[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION'S STRUCTURED
TRANSACTION PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 16, 2012
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-127
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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
James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations
RANDY NEUGEBAUER, Texas, Chairman
MICHAEL G. FITZPATRICK, MICHAEL E. CAPUANO, Massachusetts,
Pennsylvania, Vice Chairman Ranking Member
PETER T. KING, New York STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota MAXINE WATERS, California
STEVAN PEARCE, New Mexico JOE BACA, California
BILL POSEY, Florida BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut
FRANCISCO ``QUICO'' CANSECO, Texas JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee
C O N T E N T S
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Page
Hearing held on:
May 16, 2012................................................. 1
Appendix:
May 16, 2012................................................. 41
WITNESSES
Wednesday, May 16, 2012
Edwards, Bret D., Director, Division of Resolutions and
Receiverships, Federal Deposit Insurance Corporation........... 2
Fogg, Edward L., Owner, Fogg Construction Company and Fogg
Mortgage Company............................................... 31
Leventhal, Scott L., President and Chief Executive Officer,
Tivoli Properties, Inc......................................... 29
Miller, Stuart, Chief Executive Officer, Lennar Corporation...... 6
Rymer, Hon. Jon T., Inspector General, Office of the Inspector
General, Federal Deposit Insurance Corporation................. 4
APPENDIX
Prepared statements:
Miller, Hon. Gary G. (with attachments)...................... 42
Edwards, Bret D.............................................. 51
Fogg, Edward L............................................... 63
Leventhal, Scott L........................................... 91
Miller, Stuart............................................... 105
Rymer, Hon. Jon T............................................ 111
Additional Material Submitted for the Record
Westmoreland, Hon. Lynn A.:
Submission from the American Land Rights Association......... 118
Written statement of the G&M Daniel Family Limited
Partnership................................................ 160
Lennar Update................................................ 161
Letter from Merolla & Gold, LLP, dated May 15, 2012.......... 166
Written statement of Bransen Patch, MD Group, LLC............ 178
Written statement of Robindale Industrial Park, LLC.......... 180
Written statement of IntuitivePAC, LP........................ 181
Montgomery County grants..................................... 230
Edwards, Bret D.:
Written responses to questions submitted by Chairman
Neugebauer................................................. 235
Written responses to questions submitted by Representative
Capuano.................................................... 239
Written responses to questions submitted by Representative
Waters..................................................... 244
Written responses to questions submitted by Representative
Westmoreland............................................... 250
OVERSIGHT OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION'S STRUCTURED
TRANSACTION PROGRAM
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Wednesday, May 16, 2012
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 3:22 p.m., in
room 2220, Rayburn House Office Building, Hon. Randy Neugebauer
[chairman of the subcommittee] presiding.
Members present: Representatives Neugebauer, Fitzpatrick,
Renacci; Capuano, Waters, and Carney.
Also present: Representatives Westmoreland and Herrera
Beutler.
Chairman Neugebauer. The Subcommittee on Oversight and
Investigations will come to order. This hearing is entitled,
``Oversight of the Federal Deposit Insurance Corporation's
(FDIC's) Structured Transaction Program.''
Each side will be limited to 10 minutes for opening
statements. And I want to recognize the attendance of Members
who are not assigned to the Oversight and Investigations
Subcommittee. Representative Jamie Herrera Beutler is here, and
we also expect Mr. Westmoreland to attend. I ask unanimous
consent that they be allowed to participate as if they were on
the committee today.
I will now recognize myself for an opening statement.
This hearing is focused on the oversight of the FDIC's
Structured Transaction Program. We will hear from the FDIC. We
will also hear from some of the market participants today. The
Structured Transaction Program was created to resolve the
distressed assets program. It has transferred about 42,000
assets, with an unpaid balance of about $25.5 billion, into 32
public-private partnerships.
One of the reasons that we are having this hearing is
because there is not a lot of regulation that applies to
structured transactions, and so we are going to learn more
about the process. Also, we had an OIG audit of the Structured
Transaction Program that found control deficiencies related to
inadequate FDIC policies, and we will hear from the OIG on that
as well.
I think the goal here is to learn more about this program.
This is a program designed to mitigate losses, ultimately, to
the taxpayers. We want to make sure that everything is being
handled properly.
But the program also has impact on some of the people who
were banking with some of these entities that found themselves
one day without a bank. We need to know how this process is
playing out and if there are things that we need to be looking
at from an oversight standpoint. So I look forward to learning
more about the Structured Transaction Program.
With that, I will yield to the gentleman, Mr. Capuano.
Mr. Capuano. Thank you much, Mr. Chairman.
I don't have much of an opening statement. I am looking
forward to the testimony from these gentlemen, and from the
next panel, as well.
I appreciate you calling this hearing. I think that the
FDIC plays a very important role in this economy in protecting
investors, and it is important that we make sure that they
continue to be able to do that. That is their primary
objective, and as far as I am concerned, anything that
interferes with that is problematic to this Congress.
Therefore, today I am looking forward to hearing testimony on
this specific aspect of the difficulties we have recently gone
through and I guess continue to go through in the economy and
how it has played it out and how it has impacted the FDIC.
Again, Mr. Chairman, thank you very much.
Chairman Neugebauer. I would remind Members that all
Members' opening statements will be made a part of the record.
Now, I would like to introduce the first panel: Mr. Bret
Edwards, Director, Division of Resolutions and Receiverships,
Federal Deposit Insurance Corporation; the Honorable Jon T.
Rymer, Inspector General, Federal Deposit Insurance
Corporation; and Mr. Stuart Miller, Chief Executive Officer,
Lennar Corporation.
Gentlemen, your written testimony will be made a part of
the record, and we will recognize each of you for 5 minutes for
a summary of that.
With that, Mr. Edwards, you are recognized for 5 minutes.
STATEMENT OF BRET D. EDWARDS, DIRECTOR, DIVISION OF RESOLUTIONS
AND RECEIVERSHIPS, FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Edwards. Thank you, Mr. Chairman.
Chairman Neugebauer, Ranking Member Capuano, and members of
the subcommittee, I appreciate the opportunity to testify on
behalf of the FDIC on our agency's Structured Transaction
Program.
A structured transaction is only one of the asset
disposition strategies the FDIC employs to fulfill our
statutory duty to maximize the net present value return from
the disposition of assets of failed institutions and to
minimize the amount of loss realized in the resolution of those
institutions.
This type of transaction has been used for approximately 4
percent of the $670 billion in assets that the FDIC inherited
from bank closures since January of 2008. Most of the time we
are able to achieve the least costly resolution by transferring
the failed banks' deposits, assets, and certain liabilities
immediately after the bank closing to an acquiring bank.
Unfortunately, failing banks with little franchise value
and poor asset quality do not attract sufficient interest from
viable bidders. In those instances, depositors are paid the
full amount of their insured deposits. The FDIC, as receiver,
then chooses an alternative strategy for handling these failed
bank assets, such as cash sales, securitizations, and
structured transactions.
Patterned after a successful program used by the former
RTC, the FDIC initiated a structured transaction sales program
in May of 2008. By using structured transactions, the FDIC
avoids selling assets in distressed markets at prices below
their intrinsic value and saves the costs associated with
maintaining the infrastructure needed for long-term agency
management of the assets. We estimate that we have saved
approximately $4 billion by using structured transactions
instead of cash sales.
In structured transactions, the FDIC pools a group of
similar assets from one or more failed bank receiverships and
transfers them to a newly formed LLC. Through a competitive
bidding process, the FDIC offers a portion of the equity in the
LLC to prequalified private sector experts who have experience
managing the types of assets in the pool and who have the
economic resources to bear the obligations and risks of the
agreement. The highest bidder pays cash for its equity
interests in the LLC and becomes the managing member, with
responsibility for the day-to-day management of the LLC and its
assets. The percentage of book value that the bidder's
valuation represents is for the entire pool of the assets and
cannot be attributed to any individual asset.
Since 2009, to ensure robust bidding, many of the
transactions have included leverage in the form of purchase
money notes issued by an LLC to the failed bank receiverships
as partial payment for the assets sold by the receiverships to
the LLC. The purchase money notes represent debt owed by the
LLC to the receiverships. In general, most transaction
agreements require that these notes be repaid in full before
there is any equity distribution to the members of the LLC.
These notes do not finance the cash purchase price paid by the
managing member for its equity interest in the LLC.
The FDIC actively monitors these transactions through its
staff and third-party contractors. On a regular basis, the FDIC
and its contractors conduct on-site compliance reviews of each
LLC's operations. Additionally, the managing member must comply
with stringent monthly, semi-annual, and annual reporting
requirements.
The FDIC's Office of Inspector General has completed audits
on two of the transactions. The FDIC agreed with all of the
OIG's recommendations and has implemented or is in the process
of implementing these recommendations.
At my request, the OIG has begun audits of two LLCs managed
by an affiliate of Rialto Capital Management. These reports are
expected to be delivered in the late third quarter of this
year.
We understand that a number of borrowers and guarantors
have raised concerns about the managing members not achieving
the resolution of their debts as the borrower or guarantor
would desire. The FDIC investigates every borrower or guarantor
inquiry and works with the managing member to address any of
the concerns raised. We fully expect the managing members to
pursue payoffs and loan modifications when these options would
result in the highest return to the LLC.
