Nonetheless, thanks to a comprehensive strategy and 
decisive action, our economy is far stronger today than it was 
2 years ago. Both political parties deserve credit for these 
achievements. Congress enacted the program at a time when the 
financial system was falling apart. In that moment, leaders 
from both parties stood up, stood together and did what was 
best for this country.
    Thank you again for providing me the opportunity to testify 
here, and I welcome your questions.
    [The prepared statement of Mr. Massad follows:]

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    Chairman Issa. Thank you.
    Mr. Barofsky.

                   STATEMENT OF NEIL BAROFSKY

    Mr. Barofsky. Chairman Issa, Ranking Member Cummings, 
members of the committee, it is a privilege and an honor to 
appear before you once again and to once again present to you 
our most recent quarterly report to Congress.
    This past quarter has marked the 2-year anniversary of both 
TARP and SIGTARP. For SIGTARP, we have made great progress in 
striving to meet our goals of transparency, oversight, and 
enforcement. With this, our ninth quarterly report, along with 
13 separate audits, they have helped to shine a light on some 
of the darkest areas of the financial crisis and the 
Government's response. They have also included important 
recommendations which, when implemented and adopted, have 
resulted in great savings for the taxpayer and preventing 
waste, fraud, and abuse.
    Our Investigations Division has been similarly busy. We 
have been able to secure civil or criminal fraud charges 
against 45 different individuals, 12 different companies and, 
to date, 13 criminal convictions. We have also been able to 
either recover or prevent from loss of fraud more than $700 
million, thereby assuring that SIGTARP as an agency will more 
than pay for itself. And with 142 ongoing criminal 
investigations, including those into executives at 64 different 
banks that either applied to or received TARP funds, we still 
have a lot more work to do.
    For Treasury and TARP the results have been more mixed. 
While it is certainly good news, as Mr. Massad noted, that the 
estimates of TARP costs have declined, and significantly, it is 
not the whole story. And too often Treasury, in its statements 
and in its testimony, has too much of tunnel vision focus on 
the financial costs and the decline of those, obscuring the 
very significant and very real non-financial costs that will 
arise out of the Troubled Asset Relief Program.
    First, it ignores the very significant wholesale damage to 
government credibility that has arisen from Treasury's 
mismanagement of parts of the TARP program. Too often these 
programs have been marked by loose compliance, failures in 
transparency, and questionable decisionmaking. And it is those 
very avoidable failures, as much as anything else that Treasury 
may point to, that account for some of the deep unpopularity of 
TARP.
    The second cost is perhaps the most significant of TARP's 
legacy, the continued existence and the moral hazard associated 
with institutions that are still deemed too big to fail. When 
Secretary Paulson, in 2008, and then Secretary Geithner, in 
2009, spoke to the financial markets and assured that they 
would not let any of our largest financial institutions fail 
and would use TARP to be backstop them, they did more than just 
reassure troubled markets; they sent a powerful message that 
these companies, these banks, would not be left to suffer the 
consequences of their own folly.
    And as a result, and notwithstanding the passage of Dodd-
Frank last summer, these institutions still enjoy an advantage 
over their smaller rivals, with enhanced credit ratings and 
cheaper access to credit and capital, as a result of that 
implicit Government guaranty. Indeed, in many ways TARP has 
helped mix that same toxic cocktail of implicit guaranties and 
distorted markets that led to the disasters at Fannie Mae and 
Freddie Mac.
    TARP has also had mixed success in meeting the goals set 
for it by Congress, goals that were designed to address Main 
Street as well as Wall Street. And while I agree with Treasury 
that they have met the Wall Street goals, financial, they did 
help prevent a collapse of the financial markets, and that 
undoubtedly had a benefit not just for Wall Street, but for 
Main Street, TARP has not met the goals set for it by Congress 
for Main Street. And perhaps the most significant and specific 
Main Street goal of preserving home ownership, its failures 
there have had some of the most devastating consequences.
    That effort, the Home Affordable Modification Program, has 
to date been a failure. With estimates that over the life of 
this program we are going to see probably well in excess of 10 
million foreclosure filings on 10 million different families 
during the life of HAMP, when compared with the congressional 
oversight, a panel's recent estimate that no more than 700,000 
or 800,000 permanent sustained modifications, hope is slipping 
away.
    And Treasury's administration of this program gives little 
cause for optimism. They continue to refuse to adopt even the 
most basic metrics and goals and benchmarks to measure success. 
They appear to be afraid to rein in or impose penalties on the 
mortgage servicers, who everyone can agree performance on this 
program has been nothing short of abysmal. And, as a result, we 
continue to see spiraling downward participation quarter after 
quarter after quarter.
    Mr. Chairman, ranking member, members of the committee, I 
thank you for this opportunity and I do look forward to 
answering any questions you may have.
    [The prepared statement of Mr. Barofsky follows:]

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    Chairman Issa. I thank the gentleman and I thank him for 
his pinpoint accuracy of 5 minutes.
    I now recognize myself for 5 minutes.
    Mr. Massad, since you are here on behalf of Treasury as the 
person most knowledgeable, can you explain to us the 
Secretary's statement on December 2010, on the subject of TARP 
and related bailouts, when he said in the future we may have to 
do exceptional things again if we face a shock that large. You 
just don't know what is systemic. I repeat, you just don't know 
what is systemic and what is not until you know the nature of 
the shock.
    Does that mean that the Secretary expects that if a housing 
crisis occurs again, or some other shock--we are not talking 
about an external force, but some other shock to the 
community--that we still have systemic risk, too big to fail, 
and the Government will come in and bail out the large and 
allow the small to fail?
    Mr. Massad. Mr. Chairman, what the statement means, in my 
view, what I believe the Secretary was saying, was that we 
cannot predict what the future issues will be in terms of risks 
to our system.
    Chairman Issa. But isn't that exactly what Dodd-Frank and 
all these other legislations have done? We were supposed to 
eliminate too big to fail; systemic risk was supposed to be 
managed by an analysis, if you will, a vetting of whether 
entities were robust enough now and in the future; and it is 
the reason that some companies are still around and some were 
folded. Isn't that true?
    Mr. Massad. You are correct, Mr. Chairman, that is Dodd-
Frank's purpose, and that is what we are implementing. Dodd-
Frank, after all, was passed 6 months ago. There is a lot of 
work to do to implement it, and it gives us the tools to----
    Chairman Issa. Right, but the Secretary said this well 
after Dodd-Frank. For example, we have had Bank of America here 
before us on multiple occasions. We have rolled Countrywide 
into B of A; we have rolled Merrill Lynch into B of A. I am not 
for breaking up companies or taking a heavy hand, but if Bank 
of America is too big to fail, then shouldn't we be insisting 
that they be, and I am not suggesting this, but shouldn't we be 
suggesting that they find a way to not be too big to fail in 
whatever kind of divestitures they need, rather than putting 
them in that category, as the IG said, who enjoy less expensive 
costs of assets because, in fact, they are effectively back-
staffed by the Federal Government?
    Mr. Massad. I think Dodd-Frank gives us the tools to 
regulate any financial institution, regardless of its size, 
that poses systemic risks and it gives us the tools to shut 
down such financial institutions. So I think it gives us 
precisely the tools you are talking about.
    If I can respond more broadly, I think the concerns that 
Mr. Barofsky raised are obviously those that animated the 
Congress in passing Dodd-Frank. Those are the very issues that 
Congress debated in passing Dodd-Frank.
    Chairman Issa. Well, as somebody who was on the conference 
for Dodd-Frank and somebody who has been there all along, Dodd-
Frank was not altogether that bipartisan, as you can imagine. 
And I appreciate the fact that it can shut down entities after 
the fact; it has a heavy hand to determine who is a financial 
entity. Perhaps the next time General Motors gets in trouble, 
we will shut them down as a financial entity rather than save 
them as somehow a bank.
    Moving on to HAMP, as the IG report says pretty thoroughly, 
we cannot score success by simply getting our money back from 
what was essentially loans to solvent companies; we have to 
look at the money we won't get back and the suffering of people 
who won't get a loan modification if they can't afford a home 
or an elegant exit that will not destroy the neighborhoods as 
we seek somebody who can afford it.
    I have December 31, 2010 results, and I would like you to 
comment on them, Mr. Barofsky. The goal of HAMP, three to four 
million loans; permanent modifications as of that date, roughly 
half a million, $521,000; modifications canceled almost 
$800,000. Would you please give me your view of HAMP based on 
those figures and a trend that continues after multiple 
hearings?
    Mr. Barofsky. It is remarkably dispiriting. This was the 
program that was supposed to help Main Street. I mean, when 
TARP was originally enacted, when you, the Congress, gave 
Treasury the $700 billion, the original idea was that Treasury 
was going to buy toxic assets, which were largely mortgage-
related assets. And the idea of including a goal of preserving 
home ownership in the statute was to address the fact that 
Treasury was going to own so many of these mortgages that they 
be able to do these modifications themselves, being able to 
have that impact on Main Street.
    Instead, we have a program, and the numbers that you just 
indicated, it is just not working. Out of the $50 billion 
originally allocated, now about $45 billion, only $1 billion 
has been spent. And I hesitate to use the word only and billion 
in the same sentence, but the numbers are--we are running out 
of hope. There is no way we are going to ever get close to the 
three to four million that was the original expectations of 
this program.
    But even more frustrating is that Treasury will not give us 
its expectations. They must know what their run rate is, what 
they expect the total number to be. They must have a goal. And 
if they don't have a goal, well, they need to have one. We 
can't fix this program until we have very specific benchmarks 
as to what the program is trying to accomplish of keeping 
people in their homes. Not people who get trial modifications 
that fail, which was one of the benchmarks that have been used; 
not the number of people who get offers for trial 
modifications. How many people are going to get modifications 
that are truly permanent and keep them in their homes?
    Chairman Issa. I thank the gentleman. My time has expired.
    I recognize a member of this panel who has a deep interest 
in those modifications becoming permanent, the ranking member, 
Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Massad and Mr. Barofsky, the title of today's hearing 
is Bailouts and the Foreclosure Crisis. On the first issue we 
have some encouraging news today on TARP and its outlook for 
American taxpayers. The SIGTARP report issued this morning has 
increasingly favorable assessment of TARP's financial 
successes, is that right, Mr. Barofsky?
    Mr. Barofsky. That is absolutely correct.
    Mr. Cummings. And here is what it says,``On the financial 
side, TARP's outlook has never been better. Not only did TARP 
funds help head off a catastrophic financial collapse, by 
estimates of TARP's ultimate direct financial costs to the 
taxpayer have fallen substantially. While Treasury's ultimate 
return on its investment depends on a host of variables that 
are largely unknowable at this time, TARP's financial prospects 
are today far better than anyone could have dared hope just 2 
years ago.''
    This is great news for the American taxpayer, but the 
report correctly warns that there is still hard work ahead, and 
it is important that we continue strong oversight. I have long 
demanded stringent oversight of the TARP program, a program 
proposed by President Bush in 2008 and enacted after 
significant improvements by Congress. I previously requested, 
gentlemen, that SIGTARP audit the hundreds of millions of 
dollars AIG expended on bonuses. I also led 26 of my colleagues 
in requesting that SIGTARP audit the payments made to AIG's 
counterparties.
    That said, I am very concerned about the serious 
allegations of abuse by the mortgage service industry. Today's 
SIGTARP report calls their performance abysmal and describes 
nearly daily accounts of errors and more serious misconduct. 
The SIGTARP report also says this, ``Anecdotal evidence of 
their failures has been well chronicled, from the repeated loss 
of borrower paperwork--and my constituents tell me about that--
to the blatant failure to follow program standards, to 
unnecessary delays that severely harm borrowers while 
benefiting servicers themselves. Stories of servicer negligence 
and misconduct are legion.''
    Mr. Chairman, we cannot do a comprehensive examination of 
the foreclosure crisis without hearing from the industry. That 
is why I sent a letter on December 21st asking you to hold the 
committee's first hearing on the widespread utilization of 
flawed and fraudulent practices throughout the mortgage 
industry. This has been my No. 1 priority, as you said, and I 
assumed that we would move forward. It is the same reason I 
sent you another letter on Monday asking that you add an 
industry witness. I understand that you were not prepared to do 
that at this time and I understand that.
    So, Mr. Chairman, and to our witnesses, let me go to you, 
Mr. Barofsky. The servicers, what are you all doing about them? 
I mean, Government has a role, the servicers have role, and I 
am just wondering what is happening with that.
    And I ask you the same thing, Mr. Massad. And be brief.
    Mr. Barofsky. Well, at SIGTARP we exercise our jurisdiction 
as we can, and our one area of jurisdiction over the servicers 
is, one, to investigate them if there is any criminal conduct, 
and we do have ongoing investigations in that area. The second 
thing we can do is use our audit function to do reviews of the 
servicers, and we have that ongoing as well; we are doing a 
review of their performance under the net present value test 
and other aspects of their performance.
    What we cannot do is what Treasury can do, which is wield a 
big stick, as well as the carrots that it offers the servicers, 
and impose significant, tough financial penalties, because that 
is where we will hit them where it hurts. We have to keep this 
program from being voluntary not just in participation for the 
servicers, but in compliance as well.
    Mr. Cummings. Well, that leads me right to you, Mr. Massad. 
What are we doing with regard to the servicers? Because there 
have been some horrendous stories about what servicers have 
been doing. And what impact do they have on these numbers?
    Mr. Massad. Congressman Cummings, I agree that the servicer 
performance has been abysmal, and that is something that we 
have been trying to fix. Let me first make clear this is a 
voluntary program. Congress didn't give us the tools to impose 
fines, as Mr. Barofsky is suggesting. What we have is the 
ability to withhold payment when they enter a permanent 
modification. A lot of the problem was we couldn't get them to 
get the permanent modifications done. So we work with them to 
change their performance.
    Now, there are a number of other things that are going on 
in terms of the performance of the servicers. There is an 
interagency task force that is looking at all the things they 
have done wrong in foreclosures and there is a lot of talk of 
having some sort of national servicing standards, which may 
well be something we need. We can't, through HAMP, change the 
entire industry's behavior; this is a model. This is an 
industry that is broken. It didn't work.
    Mr. Cummings. Well, can you tell me this, as my time runs 
out? Is the Justice Department involved in anything that you 
are doing?
    Mr. Massad. Yes, they are. They are involved in the 
interagency task force, as are all the Federal bank regulators, 
and there is a lot of work being done on what types of reforms 
are needed. There is also work being done by the FHFA in terms 
of changing the basic economic structure of the business, 
because they simply weren't prepared for this crisis and aren't 
able to deal with people.
