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




 
                       THE OBAMA ADMINISTRATION'S

                     RESPONSE TO THE HOUSING CRISIS

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


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INSURANCE, HOUSING AND

                         COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 6, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-69




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

                   Larry C. Lavender, Chief of Staff
      Subcommittee on Insurance, Housing and Community Opportunity

                    JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois, 
    Chairman                             Ranking Member
GARY G. MILLER, California           MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia  NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 6, 2011..............................................     1
Appendix:
    October 6, 2011..............................................    41

                               WITNESSES
                       Thursday, October 6, 2011

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

                                APPENDIX

Prepared statements:
    Barofsky, Neil M.............................................    42
    Calabria, Mark A.............................................    50
    Galante, Carol J.............................................    62
    Goodman, Laurie S............................................    75
    Jakabovics, Andrew...........................................    83
    Kingsley, Darius.............................................    93
    Trevino, Tammye H............................................   117

              Additional Material Submitted for the Record

Biggert, Hon. Judy:
    Written statement of the U.S. Department of Housing and Urban 
      Development................................................   127
    Written statement of the National Association of REALTORS...   139
    Letter from the National Low Income Housing Coalition........   146


                       THE OBAMA ADMINISTRATION'S



                     RESPONSE TO THE HOUSING CRISIS

                              ----------                              


                       Thursday, October 6, 2011

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

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

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

 STATEMENT OF CAROL J. GALANTE, ACTING ASSISTANT SECRETARY FOR 
   HOUSING/FEDERAL HOUSING ADMINISTRATION COMMISSIONER, U.S. 
  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, ACCOMPANIED BY 
 YOLANDA CHAVEZ, DEPUTY ASSISTANT SECRETARY OF GRANT PROGRAMS, 
 OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT 
                OF HOUSING AND URBAN DEVELOPMENT

    Ms. Galante. Chairwoman Biggert, Ranking Member Gutierrez, 
and members of the subcommittee, thank you for the opportunity 
to testify today regarding HUD's response to the housing 
crisis.
    As you know, when this Administration took office, our 
economy was shedding 750,000 jobs per month, home prices had 
fallen for 30 straight months, and foreclosures were surging to 
record levels. Critical to the Administration's response has 
been the FHA, which even in the midst of this crisis has helped 
some 2 million first-time home buyers realize the dream of 
homeownership; and with 60 percent of African Americans and 
Latinos using FHA insurance to buy a home in 2010, FHA has been 
a particularly powerful pathway to the middle class for 
minorities during this difficult time.
    In addition, through one million loss mitigation actions 
and early delinquency interventions, FHA has played an 
important role in keeping families in their homes. Combined 
with Treasury's modification programs, including HAMP, we have 
set a standard for mortgage modification efforts that is 
improving the way private servicers provide assistance to 
borrowers. More than 5.1 million families have received 
restructured mortgages since April 2009, nearly twice the 
number of families who have lost their homes in that time.
    Critical to this progress has been housing counseling 
resources, which, as you know, were eliminated in 2011. There 
is strong evidence that housing counseling works. Indeed, 
distressed homeowners who work with a counselor are nearly 
twice as likely to receive a mortgage modification than those 
who do not. With President Obama's proposal to restore HUD's 
housing counseling grant funding and the changes we are making 
to get those dollars where they are needed more quickly, we 
hope Congress will restore these funds for 2012.
    As the underlying cause for most foreclosures has shifted 
from bad loans to unemployment, we are now requiring servicers 
of FHA-insured mortgages to extend the forbearance period for 
unemployed borrowers to 12 months.
    In addition, we are helping about 12,000 families who 
otherwise might have lost their homes through the Emergency 
Homeowners Loan Program. This is significantly less than the 
number we had hoped to assist, in part due to the difficulties 
of program set-up and the program statutory limitations.
    In the face of these challenges, HUD worked closely with 
counseling agencies down to the last few hours before the 
September 30th deadline to make certain as many homeowners as 
possible qualified for assistance. We have learned many lessons 
from this process, and we know we could assist more borrowers 
if we had more time.
    Another key challenge is the overhang of foreclosed 
properties, which drag down home prices and destabilize 
communities. With about a quarter of a million foreclosed 
properties owned by HUD, the GSEs, FHA joined with FHFA and 
Treasury to issue a request for information to generate new 
ideas for the disposition of this inventory. All three agencies 
are now evaluating the comments received.
    This effort complements the Administration's Neighborhood 
Stabilization Program, which is on track to address more than 
95,000 vacant and abandoned properties that comprise about 20 
percent of the REO in targeted areas.
    Independent research has shown improvements in sales prices 
and vacancy rates in communities with targeted neighborhood 
stabilization investments. These successes have led President 
Obama to propose Project Rebuild as part of the American Jobs 
Act. Project Rebuild would create almost 200,000 jobs and 
further contribute to the stabilization of neighborhoods and 
communities. This reflects President Obama's belief that 
rebuilding neighborhoods is essential to rebuilding our 
economy.
    Obviously, there is still more to do. As the President 
emphasized in his recent speech before Congress, a major 
challenge is the difficulty homeowners face in refinancing 
their mortgages. While FHA has helped 1.5 million families 
refinance into safe, stable mortgage products, HUD is now 
working with FHFA and Treasury to lower barriers to 
refinancing, which will make it possible for more families to 
save an average of $2,000 each in the first year, providing a 
critical boost to our economy.
    We also know that we have a responsibility to restore 
private capital to the housing market while ensuring Americans 
have access to quality housing they can afford. That is why the 
Administration delivered a White Paper to Congress earlier this 
year that provides a path forward for reforming our Nation's 
housing finance system, and we look forward to working with you 
to accomplish this.
    We are by no means out of the woods, but with RealtyTrac 
reporting 11 straight months of year-over-year declines in 
foreclosure activity and crediting the policies that the 
Administration has pursued as a major factor for this 
improvement, I am confident we are making progress, and I look 
forward to working with you and the subcommittee to continue 
that progress in the months to come.
    Thank you, and I look forward to your questions.
    [The prepared statement of Commissioner Galante can be 
found on page 62 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Mr. Kingsley, you are recognized for 5 minutes.