With respect to single family residences, the managing
members and their servicers are obligated to follow a
federally-mandated loan modification program. Where a payoff,
modification, or other loss mitigation is not feasible, the
managing member is left with no other choice but to enforce the
terms of the loan contracts through the courts and other legal
means.
To ensure that it receives the highest return on the
assets, and that managing members treat failed bank borrowers
fairly, the FDIC monitors compliance with transaction
agreements, measures actual performance against projections,
conducts regular site visitations, and thoroughly investigates
borrower complaints with regard to the servicing and
disposition of their loan by the managing member.
Thank you for the invitation to testify, and I would be
happy to answer your questions.
[The prepared statement of Mr. Edwards can be found on page
51 of the appendix.]
Chairman Neugebauer. I thank the gentleman.
Mr. Rymer, you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE JON T. RYMER, INSPECTOR GENERAL,
OFFICE OF THE INSPECTOR GENERAL, FEDERAL DEPOSIT INSURANCE
CORPORATION
Mr. Rymer. Thank you, Chairman Neugebauer, and Ranking
Member Capuano. Thank you for your interest in the work
performed by the FDIC Office of Inspector General (OIG)
relating to the Corporation's structured asset sales program.
The OIG is an independent office within the FDIC
established to conduct audits and investigations to prevent
waste, fraud, and abuse, and to improve the efficiency and
effectiveness of FDIC programs.
In my written statement, I provide an overview of our audit
coverage during the current crisis. Specifically, I describe
work that we have done related to failed financial institutions
and the FDIC's resolution and receivership activities.
Today, I am pleased to discuss our completed and ongoing
work as it relates to one of those FDIC resolution approaches:
the structured asset sale transaction.
The OIG has completed performance audits of two structured
asset sale transactions that we selected based on the size and
type of assets involved. The first audit was of ANB Venture,
which involved over 1,100 individual assets and an unpaid
balance of about $1.2 billion. The second audit was of Corus
Construction Venture. Corus involved 101 individuals assets and
an unpaid balance of $4.4 billion. And Corus also contained an
advance funding mechanism.
My office contracted with CliftonLarsonAllen to conduct
these audits. The objectives in both audits were to assess the
compliance of the structured asset sales agreement and to
assess the FDIC's monitoring of these agreements.
In our reports, we concluded that ANB, Corus, and their
respective managing members complied with some provisions of
the structured asset sales agreements and that the FDIC had
implemented certain controls for monitoring these transactions.
We also noted that the FDIC had planned or was in the process
of implementing significant control improvements. However, our
audits identified a number of control deficiencies involving
both compliance and monitoring that warranted FDIC management
attention.
To that end, the ANB audit report contained 10 findings and
24 recommendations. According to the FDIC, actions have been
taken on these recommendations. The Corus report contained 7
findings and 10 recommendations, and corrective actions for
these recommendations are expected to be completed by September
30th of this year.
My written statement describes in more detail the results
of these audits.
We are continuing our audit coverage of structured asset
sales transactions with an audit of Rialto Capital Management.
This audit, which was requested by FDIC management due to
inquiries and complaints that it had received, will cover two
transactions. The first transaction involves about 5,200 assets
with an unpaid balance of approximately $2.3 billion. The
majority of these assets pertain to residential acquisition,
development, and construction projects. The second transaction
involves 345 assets, primarily commercial ADC projects, with an
unpaid principal balance of $799 million.
The Rialto audit included the same two objectives we used
in conducting the ANB and Corus audits, with the addition of
two more objectives, which involved the bidding and selection
process and the terms and conditions of the structured asset
sales agreements themselves. In designing our audit procedures,
we are also placing particular emphasis on the controls over
transactions with affiliates.
As part of this audit, we have selected a representative
sample of assets that were subject to the inquiries and
complaints that we were aware of at the time we initiated our
work. We are evaluating these assets, as part of a larger
sample, to satisfy our audit objectives.
The inquiries and complaints that we are aware of primarily
deal with the LLC's aggressiveness in pursuing balances owed on
the loans, the LLC's treatment of borrowers or guarantors and
its loan servicing, and the FDIC's handling of loans prior to
the transfer to the LLC.
We are scheduled to complete our field work in June of this
year and issue a draft report in July. A final report
incorporating FDIC management's comments will be issued near
the end of August.
Going forward, we intend to continue our work related to
each of the FDIC's resolution approaches. With regard to
structured asset sales approach, our next audit will focus on
the FDIC's overall control of these transactions. This plan, or
this approach, is consistent with our earlier work in examining
failed financial institutions and our more recent work of the
shared loss program. As our resources permit, we look forward
to conducting a study in the next year to evaluate the risk and
effectiveness of all of the resolution approaches.
This concludes my prepared statement. I thank you for the
opportunity to discuss our work, and I am prepared to answer
your questions. Thank you.
[The prepared statement of Inspector General Rymer can be
found on page 111 of the appendix.]
Chairman Neugebauer. Thank you.
Mr. Miller, you are recognized for 5 minutes.
STATEMENT OF STUART MILLER, CHIEF EXECUTIVE OFFICER, LENNAR
CORPORATION
Mr. Miller. Thank you, sir.
Mr. Chairman, Mr. Ranking Member, and distinguished members
of the subcommittee and guests, I want to thank you for the
opportunity to speak to you here today.
My name is Stuart Miller, and I am CEO of Lennar
Corporation. We are the parent company of Rialto Capital, which
is involved in the FDIC's structured transactions that are the
subject of this committee.
We are certainly very pleased to be here and to discuss
these transactions. It is our policy and program to remain
transparent, to answer questions, and to be participatory in
all instances and inquiries relative to our business. We look
forward to responding to any thoughts or questions that you all
may have.
In that regard, in my opening statement, I would like to
make six observations and points relative to our involvement
with the structured finance transactions.
Number one, Rialto was awarded the partnership with the
FDIC in a pure bid program. The FDIC defined the documents, the
pool of assets, the structured finance terms, the fees, and the
relationship with the manager in a comprehensive program; and
we evaluated the program and bid on that basis, as did all of
the other bidders. There were no renegotiations. We took the
program as it was defined. We were required to give a
conforming bid, and the highest bid won. Our bid in two of
these bids was the highest.
Number two, Rialto and Lennar have invested cash of
approximately $250 million in the two FDIC ventures. Lennar
will not receive any money back until the $627 million loan to
the FDIC is paid in its entirety. After the loan is paid in
full, Rialto/Lennar and the FDIC will split cash as it comes in
in a 60-40 relationship--60 percent to the FDIC, and 40 percent
to Lennar--until all invested cash is returned. Only then,
which we expect to be 4 to 5 years from now, will Lennar begin
to receive a return on its investment.
Number three, the portfolios are predominantly defaulted
loans; over 90 percent of the portfolio is defaulted loans.
Borrowers entered into loan agreements with their banks. There
was a default. The bank depleted capital, failed, and then was
seized. Twenty-two institutions failed and were seized by
regulators. The FDIC packaged a portfolio of loans from these
22 institutions that were in FDIC receiverships into structured
transactions in which it conducted a bid process to sell 40
percent interest to qualified buyers/managers. We took over the
management of these predominantly defaulted loans. We did not
cause the defaults or negotiate the terms of the loans. It was
and remains our job to use our expertise to find resolution.
Number four, these assets are primarily sophisticated
commercial transaction loans. They are not consumer residential
loans on homes. These were loans where sophisticated business
borrowers negotiated for a loan, generally with each side
represented by competent counsel, to borrow, in many instances,
millions of dollars in order to generate business profit. The
risks and rewards were clearly allocated within the loan
documents negotiated at the time, with both parties clearly
understanding that all of the rewards would be concentrated in
the borrowers' hands, and, accordingly, the various understood
risks of the business proposition would rest with the borrower.
Number five, because these were business transaction loans
for the benefit of the borrower and because all of the rewards
would go to the borrower, the bank carefully negotiated that
the collateral for most of these loans would be both the
business assets or properties, as well as an absolute personal
guarantee. Borrowers, to be able to borrow, readily gave those
guarantees to pay back the loan whether the business
proposition was successful or not.
Number six, we at Lennar/Rialto have over 20 years of
experience in managing and resolving defaulted loans. Our
process is time-tested and well-ordered. It is crafted around
professionalism, with a high degree of respect and decency as
we endeavor to work with each borrower individually and with
propriety as we seek resolution. By definition, the
relationship between a defaulted borrower and a lender seeking
resolution is adversarial and sometimes contentious. Simply
put, the parties have very different objectives. With that
said, our program is to work within the four corners of every
loan agreement individually, as well within the four corners of
the rules and spirit of our court system and the laws.
Thank you for your time, and I am happy to answer any
questions.
[The prepared statement of Mr. Miller can be found on page
105 of the appendix.]
Chairman Neugebauer. Thank you, Mr. Miller.
In consultation with the ranking member, I am going to
recognize a couple of Members who came in and give them an
opportunity to make a brief opening statement. I recognize Mr.
Westmoreland for 2 minutes.
Mr. Westmoreland. Thank you, Mr. Chairman, and I appreciate
you holding this important hearing.
I want to thank all the witnesses. I want to thank Mr.
Miller for stepping up to the plate. I want to thank Mr.
Leventhal and Mr. Fogg.