    Nevertheless, I think we have to remember that HAMP has 
achieved over half a million modifications. These are people 
that make $50,000 a year. So to sort of write it off and say, 
well, it is a failure I think is not really appropriate.
    Now, the reason we haven't reached three to four million is 
basically we have eligibility standards, and the pool today of 
the people that are eligible is about $1\1/2\ million. What are 
those eligibility standards? We don't help people who make 
enough money that they don't need Government help. We don't 
help people who have million dollar mansions. We don't help 
people who have vacation homes. So when you go through that and 
you realize that is the eligible population, we have actually 
reached a lot of them. We are continuing to reach a lot of 
them. We had 1,000 people turn out for an event in Las Vegas.
    So while we have tried to incorporate most of Mr. 
Barofsky's suggestions about the program, other than perhaps 
the one that he said we should fingerprint people or thumb 
print people before they get a mod, which we declined to do 
because we didn't feel that was appropriate, I think the 
program is actually helping a lot of people.
    Mr. Cummings. Thank you, Mr. Chairman. I see my time has 
expired.
    Chairman Issa. I thank the gentleman.
    The gentleman from Ohio, Mr. Turner, is recognized for 5 
minutes.
    Mr. Turner. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here and thank you for 
addressing these really important issues that we have. You 
know, I think both of you get a sense of the anger, really, of 
the American people, but also of the sadness of the issues that 
we are dealing with. You know, when we look at the New York 
Times yesterday reported that the financial crisis inquiry 
commission issued its report and there is a quote in there that 
I think is important in the context of what we are doing today, 
and it says the greatest tragedy would be to accept the refrain 
that no one could have seen this coming and that nothing could 
have been done. If we accept this notion, it will happen again.
    What is sad is that, as we approach this and we look at 
what Treasury was doing as this crisis was unfolding, these 
things were knowable. I know I and many other Members of 
Congress were sounding the alarm of the mortgage foreclosure 
crisis, what was happening in our neighborhoods, what was 
happening in our communities, and understanding that capital 
had to be being lost as families were losing their economic 
future and their homes. And when you look at TARP and what is 
happening and how it is progressing--and I can't understand how 
Treasury can claim its successes when it has had so many 
undefined executions.
    I voted against TARP, and I voted against TARP because I am 
from Ohio, ground zero for the mortgage foreclosure crisis. 
When they came and said they were going to be buy toxic assets 
and that these were going to have value, I knew they did not 
because I have walked these neighborhoods; I have talked to the 
families who have lost their homes. And the short TARP bill was 
not defined.
    As you have said, Mr. Barofsky, and I greatly appreciate, 
that you not only look at what you are trying to unwind, but 
what they started with. This was a very undefined bill, a very 
undefined process, and I think there are billions that have 
been lost. I am very concerned about the HAMP program because 
if we look to what the Commission had said, that this was 
avoidable, that means that families were taken advantage of, 
and that means families were taken advantage of and lost their 
financial future.
    And HAMP came forward as supposedly a Government answer 
that is going to help them, that is going to say we recognize 
that there was a Federal issue here and as the banks, all the 
people who, due to their greed, had perpetrated this, we were 
going to step in and help them. But it is not helping them and, 
Mr. Barofsky, I want to thank you for the detail that you 
provide us.
    When you get these final numbers and do the division, we 
are going to have spent an unbelievable amount for each of the 
loan modifications that occurred while doing nothing to stop 
the record foreclosures that are still occurring. So, first 
off, Mr. Barofsky, I think, when we look at the ultimate 
numbers, we are going to want to figure out what percentage of 
these people who did ultimately get loan modifications could 
have gotten them in the markets, meaning that there was no 
subsidy that would have been needed; two, how many of these are 
going to fail anyway because those are lost dollars also; and 
then what are the per unit costs in the end.
    Could you speak to that for a moment, as to how we are 
going to be able to then actually assess what was spent? We can 
already tell that it is a failure, and thank you for your words 
of that, but how are we going to assess the waste?
    Mr. Barofsky. Well, I think one of the good news aspects of 
the HAMP program, to the extent that there is good news, and it 
is reflected in CBO's loss estimate, is that the program won't 
spend even close to the amount of money that is allocated for 
it. Money only gets spent when there is actual success.
    So the remarkably low numbers of modifications means that a 
remarkably small amount of money will be spent. And that is why 
we have only had--and, as I said, I hesitate to use the word 
only--it has only been a billion dollars out of the 45 that has 
actually been spent so far.
    So to the extent that there is good news, it is that it 
will not cost the taxpayer anywhere close to the allocated 
amounts. But, of course, that distinction really bears that any 
type of claim of success for the remarkably modest numbers of 
modifications that are coming from the program don't match up 
with what was originally intended.
    And the advantage of not having any real goals, real 
meaningful goals or benchmarks is you can claim success 
wherever you want and say, hey, that is a success. And I do not 
mean in any way to demean or say that this program isn't very 
important to those people who are enjoying it and have the 
benefit of these important sustainable permanent modifications 
in any way, but I also think the idea that the reason why there 
aren't more is because there are millionaires living in 
mansions and that is why. There are a lot of people out there 
who are struggling very, very hard who could benefit from these 
modifications.
    Mr. Turner. Mr. Massad, I believe that the mortgage 
foreclosure crisis, when it is ultimately analyzed, will turn 
out to be the largest theft in history, and it occurred while 
Treasury had oversight of both financial markets and the issues 
affecting these homeowners. And now we have TARP and Treasury 
is involved with this, and we have the SIGTARP looking at it 
and saying that you are still managing this without measurable 
outcomes and are not being very forthcoming in how the program 
is being evolved. How can we trust what Treasury is doing in 
this?
    Mr. Massad. I am happy to respond to that, Congressman. 
First of all----
    Mr. Turner. If you could do so briefly.
    Mr. Massad. Sure. As Mr. Barofsky noted, we only pay money 
if there is a permanent modification entered into, if we 
actually help someone enter into a permanent modification, and 
we only pay for as long as that modification continues. There 
is a built-in taxpayer protection element to this.
    So your question about unit cost is a very good question, 
sir, and, in fact, it is structured so that it is a unit cost 
program here. We won't spend all the money if we don't enter 
into enough modifications. And that money won't be spent for 
anything else; it will go back to pay down the debt. That is 
No. 1.
    No. 2, as we said, the eligibility criteria here I think 
are another way that we protect taxpayers, because we only pay 
for people that we think are greatly in need.
    As to your overall question here on the mortgage crisis, 
obviously there is a lot of study of this. The FDIC released 
its report today and I think it noted that there is blame to go 
around in a lot of places. I think we must remember TARP was 
just set up to provide the resources to stabilize the system; 
it didn't change the regulatory structure. We now have Dodd-
Frank, which gives us new tools to regulate the financial 
industry so as to prevent this type of problem in the future.
    Chairman Issa. Thank you, Mr. Massad.
    The Chair now recognizes the former chairman of the 
committee, longstanding member of the committee, Mr. Towns of 
Brooklyn, New York.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me first thank both of you for being here. You know, I 
get the feeling that we are sort of blaming each other, and 
that bothers me because people are losing their homes. I wish 
you could just come and spend 1 day in my office and just 
listen to people who are coming in and the stories that they 
are telling. I mean, some of the things they are saying is the 
fact that they made an application, all of a sudden the 
application is lost; they call and they say, no we never 
received your papers, when they actually presented the papers.
    And then the other one, which is really one that they are 
saying that is really becoming a problem is that when they call 
back the third or fourth time, the person no longer works here, 
so you need to find out who you were dealing with. And, of 
course, if the person is no longer there, how can you find 
anything?
    And I noticed you indicated, Mr. Massad, that the Congress 
didn't give you the power, and I understand that as well, but 
what can we do now to fix the situation that we are in? I mean, 
this is a crisis, and I am hoping that--I want to join you, 
ranking member, in asking for a foreclosure hearing where we 
can bring people in and let them tell their stories, because 
for some reason I don't think that the message is getting out 
in terms of the seriousness of this situation.
    Mr. Massad. Congressman, I agree with your concern. I think 
you are absolutely right. We have tried to do what we can 
through HAMP to put in a lot of borrower protections. For 
example, we have required the servicers, if you are evaluating 
someone for HAMP, you can't foreclose on them. There are a 
number of other protections we have put in. We have put in call 
centers, escalation centers, and a lot of the calls we get 
actually are for people who aren't even eligible for HAMP, bu 
we try to help them.
    I think in terms of the overall industry, a lot of 
attention needs to be paid to this, and I think a lot of work 
is going on, and more will be needed, and I am sure this 
Congress will need to consider it. And a lot of people have 
talked about whether we should have national servicing 
standards. People have noted that the basic economic model of 
servicing doesn't work. Servicing works when you have 
performing mortgages, the servicers collect the payments and 
pass them on to the investors.
    But when it comes to dealing with a crisis like this or 
foreclosures, they are not equipped to do it. So I think we 
have to look at things like servicing standards. The 
interagency task force is looking at a number of problems, the 
regulators are as well. So I think there is a lot of activity 
here and we will see it in the coming months.
    Mr. Towns. Mr. Barofsky, what are the penalties that you 
are talking about? How can we sort of look again at that? 
Because something needs to be done.
    Mr. Barofsky. Absolutely. And I think that, as Mr. Massad 
said, there are discussions of national servicing standards, 
and I think that Chairman Bair of the FDIC has put out some 
great ideas that would be terrific for all servicers, and I 
think a lot of these ideas could be adopted and brought into 
the HAMP program through supplemental directives.
    But financial penalties based on withholding payments to 
the servicers. Treasury negotiated a deal when it obligated 
about $30 billion to the mortgage servicers for payments, and 
that includes the ability to withhold payment and impose 
financial penalties. To the extent that those penalties are not 
strong enough or good enough, well, that really falls on 
Treasury for not negotiating a better deal. This is not the 
most unpredictable possibility, that when you have a program of 
this size and scope, that there is going to be problems. And 
Treasury had repeated cited their ability to impose financial 
penalties as something, as a stick that they have, and we would 
just encourage them to take the stick out.
    Mr. Massad. If I can just reply to that. We are certainly 
conscious of that, and we may withhold amounts in the future, 
but let's remember we can only withhold the amount that we owe 
them for permanent modifications. If they haven't entered into 
very many permanent modifications, there is not that much to 
withhold.
    And there weren't very many permanent modifications 
initially, as this committee knows. People testified here in 
March and there were only 170,000 permanent modifications, and 
a lot of people said then the program was a failure. What we 
did since that time was we had a number of remedial actions we 
made the servicers take; we also diversified our programs, and 
I want to get into that later. But from that date, from late 
last March, we have increased the number of permanent 
modifications substantially now and, as I say, we are over 
500,000 and the re-default rate on those is very, very low.
    Mr. Towns. All right. Mr. Chairman, I see my time is up. 
But I think that if there is something that we need to do, I 
think you need to say it, because we just can't continue to let 
people lose their homes.
    Thank you very much, Mr. Chairman.
    Chairman Issa. I thank the gentleman.
    The Chair now recognizes the gentleman from North Carolina 
and the subcommittee chairman of jurisdiction for this, Mr. 
McHenry.
    Mr. McHenry. Thank you, Mr. Chairman. In consultation with 
the chairman, it is the intent of my subcommittee for us to 
have field hearings and hear from those that have been affected 
from the HAMP program. We would welcome the Treasury to invite 
individuals that have been helped. However, in my constituency 
and the constituents I have talked with, it is easier to find 
those that have been hurt by HAMP rather than helped.
    So my question to you, Mr. Massad, is do you have adequate 
provision under current law to ensure that HAMP is successful, 
yes or no?
    Mr. Massad. Congressman, it depends on----
    Mr. McHenry. Yes or no?
    Mr. Massad. Congressman, if I can answer the question----
    Mr. McHenry. I have 5 minutes, Mr. Massad. Yes or no? 
Actually, let me begin by asking do you think HAMP is 
successful.
    Mr. Massad. I do.
    Mr. McHenry. OK. So do you believe under current provision 
of law you have adequate authority to ensure that HAMP is 
successful?
    Mr. Massad. I cannot solve the housing crisis with HAMP 
alone, if that is the meaning of your question. But I think 
helping over 500,000 people enter into permanent modifications, 
people who would otherwise be thrown out of their homes, people 
who make $50,000, and their neighborhoods would be hurt by that 
because they are now living next to a home that could be 
vandalized; it depresses their property values, it is a drag on 
the economy. I think, yes, I think those are dollars well 
spent.
    Mr. McHenry. Thank you, Mr. Massad.
    Mr. Barofsky, in your written testimony today you outlined 
that there are 2.9 million homes who received foreclosure 
filings in 2010, up from 2.8 million in 2009 and 2.3 million in 
2008. Can you discuss your findings on the HAMP program?
    Mr. Barofsky. Yes. I mean, again, not to diminish the 
positive impact it has on those families and those that are 
able to stay in the program, but you have to look at what the 
program was expected to do, and you have to look at it in the 
context of the entire foreclosure crisis, and what this program 
was intended to do. And the advantage of never actually putting 
out meaningful goals means you can declare success even when 
you have, looking at a total for this entire program of 700,000 
to 800,000, when you originally expected to help three to four 
million, even when you have only spent $1 billion of the $45 
billion that you allocated.
    This program, if it helps five people, that is great for 
those five people. But what about all those millions of people 
who are not getting help, the millions of people that Treasury 
and the administration identified at the very beginning of this 
program of who they were going to try to help keep in their 
homes by modifying their mortgages to a sustainable level? And 
the numbers don't lie. And when I hear them declaring success 
with these incredibly modest numbers, numbers that are so 
modest that they can't even have enough money to pay to impose 
financial penalties, it is heartbreaking to a certain extent 
because it means that they won't recognize and make the changes 
that are necessary to make this a better program, because I 
hear from those people as well.
    Mr. McHenry. Thank you, Mr. Barofsky. Moving on to the 
small business lending front, in your report you request that 
Treasury remove TARP assets and equity from the entity's 
balance sheet for purposes of evaluating its application for 
the Small Business Lending Fund. The intent of the Small 
Business Lending Fund, of course, is to increase lending. Has 
Treasury been open to your proposal?
    Mr. Barofsky. Treasury has rejected that recommendation.
    Mr. McHenry. Mr. Massad, why did you reject that?
    Mr. Massad. Because we wanted to make sure we complied with 
Congress's directives in the law. Congress provided in the law 
that existing TARP recipients could refinance their loans into 
this Small Business Lending Fund, and we believe we are acting 
in accordance with that.