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

    Mr. Kingsley. Chairwoman Biggert, Ranking Member Gutierrez, 
and members of the subcommittee, thank you for the opportunity 
to testify today on the Administration's efforts to mitigate 
the effects of the most serious housing crisis since the Great 
Depression, and specifically Treasury's response to the Making 
Home Affordable program and the Hardest Hit Fund.
    It is important to remember that when the Obama 
Administration took office in January 2009, home prices had 
fallen for 30 straight months. Home values had fallen by nearly 
one-third. Fannie Mae and Freddie Mac had been in 
conservatorship for 4 months, and American families were 
struggling to stay in their homes.
    Treasury and other Federal agencies responded by taking a 
series of aggressive steps. Our strategy focused on stabilizing 
housing markets and helping families prevent avoidable 
foreclosures. Under the authority granted by the Emergency 
Economic Stabilization Act, we launched the Making Home 
Affordable Program, of which our first lien modification 
program, often referred to as HAMP, is a key component. In 
2010, we launched the Hardest Hit Fund.
    These programs are designed to provide targeted relief to 
homeowners struggling to make their payments due to a financial 
hardship but who remain committed to avoiding a foreclosure. 
Through August 2011, HAMP has enabled more than 800,000 
homeowners to secure permanent modifications of their 
mortgages. These homeowners save a median of more than $525 a 
month on their mortgage payments.
    Today, homeowners who begin a trial plan under the program 
have a high likelihood of achieving a permanent modification 
and staying in it. Seventy-six percent of homeowners who 
started trial modifications in the last 16 months converted to 
a permanent modification, with an average trial period today of 
just 3\1/2\ months.
    HAMP modifications have also performed well over time. 
Based on June 2011 data, after 6 months, more than 93 percent 
of homeowners remain in those permanent modifications.
    For homeowners who do not qualify for HAMP, our guidelines 
require servicers to evaluate homeowners for other programs to 
prevent a foreclosure, such as the servicer's own modification 
programs. Over 2\1/2\ million of these modifications have been 
offered to homeowners outside of the program at no expense to 
taxpayers.
    But HAMP's impact goes far beyond the individual homeowners 
it has helped, because it has set new standards and established 
key benchmarks. These include placing limitations on the dual 
tracking of homeowners by requiring servicers to evaluate 
homeowners for HAMP and other mortgage assistance before 
starting foreclosure, making servicers give homeowners looking 
for help a single point of contact, and providing a resource 
for homeowners who are frustrated with their servicer by 
supporting both the Homeowners HOPE Hotline and the HAMP 
solution center to fix servicer mistakes and resolve conflicts.
    To ensure the maximum impact of these programs, Treasury is 
committed to making homeowners aware of the resources that are 
available to them. That is why Treasury continues to host 
events across the country to connect homeowners with HUD-
approved housing counselors and their mortgage servicers. At 
these events, homeowners are guided through their options to 
prevent foreclosure and can have their questions answered on 
site. Treasury continues to host these events across the 
country, and we will host our 60th event next week in Phoenix.
    Recently, we also launched the second phase of our public 
service advertising campaign to reach struggling homeowners 
through television, radio, Internet, and billboard PSAs in 
English and in Spanish. These ads serve as a call to action for 
those homeowners who feel overwhelmed by the challenges they 
face and reminds them that free help is available at 888-995-
HOPE.
    We also recognize that the housing crisis is local. Through 
the Hardest Hit Fund Program, we are empowering State housing 
finance agencies to craft new solutions to help homeowners cope 
with unemployment and negative equity. Programs are now up and 
running in 18 States and the District of Columbia. Seventy 
percent of the Hardest Hit Fund dollars are committed to help 
unemployed borrowers.
    We also know that a modification isn't the right solution 
for everyone. That is why we have continued to improve our 
short sale program to help those people for whom homeownership 
is no longer desired or no longer an option. There is still a 
lot more work to do, and the housing market remains fragile, 
but, as a result of the Administration's actions, struggling 
homeowners today have more viable tools available to avoid 
foreclosure than ever before.
    Thank you for the opportunity to testify. I welcome your 
questions.
    [The prepared statement of Deputy Chief Kingsley can be 
found on page 93 of the appendix.]
    Chairwoman Biggert. Thank you.
    We will now proceed to members' questions, and we will try 
and stick to the 5 minutes each to ask questions, and with 
that, I will yield myself 5 minutes.
    My first question is for Ms. Galante: $1 billion was 
appropriated for the Emergency Homeowners Loan Program, and the 
Administration originally projected that it would help around 
50,000 homeowners. Yet my staff indicates that, to date, the 
program has helped around 11,823 homeowners. Are those numbers 
correct?
    Ms. Galante. Thank you for the question.
    The 11,820 is an accurate number as far as we know to this 
date. I think the original estimate was we would hope to help 
about 30,000 homeowners.
    Chairwoman Biggert. Not 50,000?
    Ms. Galante. That is my understanding.
    Chairwoman Biggert. Should the taxpayers continue to 
support more programs that don't meet the expectations?
    Ms. Galante. Congresswoman--
    Chairwoman Biggert. The program has expired.
    Ms. Galante. The deadline for obligating the funding was 
September 30th, and I would say--and I acknowledge that HUD 
could have done a better job to get the program up and running 
more quickly. There were many, many challenges to doing that; 
and we helped as many families as we could during that period 
of time.
    We certainly believe we could help more families if there 
was some ability to extend the program. We do understand that 
in a new fiscal year that that makes--there are some challenges 
in figuring out how one might do that, but we have learned a 
lot of lessons, and I would just say we have helped a number of 
families.
    Chairwoman Biggert. Is there any program that has met the 
expectations?
    Ms. Galante. This is a difficult crisis, Congresswoman, and 
I would say that we have tried a number of issues or tried a 
number of solutions to these problems, and we are going to 
continue to work vigorously at doing that.
    Chairwoman Biggert. Have any of the programs met 
expectations? Yes or no?
    Ms. Galante. Certainly, I would say the emergency home loan 
program did not meet our expectations. Whether all other 
programs have, I really can't say.
    Chairwoman Biggert. Okay. It seems like there is an awful 
lot of administrative funds there that have been obligated for 
11,823 people or properties. When you are looking at $72 
million, it seems like that is an awful lot of money to do 
that.
    Ms. Galante. If I could just say, again, the final numbers 
for what the administrative costs will be are tied to the final 
number of families who are served. So there are certain funds 
set aside, but the final number--the counseling agencies are 
essentially reimbursed costs based on the number of families 
assisted.
    Chairwoman Biggert. All right. How many foreclosures or 
defaults were prevented by the Neighborhood Stabilization 
Program?
    Ms. Chavez. Congresswoman, the NSP program actually does 
not prevent foreclosures. It deals with properties that have 
been foreclosed or abandoned. So it actually helps 
neighborhoods stabilize after being hit by foreclosures.
    Chairwoman Biggert. Okay, thank you. The answer is zero 
then?
    Ms. Chavez. The answer is that the program expectations are 
being met, because expectations are to stabilize neighborhoods, 
not to prevent foreclosures, to help neighborhoods recover from 
foreclosures.
    Chairwoman Biggert. All right. I just wanted a yes-or-no 
answer. Thank you.
    And then, Ms. Galante, the MMI fund has a mandatory capital 
reserve ratio of 2 percent, but the fund was at 0.53 percent in 
2009 and then dropped to 0.50 percent in 2010. At this time, 
what is the current estimate of the balance in the capital 
reserve account and what do you expect it to be by the second 
quarter of Fiscal Year 2012?
    Ms. Galante. Again, thank you for the question.
    The health of the MMI fund is obviously very important to 
us. The actuarial for the capital reserve--what the capital 
reserve fund requirement will be is due to Congress, I believe, 
mid-November, so we are working on that actuarial now.
    Currently--
    Chairwoman Biggert. Do you think that you will need to ask 
Congress then for an appropriation during the next year?
    Ms. Galante. Again, currently, that actuarial is under way. 
I would say the third quarter report that we delivered to 
Congress last week does show the balance in both the financing 
account and the capital reserve account at the present time 
combined being about the same amount as it was last year at 
this time.
    Chairwoman Biggert. What has contributed to the capital 
ratio drop? Is it the poor performance of the portfolio again, 
which was cited in the 2010 annual report?
    Ms. Galante. There are a lot of things that go into 
calculating the capital ratio, one of which is how much new 
business you have done that is added to essentially the 
denominator.
    Our new book of business is stellar, and the capital 
reserve ratio is looking at what are the claim needs over the 
entire portfolio for a 30-year period. So we are essentially 
needing to contribute to the capital reserve as a result of 
problem loans earlier in FHA's--
    Chairwoman Biggert. Thank you. My time has expired.
    Ms. Galante. Thank you.
    Chairwoman Biggert. The gentleman from Illinois is 
recognized for 5 minutes.
    Mr. Gutierrez. Thank you so much.
    I would like to ask Mr. Kingsley, you said that Treasury 
created HAMP and the Hardest Hit Fund. I would like to ask you, 
did Treasury ever make principal reductions mandatory for 
lenders during the HAMP modification when calculations 
indicated it was the best for the borrowers or the investors?
    Mr. Kingsley. Congressman, thank you. You are absolutely 
correct that for many homeowners, getting a principal reduction 
on their modification is the best way to achieve a more 
affordable and a more sustainable modification. It is one of 
the reasons we rolled out the principal reduction alternative 
program, which is a component to HAMP.
    Mr. Gutierrez. The question is, did you insist?
    Mr. Kingsley. Congressman, Treasury is not a regulator.
    Mr. Gutierrez. So you agree that--you went on to say it 
would have been a good idea, but you didn't insist when you sat 
down with them?
    Mr. Kingsley. Congressman, Treasury does not have the 
regulatory ability to require servicers--
    Mr. Gutierrez. I think maybe we should remember that the 
next time a Treasury Secretary comes before the Congress of the 
United States to ask us to bail out the industry to the tune of 
$700 billion, including your boss, Mr. Geithner, who used to be 
at the New York Federal Reserve, who came before, I think, 
members who are here to ask us for $700 billion, and now you 
are saying--
    Because I am going to tell you the reason I voted for it 
was the HAMP money. The HAMP money that you just took credit 
for in your opening statement that you created, really you 
didn't create. That was really an Act of Congress, wasn't it, 
and part of the negotiation that we entered into? So you are 
telling me that, although you think it is a good idea, because 
you are not a regulatory agency, you never sat down with 
anybody and told them you should reduce?
    Mr. Kingsley. Congressman, we don't have the ability to 
compel banks to write down mortgages, but I do agree that 
negative equity is a really big problem facing a lot of 
homeowners. We think it is a very useful tool to help a lot of 
homeowners get to a more achievable modification.
    Mr. Gutierrez. Let me move forward so I can ask better 
questions next time a Treasury Secretary, especially one who 
used to work for Goldman Sachs, comes before the Congress of 
the United States to ask us for billions of dollars to bail out 
his buddies that he then goes back to after he is not Treasury 
Secretary anymore.
    Because in July 2010, the SIGTARP report says, ``Any 
incremental moral hazard implicated by making principal 
reductions for homeowners mandatory pales in comparison to the 
moral hazard caused by TARP assistance to Wall Street.'' What 
do you think of that statement?
    Mr. Kingsley. Congressman, I am here in my role as Deputy 
Chief of the Homeownership Preservation Office. I am really 
here--and I work on programs, modification programs and 
refinance programs, ways to help homeowners stay out of 
foreclosure, and I think--
    Mr. Gutierrez. Let me ask you another question. In your 
role--maybe I will ask the gentlelady to invite somebody else 
from Treasury who can answer these questions. We have all been 
watching and waiting on the settlement--and your boss has been 
very involved in it--between the big mortgage servicers who are 
doing the robo-signing and the State attorneys general. Now, a 
few States are backing out because they thought the banks were 
going to get off too easy. Let me ask you again, because I 
could be misinformed, is Treasury involved in these 
conversations or in any way helping in this litigation?
    Mr. Kingsley. Congressman, we are. We are providing 
technical advice to the States and the other parties.
    Mr. Gutierrez. So what technical advice are you giving 
them?
    Mr. Kingsley. We have learned a lot from our programs. We 
have learned a lot on how to reach homeowners. We have learned 
a lot about how difficult it is to modify loans, to help those 
homeowners achieve more sustainable modifications.