Mr. Chairman, once again, we find the government picking
winners and losers. Rialto, Colony Capital, Oak Tree Capital,
and others are the winners. Builders, developers, and even
their subcontractors and in some cases their purchasers that
had previously purchased their product are the losers.
Make no mistake, Rialto is the case that Mr. Miller was
talking about, and the other managing partners are getting a
great deal. They get financial information about their
competitors for pennies on the dollar. In fact, Rialto only
paid $241 million for $3 billion in loans. This is
approximately 8 cents on the dollar. To add to this sweetheart
deal, I think Rialto received a $600 million loan from the
FDIC, interest free, nonrecourse, for 7 to 10 years. Now that
is a deal that I think most of these borrowers would have taken
if they could have bought this loan for 8 cents or put up 8
cents on the dollar and then had the FDIC loan them the rest of
it for 7 years with no interest and no recourse. I think the
FDIC would have recovered a lot more money.
But wait, there is more. Rialto and these other managing
partners are paid a management fee. On this particular case,
the $3 billion case, I believe the fee was $32 million for the
first year. This is paid on the unpaid balance.
So what incentive is there for any of these managing
partners to settle the loan when they are getting a management
fee on the whole deal? There is no incentive. If you take the
$32 million and divide it by the number of loans, which I think
was 5,200, they are being paid $6,100 per loan per year; and
this is paid on the unpaid principal balance of the portfolio.
In fact, many of my constituents have tried to negotiate
with Rialto and the FDIC. The FDIC is probably the hardest
agency that I am familiar with that is willing to negotiate
anything.
I will say that Rialto has stepped up in the last week or 2
weeks to try to settle some of these things. But earlier this
year, I gave the FDIC verifiable proof that the FDIC was not
maximizing return for the Deposit Insurance Fund, and let me
tell you what happened.
We had a gentleman who had a loan with a bank and he
borrowed the money to buy stock in another bank--if you will
give me just 30 more seconds--$500,000. The bank he bought
stock in went broke. Silverton Bank went broke. He had a
modified agreement for 85 percent of the $500,000 agreed to by
the FDIC. Then, the FDIC sold that loan to a third party for 18
cents on the dollar. That is a problem.
And so I hope that we will get some answers today to make
sure that the FDIC is getting the maximum that they can for the
money and that they are not killing small business and doing
away with jobs.
I yield back.
Chairman Neugebauer. I now recognize Ms. Waters from
California for a brief opening statement as well.
Ms. Waters. Thank you very much, Mr. Chairman.
I almost don't need to give this opening statement. Mr.
Westmoreland just spoke for me. Those are absolutely my
concerns.
But I want to thank you, Mr. Chairman. I welcome today's
hearing as an opportunity to closely examine the Structured
Transaction Program the FDIC adopted in the wake of the 2008
financial collapse to manage and dispose of assets from failed
institutions that may be more difficult to market and sell.
While I understand that the FDIC has the legal responsibility
to maximize recovery on the assets of failed banks and
replenish the Deposit Insurance Fund, I am interested to learn
more about the reports suggesting that FDIC's practices and
private sector partnerships may be creating additional
hardships for small businesses and borrowers.
In addition to that, I would also like to hear from the
FDIC today about the steps it has taken to ensure that small
enterprises, minority- and women-owned businesses have the
opportunity to purchase FDIC assets or are in some way involved
in these structured transactions.
In a 2010 Bloomberg article, one observer noted that the
new FDIC strategy for managing assets seized from failed banks
has turned the agency into a long-term investor making a
multibillion dollar bet on the recovery of some of the most
distressed condominium markets in the country. Instead of
selling the assets to maximize cash in hand, the agency is
offering its private sector partners zero percent financing,
management fees, and new loans to complete construction of
projects it can hold until markets recover.
With that said, it is my understanding the regulators have
determined that in certain situations, public-private
structured transactions can offer a better chance to replenish
the Deposit Insurance Fund. I therefore welcome the FDIC's
comments today on the level of success and savings the agency
has achieved with this program, as well as the agency's
response to criticisms against the program.
And, lastly, I am particularly interested in the FDIC's new
investor match program that was designed to encourage small
investors and asset managers to partner with larger investors
in order to participate in the FDIC's structured transaction
sales for loans and other assets from failed banks. In an
effort to be inclusive of all firms, the FDIC launched the
program to expand opportunities for participation by smaller
investors and asset managers, including minority- and women-
owned firms. I do look forward to hearing from the agency today
regarding whether this program is working to extend
opportunities to these types of firms that may have been
otherwise excluded from these transactions, and I would like
some specifics and some numbers to document if they are going
to represent that they have done these things.
I yield back the balance of my time.
Chairman Neugebauer. I thank the gentlewoman.
And now the gentlewoman, Ms. Herrera Beutler, is recognized
for a brief statement.
Ms. Herrera Beutler. Thank you, Mr. Chairman, and members
of the subcommittee. Thanks for holding this hearing today.
This topic is incredibly important, so important that I am
here even though this isn't actually my committee. I am
grateful to be a part of this hearing today, because this is
very important to the folks in southwest Washington in the
district that I serve.
Over the last year, I worked to understand what happened
with small business owners like Mr. Fogg, who is here today,
who had loans with the now-collapsed Bank of Clark County in my
district. And the answers still aren't very clear. What I do
know is that the fallout resulted in destroyed businesses,
bankruptcies, and the loss of livelihoods for folks in my area.
So today, I want to find out what led the FDIC to give an
extremely favorable deal to Rialto Capital, and consider the
terms of the agreement between the FDIC and Rialto. In this
``sweetheart deal'' is what comes to mind--and my colleague
uses the same term--Rialto was allowed to pay 8 cents, and it
is worth repeating, 8 cents on the dollar for $3 billion worth
of assets. Further, the FDIC issued Rialto a 10-year, over $600
million loan at zero percent interest. That is a great deal.
I believe that had Mr. Fogg or any other home builder in my
area been given a 10-year zero interest loan, they would have
provided a much higher return than 8 cents on the dollar.
Instead, most were left to deal with Rialto.
And excuse me, Mr. Miller, I know that you said you work
with a high degree of respect and decency, but I can give you
case after case--I have been in office for 15 months, and this
is the one where I have had case after case after case. My
church came to me and said, Rialto won't negotiate with us. I
have to tell you that they are not a for-profit entity.
So I accept that businesses fail. That is part of the free
enterprise system. What I don't accept is when a government or
quasi-government agency that has a taxpayer guarantee makes a
deal that puts small businesses at a disadvantage. That is what
I don't accept.
And so today, I am hoping to understand the interest not
only that Rialto has but Lennar Homes, who has now moved into
my area, and what your plans are in Clark County. Technically,
I know it is not allowed for Lennar to buy from Rialto the land
it obtained under such agreeable terms. Yet, your Web site
shows that they have moved into Vancouver, and I am very
interested in that relationship. I am interested in the major
tracts of land in my largest county that are now owned by
Rialto, and hearing what the plans are moving forward and
making sure that the FDIC does its job with regard to
oversight.
So I am grateful to be here, Mr. Chairman. Thank you.
And I yield back.
Chairman Neugebauer. I thank the gentlewoman.
That is all of our opening statements, and we will now go
into a question-and-answer period. Each Member will have 5
minutes, and the Chair recognizes himself first.
Mr. Edwards, in some of the structured transactions deals,
some of the people have loans and some don't. I think 22 of the
32 had nonrecourse loans; the other 10 did not. Can you
distinguish the difference between a transaction where someone
does not get financing and someone else gets the financing?
What was the basis of that?
Mr. Edwards. Yes. Thank you, Mr. Chairman.
It might be helpful if I could give a little background
into how the failed bank assets are slotted into the structured
sales program. At the FDIC, we try very, very hard when a bank
is failing to find a financial institution to take that failing
bank over on a whole bank basis so that they take all the loans
and all the deposits.
In some instances, that is not possible. There are
instances when banks fail for liquidity reasons and we have
very little time to market the institution. Therefore,
investors have very little time to look at the book of loans
that a bank has, and so we end up taking them back in our
receivership capacity.
In other instances, the bank simply has very little
franchise value. The assets are of very poor quality, and there
is just no interest in acquiring those.
So I want to repeat it is our goal to not take any failed
bank assets back. In a perfect world, we would transfer those
immediately to an acquiring institution. But early on in the
crisis, it was very difficult to do that, because we did have
more liquidity failures.
So with those assets that we have to take back in our
receivership capacity, what we have done is to institute the
structured sale program, mostly for real estate-related assets
and, as some of the Members have said, mostly distressed
assets. Sixty-plus percent of the real estate-related assets
that went into these structured transactions were distressed
assets.
But, in any event, we try to group assets of like kind. For
instance, in the Rialto transaction, those were all pretty much
acquisition, development, and construction loans. We group
those into packages. We use a financial adviser to assist us in
figuring out the best structure for those, and then we put them
into packages and attempt to sell them.
There are some loans that we work ourselves. And I should
mention that after the bank fails, there is usually a 6- to 9-
month period where we do have to work the assets ourselves
until that structured transaction closes.
So if that gives you a flavor for--I am sorry, go ahead,
sir?
Chairman Neugebauer. So the question is, of the 32 sales,
22 of them involved in financing--
Mr. Edwards. Yes.
Chairman Neugebauer. --10 of them did not.
Mr. Edwards. Yes.
Chairman Neugebauer. I want to know why some people got
financing and some didn't. Does that change the deal?