    Mr. McHenry. Sure. But it is not a provision of law how you 
measure the removal from TARP into this Small Business Lending 
Fund, is there?
    Mr. Massad. We did not believe that Congress was 
instructing us to basically penalize those institutions that 
had already received TARP funds. Quite the contrary.
    Mr. McHenry. Mr. Barofsky, under your reading of the law, 
do they have provision to do this?
    Mr. Barofsky. Absolutely. Congress specifically made a 
provision in the law that gave the Secretary of Treasury the 
ability to fashion certain regulations for TARP banks to enter 
into SBLF. There is nothing in the statute that gives you a 
matter of right, by being a TARP recipient, that you 
automatically get to apply for and--well, you get to apply for 
it, but that you automatically get converted into SBLF. SBLF 
offers tremendous advantages to TARP recipients who convert, 
and the taxpayer loses out on a lot of those, and our 
recommendation is a simple one: let's make sure that the banks 
that you have taken out of TARP and put into SBLF are 
adequately capitalized to meet the goals of this program.
    We are not saying penalize TARP banks and say none of them 
can get brought into the program. Not at all. But we do think 
that it is important for Treasury to be very responsible and 
make sure that those that are going to get the benefits of 
being in SBLF, at taxpayer expense, are well suited to be able 
to do the lending, new lending, new incentivized lending from 
Government capital; and, frankly, we believe that those banks 
should be treated as other applicants who come into the 
program.
    For example, when a bank applied for the CPP, they didn't 
get to take into account Government capital of whether they 
passed or don't pass; and that should be the same standard 
here. The fact that these banks have the benefit of Government 
capital, frankly, we don't believe necessarily that capital 
should count when making that evaluation. And if they are 
adequately capitalized without the Government capital and they 
can fulfill the goals of this program, great; they should be 
brought into the program if they meet the other conditions.
    Chairman Issa. I thank the gentleman.
    Mr. McHenry. Mr. Chairman, I know my time has expired, but 
I would ask Mr. Massad to respond in writing to this very 
subject. We are interested here in this committee, and if you 
have concern that you don't have adequate provision of law, we 
would like to change that.
    Chairman Issa. The gentleman agrees to respond. I thank the 
gentleman.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney.
    Mrs. Maloney. Thank you.
    First, I would like to thank the panelists for their public 
service and report some good news in that the DOW just crossed 
12,000 for the first time since June 2008; and that shows 
capital is flowing again and is a very good sign of economic 
recovery in our great c country. And, from your testimony 
today, TARP played a role in moving us in this good direction. 
You pointed out that it not only averted a meltdown, but laid 
the groundwork for economic recovery, which we are seeing 
today.
    I must say that during the dark days I was getting phone 
calls in the middle of the night and all day long from 
constituents who were afraid of a collapse. There was a run on 
the money market on some banks, and I personally believe that 
my vote in support of TARP will historically be regarded as the 
right thing to do and good public policy, although all of us 
who were on the campaign trail, many of us were attacked 
relentlessly for having supported this important program.
    I would like permission to put in the record one of the 
best reports that I have seen on the successes, bipartisan, 
from Blinder, a Democratic economist, and Zandi, a Republican 
one, on how the great recession was brought to an end.
    Chairman Issa. Without objection, so ordered.
    Mrs. Maloney. And also an article in the American Banker 
which talks about the home foreclosures and a foundation that 
is working with HAMP and others to help people stay in their 
homes.
    Chairman Issa. So ordered.
    [The information referred to follows:]

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    Mrs. Maloney. I specifically would like to respond to the 
two problems that Mr. Barofsky mentioned in his testimony; 
first, the cost of TARP in terms of confidence in our 
Government, transparency and other management mistakes, and I 
would like to mention that I authored a bill in response to 
your first criticisms on this what would have computerized TARP 
in realtime so we would know where the finances are. It passed 
the House backed by the Chamber of Commerce and Labor, one of 
the few bills, and I truly believe we should do it for the 
entire financial system. If we can track where our package is 
in 2 seconds, we should be able to track where we are in our 
exposure in finances. I feel it is an important bill and one 
that we need to work on and revamp to the current status.
    You also mentioned the too big to fail and the fact that 
your concerns that we may not have done enough. So I would like 
Mr. Massad to respond to this, specifically in the Dodd-Frank 
bill. And I was likewise on the Conference Committee with the 
chairman. We created a Financial Stability Oversight Council to 
monitor the systemic risk and to set criteria to identify 
institutions that may be heightened risk. I would like you to 
comment on the status of where that is.
    We also, very importantly, established an orderly wind-
down, similar to what we have in the FDIC, which was a huge 
success. We had two choices: we could either bail out an 
institution or let them fail. Neither was a good solution. We 
want to be able to wind them down as we were able to do with 
FDIC banks so successfully. And I want to know are the rules in 
shape and where does that stand.
    Third, we imposed capital requirements and leverage ratios 
to ensure that large institutions aren't taking excessive risk. 
I believe those rules are coming out in July. Correct me if I 
am wrong. And where does that stand? Where do you think the 
leverage and capital requirements will come out, in your best 
judgment?
    Last, we called upon the SEC to come up and we gave them, 
actually, new powers and authority and resources to go after 
bad actors so that we could find the next Bernie Madoff and 
help protect our system.
    So I would like you to respond to where these initiatives 
stand. What do you recommend, if anything else, we need to do 
to protect us from too big to fail, as was pointed out in his 
testimony? And, if you have enough time, could you respond to 
TARP as it relates to the taxpayer? We know it was a great deal 
for our economy; it was a great deal for averting economic 
risk. I am the daughter of two parents who suffered in the 
Depression. Their stories were terrible. We averted that in our 
economy, but was it a good deal for the taxpayer?
    Thank you very much for your service.
    Mr. Massad. Certainly, Congresswoman, I would be happy to 
respond to all those things. Let me start, perhaps, with the 
last point. I appreciate that people that are still suffering 
from this crisis, and there are many, may not feel that TARP 
didn't do anything for them; and Mr. Barofsky also has asked 
what did it do for Main Street. I think the study you pointed 
out, the Zandi study, makes it----
    Chairman Issa. I would ask unanimous consent for an 
additional 1 minute for the witness to respond. Without 
objection, so ordered.
    Mr. Massad. Thank you, Mr. Chairman.
    The study makes it very clear we would have entered into a 
second Great Depression. We could have faced unemployment, in 
their estimate, above 16 percent; other people have said 25 
percent. The fact that we averted that is a real benefit to 
Main Street. The fact that people can now borrow again, when 
they couldn't as a result of this crisis, is a benefit to Main 
Street. The fact that we have an auto industry in this country 
and we saved a million jobs, not just at the auto companies, 
but at their suppliers, is a benefit to Main Street. So there 
are a number of benefits to Main Street. I don't think one has 
to look very far to realize that.
    As to the progress in implementing Dodd-Frank, a lot of 
work is going on. I am not responsible for that, but I am happy 
to tell you what I know and to make sure that the proper 
officials of Treasury give you additional information. But the 
Financial Stability Oversight Council has been meeting actively 
and developing a number of rulemakings to address these issues, 
and they have the powers to regulate systemic risk and to look 
at what are the emerging trends in our financial system that 
need to be addressed.
    So I think you will see a lot of work going on there. As to 
capital ratios, they are working on that also. Those will be 
higher. They are already higher. In other words, our financial 
system today is much better capitalized than it was in the fall 
of 2008, and many of the institutions are much better 
capitalized than their foreign competitors.
    The other thing I want to note is----
    Chairman Issa. If you could summarize briefly, please.
    Mr. Massad. Certainly.
    On small banks, we funded over 400 small banks under TARP, 
and that is another benefit to Main Street because those banks 
help local communities, small businesses, and families.
    And as to Congressman McHenry's point on the SBLF, 
obviously, Treasury supported this new fund, and I think the 
only issue is a minor one that Mr. Barofsky is raising, 
because, actually, Treasury does make a new credit decision on 
whether a TARP recipient is eligible. If a TARP recipient 
hasn't paid its dividends, it is not allowed to refinance. So 
there is a new credit decision made. He is just raising a 
particular point which we felt the statute did not allow us to 
do.
    Chairman Issa. I thank the gentleman.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Jordan, for 5 minutes.
    Mr. Jordan. Thank you, Mr. Chairman.
    I want to thank the gentlemen for being with us today and, 
Mr. Barofsky, you and your staff in particular for the 
integrity and professionalism that you bring to your job. We 
certainly appreciate that. Your comments earlier were that the 
HAMP and the making home affordable programs, their performance 
remarkably dispiriting.
    In today's Journal there is a quote that the foreclosure 
efforts at Treasury has been beset by problems from the outset 
and, despite frequent retooling, continues to fall dramatically 
short of any meaningful standard of success. The article goes 
on to mention about the FHA short refinance program, which 
started last fall and has helped 15 people.
    So I guess my question is at what point do we say, hey, 
this just isn't working, this just isn't getting the job done? 
Would we be better off just discontinuing the whole program? 
After 3 years, three to four million goal, a few hundred 
thousand in permanent modification have actually had help. The 
Treasury talks about now the metric they are using is offering 
people help, versus actually providing it. At what point do we 
say, hey, this is just not working, let's end this program?
    Mr. Barofsky. I continue to be a glass half full type of 
person.
    Mr. Jordan. Well, based on your comments on this, Mr. 
Barofsky, you wouldn't be a glass half full, you would be a 
glass 2 percent full, or 1 percent full.
    Mr. Barofsky. That is true.
    Mr. Jordan. I am an optimistic guy too, we live in America, 
but that is really stretching it.
    Mr. Barofsky. Well, I think that hope is slipping away, and 
I think that if Treasury doesn't respond to some of these 
things in a quick manner, your suggestion of ending the program 
and others' suggestions is just going to become a louder and 
louder chorus, and understandably so.
    And I think the way for Treasury to respond to that is not 
to keep clinging for these non-credible declarations of 
success, and be straightforward and honest and say this is 
where we think this program will be at the end of 2012 or at 
the end of 2017, when the program is done; this is the number 
of people that we intend to have sustainable permanent 
modifications; this is how we are going to get to that number. 
Then you and this committee and the Congress and the American 
people can make the evaluation is it worth it. Is it worth it 
to continue. I think if they fail to do so you are probably 
dead-on right.
    Mr. Jordan. You have more patience than I have. In fact, 
yesterday I introduced, also the co-sponsorship of the chairman 
and the ranking member on the committee, Congressman McHenry, 
we introduced legislation to end the HAMP program. We just 
think any objective look at this, it doesn't warrant continued 
spending of taxpayer dollars.
    Now, I want to be clear on a couple things. You have 
jurisdiction over the $45 billion in the TARP program that 
affects the foreclosure programs, HAMP being the biggest one. 
But there is also $25 billion that is available to Treasury in 
the Housing and Economic Recovery Act. Is that accurate?
    Mr. Barofsky. That money is money that goes to Fannie and 
Freddie.
    Mr. Jordan. OK. And I understand this is not your 
jurisdiction, but to the extent you know, has any of that money 
been applied to or used in any way for foreclosure prevention 
type programs at Treasury?
    Mr. Barofsky. Yes.
    Mr. Jordan. And, if so, are the results similar to what we 
have seen in HAMP?
    Mr. Barofsky. Well, actually, yes. When we are talking 
about HAMP, we are really talking about both components, the 
GSE money, which is not funded through the taxpayers,----
    Mr. Jordan. Right.
    Mr. Barofsky [continuing]. And then the TARP.
    And, frankly, to date, the GSE part of the program is doing 
better than the TARP part of the program. Of this 520,000, 
approximately, or 540,000 of ongoing permanent modifications, 
more than half of those are attributable to Fannie and Freddie 
and the GSE. It is only about 220,000, 230,000 modifications 
that are actually TARP permanent modifications. So there is 
activity over there, and we detail in our report, we break all 
these numbers down from GSE versus non-GSE, including how much 
money the GSEs have reported that they have spent on these 
modifications providing to servicers.
    Mr. Jordan. But the bottom line is there is approximately 
$70 billion that has been appropriated for this type of 
program, the HAMP program. $70 billion, not $45, $70 billion, 
and $1 billion is all that has gone out the door for a program 
that has hurt people it is supposed to help and, in your 
definition, remarkably dispiriting program, what I would call a 
colossal failure. Is that accurate?
    Mr. Barofsky. Yes. And as I said, I certainly understand 
your frustration, and I share your frustration. I just hope the 
Treasury can hear what you are saying and hear these 
legislative intent, and come up and be honest about where this 
program is going, if it is going anywhere.
    Mr. Jordan. And let me just finish this, I have 15 seconds. 
And to put it all in context, $70 billion appropriated for 
this, not helping the people it is designed to help, total 
failure. The guy who is charged with inspecting it understands 
total failure, at a time we have a $14 trillion national debt. 
At some point we have to say enough is enough, let's end this 
program.
    Mr. Chairman, I yield back.
    Chairman Issa. I thank the gentleman.
    The Chair now yields to the gentleman from Ohio, Mr. 
Kucinich, 5 minutes.
    Mr. Kucinich. Mr. Massad, isn't it true that HAMP's 
performance is dependent upon the voluntary willingness of 
mortgage servicers to give distressed borrowers loan 
modifications?
    Mr. Massad. Yes, that is correct.
    Mr. Kucinich. Mr Barofsky, isn't it true that private 
mortgage servicers have found creative ways to frustrate 
attempts by distressed borrowers to save their homes?
    Mr. Barofsky. There have certainly been problems with 
mortgage servicers.
    Mr. Kucinich. Is that a yes or no?
    Mr. Barofsky. I don't know if it has been creative, but it 
certainly has happened.
    Mr. Kucinich. Since it is readily apparent that the party 
really responsible for HAMP's performance is private industry 
that won't give consumers a fair shake, I can't understand why 
we don't have a representative from the servicing industry to 
explain that industry today. The minority requested that JP 
Morgan Chase, a major servicer, appear today, but the chairman 
refused, and I don't know how we can have effective oversight 
for Congress or the American public, how they can really 
understand the Federal response to the foreclosure crisis, 
which depends on the private sector, without asking the private 
industry to explain their actions that are impeding this 
program.
    Chairman Issa. Would the gentleman yield?
    Mr. Kucinich. If the Chair will let me have my time 
afterwards.
    Chairman Issa. Of course. The Chair made a decision that 
today would be fully involved with the Government's side and 
the Special IG's report. We do intend on having, among others, 
servicers and a review of the HAMP program. This is but the 
first of our discovery. And I appreciate the gentleman's 
comments and yield back and will add 20 seconds.