    Mr. Gutierrez. Let me ask you a question. How do you think 
things are going since there are States that are now saying 
they are withdrawing because the mortgage lenders are getting 
off too easy? Because in the beginning, many of us were 
heartened that there would be tens of billions of dollars 
available, and there was even an indication that the settlement 
would be across-the-board.
    They did violate the law. It isn't like we are asking them 
for something. There is a punishment. I am sure even the other 
side agrees that they--maybe they won't agree they should be 
punished sometimes, because they should be rewarded. But they 
did do this terrible act of robo-signing. And so what do you 
think? Are things going well?
    Mr. Kingsley. Congressman, you are absolutely right. There 
were very serious violations of law that were committed. The 
OCC has found that. The State attorneys general have alleged 
that.
    I think it is a litigation matter, and ultimately it is up 
to each individual State to decide the degree to which they 
feel they can bring the most relief to homeowners. That may 
require--
    Mr. Gutierrez. Since you are part of it and it is under 
litigation and since you agreed that it was a good idea, in 
some cases, that there be principal reductions and 
modifications, is Treasury giving technical assistance so that 
we can reach that goal of having reductions in the principals 
that these mortgages owe?
    Mr. Kingsley. We are sharing the lessons that we have 
learned through our principal reduction program and our other 
thoughts on all of our modification programs, things the States 
are learning through the Hardest Hit Funds. We are sharing 
those with the State attorneys general.
    Mr. Gutierrez. Thank you.
    Chairwoman Biggert. Thank you.
    Mr. Hurt, you are recognized for 5 minutes.
    Mr. Hurt. Thank you, Madam Chairwoman.
    I guess the first question is for Ms. Galante.
    Ms. Galante, you indicated in response to the Chair's 
question that there have been no foreclosures prevented by the 
Neighborhood Stabilization Program; is that right? Or I guess 
it was Ms. Chavez. I am sorry.
    Ms. Galante. Yes. Again, I think I can just echo the 
comment that, again, the Neighborhood Stabilization Program is 
not designed to prevent foreclosures.
    Mr. Hurt. Is it true from what I read that not all the 
money that has been authorized, appropriated, and obligated and 
so forth and so on of the $7 billion that has been appropriated 
over the--since 2009, that not all that money has been used?
    Ms. Chavez. $7 billion has been obligated. In terms of 
NSP1, that was $4 billion. Seventy-eight percent of that has 
been expended. I think you may remember that State and local 
governments had an 18-month deadline to obligate. They met that 
deadline at 99.7 percent. They have now expended 78 percent of 
that money. NSP2, which is $2 billion, has an expenditure 
deadline of 50 percent after 2 years. Those grantees are on 
track to meet that expenditure deadline in February.
    Mr. Hurt. But you have only spent 28 percent, is that what 
I--
    Ms. Chavez. 2012. No. Again--
    Mr. Hurt. For NSP2?
    Ms. Chavez. For NSP2, we are at 30 percent expenditure as 
of this week.
    Mr. Hurt. Okay.
    Ms. Chavez. They have to expend 50 percent by February 
2012.
    I should also make clear that at this point, grantees have 
completed over 33,000 properties in terms of acquisition, 
demolition, and home buyer assistance, new construction, and--
    Mr. Hurt. How much of NSP3 has been spent?
    Ms. Chavez. As you know, NSP3 just started. It started this 
summer. We obligated the money in, I believe, May, 100 percent 
of that, to State and local governments; and they have 
obligated 13 percent of that. So they are doing well since the 
program was just initiated.
    Mr. Hurt. It looks like to me that since the housing crisis 
of 2008, we have obligated--we have spent or authorized the 
spending of $7 billion. Only $4 billion has been spent. Does 
that sound about right, a little over half?
    Ms. Chavez. No, I think it is at this point, about a little 
over $5 billion.
    Mr. Hurt. So out of the $7 billion, $5 billion has been 
spent since 2008 when we had the housing crisis, and with that 
money we haven't prevented one foreclosure?
    Ms. Chavez. Again, I want to stress that the goal of the 
program is not to prevent foreclosures. It is to help 
neighborhoods recover after they have been hit with 
foreclosures.
    Mr. Hurt. After the people have been kicked out of the 
house?
    Ms. Chavez. That is the goal of the program.
    There are programs, as Assistant Secretary Galante and our 
colleague at Treasury has stated, to prevent foreclosures. This 
program is to help communities stabilize. The initial results 
in terms of impact of NSP, where there has been investment in 
neighborhoods when compared to neighborhoods that do not 
receive investment, show reduced vacancy.
    Mr. Hurt. But how does that help? By renovating the home 
that the homeowner is no longer in, no longer has any interest 
in, how does that help the homeowner?
    Ms. Chavez. Unfortunately, it doesn't help that homeowner.
    Mr. Hurt. Okay.
    Ms. Chavez. But it helps new homeowners. It helps that 
neighborhood. It helps those neighborhoods prevent further 
decline in home prices and value. It creates jobs. It helps 
neighborhoods stabilize so that they don't decline further.
    Mr. Hurt. Okay. And we--as you know, we are borrowing 40 
cents on every dollar we spend in Washington. I am sure you 
have heard that again and again, and you are well aware of that 
fact. How is it that spending what we have, by my estimate, $3 
billion out of $7 billion that we haven't even spent yet, how 
on earth can you justify appropriating another--an additional 
$15 billion for this program, as the President has suggested to 
the Congress?
    Ms. Chavez. I think the way we justify it is NSP is on 
track to create about 90,000 jobs, it is on track to impact 
about 100,000 properties, it leverages private resources, and 
Project Rebuild will help--will basically leverage not only 
other private resources in the private sector and their 
capacity, but it will also really leverage the capacity that 
State and local governments--
    Mr. Hurt. Ms. Chavez, my time has expired, so let me just 
ask you this: Those same promises are the same promises that 
were made when the President sold us the first stimulus bill. 
Doesn't that sound--the same thing that you are promising now, 
doesn't it sound familiar to what the President promised us 
when he said that unemployment would not go above 8 percent?
    Ms. Chavez. I can tell you the promises of NSP, it has 
delivered, and it is on track to deliver the promises that were 
made in terms of the outcomes of the program.
    Mr. Hurt. Thank you, Ms. Chavez.
    Chairwoman Biggert. The gentlelady from California is 
recognized for 5 minutes.
    Ms. Waters. Thank you very much, Madam Chairwoman.
    Let me just say that I am the first to say that I am 
disappointed that the legislation that we were able to pass 
when we served on the conference committee for Dodd-Frank to 
help unemployed homeowners--I am disappointed that we--HUD was 
not able to get that money out in a timely way, and because of 
that there are some homeowners who are unemployed who could 
perhaps have stayed in their homes if we had been able to 
implement that program properly.
    Having said that, I am sorry that my friends on the 
opposite side of the aisle do not understand the Neighborhood 
Stabilization Project. It was signed--it is my bill that I 
created, and it was signed into law by President Bush, not 
Obama but President Bush. It is one of the best things that has 
happened in this meltdown that we have had with these 
foreclosures.
    The gentleman on the opposite side of the aisle keeps 
asking, how many people did it help to stay in their homes, and 
I think the panel more than one time this morning have said it 
was designed to stabilize neighborhoods. That is why it is 
called the Neighborhood Stabilization Project.
    We recognize that many of these homes were foreclosed on, 
and in some communities where you have a lot of houses that 
have been foreclosed on and the cities were not able to keep up 
those foreclosed housing that it was a big cost to the cities 
and their fire departments and their police departments. We 
have discovered that the weeds had grown up, animals had taken 
over some, on and on and on, and it was driving down the value 
of other homes in the neighborhood. And we have been able to 
stabilize those neighborhoods and keep those property values up 
of those other homes with this Neighborhood Stabilization 
Project.
    It is a good program. I am glad President Bush signed it 
into law, and I am pleased that you have been able to move this 
program in a way where you have not only spent the money well 
but you have obligated that money, and it is moving well. So I 
compliment you on that.
    Here is what I want to ask all of you about today. You can 
help me. We have people who are coming forward to talk about 
spending huge sums of money to buy up large numbers of 
properties. They want to invest in these nonperforming assets, 
and they have all kinds of ways of talking about what they will 
do with them.
    What I like about what I am hearing is many of them want to 
buy up large numbers of properties, they want to renovate them, 
repair them if they need it, and some they would put back on 
the market. But others are talking about renting the properties 
back to the homeowners who are in trouble before the 
foreclosure takes place. Have you heard any of these proposals? 
And, if so, what do you think about them? Anybody?
    Mr. Kingsley. I can go first, Congresswoman.
    Right now, as you may be aware, the FHFA has put out its 
proposal for--the FHFA, the regulator of the GSEs for the REO 
property on its balance sheets, and it is exploring 
opportunities to offer these homes for rental. As you know, 
these homes are sitting vacant. That is a wasting asset for the 
taxpayer. Meanwhile, there is a lot of--rents are going up, and 
it really could be a win-win situation for everybody involved.
    Ms. Waters. Excuse me. We know that. But what I am saying 
is, I have heard at least 5 or 6 proposals where people wanted 
to buy up--100, 200, 300, businesspeople--and renovate them, 
put them back on the market. And the way they describe it is 
they would maintain some for rentals, they would put together 
programs rent-to-own, or they would put them back on the 
market. And I don't see anything happening, but you are saying 
that FHA is doing this already? They are looking at this 
possibility?
    Mr. Kingsley. FHFA, the Federal Housing Finance Authority, 
the regulator of the GSEs--
    Ms. Waters. Yes.
    Mr. Kingsley. --with respect to the real estate owned by 
Fannie Mae and Freddie Mac. And, absolutely, right now, they 
have put out a request for information, for ideas, and they are 
evaluating those ideas. We are working together with them on 
that. We are evaluating all options. The opportunities you 
suggested are certainly some of the options that have been 
proposed.
    Ms. Waters. If you would get that to my office, I would 
like to see what you have put out. Because I would like to 
direct people somewhere who are coming up with these proposals. 
Could you see that my office gets that information?
    Mr. Kingsley. We will be happy to follow up with your 
office.
    Ms. Waters. Thank you very much.
    One other thing before my time is up, Bank of America--
    Chairwoman Biggert. Your time is up.
    Ms. Waters. Oh, I thought I had--oh, it started over again. 
Thank you very much. I yield back.
    Chairwoman Biggert. The gentlelady yields back.
    The gentleman from New Jersey, Mr. Garrett, is recognized 
for 5 minutes.
    Mr. Garrett. I thank the Chair.
    And I also appreciate--well, the ranking member is not here 
right now, but his recognition of the fact, albeit a little 
late, that while it was this Treasury Secretary in his former 
position over at the New York Fed and then as Treasury 
Secretary who was part and parcel with leading up to the crisis 
that we are in right now and then, as the ranking member has 
now experienced, the fact that he helped author and bring forth 
the very same programs which failed in their attempts as far as 
recovery from this, through the TARP program and the like.
    It is unfortunate that the ranking member only recognizes 
now, as Mr. Kingsley points out, that the Treasury is not a 
regulator, and they did not have the authority to compel the 
banks to do anything with the $700 billion that the TARP 
bailout program initiated. The best the Treasury could do is, I 
guess, encourage, suggest to the banks to do so, but they did 
not have the authority.
    Now, for those who supported the TARP, as apparently the 
ranking member did, for those who voted in favor of TARP as 
opposed--as I imagine the ranking member did, that is something 
I guess that they could have included in that legislation, if 
they had wanted to, to give the Treasury Secretary or some 
other entity in the government that authority to compel the 
banks, but it was absent in there.
    So it is a little bit disingenuous to say, after the fact, 
this is the bill I voted on, and I didn't know what was in it, 
and now complain to Mr. Kingsley here or the Department or the 
Treasury Secretary for not doing what the legislation did not 
give them the authority to do.
    To the panel or I guess maybe Ms. Galante, first of all, I 
know there are a lot of numbers that have been thrown out 
because there are a number of different programs that are out 
there, and Ms. Biggert asked some as far as how many were in 
this program and that program and what have you, but let me 
just give you one.
    There was a housing wire story on Tuesday. Today is 
Thursday, so day before yesterday, right? They note that there 
was an $8 billion FHA short refi program, and in that story it 
said it was supposed to help over 500,000 to 1.5 million 
people, but it only helped around, according to that wire 
story, 301 folks. That is different from what we were talking 
about before. Can you comment on those numbers? Are they 
ballpark correct numbers?
    Ms. Galante. Certainly, Congressman. Those are roughly 