Mr. Edwards. I think we have done a less-than-perfect job
of explaining the role of financing.
When we create a structured sale, what happens is we create
a limited liability company. We gather up the assets that are
slotted for that sale, and the receiverships contribute those
assets to the limited liability company. So once they have
contributed those to the limited liability company, we then bid
out a percentage of the equity to capital investors.
We do add leverage to those transactions. And we started to
do that, I believe it was in 2009, because what we were finding
was the bidding was not as aggressive and there were not as
many bidders there. By adding leverage to the transaction, we
got better bids.
Let me make one point clear: We are not financing the cash
contribution of the LLC to these transactions. The note is
issued by the LLC we have created to the receiver in partial
payment for the assets that the receiver contributed to the
LLC.
Chairman Neugebauer. So basically, the ones that don't have
financing, it is because they made a bid on a certain
percentage of the equity of that--
Mr. Edwards. That is correct.
Chairman Neugebauer. And they didn't leverage up. So this
could have been a smaller pool or an investor that had--
Mr. Edwards. Correct.
And I will say, just from an historical perspective, early
on in the crisis, we did not have the LLC structure. We
actually had a partnership structure. And part of the reason we
changed to an LLC structure was because that allowed us to
issue the debt.
Chairman Neugebauer. One last question. Mr. Edwards, let's
say I was banking at bank ``X,'' I was current on my loan, but
the bank had a bunch of other bad paper in there. My loan was
current, and in fact I had 2 years left on my note, and I am in
the middle of a development. What happens to me? You have
closed my bank, but I am in the middle of a project here, and
it is 2 more years on the note, and I have room on my line of
credit for an advance. What happens to me?
Mr. Edwards. Thank you for that question. That is an
excellent question.
It is one of the most difficult things we face when a bank
closes. We are talking about unfunded commitments. Somebody, as
you point out, is in the middle of the development, they
haven't missed any of their payments. We look at each of those
unfunded commitments--one of the first things our credit people
do when they go in the night of the bank failure is to find out
where we are on those. On a case-by-case basis, we look at
those and make a decision on which ones we should fund and
which ones we shouldn't. And really, the litmus test for that
is if you put a dollar in, will you get a dollar back?
This is very analogous to the situation in a bankruptcy--a
Chapter 7 bankruptcy where the trustee is faced with the same
kind of situation. They need to make a decision. If I put a
dollar in, will I get that dollar back out?
I will give you an example. Suppose in that situation you
had 4 spec homes and they were all 75 percent complete. In that
fact pattern, we would almost assuredly go ahead and fund
those, absent other circumstances we haven't talked about.
Because it makes sense. We will finish the homes. They are
almost complete. We will continue to fund the loan. And when
those are done, we will work with the borrower to figure out
where to go from there. That has been our policy throughout
this crisis.
Chairman Neugebauer. Thank you.
And now the gentlewoman from California, Ms. Waters, is
recognized for 5 minutes.
Ms. Waters. Thank you very much.
Mr. Chairman, there is a long history to many of our
concerns about the resolution procedures of the FDIC. Many of
us go back to the resolution corporation and how they disposed
of failed assets, and what we see with the FDIC is quite
different. Many of us are not only concerned about some of the
issues that were raised here today about what happens to those
banks, those individuals who are left when you take over a
failed institution and they are in development and how they are
going to continue to get funding, loans, etc. But many of us,
whether we are talking about the resolution of assets and how
you dispose of failed assets, many of us are concerned about
how you get rid of or you put out to bid or you make available
these assets. We are concerned about that as we are concerned
about REOs on the housing market side.
What we find is, too often, we get these big institutions
or corporations who have the ability to put in smart bids and
to leverage and to do all kinds of things. And it looks as if,
in the case of Rialto, they had additional assistance in being
able to be financed in some shape, form, or fashion.
But what many of us know and understand is, to the degree
that you break up these assets and they are put out to smaller
corporations or organizations, it improves economic development
in all of our communities.
And so, when we hear about what appears to be sweetheart
deals, we are going to have to spend a lot of time. And I think
you are going to see that on both sides of the aisle, we really
want to know what is happening with all of this.
We understand that the FDIC was trying to take all of the
assets of a failed bank and move them all at one time to
another bank or to individuals. And we have people who came in
to us and said, ``We put together a group from our community
with substantial dollars, but the FDIC in this particular
package wants us to take the barn and the equipment and the
animals, and we don't need all of that.'' But just like with
RTC, we could take the savings accounts, we could take this, we
could take that.
We can't we do that? And why are we still going down the
same road of making available to the big guys the opportunity
to not only be successful in these bids but to get our help in
doing so in the way that we finance them?
Mr. Edwards?
Mr. Edwards. Thank you very much. I appreciate your
question, and I do share your concern.
I know you asked a question about inclusion of smaller
investors. We started a small investor program. Under the
structured sale program, 3 of the 32 sales themselves have been
to small investors.
We did hear the feedback of the market, as well as folks
here on Capitol Hill about the concerns, and so we created a
pilot program and it is out on our Web site. It is called the
Small Investor Program, or SIP. Instead of these large, large
packages, what we do is we limit these to just one
receivership. We try and concentrate the assets geographically.
We do offer technical assistance to potential buyers. And we
lengthen the due diligence period so that they have adequate
time to look over these packages.
And I will have to say that the pilot has been deemed a
success--
Ms. Waters. Excuse me, I have to interrupt you for one
moment, because I want to make sure I understand--
Mr. Edwards. Sure.
Ms. Waters. --what is in this. Are these the assets that
you find very difficult to get rid of?
Mr. Edwards. Yes, that is correct.
Ms. Waters. Why would a small business want to be involved
with getting very difficult assets to manage and to try and
make money on?
Mr. Edwards. There are plenty of folks who don't have the
capital that a larger deal requires, but have the expertise.
And I will tell you, for those of you who have a real
estate background, working distressed real estate credits is a
tough business. It requires a lot of technical knowledge. And
some of these folks have that, but what they don't have are the
funds to bid on these larger deals.
So we have found great success in breaking these packages
into smaller packages and bidding these out. These folks are
very happy with these deals, and they are working on them now.
With respect to the Investor Match Program, I know you
mentioned that, so I just wanted to say quickly: It is the
equivalent of, sort of, a match.com. It is a Web site where
both investors and people with expertise, but not necessarily
capital, can exchange emails and say, ``I have `X' amount, and
I want to invest in one of these deals;'' or, ``I have a lot of
expertise, or my firm has a lot of expertise, but I don't
really have a lot of capital.''
So we have put that Web site together. The numbers have
really doubled since the very beginning when there was a small
number. And there are quite a few minority- and women-owned
businesses that have partaken in that Web site. So we hope--
Ms. Waters. What is ``quite a few?''
Mr. Edwards. I don't have the exact numbers, but I can
certainly get those for you.
Ms. Waters. Remember, that is what I said. I want to know.
Mr. Edwards. Yes. And I can certainly get those for you.
Ms. Waters. Thank you, Mr. Chairman.
Chairman Neugebauer. I thank the gentlelady.
And now the gentleman, Mr. Fitzpatrick, the vice chairman
of the subcommittee, is recognized for 5 minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman.
Director Edwards, have the FDIC Office of Inspector General
audits prompted any changes or improvements to the way the FDIC
structures the LLC transactions?
Mr. Edwards. Yes, thank you for that question. That is an
excellent question.
Absolutely. Our relationship with the Inspector General is
respectful, cordial, and professional. But we are very grateful
for the work they have done in this area, because, as you know,
they did one audit of the ANB transaction, another one of
Corus. And I thought they did a very thorough and reasonable
job.
I would like to say that we adopted what we had done during
the RTC days and began this program in May of 2008. We are
constantly revising policies and procedures. We are constantly
revising the agreement based on lessons learned and things that
come up.
So a lot of what Mr. Rymer's people and his contractors
pointed out to us, we took to heart. As you see in my
testimony, on the ANB venture, for instance, there were a large
number of findings and recommendations. We addressed every
single one of them with our managing member. And I expect when
his people go in, they will find things much improved. I would
say the same about Corus.
In Corus, in particular, I would like to talk about one
issue, and that has to do with the definitions that are spelled
out in our LLC agreements. As those of you with a real estate
background or those of you with a legal background would
understand, these agreements are lengthy, complex, and
difficult to administer. And we have some very fine people who
do that. Nevertheless, the people we are dealing with on the
other side of the table, like Mr. Miller, are very
sophisticated, and they have their own set of attorneys and
bright minds working on this. And reasonable people can
interpret contracts differently.
We work very diligently to work those differences out. And
where we find that, in retrospect, the contract should have had
tighter language or more clarity to it, we go ahead on a
prospective basis and amend the contract.
Mr. Fitzpatrick. Mr. Miller, what are some of the concerns
that have been raised by borrowers whose loans have been
transferred to one of the subsidiaries of your organization?
Mr. Miller. Remembering that in these transactions
approximately 90 percent of the loans had already defaulted,
most of the borrowers were concerned as to how they would reach
resolution and what the process would be. Many of them had gone
from bank holding to--or bank as their lender to FDIC as their
lender and then ultimately to us. So an initial concern or
question--and we have 20 years of experience with this--is, who
is my new lender and how will we interact? So there is some
skepticism.
Unfortunately, in the context of a market turn and a great
number of defaults, there is some turmoil in the business and
there is some reconciliation in terms of relationship that has
to take place.