    Mr. Kucinich. I appreciate that.
    Now, SIGTARP's report and other reports of abuses by loan 
servicers, Mr. Chairman, raises serious concerns that these 
mortgage providers may be engaged in a pattern of abuse.
    Mr. Barofsky, I would like to request that your office 
conduct a specific audit on this issue.
    And I would like to, at this point, ask the Chair if you 
would join with me in this request, since you are saying that 
you are willing to go forward with looking at the mortgage 
servicers.
    Chairman Issa. I will certainly consider it. Would you give 
me the request in writing?
    Mr. Kucinich. I will do that. Because what I want to point 
out, thank you, Mr. Chairman, is that while the Chair certainly 
has the unilateral privilege to issue subpoenas, the Chair also 
has the privilege not to call certain witnesses. It is 
comforting to know that you will consider calling witnesses in 
the mortgage service industry, especially since it is so 
relevant to the matter at hand.
    The Chair also, as we know, has the privilege to deny 
documents, the production of documents to other Members. For 
example, in this case, and I am not saying this happened, but 
my concern would be about that policy is that if there is any 
communication with the committee and JP Morgan Chase, that the 
minority may not know about it.
    And I am also concerned that if, on this matter of JP 
Morgan Chase, servicers not appearing today, perhaps I, myself, 
certainly wanted to address that in my opening statement. I 
didn't have that privilege, nor did our ranking member. That is 
one of the problems in not having opening statements.
    So I hope that as we continue down the road in this 
committee, we will understand the importance of tradition and 
procedure that respects the rights of all Members, because I 
think what it really does is it enables us to function more 
effectively.
    Now, Mr. Massad, what is Treasury doing to retool HAMP to 
require improved servicer performance and do you need 
legislative authority to implement an effective retooling?
    Mr. Massad. Thank you, Congressman, for the question, it is 
a very important question. Let me talk about some of the things 
we have done. We have required the servicers to, if they are 
evaluating someone for HAMP, they cannot foreclose on that 
person. And if they decide that the person isn't eligible for 
HAMP, they must still consider other alternatives; short sales, 
proprietary modifications, and so forth. And it is only after 
they have certified that they have done all those things that 
you can proceed to a foreclosure.
    We have required the servicers to have a process for 
appealing the decision. We have also set up our own center so 
that people can come to us if they feel they have been wrongly 
denied, and we will run a calculation to give them a view on 
that. And we have an escalation center that deals with 
complaints.
    Mr. Kucinich. Well, let me ask you this. Would you agree 
that we will never get to the bottom of this problem or figure 
out how to proactively deal with the foreclosure crisis if we 
don't examine the actions of mortgage servicers, who alone make 
the decision about who may keep or must leave his or her home?
    Mr. Massad. I would agree, Congressman, that we need to 
look at how this entire industry is functioning or, rather, not 
functioning, and I think there is a lot of work going on. And 
obviously through HAMP, which, as you have noted, is a 
voluntary program, we cannot force a chance on the entire 
industry. But we have learned a lot, we think, about what is--
--
    Mr. Kucinich. But Mr. Barofsky can examine it.
    Mr. Barofsky. Yes, Congressman. And, by the way, we do have 
an ongoing audit of the mortgage servicers, and I will make 
sure that my staff meets with your staff to see if there are 
any specific concerns that we should incorporate into that 
reveal.
    Mr. Kucinich. I think it is also important you communicate 
with the Chair on that as well.
    Is my time expiring or do I have 20 seconds more?
    Chairman Issa. The gentleman has 20 additional seconds.
    Mr. Kucinich. Thank you.
    This is so important to my constituency because Cleveland, 
Ohio has been an epicenter of the subprime meltdown. People 
have lost everything they ever worked their lifetime for, and 
when you get in a situation where they depend on HAMP to try to 
save their homes and the mortgage servicers have a subterfuge 
to defeat that, it is important we call them to an accounting. 
Thank you.
    Thank you, Mr. Chairman.
    Chairman Issa. The gentleman is most welcome.
    The Chair now recognizes the gentleman from Florida, Mr. 
Mack.
    Mr. Mack. Thank you, Mr. Chairman.
    I want to thank both of the witnesses for being here today. 
Recognizing that we are in difficult times, let me just say I 
am sure it is not easy to sit there and take the questions, but 
there is a lot of frustration.
    I wanted to start off by saying this, that my observation 
so far is that what we are talking about is failed government 
regulations and programs, and today is what we are talking 
about, or some people are talking about, is what other 
government programs can we add on top of that to try to make 
the failed ones work, as if, though, more government 
regulation, more government programs is going to be the answer.
    And I have heard a couple people from Ohio talk about Ohio 
being the epicenter of foreclosures. I would welcome them to 
come down to Fort Myers, Florida, to Lehigh, to Cape Coral. And 
I will tell you what my constituents are telling me. They are 
telling me stop; we don't want more of this government kind of 
control. We don't want the idea that government is going to 
solve all of the problems, when a lot of people feel like 
government is part of the problem.
    So if you think about what has happened, government started 
to push people and mortgage companies into making loans and 
putting people into homes that maybe weren't fiscally able to 
do that, either the company or the individual. Then, when we 
have a crisis, we then turn to more government and regulating 
it, and what you get is, instead of banks being able to lend, 
if you talk to community banks, they are afraid to lend because 
exactly what Mr. Massad, you have to think about what you said 
earlier. You said that we need to incorporate some national 
standards. When these lenders hear that, what they hear is more 
punishment. What they hear is more changes are coming; we don't 
know what the ground rules are; we are afraid to lend. When you 
bail out the big banks, it disadvantages the small banks.
    So when you talk about the costs of TARP or these other 
bailout programs, what you are missing is the cost of potential 
from other sectors. So you have the big banks that you want to 
claim have done so well. I don't know that I see it that way, 
but it has been at the cost of the small banks. And now what we 
are seeing is lenders do not want to lend because they are 
afraid of statements like now we need national standards.
    So, again, what I am saying is stop. What I want to hear is 
not what is the next regulation, what is the next program, what 
is the next acronym that we are going to start talking about 
that is a failure because government can't do it. I want to 
hear from both of you, if you would, very specifically, what 
should we repeal. What kind of repeals can we do that will help 
ignite borrowing and lending, that is going to help small 
businesses or that are going to help families who are trying to 
put their lives back together.
    Instead of talking about what new programs we are going to 
pass, I would like if both of you and, Mr. Massad, I will start 
with you, if you could tell me what do you think we ought to 
repeal.
    Mr. Massad. Thank you, Congressman. I am happy to do that. 
First of all, my responsibility is the TARP program. I am not a 
regulator, but what I would say is this. I am trying to get the 
government out of the business of owning stakes in private 
companies and telling private companies what to do.
    Mr. Mack. Excuse me real quick. But when you say now we 
need national standards, think about what you said and think 
about what people back home, think about those small banks. 
Think about the people who are trying to make it every day. 
What they have just heard is the rules of the game are going to 
change again, and now you are saying we need national 
standards.
    Mr. Massad. I was referring to national servicing standards 
for the servicing of mortgages, which we already have some. 
This business is mostly dominated by the big banks, the small 
banks aren't really in it; the big banks represent the vast----
    Mr. Mack. Well, yes, because they can't compete because 
government has sided with one over the other.
    Mr. Massad. Well, I think----
    Mr. Mack. Again, if you come down to Southwest Florida, the 
community banks are so important to housing, but they have been 
pushed out because government has come in and bailed out the 
big banks. They can't compete.
    Mr. Massad. Congressman, I agree small banks are very 
important; that is why we funded so many of them under TARP. 
Again, that is something we had to do. I don't think it is a 
good thing for the government to have to have done that, but we 
had to do it, and that is why we are trying to get out of it so 
quickly.
    But in terms of your comment on failed government programs, 
I think all we are trying to do is say we still are in the 
midst of a very terrible housing crisis that is a drag on our 
economic recovery, and the servicers----
    Mr. Mack. If I could----
    Chairman Issa. The gentleman's time has expired.
    Mr. Mack. Time has expired. Mr. Chairman, if I could ask--
--
    Chairman Issa. I would ask unanimous consent for one 
additional minute. So ordered.
    Mr. Mack. And I will just say this to the chairman. If you 
would submit to this committee for us, please, in writing, 
specific things that we can repeal that is going to help, 
instead of submitting to this committee what other regulations 
and programs that we ought to be performing. I would like to 
hear what you think we ought to repeal.
    Thank you, Mr. Chairman.
    Chairman Issa. If the gentleman would yield his remaining 
time.
    Mr. Mack. Yes.
    Chairman Issa. As long as we are asking, Mr. Massad, would 
you commit, before the next quarterly Special IG report comes 
out, either to produce a revised estimate of how many loan 
modifications you expect HAMP to produce, along with the source 
material made available to the Special IG, or, in the 
alternative, make available to Mr. Barofsky the source material 
so he can bring us an assessment?
    Mr. Massad. Yes, sir. I would be happy to do that. We have 
been working on that and I think a lot of that data is out 
there, but we are happy to do it.
    Chairman Issa. We sure appreciate it. I know the committee 
would appreciate that.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Barofsky, Mr. Massad, thank you both for your great 
work and thank you for your service to our country. Mr. 
Barofsky, I am more familiar with your work, especially so, 
sir, the work that you have been doing. I do want to take just 
maybe half a minute to really correct some of the revisionist 
history here on TARP.
    I voted against TARP. And when it came before the Financial 
Services Committee and before this Congress, the stated 
legislative goal of TARP was to help Main Street, to help Main 
Street, the Troubled Asset Relief Program. And when we asked 
Secretary Paulson at the time, just before the vote, actually, 
I think it was the ranking member on Financial Services said 
why don't you just take money and stuff it into the banks, the 
$700 billion that you wanted.
    And Mr. Paulson said, no, we are not going to do that. We 
are not going to do that. We looked at that and that won't 
work. Then 10 days after this bill passed, TARP passed, they 
did exactly that, they injected all that money into the banks. 
This was the bank shareholder relief program.
    And for people now to say, yes, this is exactly what we 
voted for, this is not what we voted for. We voted to increase 
lending. That was the goal of the Congress when TARP was put on 
the floor. And many of us saw the failings of that. And to now 
say, oh, yes, we supported TARP for all the right reasons, I 
think you have to accept the fact that TARP stuffed basically 
$700 billion worth of taxpayer money into big banks, helping 
out these shareholders. We paid 100 cents on a dollar to 
Goldman Sachs because we pumped $14 billion into AIG. It was a 
pass-through, it went right to Goldman Sachs. A hundred cents 
on a dollar on credit default swaps that shouldn't have been 
worth half that.
    We also passed through hundreds of millions of dollars to 
AIG FP employees who mispriced this risk as part of TARP. They 
got paid off. They got bonuses from taxpayer money. How you can 
take credit for that and say that was a good thing. And it was 
never a question of--I know people said, well, if we did 
nothing. Well, we wouldn't have done nothing; we would have 
done something different. And I just think there are a lot of 
weaknesses in this TARP program. I think, Mr. Barofsky, you 
have drilled down and got to many of them.
    But I want to take my last couple minutes to talk about the 
servicing industry, because so much of the servicing industry 
is mentioned in this report and I think it is spot on. I want 
to just talk about--I will just list all the investigations 
that are going on right now with the services. And we are not 
going after them in a meaningful way; I don't think Treasury 
is.
    On October 13, 2010, the Attorney General of all 50 States 
announced a joint investigation into whether some of the 
Nation's largest financial institutions are using flawed and 
forged documents to execute wrongful foreclosures. The Federal 
Reserve and the FDIC and the Office of the Comptroller of the 
Currency are now investigating whether systemic weaknesses in 
the industry are leading to improper foreclosures.
    On January 7, 2011, the Supreme Judicial Court in my own 
home State of Massachusetts voided home seizures because the 
folks who were foreclosing couldn't actually prove they owned 
the mortgages. The U.S. Trustees Program has a similar program. 
The attorneys general of Arizona and Nevada are doing the same 
thing. The Justice Department.
    What are we doing about the services? How are we going to 
clean up this industry and correct these problems if we are not 
going right after the services? That seems to be where the 
problem lies.
    Mr. Massad. I am happy to respond to that, Congressman.
    Mr. Lynch. Please.
    Mr. Massad. Thank you for the question. You have referred 
to the activity that is going on by a variety of Federal 
agencies, and it is under the auspices of an interagency task 
force that Treasury co-chairs. So that is very important work 
and I think we will see some results of those investigations, 
and I think it will help us figure out what types of reforms 
are needed, and potentially some of those things will be coming 
before the Congress.
    Let me just also, though, respond. I appreciate the fact 
that because this program was first announced as a means to 
purchase troubled assets, and then it became a program where, 
at least initially, what Secretary Paulson did under the Bush 
administration was to invest money in banks, people were 
critical of that. All I would say to that is a couple things. 
One, I think, under the circumstances, we had to make that 
change; there wasn't time to do the troubled asset purchase as 
it was originally contemplated. No. 2, we didn't do $700 
billion, we actually spent far less than that.
    Mr. Lynch. Five hundred thirty-four billion, if you want an 
exact number, that went directly to the banks. Still a lot of 
money.
    Mr. Massad. Congressman, if I may----
    Chairman Issa. If you would summarize your answer, please.
    Mr. Massad. Sure. About $250 billion went to banks, and 
most of that has been recovered and we will make a profit on 
those investments.
    Chairman Issa. Thank you, gentlemen.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Kelly, for 5 minutes.
    Mr. Kelly. Thank you, Mr. Chairman.
    Mr. Barofsky and Mr. Massad, thank you for being here 
today. Mr. Massad, in your opening comments you made reference 
to the automobile industry, of which I am a part of. I am a car 
dealer and a small business person. So while people talk about 
small business and their view of it from 40,000 feet, I am 
actually on the ground. I can tell you this: the Small Business 
Loan Fund is not working. And most banks cannot operate out of 
fear. The regulations that have been imposed on these people 
makes it impossible to get access to these funds.
    Now, why do I say that? Because I go through it every day. 
Not only myself, but the people that I am in business with. And 
while I am an elected official today, in my real life I am a 
small business owner. I can tell you, with somebody that has 
all the skin in the game every day, I would suggest to you that 
while we go on with these programs and we live in this 
wonderful world of acronyms that really make sense inside this 
Beltway, in real America it makes absolutely no sense to 
anybody, and these loans simply are not available. So while we 
talk about this money that is available to help us survive, the 
reality of it is that it is not available to us.