correct numbers. I do want to put the short refi, the FHA short 
refi program in context, however. It is one program that does 
deal with this negative equity problem that we all agree is 
severe. But, in addition to that, FHA has refinanced FHA 
borrowers through a streamlined refinance program to deal with 
some of the FHA borrowers' underwater activities. But I would 
say that FHA short refi is for people who are in non-FHA who 
want to refi into a sustainable mortgage with FHA.
    Mr. Garrett. Okay. I appreciate that. At the end of the 
day, the numbers obviously are nowhere near where they 
anticipated they were going to, which is obviously a real 
problem.
    You heard my testimony also when I asked, aren't a lot of 
these programs where you are either encouraging or forcing the 
breaking of legal contracts going to have an implication with 
regard to the GSEs for the loans that go through them and the 
claims that they have outstanding and for the investors on the 
other side of those deals, where what their return will be in 
those situations? It will hurt them presently. It will hurt the 
Fed, because the Fed owns a lot of these securities, upwards to 
the tune of $1.25 trillion, so it will hurt the Fed's balance 
sheet, and it will hurt future investors and therefore 
discourage future investors to get into this marketplace. So 
there are one, two, three, three different problems that could 
be caused by these programs. Do you want to comment?
    Ms. Galante. I will comment again. With respect to short 
refi, it is a voluntary--it goes back to one of the other 
questions, it is a voluntary program. The lenders do need to 
take some principal reduction essentially in order to avail 
themselves or avail the borrowers of the short refi program, 
and they wouldn't do that if they didn't feel as if that were 
ultimately the best solution and the best resolution 
economically both for the borrower and for the investor lender.
    Mr. Garrett. I have 7 seconds. Really quick, the FHA is 
supposed to be helping home buyers start out, usually at very 
bottom of the rung of the economic ladder. Isn't it best to 
only help out first-time home buyers though as opposed to those 
who want to buy second or larger homes after the fact? 
Shouldn't that be the focus of the FHA, first-time home buyers 
only?
    Ms. Galante. The focus of the FHA is first-time home buyers 
and new buyers, but refinancing existing borrowers in today's 
low interest rates to help them achieve a more sustainable 
monthly payment is certainly also--
    Mr. Garrett. Exclusively to first-time.
    Ms. Galante. It is not exclusively.
    Mr. Garrett. Shouldn't it be?
    Ms. Galante. I don't think so, no.
    Chairwoman Biggert. The gentleman's time has expired.
    The gentlelady from New York is recognized for 5 minutes.
    Ms. Velazquez. Mr. Kingsley, in your opinion, would full 
utilization of every program have been enough to stabilize the 
housing market and stop the crisis, and where would we be today 
if it wasn't for those programs?
    Mr. Kingsley. Congresswoman, thank you. And I think you 
have hit upon a great point, which is where we were in 2007, 
2008, and 2009 when the housing crisis started and where we are 
today are vastly different. In 2007, when the subprime loans 
started to melt down and rates started to reset, servicers were 
completely unprepared. They didn't have the staff, they didn't 
have the resources, they didn't know how to engage homeowners. 
There was really nowhere homeowners could go for help. They 
would call up their servicer and receive an answering machine. 
They would send in documents, which would be lost. We 
recognized those problems.
    In 2009, when we rolled out HAMP and other modification 
programs started, we faced those very challenges. We have 
worked very hard at them. Where we are today is vastly 
different. As I mentioned in my oral testimony, 76 percent 
today of the people who get a trial modification convert to a 
permanent.
    Ms. Velazquez. Ms. Galante, regarding the Emergency 
Homeowners Loan Program to unemployed homeowners at risk of 
foreclosure, what specific steps are you taking to make sure 
that you maximize the participation in the program during the 
extension period?
    Ms. Galante. Congresswoman, we did a number of things in 
the waning days before the September 30th deadline for 
applicants to ensure that as many potential borrowers as 
possible could get into the program. We worked very closely 
with the housing counseling agencies on the ground. We are now 
in the process of beginning the process of actually closing on 
those loans that are being made to borrowers, and we will work 
vigorously to do that as quickly as possible.
    Ms. Velazquez. Are you satisfied with the outreach and 
response?
    Ms. Galante. I would say this. We got tremendous response 
for the program. The pull-through rate, as we call it, the 
number of folks who were ultimately eligible, was not nearly as 
high as we would have liked and we didn't assist as many people 
as we would have wanted to. But we are helping approximately 
12,000 unemployed homeowners, and we think that is positive.
    Ms. Velazquez. Mr. Kingsley, the Hispanic community faces a 
foreclosure rate that is nearly double the national average, 
and this is especially troubling in New York, where we have 56 
percent of Hispanic and African Americans at risk for 
foreclosure. Have any of the Administration programs been 
successful in helping Latinos and other minority groups?
    Mr. Kingsley. Congresswoman, through our HAMP outreach 
events, as I mentioned, we have had 59 them, we have one in 
Phoenix next week, we launched a PSA campaign, and we actually 
have a lot of Spanish materials, Spanish radio advertisements. 
We have staff who have appeared on--
    Ms. Velazquez. Give me numbers.
    Mr. Kingsley. Congresswoman, I can have my staff follow up 
with you. We have had, like I said, 59 outreach events. We have 
had more than 60,000 homeowners come to those outreach events. 
A lot of those have been in cities such as Phoenix or in Texas, 
where there are large Latino communities.
    Ms. Velazquez. I didn't hear New York.
    Mr. Kingsley. I believe we had an outreach event in New 
York, Ms. Velazuez. I can follow up with you.
    Ms. Velazquez. You could have a second one.
    Mr. Kingsley. I apologize?
    Ms. Velazquez. You could have a second one.
    Mr. Kingsley. We are going to continue those outreach 
events all into next year.
    Ms. Velazquez. Thank you.
    Chairwoman Biggert. Thank you.
    I recognize the gentleman from Illinois, Mr. Dold. This 
will be the last question, because we have pesky votes coming 
up. So with that, then we will dismiss this panel and be ready 
to start the next one when we come back.
    Mr. Dold. Thank you all for being here. Thank you, Madam 
Chairwoman.
    Ms. Galante, if I could, just looking at the Emergency Home 
Loan Program, certainly I have some statistics in front of me, 
the States, in terms of how they are administering these loans 
and also how it is done through the Federal Government. And I 
am just looking at some statistics from Connecticut, Delaware, 
Idaho, Maryland, Pennsylvania--I don't have Illinois in front 
of me, which is where I am from.
    But the thing troubling to me coming from the private 
sector is just actually the costs of administering these. I 
look at Connecticut. They have done about 1,000, a little over 
1,000 home loans, basically to the tune of about $45,000 that 
are being put in there. In terms of how it is administered, 
they are administering each and every one of those at about 
$2,600 worth of administrative cost. If I move that down on 
administrative cost to Pennsylvania, it is about $2,800. But 
yet when I look at what HUD does, those average costs, 
administrative costs, are about $7,400, almost $7,500, almost 3 
times what they are doing in Pennsylvania.
    Can you give me an idea why the American taxpayer shouldn't 
be extraordinarily frustrated with the cost that HUD is doing 
this, when other government agencies and the States are doing 
it for a fraction of the cost?
    Ms. Galante. Congressman, let me respond in a couple of 
different ways. First, the State program was set up for 
agencies. They were allocated funding because they already had 
substantially similar programs up and running in their States, 
and so they were allocated this funding so that they could--
    Mr. Dold. But they are doing it for a fraction of the cost. 
Per loan, they are doing it at almost a third of the cost.
    Ms. Galante. Yes. So to my point, because they already had 
programs up and running, this was an additive pot of funding 
for them. On the HUD side, we were starting from ground zero 
with all the other States and counseling agencies and 
contracting, so there were startup costs for--
    Mr. Dold. So we should see next year this drop 
precipitously to fall in line then, because it has been going 
on for a period of time? Am I correct in saying that? Up-front 
costs have been taken care of, so next year it should fall back 
in line?
    Ms. Galante. Unfortunately, the program ended. There is no 
additional funding, unless there is some kind of extension of 
the program. If there were an extension, then, yes, the up-
front costs have been taken care of.
    Mr. Dold. Excluding the up-front costs though, other 
administrative costs. And that is part of the complaint that I 
hear from taxpayers all the time, is that the government is 
just inefficient in how it does things. And certainly having to 
deal with the government from a previous life, I would 
certainly concur.
    Let me switch gears, if I may, Ms. Galante, and go over to 
the FHA refinance program. To what extent--certainly when we 
look at the amount of activity, does the lack of activity 
within the FHA refinance program speak to the practicality or 
the usefulness of the FHA refinance program?
    Ms. Galante. I guess I would want to make sure I understand 
your question. Are you talking about the FHA short refi? 
Because the FHA global refinancing for FHA borrowers, FHA 
streamline financing has helped 700,000--
    Mr. Dold. I am talking about the program that basically has 
had about 242 applications and about 44 loan remodifications in 
a period of about 8 months. That, to me, would be dismal.
    Ms. Galante. Thank you. So that is the FHA short refi 
program, which as I mentioned earlier is a program for non-FHA 
borrowers to have the opportunity to refinance into FHA 
mortgages. It is a voluntary program on the part of lenders.
    Mr. Dold. We have obligated $8 billion for it. My question 
is, is this program one we should scrap, according to HUD?
    Ms. Galante. I would say absolutely not. This is a program 
we want to build on. My colleague from Treasury can talk about 
how the $8 billion works. We have not--there have been no 
losses under this program and there have been no direct 
expenditures on loan losses for the program at this time.
    Mr. Dold. I have under a minute, so please excuse me on 
that one. I am going to shift over.
    Ms. Chavez, you talked before about the NSP, talking about 
how it has created or stabilized an additional 90,000 jobs and 
100,000 properties, is that correct?
    Ms. Chavez. It will. That is the goal when the $7 billion 
are expended. We are a third of the way there in terms of 
properties.
    Mr. Dold. I just want to make sure that those who are tuned 
in and watching this thing, because back in the private sector, 
we will look at this thing and say, I am going to go 90,000 
jobs and 100,000 properties. So you know what I am saying? It 
is almost one job per one property, almost a one-to-one. It is 
a little bit less than that. Is that an effective use of our 
dollars? Are we getting the most out of it?
    Ms. Chavez. Yes, we are. We can give you the data on the 
jobs that are--
    Mr. Dold. You and I might disagree in terms of how we are 
effectively using that. But I want to make sure you think that 
is an effective use.
    Ms. Chavez. Yes, it is. And early results in terms of 
impact of vacancy reduction and stabilizing home prices are 
very positive.
    Mr. Dold. Madam Chairwoman, I know that I am running out of 
time, but I want to just follow up if I could for Mr. Kingsley, 
just food for thought on this, why should taxpayers continue to 
support additional programs that don't meet expectations? That 
would be just a general thing that I have not only for this 
panel, but for panels across the government coming again. 
Taxpayers are looking for the Federal Government to make the 
biggest bang for the buck, because we desperately need to make 
sure we are stretching those dollars because we are in a 
financial crisis right now.
    I thank you all for your time.
    Chairwoman Biggert. This concludes our first panel. The 
Chair notes that some members may have additional questions for 
this panel which they may wish to submit in writing. Without 
objection, the hearing record will remain open for 30 days for 
members to submit written questions to these witnesses and to 
place their responses in the record.
    I would like to thank you all for being here, and we will 
dismiss this panel. When we will come back, as soon as votes 
have ended, we will start with the second panel, which will 
probably be around 11:30, 11:25. I hope sooner than that.
    [recess]
    Chairwoman Biggert. The hearing of the Subcommittee on 
Insurance, Housing and Community Opportunity will come to order 
and resume. Thank you for your patience for those votes, those 
pesky votes that seem to come up when we don't expect them.
    Thank you to the second panel. I would now like to 
introduce you: Mr. Neil Barofsky, senior fellow, New York 
University School of Law, and he was our former SIGTARP Special 
Inspector General, so it is nice to see you back on the witness 
stand: Dr. Mark Calabria, director of financial regulation 
studies at the Cato Institute, thank you for being here; Ms. 
Laurie Goodman, senior managing director, Amherst Securities 
Group, LP.; and Mr. Andrew Jakabovics, senior director of 
policy development and research, Enterprise Community Partners.
    Without objection, your written statements will be made a 
part of the record and you will each be recognized for 5 
minutes to present a summary of your testimony. We will start 
with Mr. Barofsky. You are recognized for 5 minutes.