I think that there are always questions where borrowers
feel they have had representations made by either their bank or
by the FDIC, and there is a discovery process that ensues.
Those are concerns that are raised by borrowers. And the
discovery process is, in many instances, one that comes down to
he said/she said and trying to figure out what the actual facts
and landscape are.
Remember that, with us, in these 2 transactions, we very
quickly had to take over 5,500 loans--again, 90 percent
defaulted--very quickly read every document and define the
landscape. So the concerns of borrowers would range anything
from, how will my loan be administered, to how long will it
take until we can sit down and have a conversation?
Mr. Fitzpatrick. Attorney General Rymer, I think my time is
about to run out, but I was wondering whether you believe that
the structured transaction sales pose a risk to the Deposit
Insurance Fund.
Mr. Rymer. They certainly do, sir. They are principally the
reason we began this audit process.
I think we have to put it in context. There are some $668
billion that have passed through, in various forms of
resolution, through the failure. This program--$25 billion or
so is in this particular program.
We were concerned that, because this program is somewhat
unique, there were not standing control mechanisms in place.
That is why we did an audit early on of ANB and why we did an
audit of Corus. In the case of ANB, we saw very little of a
control environment to oversee that transaction. We have not
yet done an overall audit to look at the entire control
environment, but we did look at the controls of that particular
transaction.
We have seen some anecdotal evidence, not yet proven
through an audit, but we have seen evidence that the compliance
process is maturing. There are compliance contractors in place
now that management is hiring to review these transactions in
great detail and with more regularity than they were in the
past. And in terms of corporate governance, the FDIC Audit
Committee, which is a committee of the board of directors,
routinely receives reports on oversight of this program.
So oversight was minimal, I would say, early on, but we
have seen some growth. We do plan, as I mentioned in my opening
statement, to do a more comprehensive review of the oversight
program a little later, probably early next year.
Mr. Fitzpatrick. Thank you, Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman from Ohio, Mr. Renacci, is recognized
for 5 minutes.
Mr. Renacci. Thank you, Mr. Chairman.
I am trying to understand the transaction. I think I do,
but I am going to walk through it, and maybe start with you,
Mr. Edwards, and then ask you, Mr. Miller.
It sounds like you bundle a group of assets from a troubled
organization--and somebody testified 90 percent of them are
normally defaulted already, defaulted loans--you bundle them
together, and you put them in an LLC. And then you bid this LLC
out, and the owner gets 40 percent of that LLC for a note taken
back in this case, a nonrecourse note.
But that owner of the 40 percent has to, at least in this
case--I think it was $900,000 or whatever it was--has to
recover $900,000 first, pay the note back, and then the
difference is split, 60 to the FDIC and 40 to the owner of
the--40 percent share in the LLC. Correct?
Mr. Edwards. Yes, in most aspects.
It might be helpful if I just--since Mr. Miller is here--
generally, the cash flows for our managing members in these LLC
transactions are nonpublic information. But since most of those
were in his statement, maybe I could just walk through that
transaction for you, and hopefully I will get to it.
First of all--
Mr. Renacci. Before do you that, though--
Mr. Edwards. Yes. Please.
Mr. Renacci. --because I am really trying to stay top in--
Mr. Edwards. Sure.
Mr. Renacci. --but that is kind of a top--
Mr. Edwards. Yes. You are correct. So the receivership
contributes assets to an LLC we create. We then bid out the LLC
to private sector entities.
Before we do that, we specify a few things: Are we going to
allow leverage, yes or no? If we are, what ratio of leverage?
In the case of Rialto, it was one-to-one--
Mr. Renacci. But those are all the procedures. I want to
come back to you, because I only have 5 minutes.
Mr. Edwards. Okay.
Mr. Renacci. I want to go over to Mr. Miller, and then I am
going to come back to you.
Mr. Edwards. Okay.
Mr. Renacci. Mr. Miller, when you get these, if you own 40
percent of this LLC and you are now managing it, do you change
the loan terms in any way? Are the loan terms the exact loan
terms that the individuals already had signed up for, already
had guaranteed, already had interest rates, already had terms?
Are you changing any of that?
Mr. Miller. Now, when you ask about the loan terms, you are
not talking about the loan with the FDIC?
Mr. Renacci. No, no. I am talking about the loans that are
bundled in that LLC.
Mr. Miller. Okay. So we, in the transactions that we have
purchased, become the manager of--part-owner and manager of
those loans.
Mr. Renacci. I understand that. Are you changing the loan
terms?
Mr. Miller. We do. We negotiate with borrowers to sit down
and to rethink and to find common ground as it relates to
either extending the loan or terminating the loan or something
like that.
We do not have absolute authority nor do we have FDIC
authority to alter the loan terms unilaterally. So it is only
as a negotiation with the borrower or through the court system
that there is any alteration to those loan terms.
Mr. Renacci. So do you make the loan terms any worse than
they have already signed on, or do you make them better? In
other words, you can't say, well, you had a 15-year mortgage,
you are only 2 years in, but I want it all paid today.
Mr. Miller. That is correct. We cannot alter the loan terms
to the detriment of the borrower unilaterally.
Mr. Renacci. Okay. So the borrower still has the same loan,
in most cases, that he had signed up for or she had signed up
for years ago, months ago, whatever. You now have that.
Mr. Miller. We have the same loan terms that we have
inherited from the FDIC. The FDIC might have altered in some
way.
Mr. Renacci. Okay. So with that being said, my next
question is, who decides how they are bundled? Because at this
point in time, ultimately the borrower, in my opinion, hasn't
been hurt just yet, because they are still signed up for the
same debt they agreed to pay you a long time ago. So who now
bundles them to make the decision of what goes in the LLC?
Mr. Edwards. Thank you. We work with a financial advisor to
figure out what the best structure for a particular loan sale
is. So we go through the inventory of assets that we have taken
back from the failed banks that we were unsuccessful in selling
to an acquiring institution, and they will look through the
portfolio with us, and we will figure out, okay, what is a
rational way to market these loans. That is how we package them
up.
Your point about the loan terms is absolutely essential.
Borrowers have the same rights and responsibilities that they
did with the bank. We don't change the loan terms unless it is
by mutual agreement.
Mr. Renacci. So how do you--so then you bid these out to a
third party. How do you decide--I know it is to the highest
bidder, but--
Mr. Edwards. Right.
Mr. Renacci. --how do you decide who gets a chance to bid?
Mr. Edwards. We have an extensive prequalification process.
It is all laid out on our Web site. You have to have the
financial capacity and the technical expertise. And you have to
have a good background; you cannot have caused a loss to the
Deposit Insurance Fund, for instance.
And so if somebody goes through that prequalification
process, then as specific loan packages become available, they
are invited to bid. And if they choose to do so, they can sign
up for due diligence and go ahead and bid.
Mr. Renacci. Thank you.
Now, Mr. Miller, some of those loans that you get in this
package that you are now managing, some of them are worthless
and some of them you are going to get more than 8, 10, 20
percent, whatever you are buying them for?
Mr. Miller. Yes, sir. Thank you.
First of all, I want to correct--we don't pay 8 cents on
the dollar for, or we haven't in this instance paid 8 cents on
the dollar for the loans.
And, yes, some of them will be worth absolutely zero, and
have been. Some of them will be worth substantially worth more
than what we paid. That is the expectation.
Mr. Renacci. I don't know how you could pay 8 cents when
you are--whatever you are paying, you are still going to get--
once you pay that back, you still have to contribute 60 percent
back to the FDIC.
Mr. Miller. That is correct, sir.
Mr. Renacci. It looks like I am running out of time. Thank
you.
Chairman Neugebauer. I thank the gentleman.
And now, Mr. Westmoreland is recognized for 5 minutes.
Mr. Westmoreland. Thank you, Mr. Chairman.
Mr. Edwards, you mentioned to Ms. Waters that you were
making these in smaller amounts. The smallest amount I have
seen is $101 million. Is that a small amount to you?
Mr. Edwards. It is in terms of what a potential investor
would have to contribute, and again, that is the book value,
perhaps, of the transaction, but not the terms of the actual
cash contribution that somebody would have to put up. We have
not found--
Mr. Westmoreland. That is okay. That is just what I wanted
you to--the smallest one so far I have seen is $100 million.
Now, there was one made to a realty group that if you
divide the number of assets into the amount, it came up to
about $50,000 per asset. Couldn't you have divided those up
into smaller things where more people could want to get in on
this deal where they pay 8 cents down and then you loan them
the balance at zero percent interest for 7 to 10 years with no
recourse? Don't you think people would be interested in that?
Mr. Edwards. Again, maybe I should talk first about the 8
cents. The loans that Rialto ended up purchasing, the equity
partnership, they had a book value of $3.1 billion. The
estimated market value, the implied value based on their bid,
was about $1.2 billion.
Mr. Westmoreland. Who did that estimate come from?
Mr. Edwards. We had a financial advisor who gave us--
Mr. Westmoreland. Okay.
Mr. Edwards. Yes.
Mr. Westmoreland. Thank you. Who is your financial advisor?
Mr. Edwards. We have a range of financial advisors, such
people as Barclays, and Stifel Nicolaus. I can get you a list.
Mr. Westmoreland. So you are the FDIC and you don't have
anybody who can advise you on the finances?