    Now, what has changed? It is the rules. To me, too big to 
fail means that I am too small to survive. Most of the banks 
that I do business with are small banks. They are absolutely 
frozen with fear. The regulations and the rules have put them 
in a situation that they cannot operate with us on a day-to-day 
basis. Quarterly the covenants change for me.
    And as we talk about small business leading the way out of 
this economic mess we are in, I will tell you it is the 
uncertainty that all of us face. And I am not talking about big 
corporations; I am talking about Main Street America. I am 
talking about the average person, the guy that gets up every 
day and worries about it not just during business hours, but 7 
days a week, 24 hours a day.
    My only question to you, sir, and I don't know what you can 
do about it, but there has to be some way that we can free up 
these funds to make it possible for these people to survive. 
The people have lost faith in this system.
    Mr. Massad. Congressman, that is a very good question and 
you raise a lot of important points. Let me say a couple of 
things. One is that what we tried to do under TARP was, in 
part, restart the credit markets that help small business, the 
securitization markets on which a lot of them actually depend 
for loans; and I think we have succeeded there. There is still 
a lot of work to do to help small business.
    I agree with you 100 percent; small business has been hurt 
in this crisis, small banks have been hurt in this crisis, and 
they haven't fully recovered. The small business legislation 
that was passed last year, which set up not only the Small 
Business Lending Fund, but also another program where the 
States are trying to help small businesses directly, I think 
provides some help. It may not be enough.
    So I am happy to explore with you further things that 
should be done in that regard, because I agree it is a problem 
that needs attention, and I think the Treasury and the Obama 
administration have tried to pay attention to that.
    Mr. Kelly. And I appreciate your comments, but I would tell 
you this: time is of the essence and we really do not have--we 
are that close to the ground right now; there is not a lot of 
free fall left. So I appreciate you so much for being out 
there.
    And I yield back my time, Mr. Chairman.
    Chairman Issa. And the Chair appreciates that.
    The Chair now recognizes the gentlelady from Washington, 
DC, Ms. Norton, for 5 minutes.
    Ms. Norton. Thank you, Mr. Chairman. As a predicate to my 
question, I want to note an article from the Abilene Reporter 
News describing what appears to be the Republican approach to 
the meltdown of homes, and I ask unanimous consent that this be 
placed into the record.
    Chairman Issa. Without objection.
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    Ms. Norton. Mr. Neugebauer is the chairman of the Financial 
Services Committee. He is a former banker himself, and he is 
pretty frank. He essentially says that the initiatives aimed at 
cushioning the blow have all failed, and so he says let the 
market takeover, ``Markets aren't kind, but they're very 
efficient.'' Should we go cold turkey and leave millions of 
homeowners out there to suffer the consequences? And I would 
like a short answer because I have further questions. Mr. 
Massad and Mr. Barofsky, who seems to just throw up his hands 
often. Yes, Mr. Massad.
    Mr. Massad. Thank you, Congresswoman. No, I don't think we 
should just go cold turkey. That is why I would disagree with 
some of the comments that have been made that because HAMP has 
not achieved three to four million modifications, that, 
therefore, we should end it. I don't think that makes sense. I 
think this program can still help a lot of people. I think it 
is constructed so that we only use taxpayer funds prudently and 
wisely. To the extent that we do help people, I think it is 
helping the right people, people who need----
    Ms. Norton. Let me go to Mr. Barofsky, then.
    Mr. Barofsky. I think it is incredibly important. TARP was 
designed in part just as much to help the Wall Street banks as 
to help struggling homeowners. That was part of the intent of 
the legislation. And I think Treasury bears an important 
responsibility to fulfill that goal that Congress set forth 
of----
    Ms. Norton. So you don't think we should go cold turkey and 
just leave millions of borrowers out there----
    Mr. Barofsky. I would like to see the program----
    Ms. Norton [continuing]. To let the market do what the 
market always does. It does resolve all such crises one way or 
the other.
    Mr. Barofsky. I would like to see a credible revamp of HAMP 
so that it can achieve the goals that were originally set for 
it.
    Ms. Norton. OK, let's talk about that, because I am 
essentially remedy-oriented and, as I have seen in my own 
district how HAMP has failed so many homeowners, people who 
work hard for their homes, got caught up in a crisis not of 
their making, it does seem that the only way out of this is to 
take measures that protect both homeowners and investors.
    A recent Washington Post article, January 18th, as a matter 
of fact, suggested that the incentive structure for services is 
greatly misaligned, ``Studies have shown that foreclosure is 
often more profitable for a company, known as a mortgage 
servicer, that collects the monthly payments on mortgages and 
passes them on to investors who own the mortgages. However, it 
is often not the best path for borrowers who lose their home or 
investors who lose money.''
    Mr. Massad, is it true that mortgage servicers often have a 
financial incentive to foreclose on distressed borrowers and at 
times the program, your program, actually gives them a 
financial disincentive to work with borrowers? And what are you 
doing about it?
    Mr. Massad. Well, what we are trying to do is give them an 
incentive to keep people in their homes, and I thin the 
structure of the program has worked in that regard; and that is 
why, also, it has been emulated by the industry. You know, 
before this program was started, we had 2 years of this crisis 
and nothing was done.
    Ms. Norton. Why is FHFA considering an entirely new 
compensation structure if this one is so fine and dandy?
    Mr. Massad. No, no, let me make sure I am clear. I agree 
with what the FHFA is doing, and Treasury has supported that. 
They are looking at the basic business model of the servicers, 
because it doesn't work; it is broken. It doesn't create right 
incentives. HAMP was also trying to change those incentives 
with respect to the loans we could affect, and that is, as I 
have said, a limited pool, it is not the entire industry. But 
one thing that has----
    Ms. Norton. Do you think the FHFA measures will have a 
meaningful impact?
    Mr. Massad. Well, I certainly hope so, Congresswoman. What 
they are doing is saying, look, we need to re-examine how 
servicers are compensated, because what has happened is they 
are overcompensated for loans that are performing, but when it 
comes to the underperforming loans they are not set up to deal 
with people, to resolve these issues.
    Ms. Norton. Mr. Massad, if this is not a win-win, it is not 
going to work. If it is a win-lose--and it appears often to be 
just that--then we are going to be stuck, and that is where the 
borrowers and the homeowners are stuck now.
    Mr. Massad. Well, that is right, Congresswoman, and that is 
why I have said I think there needs to be a lot of attention 
paid to how this industry has failed us in a lot of ways. We 
have seen a lot of problems coming out of this crisis and----
    Ms. Norton. And how your incentive structure has failed us.
    Mr. Massad. Right.
    Chairman Issa. The gentlelady's time has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Walberg, for 5 minutes.
    Mr. Walberg. Thank you, Mr. Chairman.
    Chairman Issa. Would the gentleman suspend?
    The Chair would note that we are expecting two votes at 
approximately 11:10. We will work for about one more question 
after the vote is called. We will leave. We will return, and as 
soon as there are two people on the dais we will begin 
questioning again so as to be respectful of your time.
    The gentleman may continue.
    Mr. Walberg. Thank you, Mr. Chairman.
    And thank you, Mr. Barofsky and Mr. Massad, for being here 
to appear in front of us. I had the dubious distinction to vote 
on TARP, to vote against it, I think for all the right reasons; 
I had the dubious distinction to be foreclosed upon by my 
electorate in the next election; and then for the last 2 years 
to hear the response of people who finally awakened to the fact 
that, yes, there was a problem, yes, there was a significant 
concern, yes, there was a meltdown that was taking place. But, 
frankly, their opinion was that it was the wrong approach to 
take, and it seems to have borne out.
    Mr. Massad, I would ask you, and I hope this hasn't been 
asked while I was away at another committee meeting, but what 
are the plans for the obligated TARP funds which have not yet 
been spent?
    Mr. Massad. The only funds that have not yet been spent are 
those for the housing programs. And let me just note it is not 
$70 billion for HAMP. Our portion of HAMP--there is a GSE 
portion--our portion of HAMP is 29. We have done a number of 
other housing programs. So there is $45 billion allocated for a 
variety of housing programs. There is still a very small amount 
that is committed for the public-private investment 
partnership.
    Basically, we are no longer making new commitments. We are 
no longer doing new programs. Our focus now is getting the 
money back. And we have gotten, as I say, a lot of it back, and 
I expect we will get a lot more of it back. And essentially all 
the programs, leaving aside the housing programs, all the 
programs considered as a whole will result in very little cost 
or potential even of profit, because we will get all the funds 
back.
    Mr. Walberg. Can you make a blanket commitment here today 
that those unobligated funds will not be spent?
    Mr. Massad. Congressman, I can make a blanket commitment to 
you that we will make no further commitment of funds. We do not 
have that authority. But let me make clear there are funds that 
are obligated that may be spent. There are no funds that are 
unobligated. We will not make any further obligations of funds.
    Mr. Walberg. But you will not spend them, unobligated 
funds?
    Mr. Massad. Unobligated funds we will not spend. I just 
want to make sure we are communicating. We no longer have 
authority to make obligations. I can't make new commitments of 
funds. I will not, therefore, make new commitments of funds. I 
do have, we do have some funds that have been committed but not 
spent, and those we expect at least some of those will be 
spent, not necessarily all of them.
    Mr. Walberg. Thank you.
    Mr. Barofsky, on page 6 of SIGTARP's report, in referencing 
in comparing recipients of the Federal assistance to Fannie and 
Freddie, you make this statement: ``In many ways, TARP has 
helped to mix the same toxic cocktail of implicit guaranties 
and distorted incentives that led to disastrous consequences 
for the Government.''
    Mr. Barofsky. Well, two of the big characteristics of what 
happened with the lead up to the conservatorship of Fannie and 
Freddie was, one, the implicit guaranty they received that they 
had a government backstop, and one of the legacy results of 
TARP is that the market still believes that the U.S. Government 
is backstopping the largest too big to fail institutions; and 
that causes a whole range of problems. It hurts market 
discipline. Counterparties, creditors, investors, they don't do 
the due diligence that is necessary when evaluating whether to 
do business with one of these banks or investing one of these 
banks because they believe that any type of risk they take will 
be backstopped by Uncle Sam and the taxpayer. That gives them 
an advantage; it gives them the opportunity to borrow money 
more cheaply.
    S&P recently announced that their intent to change the 
rating system to make it a permanent aspect that the big too 
big to fail banks will have higher ratings based on implicit 
government guaranty, and they say this notwithstanding Dodd-
Frank and other countries' response to the financial crisis.
    This is a market distortion and, as a result, the 
executives of those banks get back into the position where it 
is heads, I win; tails, the taxpayer bails me out.
    Mr. Walberg. What recommendations might you suggest to go 
away from that moral hazard?
    Mr. Barofsky. I think that we are where we are, and what we 
have is Dodd-Frank, and the FSOC, and the committee that is 
providing oversight, and it does have a lot of tools. They need 
to have both the regulatory will and the political will to rein 
in the size of these banks. They have to do two things which 
are going to be remarkably difficult, and Secretary Geithner, 
to his credit, was remarkably candid with us about the 
limitations of what they are going to be able to do.
    But, first of all, they have to have a system where they 
can credibly resolve large financial institutions without 
bailing out the shareholders, the creditors, the executives. 
Second, which is probably just as important, they have to 
convince the markets that is actually going to happen. Because 
if they don't convince the markets, if they don't have the 
credibility that they will not be bailing out institutions 
going into the future, it almost won't matter otherwise 
because, again, those incentives will still be warped; that 
discipline will still be gone; and those risks, with the idea 
that the taxpayer will bail out the executives, the 
shareholders, the counterparties will continue a perversion of 
the system.
    Mr. Walberg. Thank you. In the parent world we call that 
tough love. Thank you.
    Chairman Issa. I thank the gentleman.
    The Chair asks unanimous consent that a statement for the 
record submitted by the American Bankers Association be 
inserted at this time. Without objection.
    [The information referred to follows:]

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    Chairman Issa. The Chair now recognizes the gentleman from 
Missouri, Mr .Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman, and thank you for 
holding this meeting.
    Mr. Barofsky, I understand that you have the oversight 
authority to investigate mortgage service providers. I wanted 
to discuss one specific example of a horrendous abuse against 
our active duty service members. According to an NBC News 
report of January 17th, JP Morgan Chase & Co. admitted that 
they overcharged thousands of active duty military families 
millions of dollars on their mortgages.
    They also improperly foreclosed on some of these families. 
They weren't supposed to do that because we passed a 
Servicemembers Civil Relief Act specifically to protect 
military families from high interest rates and foreclosure 
actions. We recognize the importance of those families' service 
to our country.
    Mr. Massad, have you seen this report?
    Mr. Massad. I have, sir.
    Mr. Clay. What can these families do other than seek 
redress from the company?
    Mr. Massad. Congressman, I will be happy to look into that; 
that is really outside of my jurisdiction. But it was a very 
troubling report, I agree, and I would be happy to get back to 
you or get the appropriate officials to get back to you.
    Mr. Clay. Well, and I am glad to learn that JP Morgan has 
acknowledged its errors and is working with the families to try 
and make things right, starting by paying them back $2 million 
in overcharge interest. But this story makes me worry for a 
different reason. The victims in this case complain that the 
industry servicers in this case harassed them endlessly, 
refused to acknowledge legitimate documentation when they 
presented, and essentially made their lives miserable, all 
without any basis to do so.
    Now, I assume banks don't have one collection agency just 
for military servicemembers and another one for everyone else. 
Mr. Barofsky, have you seen similar abuses of this kind, where 
the banks and their collection agencies harass people without 
any justification?
    Mr. Barofsky. We have. You know, we operate the SIGTARP 
hotline, where we have collected more than 24,000 contacts 
since our inception, and a lot of them are complaints from 
homeowners dealing with mortgage servicers, absolutely. And 
when we see those, we try to direct them to the right place. If 
there is an allegation of criminal activity and it relates to 
the HAMP program, we will take it; if it is criminal activity 
that is outside of our law enforcement jurisdiction, we will 
refer it out; we will refer it to Treasury if it is 
appropriate, if there is something that they can do; and we 
also collect them for our review and our audit function.
    Mr. Clay. How about the real abusive servicers, can they be 
removed from the program?
    Mr. Massad. I'm sorry, can they be removed from----
    Mr. Clay. Yes, can they be removed----
    Mr. Massad. From our program, from the HAMP program?
    Mr. Clay. Yes.
    Mr. Massad. They could be. Again, there are some servicers 
that cover a lot of the market, and if we were simply to kick 
them out of the program, then we wouldn't be able to reach the 
people we would like to reach. So that is why our focus has 
been to try to improve the practices as much as we can.