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

    Mr. Barofsky. Thank you. It is always a privilege to be on 
a panel where I don't have the hardest-to-pronounce name. It is 
rare, but it is kind of nice.
    Madam Chairwoman, members of the subcommittee, it is truly 
a privilege and an honor to be back testifying before this 
committee once again on the Administration's foreclosure 
mitigation efforts.
    When I was last here a little bit more than 7 months ago, 
the state and outlook for HAMP and its related programs was 
quite bleak, and at that time I pleaded with the Administration 
to make the wholesale necessary reforms so that Treasury could 
keep the promise it made to Congress and the American people 
that TARP funds would be used not only to generously bail out 
the largest Wall Street financial institutions that caused the 
crisis, but also struggling homeowners.
    Unfortunately, 7 months later, my plea, along with many 
others and members of this committee, have been flat out 
ignored. Rather than change, we have the status quo. Rather 
than seeing a meaningful increase in the number of participants 
in the HAMP program, it continues to trail off, with just about 
13,000 new trial modifications in the last month. And rather 
than being candid about the problems and committing to reform, 
we see the type of obfuscation that we saw in this morning's 
session, with Treasury continuing to declare success against 
ever-changing and meaningless goals. HAMP has failed, and with 
it, it has crushed the hopes of millions of homeowners.
    Due to the ongoing foreclosure crisis, there is now 
consideration of potential new programs or expanding old 
programs, and I thought I would share some very basic lessons 
we have learned from HAMP's failure.
    First, the necessity for comprehensive planning. Too often, 
the Administration's response has been to rush out a program 
that promises great results and looks great on paper but ends 
up being a failure. This ``ready, fire, aim'' approach has 
problems that are still ricocheting through the system. For 
example, in the HAMP program, which was originally announced to 
help up to 4 million homeowners get the benefit of permanent 
government-sponsored mortgage modifications, here we are 2\1/2\ 
years later with the program limping along with fewer than 
700,000 ongoing modifications, a program that has been plagued 
by bad planning, rushed implementation, and incompetent 
management.
    But that program actually looks great compared to the FHA 
short refinance program. That was supposed to help up to 1.5 
million homeowners. And here we about a year later after 
implementation with 301 families helped. Good planning matters, 
and the poor planning for these programs has had devastating 
effects and lost opportunities.
    Second, it is a basic and good tenet of good government, 
any program, that you have clear articulable goals, you measure 
performance against those goals, and then you change the 
program if it is not working to meet those goals. What Treasury 
has done is the exact opposite--changing its goals to meet 
performance no matter how anemic it is and declaring it a 
success. They have convinced no one. All they have really done 
is further damage the already impaired credibility of Treasury.
    And, third, these programs generally rely on third parties, 
like the mortgage servicers in the HAMP program, so it is 
essential to have the right balance of incentives and 
penalties. Secretary Geithner testified in February of this 
year that the incentives in HAMP were, in his words, not 
powerful enough. And by that, I take it he is referring to the 
conflicts of interest that are baked into the HAMP model by the 
way Treasury designed it.
    But rather than address that problem, Treasury has ignored 
it. Even worse, they have given a free pass to the mortgage 
servicers who have had just an abysmal performance, in their 
words, with not complying with the program's rules and 
regulations. Rather than having a meaningful penalty regime, 
they backtrack and really come up with a bunch of political 
gimmicks and tricks that give them a free pass for having 
really committed egregious abuses on homeowners through the 
implementation of this program.
    Part of me still believes that the government should have a 
role in foreclosure mitigation, if for no other reason than 
that this was the necessary promise that Treasury made in order 
to get TARP passed in the first place. But it is becoming 
harder and harder to support these measures. Whether it is 
through sheer incompetence, undue deference to the banks or 
just missed opportunities, the Administration has demonstrated 
itself to be an incompetent manager of these programs, and it 
is a real question of whether they can effectively manage any 
mitigation program. And when they come out as they did this 
morning and suggest that they have had success in completely 
unrelated areas, it really raises a question of whether we can 
trust them to do so.
    Madam Chairwoman, members of the committee, again I thank 
you for this opportunity and I look forward to answering any 
questions that you may have.
    [The prepared statement of Mr. Barofsky can be found on 
page 42 of the appendix.]
    Chairwoman Biggert. Thank you very much.
    Dr. Calabria, you are recognized for 5 minutes.

   STATEMENT OF MARK A. CALABRIA, PH.D., DIRECTOR, FINANCIAL 
               REGULATION STUDIES, CATO INSTITUTE

    Mr. Calabria. Chairwoman Biggert, distinguished members of 
the subcommittee, to evaluate the effectiveness of the 
Administration's response to the housing crisis, I believe one 
first must look to the conditions of the housing market. 
Intentions are one thing; outcomes are quite another.
    The first market condition to keep in mind is that despite 
large price declines, housing in many parts of the country 
still ranks expensive relative to income. Historically, median 
home prices tend to be 3 times the median incomes. We are close 
to this relationship at the national level. Many cities, such 
as San Francisco for instance, still have median home prices 
almost 8 times median income. Such prices remain out of reach 
for the typical family.
    We should also recognize that new home prices still remain 
well above construction costs. Over the long run, in a 
competitive market, prices fall to meet the price of 
production. Up until about 2003, this was the trend in the 
housing market. This relationship is likely to reassert itself 
over the next few years.
    It is also worth noting that existing home sales in 2010 
were only 5 percent below their 2007 level, while new home 
sales remain almost 60 percent below their 2007 level. The 
primary reason for this difference in my opinion is that 
existing home prices have declined by a much greater degree, 
more than twice that of new home prices. I believe this clearly 
illustrates that housing markets work like every other market. 
If you want to eliminate excess supply, you have to allow 
prices to drop.
    As prices have continued to slowly decline, sales activity 
has slowly increased. On a seasonally adjusted basis, existing 
home sales for the first half of 2011 were 12 percent above 
home sales for the second half of 2010. I am expecting further 
minimal price declines at the national level. And while none of 
us have a crystal ball in terms of sales activity, I believe we 
have come close to hitting bottom and are slowly working our 
way towards a recovery in the housing market.
    That said, it is important to keep in mind, I believe, we 
are years away from seeing anything like the activity of 2005 
and 2006.
    I believe there is some consensus that there is a 
considerable pent-up demand for housing, perhaps as much as 2 
million units. The question is, what it will take to elicit 
that demand? As we have tried a variety of incentives, such as 
the home buyer tax credit, with I believe at best mixed 
results, I believe this pent-up demand will not really show 
itself until we see further price declines, even if those price 
declines are small.
    So, again, to emphasize one of the points that I am trying 
to make, we should not be afraid of further price declines. We 
should actually welcome that as a way of trying to clear the 
housing market.
    I will say as an aside that I look at shelter, housing, as 
one of life's basic necessities, so not only should we see 
price declines as helping to clear the market, we should also 
see price declines as helping to make one of life's basic 
necessities actually more affordable, cheaper.
    To get to this point touches on what I see as the central 
flaw in most of the Administration's response to the housing 
crisis, which is rather than accept the fact that perhaps we 
built too much housing, perhaps we encouraged buyers to get 
into homes they could not afford, the Administration has 
consistently viewed the housing market through a Keynesian lens 
of lack of adequate demand, and it is just one policy after 
another trying to create artificial demand in the housing 
market through one stimulus after another, rather than actually 
allowing the market to clear via prices reflecting 
fundamentals.
    We must also recognize that owners' equity or lack thereof 
has little to do with their ability to pay their mortgage, but 
simply impacts their willingness to pay their mortgage. The 
primary driver of mortgage delinquency is job loss. Putting an 
artificial floor under housing prices will not turn the labor 
market around. I cannot overemphasize this point. I think the 
primary driver of the housing market at this point is the labor 
market, and turning the labor market around will be the best 
thing we can do to get the housing market moving again.
    It is also important to keep in mind that subsidizing the 
unemployed to remain in place will not turn around either our 
mortgage market or our housing market. Current foreclosure 
policies as well as the elevated rate of homeownership entering 
the crisis in my opinion have injected significant rigidities 
into our labor market.
    It should also be recognized we do not have a national 
housing market. We have lots of regional and local housing 
markets. The housing vacancy rate, for instance, is a useful 
gauge of excess supply and illustrates this point. At one 
extreme, Orlando has a owner vacancy rate approaching 6 
percent, whereas on the other extreme, cities like Allentown, 
Pennsylvania, have owner vacancy rates of about 0.5 percent. 
So, again, vast differences across the country. Even vast 
differences within the same State. If one looks at Riverside 
compared to San Jose in California, the differences in market 
conditions are dramatically different.
    One point to keep in mind, because of these dramatic 
differences, markets react differently to the same Federal 
policies. Markets where supply is tight and building is 
difficult react very differently than markets where it is 
relatively easy to bring forth additional supply. The 
importance of this distinction is that policies that attempt to 
increase demand are likely to increase prices in tight markets 
rather than increase volumes, where in looser markets such as 
Phoenix, these demand things will actually add additional 
supply and result in further pricing declines. So, again, we 
need to make sure that we are not making the most expensive 
markets more expensive by making those with a glut have 
additional gluts.
    I will end by saying that it is also important to keep in 
mind that so much of the discussion among policies in our 
housing market has focused on the middle class and those better 
off. We should not forget those who don't have homes at all. 
While the quality of data on homelessness is not what it is in 
the rest of the housing market, every indicator seems to 
suggest that we have seen a tremendous increase in homelessness 
over the last couple of years, particularly among families. And 
so again, I think because our traditional assistance programs 
have focused on individuals and focused on central cities, I 
would suggest to the committee to reevaluate the current 
structure of our McKinney-Vento Homeless Assistance Act 
programs in light of current market conditions.
    I thank you for your indulgence and welcome your questions 
and comments.
    [The prepared statement of Dr. Calabria can be found on 
page 50 of the appendix.]
    Chairwoman Biggert. Thank you.
    Ms. Goodman, you are recognized for 5 minutes.

   STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING DIRECTOR, 
                  AMHERST SECURITIES GROUP LP

    Ms. Goodman. Chairwoman Biggert and members of the 
subcommittee, thank you for your invitation to testify today. 
My name is Laurie Goodman and I am a senior managing director 
at Amherst Securities Group, a leading broker-dealer 
specializing in the trading of residential mortgage-backed 
securities. I am in charge of strategy and business development 
for the firm.
    We perform data intensive research as part of our efforts 
to keep ourselves and our investors informed of critical trends 
in the residential housing market. That work has shaped our 
view of the housing crisis and I will share some of our results 
with you today.
    The Obama Administration has pursued a number of measures 
to try to stabilize the housing market. In February 2009, the 
Administration announced the Home Affordability and Stability 
Plan. This plan included both HAMP, the Home Affordable 
Modification Program, a loan modification program designed to 
help at-risk borrowers; and HARP, the Home Affordable 
Refinancing Program, a program designed to eliminate frictions 
to refinancing and allow existing GSE borrowers to take 
advantage of lower mortgage rates. I would like to focus on the 
success of these two programs.
    The HAMP program was originally estimated to reach 4 
million borrowers. As of the end of July, there have about been 
1.66 million trial modifications extended. Of these, there are 
now 675,000 active permanent modifications and another 106,000 
in active trial. So even if all these active trial 
modifications were to become permanent and there were no 
further defaults, the success rate on this program would have 
been less than 50 percent. To date, the program overall has 
achieved less than 20 percent of the original stated goals.
    The HAMP program has done a good job reaching eligible 
borrowers. The problem is the program's success rate is 
relatively low. The largest reason for the failure of HAMP has 
been the fact that the borrower has not been re-equified.
    Our research has shown that redefault rates are 
significantly lower when principal reduction and not just 
payment reduction modifications have been made. To improve 
modifications for success, we would suggest making the 
principal reduction alternative under HAMP mandatory, as long 
as it represents the highest net present value alternative. 
Exclusions would apply only if that action is expressly 
prohibited by either the pooling and servicing agreement or the 
ultimate holder of the risk. In addition, treating the second 
lien pari-passu to the first is a subversion of the lien 
priority and a hindrance to successful modification as it 
impedes the re-equification of the borrower.
    In recognition of the fact that a disproportionate number 
of delinquent borrowers have second liens, we suggest that if 
the first lien is modified, second liens should be eliminated 
or at the minimum take a disproportionate writedown. However, 
modification activity alone is insufficient to bridge the 
supply-demand gap in the housing market. It is necessary to 
encourage investor activity. The FHFA-HUD-Treasury request for 
information acknowledged this and asked for the best way to 
design the program. In our view, this can best be done by 
conducting bulk sales of real estate-owned properties and of 
nonperforming loans owned by the GSEs and FHA. Providing 
conservative financing would raise the sale price on these 
assets even further.
    The Home Affordable Refinance Program was created to 
facilitate the refinancing of Freddie- and Fannie-insured 
mortgages. This program was originally supposed to reach 4 to 5 
million borrowers with GSE mortgages. In fact, the number of 
HARP refinances is actually 838,000 through June 30th. Why the 
limited reach?
    In this case, it was not one factor, but a bunch of 
different factors. The real issue is that the GSEs are not the 
only bearer of risk on a defaulted GSE loan. Many of these 
loans have mortgage insurance. Moreover, the GSEs have the 
right to put back the loan to the originator if it contained a 
violation of the representations and warranties that were made 
at the time when the GSE initially insured the loan.
    The three largest impediments to the success of HARP are, 
first, the mortgage insurance (MI) issue. If the loan is 
refinanced by a different servicer, the mortgage insurer will 
lose the reps and warrants they have with the old servicer. 
Thus, loans with MI tend to refinance more slowly than loans 
without, as loans with MI are dependent solely on same servicer 
refi's.
    Second, the rep and warrant issue. Many lenders are 
reluctant to refinance high LTV, low FICO borrowers as the new 
lender must bear the rep and warrant risk on the refinance 
loans.
    Third, capacity constraints. With the drop in interest 
rates, mortgage lenders face capacity constraints, but they are 
not adding capacity. The result is, they are reaping excess 
profits and keeping mortgage rates to the borrower consistently 
higher than they should be.
    To make HARP successful, we believe it is important to 
introduce competition by reducing the frictions to different 
servicer refinances. Other actions that have been discussed to 
improve HARP effectiveness include the elimination of loan 
level pricing adjustments, the elimination of the 125 ceiling, 
and the elimination of all appraisals on HARP refinancing. We 
believe these actions will have a limited impact.
    Again, thank you for the opportunity to appear before the 
subcommittee. We look forward to working with you on practical 
solutions to ease the housing crisis, promote housing market 
stability, and allow homeowners to take advantage of lower 
rates to refinance.
    [The prepared statement of Ms. Goodman can be found on page 
75 of the appendix.]
    Mr. Hurt. [presiding]. Thank you, Ms. Goodman.
    Mr. Jakabovics is recognized for 5 minutes.