Mr. Edwards. No, I think that our--
Mr. Westmoreland. You have all outside financial advisors?
Mr. Edwards. Correct.
Mr. Westmoreland. Now, you said that the Inspector General
was doing a good job.
Mr. Edwards. Yes.
Mr. Westmoreland. Do you think he is doing it
appropriately?
Mr. Edwards. I have all the respect, professional respect
in the world for Jon. You can read his background. I think he
has a very--
Mr. Westmoreland. Okay. Do you realize that your partner in
this deal said that the Inspector General was being invasive?
Do you agree with that?
Mr. Edwards. I don't agree with it, and I am not aware that
comment was ever made.
Mr. Westmoreland. Okay.
Can you give me, not right now but in writing, an example
of where you went in to some unfinished homes and worked it out
with the borrower to finish those homes up? I want to know
where those are at, because I don't know of any of them. And,
in fact, people have had a terrible time even getting in touch
with somebody about the FDIC, and the FDIC said we are not a
bank, we don't do that. So I would like to know where those
are, exactly.
But, Mr. Miller, in your testimony, you say that the
borrowers you deal with are advised by counsel at every point
in the negotiations. Is that correct?
Mr. Miller. To the best of my knowledge, they are, sir.
Mr. Westmoreland. However, we have heard from different
people that Rialto's prenegotiation letter sent to borrowers
includes a clause that prevents the borrower from bringing
legal counsel to negotiations. In fact, I have heard reports
that Rialto will not engage with borrowers who have counsel
present.
Is this the open process that you are claiming--that you
are holding up as a model?
Mr. Miller. No, sir. And thank you for your question. As
you know, we have talked about this before.
It is very much our policy to engage in conversation and
communication with our borrowers. And while I respect and
understand that you might have heard one side of the story, I
have always found that anytime I hear one side of the story, it
is always very compelling.
Mr. Westmoreland. I know. And I heard your side, and that
is the reason I went to get another side.
Mr. Miller. Yes, sir. Thank you.
But the reality is, from the prenegotiation letter all the
way through to every negotiation that we have with our
borrowers, we engage borrowers with counsel, without counsel.
Mr. Westmoreland. Okay.
Mr. Miller. We try to engage our borrowers properly and
respectfully. And I think--
Mr. Westmoreland. So if I brought you a prenegotiation
letter that was sent to a borrower who said that they were not
allowed to have an attorney, you would find that troubling?
Mr. Miller. I am not sure of the context of that letter, so
I won't speak hypothetically. What I would say is that in all
instances, any communication with borrowers starts at point
``A'' and is subject to discussion and negotiation. So if a
borrower--
Mr. Westmoreland. Okay, but if I brought--
Mr. Miller. Excuse me, sir.
Mr. Westmoreland. --a letter from Rialto--
Mr. Miller. If the borrower would like to have an attorney
present, the borrower can speak to us and say, ``I would like
to have an attorney present, and I would like that as part of
my written record.''
Mr. Westmoreland. I am just asking you if you would look at
a notification from Rialto to a borrower telling them that they
could not have counsel during the negotiations.
Mr. Miller. Sir, I would certainly look at a communication.
Mr. Westmoreland. Thank you. Yes, sir.
Now, what percentage of your negotiators are attorneys?
Mr. Miller. I would have to get back with the real number,
but I would say probably 30 percent.
Mr. Westmoreland. Okay. So it is possible that somebody who
was not being represented by counsel was actually negotiating
with an attorney. Is that possible?
Mr. Miller. I would venture to say probably not.
Mr. Westmoreland. Okay.
Mr. Miller. We generally do not--I can't speak absolutely,
but I believe not.
Mr. Westmoreland. Mr. Edwards, the last time we spoke on
the record, which I think was August 2011--
Mr. Edwards. Yes, sir.
Mr. Westmoreland. --on structured transactions, I asked you
if it would be best for a managing partner to go to court and
obtain a judgment and allow the borrower to continue to accrue
the interest in the taxes rather than foreclosing and taking
the collateral first. Your response was that it seemed to be a
case-specific situation.
Do you remember that conversation?
Mr. Edwards. Yes, I do.
Mr. Westmoreland. So my office sent you case after case to
prove our claim that Rialto specifically is litigating over
negotiating. However, your answers are the equivalent of giving
me and this Congress the finger.
In your letter to Mr. Scott Leventhal, who will testify
later--and I hope that all three of you gentlemen will stay
tuned and hear some of the other side of this story--dated
March 27, 2002, you said, the FDIC states, ``Although the FDIC
holds an equity interest in the LLC, such as Rialto, we do not
manage or service the assets that were conveyed to the LLCs or
Rialto itself. Therefore, the FDIC is not in a position to
control the resolution strategy to loans owned by the LLC.''
So you are saying that even though you are a 60 percent
partner in the deal, that you have fronted $642 million, that
you have no say-so in it?
Mr. Edwards. No, I wouldn't say that. We do exercise an
oversight responsibility. But if you look at how and why we put
these transactions together, it was specifically to make use of
the private sector's expertise in working out these credits.
It would not be a true sale if, in fact, we were involved
in the day-to-day management of the LLC. And, in fact, that is
exactly why we created these transactions: so that the
government was not involved in the day-to-day aspects of those
transactions.
Mr. Westmoreland. Are we going to do another round, Mr.
Chairman?
Chairman Neugebauer. We are going to try.
Mr. Westmoreland. I yield back, since my time is up.
Chairman Neugebauer. Okay. Thank you for yielding back.
Ms. Herrera Beutler is recognized for 5 minutes.
Ms. Herrera Beutler. Thank you, Mr. Chairman.
I have a couple of questions. Mr. Westmoreland made a very
important point. Now, I understand that you are saying, in
concept you set up this LLC by way of trying to protect the
depositors, and you are working with the private sector and
they are putting in some skin, and it is supposed to work. We
are not opposed to that idea. The problem is, in practice, we
have seen very different things.
I think you have about 150--or had--loans; some were
defaulted, some were performing. And I have instance after
instance after instance of cases--people who did not talk, they
were not related--I shared my church, they are nonprofits, they
are developers, it is across-the-board--who have come to me and
said, we cannot negotiate in good faith with Rialto, because
they will not work, they won't negotiate. I almost laugh to
hear you say ``negotiate.'' It is like the bully on the
playground coming up to the skinny kid and saying, ``Give me
your lunch.'' That is not negotiating. Yes, the kid could say
no, but he is going to lose his lunch and get a black eye
anyway.
So where this comes to you, if you were operating on your
own with your own capital, you wouldn't have me here
questioning it. My problem is when an agency steps in and says
to a construction loan that is performing, we are not going to
extend any more payment to you, and then we are going to sell
the loan to a business which has over 20 years of experience
and understands how to develop this and has unlimited or very--
I shouldn't say unlimited, but significant access to capital
and a tremendous sweetheart loan deal, we have a problem.
And so, to hear you say that there is a negotiation taking
place in good faith, I guess that is one thing that I would
ask: Is that something you are willing to go back on? If I
present to you cases, probably 80 of them, where people have
not been able to negotiate--many of them are in foreclosure at
this point or have lost it all in bankruptcy--is that something
you are willing to work with us on?
Mr. Miller. Is that for me?
Ms. Herrera Beutler. Yes, Mr. Miller.
Mr. Miller. Yes, thank you for your question.
We have had numerous inquiries through various Members that
we have responded to in writing over and over again. And, of
course, we are always open to and willing to listen to,
understand, and rethink any program or any negotiation that we
have in place.
The answer to your question simply is, yes, of course we
will go back, and we want to hear any concerns that people
have.
Ms. Herrera Beutler. Great.
Mr. Miller. That is why I am here today.
Let me just say that it is very important to know that,
number one, you might only be getting one side of a story.
Number two, the terms and conditions of loan documents are very
clear. The simplest answer is, the borrower is always able to
pay off their loan. At the end of the day, they are looking for
a compromise. And what one person might consider responsible or
reasonable, another person might say, I need to know the
factual landscape.
Ms. Herrera Beutler. That is fair. And in reclaiming my
time, part of my concern is, when someone is--by nature of home
construction or commercial development, the way that the loan
works is the money comes in phases. So if the FDIC says,
``Sorry, we are going to cut you off, you don't get to finish
it,'' it makes it very difficult then when you have the new
owner of a loan who comes in and says, ``We want it all, we
want it all now.'' You are, by definition, picking winners and
losers. And the government shouldn't be in that business.
Mr. Edwards, I have a question. It is kind of a two-parter.
Actually, between the two of you, I have heard this now. But,
Mr. Miller, your testimony stated that Rialto purchased the
5,500 distressed loans with an unpaid balance of $3 billion
with a purchase price of 1.2. However, Rialto paid the 250,
which is 8 cents on the dollar down, and the FDIC picked up the
remaining 600-plus million.
So you put down 8 cents on the dollar, and I have two
questions with that. First, how were these deals negotiated?
And, second--perhaps this is more for Mr. Edwards--was the
highest bidder really 8 cents? I do have folks in my neck of
the words who maybe couldn't have hit the whole 100 percent but
they could have hit 60 cents, they could have hit 80 cents. But
was the highest bidder really 8 cents?