    Let me just say we will continue to be aggressive in this. 
We are in the large servicer shops all the time and we will 
continue to work with SIGTARP on practical suggestions as to 
how to get the servicers to do a better job, because we agree 
that they need to do a better job.
    Mr. Clay. Well, but if they are totally ignoring the 
homeowner and ignoring the documentation, then----
    Mr. Massad. Sure. If I may, Congressman, I wouldn't say 
they are totally ignoring the homeowner, at least with respect 
to our program. I think with respect to our program we have 
gotten them to pay attention. We have come a long way. When we 
started this, they said we can't do this, we are not ready; and 
we said you have to get ready.
    And while we haven't achieved as many modifications as we 
would like, I will admit that, I have always admitted that, 
but, nevertheless, we are making some progress. We are still 
getting about 30,000 new families helped a month. That is 
important. It is not enough, but it is important.
    Mr. Clay. Could either one of the witnesses supply us with 
the breakdown of State by State of modifications? Would that be 
possible?
    Mr. Massad. Yes. We can certainly do that. We can do that 
for our program, Congressman. We do produce a lot of statistics 
and metrics on our program, but that only covers our program. 
There, frankly, aren't a lot of statistics on the rest of the 
industry in that regard.
    Mr. Clay. OK. And of special interest to me, of course, 
would be on Missouri.
    Mr. Massad. Certainly.
    Mr. Clay. OK. I thank the witnesses and I yield back, Mr. 
Chairman.
    Chairman Issa. I thank the gentleman.
    Our last, for this round, before we go to votes, will be 
the gentleman from Arizona, Mr. Gosar.
    Mr. Gosar. Thank you.
    Being from Arizona and hearing the discussion in regards to 
Florida and Ohio, I have to say that Arizona, which we thought 
was a leveling of our problems with housing, is now all of a 
sudden showing some signs of double-dipping, so this is very 
troubling. And being from a very poor community from the 
district, we see homeowners on the very brink of catastrophe.
    My question to you first, Mr. Massad, is doesn't the lower 
cost of borrowing that results from the implicit government 
guaranty partially explain the banks' abilities to pay back 
TARP?
    Mr. Massad. Yes, it is probably a factor. But I think a 
more important factor was the process that we implemented of 
the stress tests, because what we did was we put the largest 
banks through a very intensive stress test, because the market 
didn't have confidence as to which institutions might fail and 
how much capital they needed. So in the spring of 2009 we 
implemented the stress test process, and we made the results 
and the whole process very transparent, and as a result of 
that, they were able to raise private capital and we were able 
to get the government out.
    Mr. Gosar. So a followup question, so the success depends 
upon that implicit guaranty.
    Mr. Massad. No, I don't think I said that. What I am saying 
is that we got out of the banks' investments, we got the money 
back through this stress test and recapitalization process. If 
I may, I think the thrust of your question really relates to 
some of the concerns Mr. Barofsky has raised on too big to fail 
and moral hazard, and those are very legitimate concerns, and 
this Congress obviously debated them at length when it passed 
the Dodd-Frank legislation.
    We are still implementing that. I think Mr. Barofsky is 
raising his views on that, in effect, it sounds like what he is 
saying is Dodd-Frank may not have been strong enough or may not 
be strong enough; maybe we should break up some of these banks, 
maybe we should take more aggressive action. That is certainly 
an opinion and others have voiced that opinion.
    My own view is let's give Dodd-Frank some time to work, 
because now we do have a lot of tools that we didn't have. So I 
think it is premature to pass judgment on Dodd-Frank. It was 
really the first overhaul of our financial system in many years 
and it was necessary or, rather, TARP was necessary because we 
didn't have the tools that Dodd-Frank provided.
    Mr. Gosar. Mr. Barofsky, how would you feel or would you 
differ in that opinion?
    Mr. Barofsky. I don't think that Mr. Massad has correctly 
characterized my position, to put it mildly. The answer to your 
question, though, is yes, the implicit guaranty absolutely 
enabled those banks to get out of TARP on the terms that they 
did. Because those banks enjoy enhanced credit ratings from the 
credit rating agencies, one of the conditions that the Federal 
Reserve and Treasury put for those banks to get out of TARP was 
to go out on the markets and raise capital, and the larger 
banks can raise capital more efficiently and cheaply because of 
this implicit guaranty, because of the benefits they have. So, 
in short, the answer to your question is yes.
    Mr. Gosar. Thank you.
    I yield back the balance of my time.
    Mr. DesJarlais [presiding]. Thank you, Mr. Gosar.
    And I am instructed that we are about to be called to some 
votes, so I am very, very grateful, both Mr. Massad and Mr. 
Barofsky, for your attendance to this point. I know if you can 
give us the indulgence as soon as we conclude the votes, I know 
there are some Members who would like to continue with some 
questioning. So the committee stands in recess.
    [Recess.]
    Chairman Issa [presiding]. The committee will come to 
order. The Chair now recognizes the gentleman frm Pennsylvania, 
Mr. Meehan, for 5 minutes.
    Mr. Meehan. Thank you, Mr. Chairman, and thank you to the 
witnesses for continuing to be with us here today.
    Mr. Massad, I looked at something which is a little bit 
different than what has been talked about so far today, but I 
noticed in my review of the most recent report the issue of the 
extent where recapitalization isn't just for the big banks, but 
a lot of times you are looking at groups of other banks and 
communities all across the country of various size, and some of 
them are looking at difficult issues as well and coming to you 
for recapitalization. So they are making application to you for 
recapitalization. What is your policy with respect to when you 
get that notification, sharing it with others?
    Mr. Massad. Congressman, thank you for the question; you 
raise an important issue. First of all, we don't ever provide 
additional funds. I want to make that very clear. Second, our 
job now with respect to those bank investments is to get as 
much of the money back as we can. We still have investments in 
about 560 banks, and there are a few of those situations where 
banks have had trouble and have come to us because they are 
trying to attract private capital, and they ask us to modify 
our investment; and we have agreed in a small handful of 
situations.
    The biggest is obviously Citigroup, where we agreed to 
convert from preferred stock to common stock. That one 
obviously turned out very well since we will realize a $12 
billion profit on our overall investment. Most of the others 
have been very, very small. But we do try to work with the 
banks. We have a whole process of monitoring our investments 
and monitoring these banks, and occasionally, because the bank 
is troubled, the choice for us is, if we don't do anything, we 
might lose our entire investment because the bank might be 
seized. So the question is always can we agree to some terms 
that help them attract new capital and, therefore, realize as 
much as we can.
    Mr. Meehan. And there is one of the issues, though, that 
struck my interest, because part of your participation with 
them is creating an awareness on others, in many ways, to some 
extent, maybe a sign of good approval that is enticing other 
private investors to make capital investments to help with that 
bank.
    Now, one of the things that concerned me in the report was 
the suggestion that simultaneously some of these banks may be 
having trouble for a variety of reasons, including the 
potential that they may be being looked at for fraudulent 
activities. So to what extent and what timing has been your 
policy to report that to the IG who may, as you saw, 24,000 
reports from people--as a prosecutor, I used to see the 
whistleblowers being some of the key things to us. They have 
information. What are you doing to ensure that there are not 
activities in which you are enticing people to invest but 
simultaneously they are under investigation for potential 
fraudulent activity?
    Mr. Massad. It is a very good question. We, first of all, 
cooperate fully with SIGTARP in terms of when they tell us they 
are investigating someone and they want information, we give 
them all that information that they want. I know that in the 
SIGTARP's quarterly report Mr. Barofsky has raised the question 
of whether Treasury should notify SIGTARP at some point in that 
process, and that is a recommendation that we are looking at. 
We have, from time to time, done that and that is a 
recommendation that we are looking at----
    Mr. Meehan. Are you asking that SIGTARP say to you when 
they begin to have somebody under investigation?
    Mr. Massad. No, I am not asking that.
    Mr. Meehan. That is what I am trying to understand. And I 
am not being hostile on this, I am just trying to understand 
the timing here, because the concern I have is that they may be 
sitting on information, investigative information, and simply 
the fact that would be leaked would be contrary to your 
interests.
    Mr. Massad. Absolutely. There----
    Mr. Meehan. I know my time is going to run out, so I am 
going to ask you this, and, Mr. Barofsky, if you could jump in 
at the conclusion of this, after Mr. Massad, and tell me what 
do you need, what is your policy with respect to the ability to 
have timely notification that you may have a matter under 
investigation while simultaneously Treasury is encouraging 
people to invest in that bank.
    Mr. Massad. Congressman, if I may, it is a very sensitive 
question, a lot of complexities to it, actually, and you have 
touched on many of them, and we have thought about this in 
connection with, well, what if the SEC is investigating a bank, 
what is the Justice Department is investigating a bank; should 
that knowledge be knowledge that we have? If we have that 
knowledge, then what do we do? So there are some complexities 
to this that we are looking at. We are talking with Mr. 
Barofsky's staff, as well as the DOJ, about this, and I will be 
happy to get back to you further on it.
    Mr. Meehan. Thank you.
    Mr. Barofsky. I don't think there is a great deal of 
complexity with this issue with respect to SIGTARP. We are a 
Treasury entity within the Treasury Department. They used to 
give us a head's up before they would do one of these 
recapitalizations, before they would be publicly announced, 
which would give us an opportunity to review our caseload and 
communicate whether there is an issue, and we have now made a 
formal recommendation that process be implemented and also that 
with respect to giving money in the SBLF program, when TARP 
banks have an opportunity to recapitalize into the Small 
Business Lending Program, that Treasury check with us. The last 
thing they want to do is pour more money into an ongoing fraud.
    One of our biggest successes was with Colonial Bank, which 
had received conditional approval to receive $550 million in 
TARP money, and Treasury and Mr. Massad and OFS did a 
remarkably great job working with us to make sure that money 
didn't go out the door, and we want to have the opportunity to 
repeat that success.
    Mr. Meehan. Mr. Chairman, one final----
    Chairman Issa. Ask unanimous consent for one more question.
    Mr. Meehan. If there was a policy wherein, in the past, 
they were and they are not now, what is different; why has that 
changed midstream?
    Mr. Massad. Congressman, there wasn't a formal policy; we 
had very few of these before, we did notify SIGTARP, and we are 
looking at what should the formal policy be, because we also 
have to be sensitive to the fact that if a law enforcement 
official shares information with us, we have to protect the 
confidentiality of that information; what position does that 
put us in. So, as I say, I think there are some complexities to 
this. I would be happy to meet with you and your staff to 
discuss it further. We are giving it very serious attention.
    Mr. Meehan. Thank you, Mr. Massad.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentleman from Virginia, Mr. Connolly, 
for 5 minutes.
    Mr. Connolly. Thank you, Mr. Chairman. Talk about good 
timing.
    Chairman Issa. The best.
    Mr. Connolly. Thank you, gentlemen, for appearing before 
the committee today. Mr. Massad, did the Bush administration 
make a mistake in creating the TARP program?
    Mr. Massad. No, I don't think so, Congressman. Again, I 
think it was unfortunate that we had to create TARP. It was 
unfortunate that we didn't have the tools to otherwise deal 
with this crisis. But I think they were right to take the 
actions that they took. I am proud of those Members of Congress 
from both sides of the aisle who stood up and supported it; I 
think we needed this. And, again, it is unfortunate that we had 
to do it, but I don't think we had much choice.
    Mr. Connolly. At the time, Mr. Massad, that TARP was 
created by the Bush Secretary of the Treasury, Mr. Paulson, 
were there not calls then and subsequently for the 
nationalization of the banking system in the United States?
    Mr. Massad. Yes, there were, Congressman.
    Mr. Connolly. And did TARP offer a market-driven private 
sector alternative to those calls?
    Mr. Massad. Yes, I believe it did.
    Mr. Connolly. So despite heated rhetoric about big 
government takeover, actually, would it be fair to say, Mr. 
Massad, that TARP represented precisely the opposite?
    Mr. Massad. I agree, Congressman, yes.
    Mr. Connolly. And, again, there were lots of concerns--and 
maybe, Mr. Barofsky, you want to comment, feel free to--that 
TARP was going to be this endless sucking sound that was going 
to, of course, suck up tax dollars and inflate the Federal 
deficit enormously. Is that what happened in the TARP program?
    Mr. Barofsky. I would be happy to answer that. No, I think 
that one of the areas where TARP has succeed has been in the 
declining estimates of the financial costs of the program, 
absolutely.
    Mr. Connolly. And what is the net cost currently of the 
$700 billion that was originally allocated for TARP?
    Mr. Barofsky. It depends on who you ask. CBO did an 
estimate. We have all three estimates in the most recent 
quarterly report. CBO's most recent estimate is in the area of 
about $25 billion; Treasury's most recent estimate is in the 
area of about $50 billion. OMB has a much significantly higher 
estimate, but it's sort of dated back to May 2010, it hasn't 
been updated yet. I anticipate that number will come down as 
well.
    Mr. Connolly. But the nonpartisan Congressional Budget 
Office, on which this institution has historically relied, 
except recently when we apparently don't like their numbers, 
says $25 billion net cost?
    Mr. Barofsky. $25 billion. And I think the reason for the 
big difference between theirs and Treasury's number is that CBO 
has looked at the HAMP program and basically doesn't believe 
that Treasury will spend even a fraction of the amount that it 
has allocated.
    Mr. Connolly. Are there still warrants and stocks to be 
sold that could yet improve that net estimate of $25 billion 
negative?
    Mr. Barofsky. I am assuming that when CBO does its 
estimate, it considers those factors in fashioning its 
estimate.
    Mr. Connolly. But I mean, of course, everything is about 
timing, when you sell the warrants and stocks.
    Mr. Barofsky. Oh, of course. The markets could improve, 
which would be losses would go down; or the markets could get 
worse, in which case the projected losses would go up.
    Mr. Connolly. Aha. OK. You mentioned the HAMP program. I 
seem to recall this committee having a hearing, I think last 
year, and at that time my friends on the other side of the 
aisle criticized the program, which they opposed, but they 
nonetheless criticized it because it only helped 167,000 
Americans. Do I now understand that number is half a million?
    Mr. Barofsky. Yes. I'm sorry, go ahead.
    Mr. Massad. Yes, that is correct, Congressman. That is the 
direct permanent modifications, and, of course----
    Mr. Connolly. OK, so this failing program, nonetheless, has 
managed to help more Americans.
    Mr. Massad. Sometimes I think of it as the little train 
that could; it keeps chugging along and helping people, yes.