    STATEMENT OF ANDREW JAKABOVICS, SENIOR DIRECTOR, POLICY 
    DEVELOPMENT AND RESEARCH, ENTERPRISE COMMUNITY PARTNERS

    Mr. Jakabovics. Thank you. That was excellent 
pronunciation, by the way. That rarely happens.
    Congressman Hurt, thank you so much for having me here 
today and providing me the opportunity to testify, to discuss 
mechanisms and policy options to facilitate bringing the 
private sector back into the housing market in a supportive and 
sustainable way.
    I act as senior director for policy development and 
research at Enterprise Community Partners, which is a national 
nonprofit organization that creates opportunities for low- and 
moderate-income people through affordable housing and diverse 
thriving communities. For nearly 30 years, Enterprise has 
provided financing and expertise to organizations around the 
country to build and preserve affordable housing and to 
revitalize and strengthen communities. Enterprise has invested 
more than $11 billion and created more than 280,000 affordable 
homes in hundreds of American communities by bringing public 
and private capital together to meet local needs.
    In addressing the housing crisis, the solutions we must 
talk about must address the needs of individual borrowers and 
their families. But a comprehensive approach to stabilizing the 
broader housing market must include preventive efforts as well 
as remedial ones. The old adage, ``An ounce of prevention is 
worth a pound of cure'' certainly applies here.
    The cost of providing counseling or offering foreclosure 
mediation, both of which have proven successful in keeping 
borrowers in their homes compared to individuals navigating the 
complicated and often frustrating modification process without 
help, is far, far less than the cost of foreclosure borne by 
families, communities, municipalities, lenders, and investors.
    A theme that will recur through my testimony is that 
successful interventions in the housing market require 
deliberate coordination. There are too many moving pieces and 
too many overlapping interests to act unilaterally. 
Collaboration is key. So while I am going to focus most of my 
testimony on the pressing need to continue minimizing the 
impact of foreclosures, I would be remiss if I did not mention 
that the best option for avoiding a costly foreclosure is to 
provide a distressed borrower with an affordable mortgage 
payment, as we have heard up till now.
    With better coordination in mind, however, bulk note 
purchases by entities or consortia with the capacity and 
flexibility to restructure notes where possible, including 
through principal reduction, and the ability to transition 
properties with minimal disruption or vacancy, either through 
negotiating a deed for lease with the current owner or quickly 
repairing and renting to new tenants into affordable rental 
portfolios may yet hold the most promise for stabilizing the 
Nation's housing markets.
    You have already heard about changes that could improve 
HARP, so without going into that again, I would point you to my 
written testimony on that.
    But if we consider that refinancing is one end of the 
mortgage process, REO disposition is at the other end. 
Stabilizing the housing market means more than being effective 
in keeping people in their homes. It means dealing with the 
impact that foreclosures have on communities across the 
country.
    Vacant and blighted properties have terrible effects on 
neighbors of foreclosed properties and whole communities. 
Research has found the contagion effect with price declines 
increasing with each additional foreclosure in an area. The 
impact of a foreclosed property increases the longer that 
property sits unsold.
    The Neighborhood Stabilization Program was designed 
specifically to address that contagion. Through targeted 
interventions to acquire properties in hard-hit communities, 
NSP has created jobs when houses are restored to good quality 
and helped put families back into formerly distressed 
properties. The most successful programs have been those that 
have brought private capital into their efforts to stabilize 
neighborhoods, and in places like New York, Cleveland, and 
Sacramento, those funds have been leveraged more than one-to-
one with private capital.
    Those programs, however, focused on narrow communities in 
small areas in order to maximize the potential impact. But to 
address the need of foreclosed properties across the country, 
we have to bring responsible private capital back into the 
housing market for broader stability.
    There are issues with the NSP recipients being able to 
revolve their funds when they cannot sell homes because lenders 
are not lending even to creditworthy borrowers, and this has 
significantly limited the potential scope of NSP's efforts to 
restore those communities.
    We heard a little bit this morning from the first panel 
about Project Rebuild and the fact that it is intended to 
create or support 190,000 jobs and addressing 80,000 
foreclosed, vacant or abandoned properties nationwide. But the 
problem is much, much larger than just those 80,000 properties.
    As we have heard, based on the RFI put forward by FHFA, HUD 
and Treasury, we need to find a better way of disposing of 
properties that the GSEs and FHA acquire in foreclosure. The 
current REO disposition process for everybody, both the private 
sector and public agencies, is designed to treat individual 
properties one at a time, assigning it to a broker for sale and 
then writing off the losses after closing.
    The process rarely takes into account how any individual 
property might impact other properties, and we have to be far, 
far more strategic, again both on the individual side as well 
as on the private side, as to how best approach the process. So 
by removing REO properties from the forced sale inventory by 
converting them to rental in bulk, there is an opportunity not 
only to quickly increase the supply of rental homes, most of 
which will be affordable, but downward pressure on prices from 
excess forced sale inventory for owner occupants would also be 
alleviated, allowing for a faster housing market recovery.
    To be successful, an REO rental program must address the 
initial sales process, buyer qualifications, post-purchase 
treatment of properties, and ultimately excess strategies for 
the buyer. I point you to my written testimony for 
recommendations. But very, very briefly, buyer qualifications 
are absolutely critical. You have to ensure that the buyers 
have sufficient capital to acquire and maintain the properties 
and that asset managers are in place to treat the properties 
with the respect that those properties and their tenants 
deserve as well as the communities in which they are found.
    I look forward to taking any questions you might have.
    [The prepared statement of Mr. Jakabovics can be found on 
page 83 of the appendix.]
    Mr. Hurt. Thank you, Mr. Jakabovics. I recognize myself for 
5 minutes.
    I am glad that you talked a little bit about the 
Neighborhood Stabilization Program. Maybe my question, I really 
have one question for everybody, but I would like to start with 
you since you spoke about it.
    Obviously, foreclosure mitigation is something that I think 
as far as everyone here is concerned, is something that we want 
to achieve. We want to prevent people from being put out of 
their homes under these circumstances. I guess the Neighborhood 
Stabilization Program comes to our attention, particularly 
because expanding that program is part of the President's jobs 
plan, as you call it, Project Rebuild.
    I think from my standpoint, the fact that the Neighborhood 
Stabilization Program has not prevented any foreclosures, and I 
understand that is perhaps not the primary purpose, but at a 
time when we are borrowing 40 cents on every dollar that we 
spend and we have to prioritize what money we do have coming 
into our Treasury in order to maximize the return, I wonder 
about the efficiency, the efficacy of this program. One of the 
things that I also note is that the Neighborhood Stabilization 
Program since 2008 has been given $7 billion. It appears to me 
from my math that it has only used between $4 billion and $5 
billion of that, and that is since the crisis in 2008, and it 
has not mitigated any foreclosures.
    So I guess my question for you is, how do we justify 
another $15 billion into this program when it is not mitigating 
foreclosure? And I also wanted you to speak to the fact that it 
is my understanding that the President's proposal would extend 
this to commercial properties as well.
    Could you talk about that? And then, I would like to maybe 
go to Mr. Barofsky, Dr. Calabria, and Ms. Goodman.
    Mr. Jakabovics. Sure. I think it is important to recognize 
the sort of flow of ways properties end up in foreclosure. And 
what NSP is really designed to do is address post-foreclosure, 
minimize the impact on everybody else around them. So one of 
the things that--the way I think it has been incredibly 
successful--and we have seen this in a number of places--is 
that as those properties get rehabilitated, they are no longer 
blights on the community. They don't drag down neighboring 
prices.
    On the one hand, job loss is certainly a critical component 
in terms of ultimately delinquency, default and then--
delinquency and then default. The probability of a property 
going ultimately through to foreclosure is very, very closely 
tied to the value of that property relative to how much the 
homeowner owes on that mortgage. And so, as homes go into 
foreclosure, the more foreclosures that are in an area and the 
more properties are sitting on the market that are vacant and 
abandoned and blighted, the less value everybody else 
associates with those properties. The idea is that by bringing 
those properties back into productive use, getting people into 
properties--it is not designed at all to address pre-
foreclosure issues.
    Mr. Hurt. And I get that. But I guess if you are dealing 
with a limited amount of resources, would it be wiser to use 
those resources to prevent that in the first place and keep 
somebody in the home? That would be the question. But maybe--
    Mr. Jakabovics. Optimally, you want to keep everybody in 
their homes. But if people don't have jobs, and can't make 
mortgage payments, there is very little that we can do. People 
are not finding jobs, so at some point foreclosures do happen. 
And the idea behind NSP specifically is very, very closely 
targeted to dealing with the impact of those foreclosures that 
are going to be inevitable.
    Mr. Hurt. Thank you.
    I would like to just give the other panelists the 
opportunity to answer briefly, if you can.
    Mr. Barofsky. Sure. One of the things that is striking, as 
you said, it sounds like it has been about $4 billion to $5 
billion out of a projected--
    Mr. Hurt. $7 billion that has already been allocated.
    Mr. Barofsky. $7 billion. So, once again, you have these 
very strong predictions of a wide application of a program that 
fall short. Now, compared to other programs, that is remarkably 
good. When you look at HAMP, which had $50 billion allocated, 
and we spent $2 billion, and that was supposed to help 4 
million people. Or the $8 billion allocated to FHA short 
refinance, and I think it spent $50 million, helping 301 people 
out of the 1\1/2\ million.
    So I think it is very important to sort of, before 
allocating money or obligating money, to look at whether or not 
that money can actually be spent in an effective manner. It is 
not just in housing programs. We had the small business lending 
fund, $30 billion was needed, and they ended up spending $4 
billion. So I think it goes back to my original point of having 
good, comprehensive planning so we are not just putting money 
into a program that can maybe go elsewhere if it is not 
actually going to be spent and used.
    Mr. Hurt. Thank you.
    Dr. Calabria?
    Mr. Calabria. There are a couple of assumptions buried in 
NSP that I think are worth pointing out. Because this is where 
I would have a disagreement. One assumption, of course, is that 
cities and nonprofits are going to be better landlords, with a 
better ability to get these properties back on the market than 
private investors.
    To me, that is a questionable assumption, certainly one 
that hasn't been proven. I think if you let prices fall far 
enough, you will have investors out there. A tremendous amount 
of the sales now are cash anyhow, so I am not sure that I think 
it makes a good use of taxpayer funds to put cities, localities 
directly in competition as buyers with private investors who 
will themselves get these properties back onto the marketplace. 
And again, the desire is to get these properties back onto the 
marketplace.
    I also again question the intention that we have to be able 
to prop up prices. What you want to be able to do is get sales 
volume. You want to get buyer confidence. To get buyer 
confidence, we need to get to a point where buyers simply 
believe that prices will go no lower.
    Mr. Hurt. Right.
    Mr. Calabria. Another assumption in this, again, much of 
NSP is aimed at rehabilitating existing properties. In the 
Detroits and the Buffalos and the Clevelands of the world, as 
well as the Phoenixes of the world, the problem is not a lack 
of supply.
    Mr. Hurt. Right.
    Mr. Calabria. The problem is excess supply. So adding to 
that supply only further does that. If we are going to spend 
this sort of money, perhaps we should be looking at destroying 
properties, rather than rehabilitating properties in excess 
markets.
    Mr. Hurt. Thank you, Dr. Calabria.
    Without objection, I would like to recognize Ms. Goodman 
just for an additional 60 seconds.
    Ms. Goodman. Okay. If no further actions are taken, about 
10\1/2\ million borrowers could be in danger of losing their 
homes. I think it is very, very important to keep focus on the 
few actions that can help the most: first, keeping borrowers in 
their home by doing principal reductions and by explicitly 
recognizing the second lien issue; and second, to close the 
supply-demand gap, you have to do bulk sales to get investors 
involved in the market. Those are the things that will really, 
really help; and I think we need to focus on doing fewer 
programs well.
    Mr. Hurt. Thank you, Ms. Goodman.
    Now, it is my pleasure to recognize the gentleman from 
Wisconsin, Mr. Duffy, for 5 minutes.
    Mr. Duffy. Thank you, and I appreciate the panel for coming 
in.
    I just want to make sure the record is clear, Mr. Barofsky. 
I heard in your testimony you said that, with the FHA 
refinance, the goal was for 1.5 million homeowners to be 
helped, and I think you actually said there were 301 actual 
people helped. Did you mean to say 301,000 people helped or 301 
actual people helped?
    Mr. Barofsky. No, no, it is 301. It was about 254 when I 
stepped down, so I think they have added about 50 in the last 6 
or 7 months.
    Mr. Duffy. So those who were helped from this program could 
actually fit in this room?
    Mr. Barofsky. It might be a little tight, but, yes, I think 
so.
    Mr. Duffy. Yes. Okay, I wanted to be clear on that, that I 
didn't misunderstand your testimony. I think under the backdrop 
of Solyndra right now, the American people look around and ask, 
is my government effectively using my tax dollars or are they 
effectively using the money they are borrowing from China on my 
behalf and my kids' behalf? And then they will ask, if you are 
not using my money effectively, are you still accomplishing the 
goals that you are setting out when you are wasting my money? 
And I think with Solyndra they would say, no, you wasted our 
tax dollars, number one, but, number two, you didn't even 
accomplish the goal you told me you were setting out to 