Mr. Edwards. First of all, I will answer your question on
the bidding. These transactions are widely, widely marketed. As
I was indicating before, we have a prequalification process. In
the case of the two Rialto deals, there were 16 bidders and 42
bids on the first deal that they bought from us. They were the
highest bidder. In the second deal, there were 11 bidders and
18 separate bids, and they were the highest bidder. This is a
very, very competitive process.
Ms. Herrera Beutler. So 8 cents was the highest bid?
Mr. Edwards. I think the issue here is, what they bid is a
dollar amount for the percentage equity that they are getting
in the LLC. In this case, it was 40 percent of an LLC with
loans that are worth $1.2 billion. They paid--
Ms. Herrera Beutler. Worth on paper.
Mr. Edwards. No, worth with regard to our financial
advisor's estimate, worth $1.2 billion. They paid $243 million
for their 40 percent share of the equity portion of the deal.
Fifty percent of the deal was debt, 50 percent was equity.
Ms. Herrera Beutler. So--
Mr. Edwards. So, in other words, yes, they bought--
Ms. Herrera Beutler. --8 cents was the highest bidder in
terms of recovering. Okay, so these--
Mr. Edwards. If you look at this as a metric of percentage
of book value, the 8 cents is correct, but--
Ms. Herrera Beutler. I have to tell you--
Mr. Edwards. Yes.
Ms. Herrera Beutler. --one thing I keep hearing is, I ask a
question and then sometimes it is, with the whole portfolio we
can't pick and choose pieces of it. And then I hear, you can't
break it down. I keep hearing different points made in response
to questions.
In my mind, we had willing people who could have performed,
and it was the FDIC who stepped in. And it was one of the first
banks that went down in our region. Granted, I don't think you
all knew what you were doing, and we are bearing the
consequences.
But, with that, we will keep going. Thank you, Mr.
Chairman.
Mr. Miller. Mr. Chairman, should I answer my portion of the
question?
Chairman Neugebauer. I think we are going to try to come
back around.
Mr. Miller. Okay.
Chairman Neugebauer. We are going to have to vote here in
just a little bit.
The Chair now recognizes Mr. Capuano, the ranking member of
the subcommittee, for 5 minutes.
Mr. Capuano. Thank you, Mr. Chairman.
And, gentlemen, I am kind of put off on this, because the
truth is, I have not dealt with this, so this is kind of a new
issue to me. My office has gotten no calls on this, so I am
kind of learning as we go along. But I have been listening, and
I have read the testimony. And, Mr. Inspector General, I have a
couple of questions.
I believe you said it in your testimony, but you also put
it in your written statement. You said, according to the FDIC,
actions have been taken to address the suggestions you made.
Mr. Rymer. Yes.
Mr. Capuano. Have you not checked with the FDIC?
Mr. Rymer. No, sir, not yet. We have not completed the
audit follow-ups where we would routinely get back to those.
Mr. Capuano. Okay. But you will be doing that?
Mr. Rymer. Yes, sir.
Mr. Capuano. You have no reason to believe that anything
other than what they have told you is true?
Mr. Rymer. Not at this point, sir, but we certainly will
verify that.
Mr. Capuano. Okay. And when you did your audit, did you
check any potential conflict of interest on these things? Was
that part of the audit or no?
Mr. Rymer. The two we completed, no, we did not, sir. But
the one we are doing now, the Rialto work, there is a bidding
and selection process portion of that audit that will look at
that.
Mr. Capuano. Okay. Great. Thank you. And you expect that to
be done, give or take, in August?
Mr. Rymer. Yes, sir, late August.
Mr. Capuano. Great. Thank you.
Mr. Edwards, most of my questions--I was going ask you
about that 8 cents on the dollar. I think you just answered it
as you see it. I wouldn't mind seeing that in writing at a
later time, because it is hard to follow some of the numbers
that get thrown around when you are not that familiar with it.
So I would like to hear about that a bit little more, because 8
cents on a dollar? I am in. I have 8 cents. Don't get me wrong;
that is all you are going to get. But I will get a buck for it.
But I understand that there are differences of opinion, and I
would like to follow it a little bit better.
But I would like to ask you on--actually, I am not sure if
it was Mr. Edwards or Mr. Miller. I believe one of you, maybe
both of you, said that of the loans in the package here, 90
percent of them were in default. Am I right to believe that
most of these loans that are in default are construction loans?
They are not typical mortgage loans, they are loans that are in
the middle of construction, so the asset you have is possibly a
pile of dirt or a hole in the ground? Is that a fair assessment
or not a fair assessment? Understanding, not assessment.
Mr. Miller. Sir, if you look at the 5,500 loans, they are a
range of loans. They are not consumer loans, they are not loans
on homes that are occupied by families. They are generally
either, really, land, dirt, or land that is partially
developed, homes that are under construction, shopping centers,
office buildings, warehouses.
Mr. Capuano. That are mostly under construction. So these
are mostly, for all intents and purposes, construction loans.
Mr. Miller. Some under construction. Some of them are
completed projects. It is a panoply of property types.
Mr. Capuano. The reason I ask is because--I think the point
was made--you can't pay off a construction loan. If you pull a
loan in a middle of a construction, you just can't do it. I
have had construction loans. They are really just bridge loans
until have you an asset that you can then take if I ever finish
it. So I think that is an important point to make.
Mr. Edwards, I guess the one question that hasn't been
asked that I am aware of is, okay, you have 4 percent of all
the assets in this. And that 4 percent is based on book value,
not actual value, and that is fair enough, but whatever, some
very relatively small percentage.
Mr. Edwards. Right.
Mr. Capuano. There have to be other--or maybe there isn't--
but I presume there are other bad loans that don't go into this
4 percent that you handle another way. And I am just curious,
if you get rid of the structured asset sale transaction, what
do you do with these assets?
Mr. Edwards. Yes, thank you for the question.
With respect to the $670 billion of assets that were from
failed banks since the beginning of 2008, the lion's share of
those have gone to acquiring institutions. In the instances
where we cannot, as I described earlier, where we cannot pass
those to acquiring institutions with or without a loss share
agreement--
Mr. Capuano. Hang on.
Mr. Edwards. Yes.
Mr. Capuano. I need to hear it in English. So I am going to
translate for you, and tell me if I am right.
Mr. Edwards. Yes.
Mr. Capuano. Bank ``A'' fails. You want to sell most of
bank ``A'' to bank ``B.''
Mr. Edwards. Absolutely.
Mr. Capuano. You go to bank ``B,'' and bank ``B'' says,
``Wait a minute. I will take it, but I don't want these 200
loans.''
Mr. Edwards. Correct.
Mr. Capuano. ``These are no good. I don't want them. I will
take everything but those 200 loans.''
Mr. Edwards. Yes.
Mr. Capuano. Okay.
Mr. Edwards. Yes. And then once we get those loans, by
definition, since the bank fails and there is no acquirer, we
have to start working them ourselves.
And as I suggested, there is a percentage that we end up
just retaining in the portfolio and working out. In other
instances, we work them for a while and then put them into
these Structured Transaction Programs. There are also instances
where we can, mostly with performing loans, put them into
securitizations.
Really, the only other alternative is you sell them for
cash. The whole reason that we are doing this program is
because cash sales in a distressed market right out of the bank
get incredibly low bids. As a matter of fact, early in the
crisis, we did put some of these loans in a standard whole loan
sale package, and the prices that we got were very low.
Mr. Capuano. Have you or Mr. Rymer or anyone else, have you
done maybe a comparison, for the sake of discussion, take 200
of these exact same loans that maybe you did just spin them out
right away, take the loss up front, versus the ones you have
held? I am just curious. Your point makes sense to me, but is
there any statistical analysis to back that up to say generally
that is correct?
Mr. Rymer. Sir, in my statement, we identified an audit
that we have yet to do but that we certainly plan to do. And
that is, if you go back to the $668 billion in total that has
passed through the resolution process, there are three or four
different resolution methods that have been used principally,
and the most popular one is the purchase and assumption through
a bank. Then, there are the loss share agreement arrangements.
And then at the end, the smaller piece is the one we are
talking about today, the structured asset sales.
I believe it is very important for an independent
assessment of the value of those three resolution methods to be
compared to each other, and to consider the risk associated to
the FDIC and certainly the risk or potential damage or harm
that may be happening in a particular market--
Mr. Capuano. And you plan on doing that, Mr. Rymer?
Mr. Rymer. Yes, sir, we do.
Mr. Capuano. When you do that, I presume--again, the
different approach is one thing. But as it was explained, as I
heard it anyway, one method is all the so-called good loans and
the other method is all the so-called bad loans. I am sure you
do, but I need to make sure of it: You are going to be doing
apples to apples. Comparing the return on value for a bad loan
to a good loan, very interesting but it doesn't help. I am sure
I know the answer, but I need to ask.
Mr. Rymer. Yes, sir. The point we would make is that for
like collections of assets, we would do a comparison.
Mr. Capuano. Thank you.
Mr. Edwards. I think it would be helpful if I just add one
point. Early on in the crisis, as I indicated, we tried to do
cash sales; the prices were just very, very low. At this point
in the crisis, as we market LLC transactions, we market them
both as an LLC transaction and as a whole loan sale. If the
whole loan sale price is better, we take that, because the
market has now recovered. And, in fact, we had a transaction
with some hotel loans last year, and that is exactly what
happened.
Mr. Capuano. Thank you.
Thank you, Mr. Chairman.
Chairman Neugebauer. I thank the gentlemen.