    Mr. Connolly. Now, at that hearing we had testimony from 
banks, and maybe, Mr. Massad, you are aware of this testimony, 
in which those bankers said that even the number at that time, 
which was 167, understated the reach of the program positively 
because a lot of banks were in fact helping homeowners because 
HAMP existed and had created a standard they could follow. 
Would you comment?
    Mr. Massad. That is absolutely right, Congressman. Before 
we started HAMP, the servicers really weren't doing 
modifications, they weren't addressing this crisis. To the 
extent modifications were done, they often raised people's 
payments. And when HAMP came in, it provided some standards 
that the servicers have now emulated in their proprietary 
programs. Fannie May and Freddie Mac also adopted some of our 
standards for their mortgages.
    So the indirect effect has been quite great. And sometimes 
people talk about the numbers of foreclosures and so forth. If 
you look at the total number of modifications entered into 
since April 2009, either under HAMP or under other programs, it 
does outpace foreclosure sales, completions, if you will, by 
two to one. Again, it is not enough. I am always the first to 
say we haven't done enough, but I think we are making this 
crisis better, at least, for----
    Mr. Connolly. I thank the gentlemen.
    My time is up and I thank the Chair.
    Chairman Issa. You are very welcome. The Chair now 
recognizes the gentleman from Oklahoma, Mr. Lankford, for 5 
minutes.
    Mr. Lankford. Thank you I have a few questions. I want to 
just be able to get some clarifications. And thank you, 
gentlemen, for allowing us to be able to step out and vote and 
be able to step back in as well on it.
    Mr. Massad, I am aware of some of the limitations that 
Dodd-Frank has placed on TARP and the boundaries of the new 
programs and such on it. Is Treasury willing to be able to 
assure us today that there is no plan, no intention that any 
TARP funds will be used for State pension bailouts or for State 
government bailouts based on the limitations of what can be 
used in TARP?
    Mr. Massad. Yes, sir.
    Mr. Lankford. Terrific. Just wanted to be able to get 
clarification on that. On page 1 of your report, in paragraph 4 
it details some of the numbers on it: the $410 billion 
disbursed to date, we have received back $270, representing 
$235 billion; $35 billion additional income; approximately $166 
billion remains outstanding. If I am running those numbers 
correctly, we are missing about $9 billion in that figure on 
that, so I didn't know if you would be willing to be able to 
resubmit to us just a written update on that, where that other 
$9 billion and how that fits in there on that.
    Mr. Massad. I would be happy to do that, sir. I don't 
believe it is $9 billion, but I would be happy to do that.
    Mr. Lankford. Terrific. Those numbers, when we add them 
together, the quick detail out there; and I know that is just a 
very quick detail on it.
    The third thing is on the auto industry financing program, 
what is the plan at this point? You gave us a great statement 
on that. What is the plan for exiting out? We have gone from 61 
percent ownership in stock to now 33 percent. That is terrific, 
that is making great progress, and thank you for that. What is 
the plan to take us down to zero percent?
    Mr. Massad. We are actively working on that. I want to be 
careful. Because of the securities laws, we can't be too 
definitive about a timetable, but now that we have completed 
the initial public offering of GM, we do have a pathway to sell 
the rest of our shares, and I would expect that we would sell 
all those, hopefully, within the next 2 years, market 
conditions permitting. With respect to our other investments in 
Chrysler and Ally Financial, we are also working toward initial 
public offerings of those institutions.
    Mr. Lankford. Has Treasury set up a timetable on what they 
are looking for to say, by this date certain we are going to be 
out, regardless, or is this--this is going to sound 
pejorative--playing the market with it to try to work it out? 
But is there some plan to say by this date certain we are going 
to be out?
    Mr. Massad. No, we haven't done that because I think we do 
have to be sensitive to a couple of things. One is market 
conditions. Also, in the case of the companies that aren't yet 
public, they really have to be ready to go public, we can't 
force them really to do that. But I can assure you that we are 
trying to get out of all of these investments as quickly as 
possible. I firmly believe that our purpose, which is to 
promote financial stability, is best served today by getting 
the Government out of the business of owning interest in 
private companies.
    Mr. Lankford. I would definitely concur on that one as 
well. With that in mind, is Treasury still day-to-day in the 
operational business of GM, Chrysler and Ally? Is there still 
someone that is onboard there with their stockholders and such 
that is helping advise?
    Mr. Massad. We monitor those investments, but we have never 
participated in the day-to-day management, and we have made it 
very clear that we will not do so and we do not think that is 
an appropriate role for the U.S. Government.
    Mr. Lankford. Terrific. I would agree on that one as well. 
Mr. Barofsky's report details $59.7 billion that is available, 
that is sitting out there, and I am sure that money may move 
around some based on day-to-day operations on it. When, in your 
opinion, does TARP sunset? When do we not have hearings on TARP 
because TARP doesn't exist anymore, all available funds have 
now been returned and there is no more TARP? What is the plan 
for that?
    Mr. Massad. I would say on the investment side, again, we 
are trying to get out as quickly as possible. I, again, can't 
give you a timetable, but I think, with respect to the 
remaining investments, which let's call roughly $170 billion, I 
think we will get most of that back in the next 2 years. There 
will be some portion that we can't get back within that 
timeframe, but we will certainly, and we are, winding down the 
operation and trying to get out as fast as we can. With 
respect----
    Mr. Lankford. Would it help at all to have a legislative 
solution on this, to set a timetable to say the American people 
need some assurances that, 20 years from now, we are still not 
TARPing, that we are out there and that we have a time certain?
    Mr. Massad. I don't think a legislative solution would be 
helpful because that could depress the value that we could get 
for the investments that we have. But believe me, I don't 
intend to be here 20 years from now.
    Mr. Lankford. Great. Let me give you one last quick 
question on it as well. In Mr. Barofsky's report, as well, it 
details out that the five largest banks now control about 60 
percent of gross domestic product; they are all 20 percent 
larger than what they were before the crisis on this. 
Obviously, we have a heavy emphasis going in the largest of 
banks. I know you were talking about how the small and medium 
sized banks are assisting as well, but the end result has been 
the biggest banks have grown bigger, and they seem to be even 
more of a systemic risk.
    Mr. Massad. There has been increased concentration in our 
financial system as a result of this crisis. I think probably 
without TARP that would have been even greater, because we 
wouldn't have helped a lot of institutions that have been able 
to weather the storm. But the question as to whether it is too 
concentrated is certainly one that this Congress can take up.
    And as Mr. Barofsky has properly noted, that is an issue 
that the Congress may wish to consider. I think what we have 
right now under Dodd-Frank are tools to try to regulate that. 
As the comment was made, some people have suggested 
nationalizing banks; some people have suggested breaking them 
up. That is obviously policy options that the Congress can 
consider.
    Mr. Lankford. It just seems to me that we have a preference 
for the largest of banks in this structure. And I understand 
that my time has expired. Thank you very much.
    Mr. Massad. Thank you.
    Chairman Issa. I thank the gentleman.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Walsh, for 5 minutes.
    Mr. Walsh. Thank you, Mr. Chairman.
    Thank you both for coming in; it has been a long morning. 
Let me be very brief and ask two broad, macro level questions 
and try to get an answer from each of you. Like a lot of my 
colleagues, I hear from community banks every day who are 
struggling. Like a lot of my colleagues, I hear from community 
and small banks every day who resent the fact that it seems 
like TARP, the Government sided with the big banks. Broad 
question: Why are these community banks struggling? What is 
your biggest concern that you have right now for community 
banks?
    Mr. Massad. That is a very good question. A lot of the 
small bankers do have loan portfolios that are more heavily 
weighted to the real estate sector and, therefore, they have 
been hurt by that. No. 2, they don't have access to capital as 
easily as the big banks, so those are very real concerns. And 
we have tried, with the TARP program, to address some of that. 
You know, essentially, when you look at the money invested in 
banks, about $250 billion overall under TARP was invested. Most 
of that, $234 or so, around that amount, was done under the 
Bush administration.
    I agree with the actions that they took, but I am just 
pointing out that they did that. $125 billion of it went to the 
largest institutions in the country. When Obama came in, we 
have only invested an additional $11 billion in banks, and a 
lot of that went to a lot of the smaller institutions and we 
set up special programs to help them. But many of them are 
still struggling and we are trying to do our best to get this 
economy back and get an economic recovery, get the housing 
market stabilized, because I think those are the best things we 
can do for those banks.
    Mr. Walsh. And, Mr. Barofsky, why still this persisting 
struggle with the community banks?
    Mr. Barofsky. Part of it is, as Mr. Massad pointed out, the 
structure of their portfolio, but a large part of it is also 
the continuing existence of too big to fail; it gives an 
inherent advantage to the larger banks. There is a reason why 
the smaller banks don't have the same access to capital as the 
larger banks; they don't have the access to the virtually free 
money from the Federal Reserve that the larger banks. A lot of 
what has been the result of TARP and the related programs is it 
has given the opportunity for the largest banks to essentially 
earn their way out of trouble, and those are opportunities that 
are not available for the smaller and community banks.
    Mr. Walsh. So maybe this leads, then, to my second brief 
macro level question. Each of you offer one broad level 
critique of TARP, either with its implication, with its design. 
If you were to each offer one broad critique of TARP, what 
would it be?
    Mr. Massad. You know, if we had to do this all over again, 
and obviously I am assuming we will not have to, there are a 
lot of things we could change or would change, Congressman. It 
is hard to be specific. There are certain things in the housing 
program that we have done later that we might have done 
earlier. I agree with the comment that was made earlier that it 
was proposed as a purchase of troubled assets and then I think 
the Bush administration wisely changed course because I think 
they had to, but that obviously contributed to some of the 
criticism.
    So it is things like that. There are many others I am sure 
that we would do over, but I think the key thing is hopefully 
now, under Dodd-Frank, we have the tools that will make this 
sort of thing unnecessary in the future.
    Mr. Walsh. One overall critique, Mr. Barofsky.
    Mr. Barofsky. I think one of the things that could have 
been done better, within the realm of possible, within the 
realm of what the TARP was, was better transparency for the 
Treasury Department. From day one this has been a recurring 
theme of our criticism, and we have been very bipartisan in our 
criticism for both the Paulson Treasury Department, as well as 
the Secretary Geithner Treasury Department.
    But explaining this better to the American people, being 
more up-front and honest about these programs, whether it was 
saying that the first nine institutions were all healthy and 
viable, when they knew full well that some of them were not; to 
some of the more recent statements, the cheerleading statements 
about the program, which under a little bit further examination 
certain things were left out.
    I think that having a more transparent program--and it is 
not too late, and I would encourage Treasury to renew its 
efforts toward transparency--will help address some of the real 
negative views of this program, because I think if people 
understand it and feel that everyone is being up-front with 
them, it can be a more informed conversation, be a more 
informed debate. Right now, Treasury's running of this program 
has been viewed of one, I have heard, of picking winners and 
losers, or backroom deals, and those criticisms really come out 
of these transparency failures.
    Mr. Massad. If I may respond to that. I am fully committed 
to transparency, and most of the particular suggestions that 
SIGTARP has made in this regard we have implemented.
    I would just like to note, because I think often people 
aren't aware of it. We publish annual financial statements 
which are audited, and we have received clean opinions on these 
financial statements for 2 years, without any material 
weaknesses. That is actually a very rare thing for a startup 
entity; it is a relatively rare thing in government.
    We publish a monthly report to Congress that lays out 
exactly where the money is, how much of it has come back, what 
is the status of the program. We publish a transaction report 
on each transaction within two business days of completing it. 
We publish a dividend and interest report quarterly which shows 
how much dividend and interest payments we have gotten. We put 
all of our contracts and agreements on our Web site.
    That means not only any contract entered into with a 
financial institution, but also all the procurement contracts, 
all the documents related to HAMP, and any program we have, as 
well as program guidelines and other materials. We have 
testified before Congress numerous times; we meet. We have 
three oversight agencies and we fully cooperate with them and 
give them all the information that they need. They have 
produced a total of 75 reports.
    So we can always strive to do more, but I think, actually, 
there is a lot of information about this program available.
    Mr. Walsh. Thank you both.
    Thank you, Mr. Chairman.
    Chairman Issa. You are very welcome.
    If anyone else arrives who has not had a first round, we 
will take them if they arrive before we finish. Otherwise, with 
your indulgence, we would like to have a brief second round for 
a couple people.
    At this time, I would go to the chairman of the 
subcommittee of jurisdiction, Mr. McHenry, for his questions.
    Mr. McHenry. Thank you, Mr. Chairman.
    I would begin by, this has not been discussed greatly, but 
the moral hazards created by TARP is mentioned, Mr. Barofsky, 
in your report. You have mentioned it before. This is certainly 
a big concern.
    Mr. Massad, S&P considers the likelihood of government's 
support explicitly in their credit rating. Are you aware of 
that?
    Mr. Massad. [No audible response.]
    Mr. McHenry. OK. Do you think that is a direct result of 
TARP?
    Mr. Massad. I would say it this way, Congressman. I think 
because we didn't have the tools to deal with this rescue, we 
had to do TARP, and that does raise the moral hazard, too big 
to fail concerns that Mr. Barofsky has mentioned. But I think 
now Congress has addressed those through Dodd-Frank. We haven't 
implemented Dodd-Frank yet, but those are the tools we now 
have. So I don't think it is appropriate to blame it on TARP 
but, rather, blame it on the fact that we didn't have an 
adequate regulatory system, and that is what we are trying to 
improve now.
    Mr. McHenry. I would like to call up the Geithner slide, if 
I could. Secretary Geithner, Mr. Barofsky, and your report on 
Citi, outlines very clearly in the future we may have to do 
exceptional things again if we face a shock that large. We just 
don't know what is systemic and what is not until you know the 
nature of the shock.
    Now, Mr. Barofsky, was this interview post-signing of the 
Dodd-Frank law?
    Mr. Barofsky. This interview occurred in December 2010.
    Mr. McHenry. Mr. Massad, it seems that your testimony is 
counter to your boss's testimony. How do you reconcile that?
    Mr. Massad. No, I don't think it is. I think what Secretary 
Geithner was referring to, and neither I nor Mr. Barofsky were 
actually in the room, but----
    Mr. McHenry. But we have his words.
    Mr. Massad. Yes, we do, and I have also spoken to him about 
this. What he was referring to was the ability to use the tools 
under Dodd-Frank to address this and the fact that we don't 
know exactly what the issue will be.
    Mr. McHenry. Right.
    Mr. Massad. But the tools under Dodd-Frank are flexible. We 
are not going to have just a set of immutable, quantitative 
criteria that say if you are above this amount of assets, you 
are too big to fail.