accomplish, which was giving seed money for good, green start-
ups.
    If you look at what is happening, say, with HAMP, if 
Treasury was a private corporation, would they be fired? Would 
they continue to exist in the private sector if they have 
accomplished the goals--if we are reviewing their 
accomplishments per the goals they set out at the start of the 
mission?
    Mr. Barofsky. I think there is no question they have fallen 
embarrassingly short of the goals. If there is any silver 
lining to this incredibly dark cloud, it is that at least they 
haven't spent a lot of money on it. They have obligated a lot 
of money for it--$50 billion was supposed to be spent, and not 
to say that $2 billion isn't a lot of money, but in comparison 
this hasn't been a sinkhole because it has been such a failure. 
So that is the one silver lining to all this. At least it 
hasn't cost as much money in not accomplishing their goals as 
just throwing money at the problem with similar results.
    Mr. Duffy. And similarly, broadly speaking, if we are 
looking at these programs, I would guess that many of you would 
agree that many of them are underperforming, to say the least?
    Mr. Barofsky. Failing.
    Mr. Duffy. Failing, yes, okay, that is a little more 
aggressive. Are any of the programs working? Can you sit here 
and say, listen, we have some hope; there is a little light out 
there shining that can help?
    Tuly, Americans who are in some very difficult times and I 
think to find some programs that can help them out, are any of 
these possibly going to get that job done, helping the American 
homeowner?
    Mr. Barofsky. Again, I think, rather than just do opinion, 
you just look at the numbers. So HAMP is supposed to help 4 
million, 691,000 ongoing, almost 900,000 fails. The FHA program 
we talked about, the principal reduction program which was 
rolled out as part of HAMP, which we heard about in the 
testimony this morning, that has helped 10,000 people. Second 
lien modification is such a huge problem, as Ms. Goodman 
described, 35,000. The HAFA program to help people leave with 
dignity through short sales, 16,000. Unemployed program, this 
is supposed to help the millions of unemployed with our 
tremendous unemployment, 14,000. It is not just for me to say 
that it's a failure. These numbers are unambiguous. They are 
failing.
    Mr. Duffy. And are there programs the government can--oh, I 
am sorry?
    Ms. Goodman. Yes, I just wanted to mention, the one thing 
that could potentially help a lot which has been introduced is 
Treasury, HUD, and FHFA did a joint request for information on 
bulk sales to investors, sort of a deed for lease; I think that 
a program facilitating bulk sales to investors with the express 
purpose of renting out those properties could potentially help 
a lot. I think that is the most important initiative that has 
been taken, and should be definitely encouraged.
    Mr. Duffy. It could work?
    Ms. Goodman. And that could work. You could actually put 
stipulations on it like investors can't sell those properties 
for a number of years or can only sell 20 percent of those 
properties in the first 3 years or whatever to make it even 
more effective, and I think that program should be pushed.
    Mr. Jakabovics. If I may, also, I think that a lot of the 
reasons for failures that have been identified both by Mr. 
Barofsky and Ms. Goodman are largely private-sector failures. I 
think part of the problem has been an overreliance on the 
private sector to act as agents for the government without 
sufficient oversight and sufficient sticks to ensure 
compliance.
    So to put the blame entirely at the feet of government for 
coming up with efforts to help homeowners, I think if you would 
ask those nearly 700,000 people who have been able to stay in 
their homes as a result of the modification efforts or the 
communities where the blighted property next door has not only 
created a job for them but also made the neighborhood a little 
bit more attractive, I think from that perspective--there is 
enough--there is certainly enough blame to go around, but I 
think it would be a mistake to write all of this off as a 
failure simply because it hasn't met potentially outsized 
expectations from the get-go.
    Mr. Hurt. Do you want more time?
    Mr. Duffy. Could I have--
    Mr. Hurt. Without objection, the gentleman is recognized 
for an additional 2 minutes.
    Mr. Duffy. Thank you.
    I think as we sit back and look, Mr. Calabria, you have 
indicated that, if I am understanding your testimony, if we 
just step back and let the market work, maybe the market could 
more effectively find a floor so then we have sufficient demand 
to step in and see the market then take off again. Is that your 
position?
    Mr. Calabria. That is very much the case. I would 
characterize a lot of the actions as somehow trying to get back 
to 2005-2006. That was not a sustainable situation. We need to 
accept we built too much housing. We need to accept that the 
way that works going forward is you try to clear the market by 
prices coming down.
    I want to draw out a point that I think was implicit in 
something you said earlier about tax dollars. So much of the 
reaction has been that we need to maintain housing wealth, we 
need to maintain housing values because that is people's 
wealth. We need to keep in mind that homeowners and taxpayers 
are the same people. Taking a dollar out of my left pocket and 
putting it into my right pocket does not make me better off 
just because you switched it around on my balance sheet. So it 
is important to keep that in mind.
    If we can find ways, like bulk sales, which I do think is 
one of the things that can be done effectively, something I 
would add, maybe a little of the difference is I think we do 
need to resist the temptation of micromanaging those bulk 
sales. If we put too many restrictions like, you have to have 
income requirements or so much of it needs to go to nonprofits, 
you will make the process more cumbersome.
    I think all you need to do is look at, for instance, FHA's 
asset control area program they have been running for over a 
decade. It has been a disaster, in my opinion. So, again, 
resist the temptation to micromanage. Get the properties out 
there in the market.
    Mr. Duffy. Right. And if we have a philosophy of letting 
the market work, but then, also, if someone is going to say 
Congress should also try to do something to move the process 
along, do you have any ideas on where we would go if we are 
relying on the market but also a little Miracle Gro as well? I 
don't know--
    Mr. Calabria. I think there are a number of areas you need 
to look at. The bulk services is one area. I think we need to 
parse out some of the discussions on foreclosures. The 
Administration, the President himself has said this. We can't 
save everybody. We need to be more honest about that. I think 
you need to have essentially a two-tiered process--
    Mr. Hurt. Thank you, Dr. Calabria.
    Mr. Calabria. Those homeowners who can be saved, move 
forward, those who can't--
    Mr. Hurt. Thank you, Dr. Calabria.
    It is now my pleasure to recognize the gentleman from 
California for 5 minutes, Mr. Sherman; and we will certainly 
give him more time if he needs it.
    Mr. Sherman. Okay. I don't think what the American people 
want is to get into this room and have a shouting match, less 
filling--what is the other side of that--better tasting or 
whatever? Or ``government's at fault, private sector's at 
fault.''
    The fact is, Americans are mad because the system isn't 
working. They know that the private sector either caused it 
and/or hasn't solved it. They know government either caused it 
and/or hasn't solved it or, as some of our witnesses have 
pointed out, has solved it for tens of thousands of people at a 
time when we wanted to solve it for hundreds of thousands of 
people.
    I would point out that the fact that the various programs 
adopted in the last Congress have helped a lot fewer people 
than anticipated also means they have cost an awful lot less 
than anticipated. And so those who oppose those programs should 
regard that as an unintentional compromise, halfway between 
what Democrats wanted both in terms of number of people helped 
and cost to the Federal Government and what the other side 
wanted.
    People have been urging compromise on me for a long time. 
Things being ineffective and too slow is probably not the way 
they wanted to achieve that compromise.
    As to bulk sale, Ms. Goodman, what do we need to do 
governmentally to facilitate investors buying these homes in 
bulk and renting them out?
    Ms. Goodman. We basically have to make the program 
available on a scale that works. So, basically, my 
recommendation would be that you get together, say, 200 
properties in a given MSA, and you sell it as a bulk sale, and 
you will get excellent execution. Because basically what you 
have to do is encourage large investors to build out an 
infrastructure for renting out these properties, for managing 
these properties, and they are going to pay more for bulk. If 
you can accumulate five properties in Indianapolis, that 
doesn't allow you to build out a structure. If you can 
accumulate 200 properties, it does. You don't need legislation. 
You have to basically put the program into place.
    Mr. Sherman. You need a program. What is the matter with 
the private sector, Wells Fargo and Bank of America saying, 
``Hey, let's get together. You have 100 homes in Indianapolis, 
I have 100 homes in Indianapolis, we will put them up for 
bid.''
    Ms. Goodman. Because most of the properties--or at least 
half of the loans in the United States are either Freddie, 
Fannie, or FHA/VA properties; and so the government actually 
has to be willing to dispose of these properties in bulk and 
put a program into place to do so. You don't need legislation. 
You need action.
    Mr. Sherman. And this bulk sale idea is the only thing I 
have seen at least three witnesses, if not four, testify in 
favor of, and it is consistent with what I see in my district, 
which is there is a surplus of homes for sale or will be as 
soon as they grind through their foreclosure process and a 
dearth of rental housing. And in fact, many of the people who 
want to rent would prefer a single family home since that is 
what they bought back when they could afford to buy it.
    Ms. Goodman. Very well said.
    Mr. Sherman. The focus here in part is, how do we maintain 
home values without costing the Federal Government a lot of 
money?
    One of the ways to do that is to, in my area, which is a 
high-cost area, is to maintain the $729,000, $750,000 
conforming loan limit. Ms. Goodman, what do we expect to happen 
to homes that were selling for $800,000, $900,000, even a 
million dollars now that the conforming loan limit has dropped 
to $625,000?
    I know the homes that sell for $20 million down in Malibu 
aren't going to be affected. If you buy one of those, you 
probably own a bank. But for those homes which, believe it or 
not, in my area are called middle-class homes but sell for over 
$700,000, what is this decline in the conforming loan limit 
going to do to home values and the ability of buyers to 
purchase?
    Ms. Goodman. It is important to realize that credit 
availability is constrained across the spectrum to begin with. 
Freddie and Fannie's average FICO score is 762 for recent 
origination. The average LTV is 67. Bank portfolios have 
similar origination standards.
    Mr. Sherman. The LTV is 67?
    Ms. Goodman. On average.
    Mr. Sherman. That is a one-third downpayment? Wow.
    Ms. Goodman. Yes, yes. Credit availability is very, very 
limited as it is, and what that will do is constrain credit 
availability even more.
    Taking a step back, you have this huge supply and demand 
gap. As you pointed out, you have a lot of homes that haven't 
been foreclosed on but will be. The borrower just can't afford 
to be in that home. You have to transition to someone. Your 
choice is you either transition to another owner occupant who 
has less good credit because he couldn't make the payments on 
his prior home or you are going to have to transition to 
investors.
    So it just makes a case that at the margin, the loan 
limits--the recent decrease in the loan limits makes credit 
availability tighter for that sector.
    Mr. Hurt. Without objection, the gentleman is recognized 
for an additional 2 minutes.
    Mr. Sherman. I appreciate that.
    Is there any evidence that the private sector is ready 
without any kind of government guarantee to make the loans of 
$700,000, $725,000 to middle-class or upper-middle-class 
families trying to buy homes?
    Mr. Calabria. If I could add to that for a second, and I 
will start with--I am always loathe to generalize from 
anecdote, but I will use myself.
    I was just qualified for a jumbo loan in Washington, D.C., 
that would have been below that limit if it had not been 
changed; and I will say the difference in cost to me is 25 
basis points of what I would have gotten otherwise. But I did 
get the loan, and again, that is just one example.
    Mr. Sherman. With all due respect, some Republicans would 
say that Washington, D.C., because it's bleeding the rest of 
the country dry, is the only hot housing market in the country, 
and you have qualifications in terms of your ability to manage 
your finances that the average constituent or Member of 
Congress does not have.
    The next issue is with regard to homes where people just 
want to refinance. That will enhance their equity. They are not 
able to refinance because they are underwater. At least, they 
don't have a huge amount of equity in the property.
    It has been proposed that we allow these people to 
refinance because the Federal Government is already on the hook 
for the loan. You have a $500,000 loan at 8 percent interest, 
and the government is on the hook, and there is no equity in 
the property. And you convert that into a $500,000 loan, nobody 
is allowed to take out any money--$500,000 loan, the government 
is still on the hook, and it is 3 percent interest or 4 percent 
interest.
    Ms. Goodman, what do we have to do to allow people to 
refinance? Won't we reduce the government's risk if the 
interest rate is 4 percent instead of 8 percent, and obviously 
we enhance a life for the homeowner who is able to refinance?
    Ms. Goodman. Absolutely. Where Freddie and Fannie already 
own the risk, there is absolutely no reason other than the 
series of frictions I delineated why the borrower shouldn't be 
able to refinance to take advantage of lower rates. Almost 
everybody is better off. It should be able to happen.
    Mr. Sherman. And if I can just comment, what you have now 
is an unjustified profit where the current holder of that loan 
is earning 8 percent, government guaranteed, at a time when, if 
you buy it from Mr. Bernanke, he will pay you a quarter of a 
point--well, 2 percent.
    I yield back.
    Mr. Hurt. Thank you, Mr. Sherman.
    I ask unanimous consent to insert the following material 
into the record: the October 3, 2011, letter from the National 
Low Income Housing Coalition; the October 6, 2011, statement 
from the National Association of REALTORS; and the October 6, 
2011, statement from Mercedes Marquez, Assistant Secretary for 
Community Planning and Development, U.S. Department of Housing 
and Urban Development.
    The Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record.
    I would like to thank the witnesses for joining us today; 
and, without objection, this hearing is adjourned.
    [Whereupon, at 12:35 p.m., the hearing was adjourned.]
                            A P P E N D I X



                            October 6, 2011
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