    Mr. McHenry. OK.
    Mr. Massad. We have qualitative and quantitative----
    Mr. McHenry. My next slide is President Obama said last 
night in the State of the Union because of this law, there will 
be new rules to make clear that no firm is somehow protected 
again--I am sorry, the Dodd-Frank signing in July of last year. 
He said these new rules will make clear that no firm is somehow 
protected because it is too big to fail so we don't have 
another AIG.
    Mr. Barofsky, it seems that Secretary Geithner's words run 
counter to that. And it is hard to, after the fact, for his 
staff to say he didn't really mean it. Can you give us context 
for this?
    Mr. Barofsky. Sure. And a couple things I want to make very 
clear. I was not in the room; I had six members of SIGTARP, 
including my deputy, were in the room. And after we received 
this quote, we documented it and, as is the normal practice of 
our reports, we provided the quotes in a draft copy of the 
report to Treasury, both the quote itself and the context in 
which it was presented, and we had a number of conversations. 
They made some suggestions; we incorporated those suggestions. 
And at the end of that process Treasury assured us that they 
did not contest the language that was used, the quote itself, 
and did not think that we had presented it in any type of 
misleading or wrong context.
    So the quote is the quote. We stand by it. There is no 
question in my mind, and based on our interactions with 
Treasury before the report was released, that it is an accurate 
quote. I think that Secretary Geithner, and it was the 
impression of the six people in the room, was being 
transparent, was being candid, and I commend him for that, by 
recognizing the reality that the market is today that banks are 
still too big to fail.
    Now, the hope is that if Dodd-Frank--and certainly Dodd-
Frank has given the regulators many, many potential tools, and 
if those tools are implemented correctly--and that is a very, 
very big if--it would require actions by the regulators that, 
frankly, they did not seem capable of doing in the runup to 
this crisis, as far as seeing around corners and understanding. 
But let's assume that they can. Hopefully we can get to a day 
or a point where the market will believe that the government 
doesn't need and will not bail out these companies. But we are 
not there.
    Mr. McHenry. So we know that S&P has made the idea of a 
bailout, a TARP-like program or Dodd-Frank--it is hard to 
really judge based on S&P making permanent their analysis of 
really a Federal backstop to bail out the biggest firms. We 
also know that there is explicit guaranties, signed through 
contracts in 2008 and 2009, for these financial institutions, 
whether it is the Fed, FDIC, or TARP, of a backstop to--well, 
government guaranties of assets. We know the explicit number, 
right?
    Mr. Massad. Yes.
    Mr. McHenry. So the question to both of you is can you tell 
this committee what you believe the net present value of 
implicit government guaranties are going forward to these 
financial institutions?
    Mr. Barofsky. There have been some studies, and I think we 
include one as a footnote reference in our report. We don't do 
that type of economic analysis, but I think I saw one that 
suggested that it was--and please don't quote me on this--I 
think a $34 billion a year advantage that the larger 
institutions have because of their ability to raise debt more 
cheaply than their smaller rivals. That is one number, I 
believe, from one academic study that may be helpful.
    Mr. McHenry. Mr. Massad.
    Mr. Massad. Certainly, Congressman, I don't have an ability 
to quantify that on the spot, but let me just try to respond to 
your question. In terms of explicit guaranties, I think you are 
referring to the Citigroup asset guaranty program, which has 
now been terminated at a profit to the U.S. Government, so 
there is no longer----
    Mr. McHenry. No, actually, that is not what I am referring 
to. There are actually--at the time of the economic crisis, as 
has been well documented, FDIC, the Fed, TARP, Treasury has 
explicit guaranties through contracts that are publicly 
available. I am asking you about the implicit--and those are 
well know, well documented; we don't have to rehash them here. 
I am asking about the implicit guaranties. And Mr. Barofsky, as 
he mentions in his report, has----
    Chairman Issa. If the gentleman could conclude.
    Mr. Massad. But really I think the thrust of your concern 
is have we addressed the too big to fail issue sufficiently, 
and I guess my response to that is that Congress passed the 
Dodd-Frank law to address that. If there is a view of some that 
wasn't sufficient, that is a judgment for Congress to make. But 
I think where we are now, where Treasury is is that we are 
actively trying to implement that law so that we can use the 
tools it gave us to make sure that no institution is too big to 
fail. And I think it is premature to conclude that it hasn't 
worked and that we need some tougher legislation to address 
that.
    Chairman Issa. I thank the gentleman.
    The Chair now recognizes the ranking member.
    Mr. Cummings. Mr. Massad, the Dodd-Frank legislation 
includes a number of provisions intended to eliminate the 
concept of too big to fail. For example, the legislation is 
clear that taxpayers will not cover the cost of saving failing 
institutions and will not cover the cost of liquidating such an 
institution. Further, the legislation alters the Federal 
Reserve's 13(3) emergency lending authority to prohibit bailing 
out an individual company. Finally, the legislation creates a 
Financial Stability Oversight Council to monitor systemic risks 
and to require non-bank financial companies that pose a risk to 
the financial stability of the United States to submit to 
supervision by the Federal Reserve.
    Can you describe briefly how implementation of these 
measures will address the too big to fail problem and what is 
the time line for implementing the measures?
    Mr. Massad. Congressman, I can describe that very 
generally, because, actually, it is not my responsibility to 
implement it, but I am happy to get the appropriate officials 
of Treasury to brief you. But my understanding where we are is 
the law was passed in July. There are a number of rulemaking 
procedures and studies that are being conducted. The FSOC holds 
regular meetings and it always has a part of that which is 
public, and they are busy working on these. They are also busy 
creating the Office of Financial Research, which is designed to 
monitor conditions in the financial industry and help us 
determine what risks need to be addressed. But I would be happy 
to get you----
    Mr. Cummings. Please do.
    Mr. Massad [continuing]. A more detailed briefing.
    Mr. Cummings. And we will followup with you with some 
detailed questions, all right? And if you can answer this: How 
will criteria be established to allow us to identify firms that 
pose systemic risks and are therefore systemically significant? 
I take it that you will do that in writing also?
    Mr. Massad. I can do that. I will say very generally that 
it is going to be, as has been announced, quantitative as well 
as qualitative judgments, and the criteria aren't simply about 
size; they are about riskiness of activities, 
interconnectedness, extent of leverage, extent of supervision. 
So I think these matters are being given a lot of thought. They 
are obviously very complex issues, but I would be happy to get 
you a more detailed summary of where we are on that.
    Mr. Cummings. Thank you. Let me say this. I think that you 
all hear, both sides of the aisle, we are all very concerned 
about HAMP, Mr. Massad, and we also are concerned about 
servicer behavior. And I understand that you and SIGTARP 
disagree about your authorities, but based on your 
understanding of your authorities, can you and will you take 
more aggressive steps to require improved servicer performance?
    Mr. Massad. Certainly, Congressman. I don't think, 
actually, we disagree with the extent of our authorities, but 
maybe there is just a difference in how we can best improve the 
program in terms of using those authorities.
    Mr. Cummings. Do you all talk?
    Mr. Massad. Yes, we talk regularly.
    Mr. Cummings. OK, I just want to make sure.
    Mr. Massad. But let me just say I want to make very clear 
while we think the benefits of these housing programs are very 
real and very important, we are still trying to improve them, 
still trying to reach as many people as possible. And it is not 
just HAMP.
    Mr. Cummings. I understand that.
    Mr. Massad. I mean, obviously, statements have been made 
about HAMP. A lot of the money goes to some of the other 
programs as well. But I think the key thing is the statement 
was made that, well, because this hasn't gone as well as you 
had hoped, or because there are these problems, we should 
simply turn it all back over to the servicers and let them deal 
with it; and I think that would absolutely be the wrong thing 
to do. That is what got us here. It has been clear, not just 
from our HAMP experience, but from the foreclosure 
irregularities issues and from a number of other standpoints, 
that turning it back over to the servicers would not be 
constructive at this time.
    Mr. Cummings. Two things. You had talked a little bit 
earlier about retooling. I take it that there are things that 
you are doing now, you are in the process of doing, trying to 
improve the program to make it more effective and efficient, is 
that right?
    Mr. Massad. That is correct. We have done a number of 
things----
    Mr. Cummings. And I want you to give us a list of those 
things and when do you expect them to be complete. I am running 
out of time, unfortunately.
    Mr. Massad. Well, it is an ongoing process. As we see 
problems, we respond to them. But, for example, some of the 
things we have recently done is we have addressed the fact that 
servicers might have been considering someone for HAMP at the 
same time as they were foreclosing. We have addressed the fact 
that initially we started this program by trying to get a lot 
of people into trials and we didn't make the servicers verify 
the income. That obviously led to the fact that a lot of people 
then didn't get into permanent trials. We have addressed that 
and we have worked through the backlog. So it is an ongoing 
process and I would be happy to give you a list.
    Mr. Cummings. Let me ask you this. One of the things that I 
said to the chairman, and I really want to thank him for this, 
we talked about how do we make our agencies more accountable. 
If you are doing things that are going to improve this program, 
Mr. Chairman, I would ask that we bring Mr. Massad, or somebody 
from his agency with that level of authority, back at a certain 
date to give us a report as to exactly where they stand, 
because I think we are--you have said it and I have said it, 
and we all agree that we do want accountability.
    I don't want to see the program ended, but if you are 
telling us that you are doing things to improve the program, I 
want to know. I want you to tell us when you can come back to 
us and give us some more information so that we can have some 
confidence, because both sides of the aisle are quite 
frustrated, to be frank with you.
    Mr. Massad. Certainly, Congressman. Happy to do that.
    Chairman Issa. And in response, if you will commit to give 
us monthly updates next month and the following month, we will 
commit to have you back in your next quarterly report, if that 
works for both of you.
    Mr. Massad. That is fine.
    Mr. Cummings. Mr. Chairman, I really appreciate that.
    Chairman Issa. Thank you.
    Mr. Cummings. And I yield back.
    Chairman Cummings. I thank the gentleman.
    In closing, I have just a couple of questions, and these 
can be answered for the record because they tend to be perhaps 
a little complex. Today we have talked specifically about TARP. 
That was the subject. We got into HAMP. My understanding is 
that HAMP, of course, is shared with another piece of 
legislation, HERA. It has joint funds. We did not get into the 
$30 billion of obligated and how that is scored and all of 
that.
    If you would, and I know Mr. Barofsky has a very thorough 
quarterly report, but if you would try to create before this 
next 30-day update a good analysis so the Members can have your 
interpretation of outstanding funds, meaning--and this is a 
question for Treasury in consultation with the Fed--obligated 
funds remaining at the Fed, because we are not the Financial 
Services Committee, so you will have to give us a little primer 
from time to time; looking at the funds committed under other 
programs, including HERA. Because I think that will help us 
understand where is the money still remaining out that is 
either obligated or literally out, and that will help us 30, 
60, and 90 days from now.
    It is very clear that we do still have major credible 
agencies that believe too big to fail is leading them to having 
more success in loaning money at a lower amount. That is a 
challenge for small banks, and we certainly would like to work 
as a committee to ensure that, as Dodd-Frank is put into 
action, that leads to a fading away of that as the President 
had promised at the time of its signing.
    We also didn't talk about, and I would like this included 
in your report or briefing sheet, the approximately $145 
billion that I believe is gone forever to the GSEs, the actual 
failure rate, which often, as we are talking about the success 
of TARP, we are forgetting about Freddie and Fannie's actual 
losses that we have backstopped as a Nation.
    One thing that I would appreciate, which is uniquely to 
Treasury, most of us here in Washington who have been in 
business have tried to convert from GAAP over to understanding 
the Federal Government's pay as you go accounting. Now, at 
Treasury you are a little different, you are a hybrid, and so 
as I looked through a report, which I believe our people have 
furnished you with, a report internal that we developed,--if 
not, we will--I began seeing the accrual system of reserves 
come into play in a way that, as a public company officer, I 
always question. OK, you had a stated value, a marked to market 
value, you went back and stated them, restated them in this 
year for the previous year, and they got worse.
    However, in this year they got so much better that there is 
this $154 billion to $110 billion swing. And we will give you 
our source material, because it may very well be that you can 
clarify it to where we understand it is simpler, not more 
complex. But I think it is important because, as I understand 
it, those numbers reflect really reflect on the anticipated 
deficit and other figures that we look at, and I think all of 
us want to know the true deficit in 2009, the true deficit in 
2010, and so on. Actually, we don't want to know it, we would 
like it not to exist, but we would at least like to have the 
accurate numbers for them.
    Last, a request. Today we have been talking in net dollars. 
Before we talk again, I would like the committee to have source 
material that preferably you two very much agree on in the way 
that a normal business would do it, meaning you represent a 
profit from investments you made, loans you made, warrants, 
etc., that have been realized. Those do not go as an offset 
against other bad deals. We are not looking for your net 
profit.
    What we would, I believe, like to see is where you put the 
money in and what you lost; where you put the money in and what 
you gained. So effectively what we are saying is scrape off the 
profits and put them in a pile from the good deals. But any 
time a particular basket, meaning a company or an entity, had a 
loss, we would like to see those losses. Because I think when 
we are evaluating what worked and didn't work in this program 
that never did what we anticipated, but did something very 
different, it is important, I think, for all of us to see, OK, 
loans to solvent entities in certain forms worked; other things 
not so much. And obviously some of these you can't answer 
because General Motors and Chrysler are projected but not yet 
final, but we will take the projection.
    Last, I would like to take the liberty, quickly, in closing 
of reading what is a draft, but we believe will be the final 
mission statement, because as a private sector guy, I figure at 
some point when you take over as CEO, the first thing you have 
to do is make sure your mission statement to your people 
matches what you would like to see. And because this is our 
first hearing, I would like to read it.
    Americans deserve to know that money Washington takes from 
them is well spent. Americans deserve an efficient, effective 
government that works for them. Our job on the Oversight and 
Government Reform Committee is to help Americans secure these 
rights. Our task is to hold Government accountable to taxpayers 
because taxpayers have a right to know what they get from 
government. We will work tirelessly in partnership with 
citizens-watchdogs to deliver facts to the American people that 
bring reform to the Federal bureaucracy.
    This is our mission statement. Hopefully we began today by 
asking you, as you have done, to help us in that effort. I 
thank you and we stand adjourned.
    [Whereupon, at 12:16 p.m., the committee was adjourned.]
    [[The prepared statements of Hon. Elijah E. Cummings and 
Hon. Mike Quigley, and additional information submitted for the 
hearing record follow:]

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