I am going to do a very quick lightning round. I am going
to give Mr. Westmoreland 2 minutes, and I am going to hold him
to it.
So, you are recognized for 2 minutes.
Mr. Westmoreland. Thank you, Mr. Chairman.
I would like to ask unanimous consent to I submit for the
record a letter from American Land Rights and any attached
material submitted by borrowers whose loans have been
transferred into one of these LLCs; a letter from Merolla &
Gold, LLP; and a letter from Tom Carson, a doctor of
appraising, really.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Westmoreland. Mr. Edwards, did you go to--or did
anybody go to any of the specific borrowers and say, if you can
come up with 8 percent of what the loan is, we will give you a
loan for the remainder of it, we will be a partner with you at
60 percent, and we will give you 7 to 10 years to do this, and
it will be at no interest and there will be no recourse to you?
Did you give any of those borrowers that opportunity?
Mr. Edwards. No, we did not. What we do--
Mr. Westmoreland. Do you think any of those borrowers would
have taken that opportunity?
Mr. Edwards. I am certain they would have. But I will tell
you--
Mr. Westmoreland. Me, too.
Mr. Edwards. --what we do when a bank fails is, when an
asset is put into a receivership because we haven't been able
to pass it to an acquiring institution, we will work with the
borrower. If they give us their current financial statements
and we are able to get an appraisal on the collateral, we will
try and do some kind of workout with them before we even put
these loans in a structured sale. It is a 6- to 9-month period,
generally, before that happens. So we do work with these
borrowers.
Mr. Westmoreland. You were at the hearing that we had in
Atlanta, and Mr. Miller. We had it at noon in Georgia, and we
had people from Washington State, California, Nevada, Texas,
Florida, and New Jersey who came, who had problems with Rialto.
There was not one mention of Starwood, Four Squared, Colony, or
anybody else. These people traveled on their own dime to come
to that hearing.
That is just one side of the story, and I can't wait to get
yours on some of these other things. But that is a problem,
when you have people traveling across the country just to come
to a hearing at which they are not even going to get to
testify.
Mr. Edwards, I just find it very, very troubling that the
FDIC has not done more to make sure that at least some of these
people have an opportunity to have the same deal you are
offering other folks. That just makes sense.
And, with that, I yield back.
Chairman Neugebauer. I thank the gentleman.
The gentlewoman from California is recognized for 2
minutes.
Ms. Waters. Mr. Chairman, I think that what the FDIC is
hearing today is our dissatisfaction with the way that they are
disposing of these assets in one or two or three different
ways.
Mr. Miller, you have the ability, in negotiating with these
borrowers, to decide whether or not you are going to demand a
payoff, whether or not you are going to do a loan modification,
or what have you. We have been going through this on housing,
and so we are very concerned about the way loan modifications
work or don't work. And we have been trying to keep people in
their homes.
And while we understand that you have to get the most you
can get for these assets--that is kind of dictated to you--we
want some balance. And we want you to be able to sell these
assets and make a reasonable return on the sales. But we also
want to keep these businesses and we want to give people an
opportunity, rather than taking what they have invested in and
giving it to somebody else for the 8 cents on the dollar that
you have been hearing.
So do you hear us, Mr. Edwards?
Mr. Edwards. Yes, we do. And believe me, we are very
concerned about how this impacts communities and borrowers. As
you just pointed out, we have a statutory duty under our
enabling legislation to maximize the recovery of these
receiverships. The structured sale transactions, as I pointed
out in my oral and my written testimony, under best estimates
have netted the receiverships over $4 billion more than just a
straight cash sale.
I will tell you this, to anybody on the committee: We have
said and we will say again, if there are individual fact-
specific borrower issues that you would like to bring to our
attention, we spend a lot of time looking through those
complaints and trying to make sure that our partners have not
violated the LLC agreements in any way and are acting in a
respectful and businesslike manner.
Ms. Waters. Mr. Chairman, may I--Mr. Rymer, do you audit
the negotiated arrangements with the borrowers that Mr. Miller
is doing, and if so, are you able to determine whether some are
more favorable than others or what have you? Do you audit that?
Mr. Rymer. No, ma'am, we have not.
Ms. Waters. How do you know what he is doing?
Mr. Rymer. We audited his compliance with the terms and
conditions of the contract. That report is not complete, ma'am,
but it is expected to be finished in August.
But I can tell you that the objective of that audit was to
audit his compliance with the terms and conditions of the
contract, to audit the FDIC's oversight of that contract, to
audit the bidding and selection process that Rialto went
through to--
Ms. Waters. That is not what I am talking about, and I will
cut you off. My time is up.
Would you make sure that we get a copy of that report? I
want to take a look at what has happened to all of these
negotiations.
Chairman Neugebauer. Absolutely. We will get those, and we
will ask the FDIC to furnish us a copy of that report.
Going to go back to a lightning round. Ms. Herrera Beutler?
Ms. Herrera Beutler. All right, lightning, I am going to
speak fast. Thank you, Mr. Chairman.
I understand, Mr. Miller, Lennar is not actually--legally
allowed to buy land acquired by Rialto in this agreement.
However, Lennar has recently decided to begin buying land and
building homes in southwest Washington, in the same area in
which Rialto owns huge amounts of undeveloped land that remains
deadlocked.
Can you explain this decision? Are there laws prohibiting
Lennar and Rialto from discussing the loans and the land that
they own? Meaning, you have access to competitors, other
developers; you have their financials, basically. Can you share
that information? And, further, what is to stop Rialto from
sitting on the undeveloped land to jack up the price of
development Lennar is planning?
Mr. Miller. Thank you for your question.
Boy, there are so many things. I feel like I am sitting
here as a villain, and I don't get to answer any of the
questions. Let me say--
Ms. Herrera Beutler. To a lot of broken homes in my neck of
the woods, you are a villain. And that is not my personal--but
I have a lot of broken homes.
Mr. Miller. Thank you. I understand that, and we remain
sensitive to that in our offices every day. We are engaged to
do a business that is difficult, and sometimes it is a little
bit--it is adversarial and uncomfortable. And there is no
question about that. We are very sensitive to that. We
recognize the landscape.
I have to start by answering the question and telling you,
we did not pay 8 cents for these loans.
Ms. Herrera Beutler. Okay, that is not my question, Mr.
Miller. And I have a very limited amount of time. It is more
specific to Lennar and Rialto, the land that is held, the
information that is shared, and the financials.
Mr. Miller. Okay.
Ms. Herrera Beutler. And you can provide the rest in
writing, as far as the 8 cents. I am happy--we will all
continue the dialogue.
Mr. Miller. Thank you.
We have to recognize that Lennar put $250 million of cash
that sits behind the loan and comes out pari passu with money
to the FDIC. We do not play games for our homebuilding business
or anything else by investing in loans in any area of this
country. Our homebuilding operation enters various areas of the
country having nothing to do with the activities of Rialto.
Ms. Herrera Beutler. Reclaiming my time, I actually find it
interesting that when Clark County was the largest and fastest-
growing county in the State of Washington, Lennar wasn't there.
Every homebuilder in, like, the west coast was there, but
Lennar wasn't there until everything went down. And there are
these holdings by a company that isn't the same but they are
cousins, so to speak.
Mr. Miller. At that time, it was not economically feasible
when prices were high and it was very difficult for us to enter
that market. We are entering that market for different reasons.
Yes, we have loans in the Rialto portfolios and the FDIC
portfolios in those areas. Understand that every time we end up
through Rialto taking back a piece of land and unfortunately
taking it back from one developer, we cannot sell that land to
our homebuilding operation and don't intend to--
Ms. Herrera Beutler. I understand that.
Mr. Miller. But we are enabling a competitor, another home
builder, to build on that piece of land at a lower basis. So we
are actually invigorating the economy by putting the land in
someone else's hands. We are not holding these tracts of land
for some future date or for some other reason.
Ms. Herrera Beutler. And there is no financial information
that is shared between the two on the land that is held,
financials?
Mr. Miller. Recognize--there is no financial information
that is shared, nor would it matter. Remember, our financial
information as a public company is available to everyone. There
are no trade secrets in that. And we certainly don't seek
financial information on any of our competitors, either through
loans that we have or through other means.
Mr. Rymer. Ma'am, if I could quickly tell you that in the
audit we are doing now with Rialto, we are paying particular
attention to the controls over transactions with affiliates.
That is an audit step that will be in the audit report that you
should expect later this summer.
Chairman Neugebauer. I want to thank our witnesses. I
appreciate your testimony.
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.
With that, this panel is dismissed, and we will call up the
second panel: Mr. Scott Leventhal, president of Tivoli
Properties, Inc.; and Mr. Edward Fogg, owner of Fogg
Construction Company and Fogg Mortgage Company. If you would
take your places, please.
We are trying to get these opening statements as quickly as
we can. We think there are going to be some votes here in a
while, and it will be a fairly lengthy vote.
And so, with that, Mr. Leventhal, thank you for being here.
You are recognized for 5 minutes to summarize your written
testimony.
STATEMENT OF SCOTT L. LEVENTHAL, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, TIVOLI PROPERTIES, INC.
Mr. Leventhal. Thank you, Mr. Chairman, and members of the
subcommittee. My name is Scott Leventhal. I am the president
and CEO of Atlanta-based Tivoli Properties, Inc. Tivoli is a
developer of high-rise condominiums, apartment projects, mixed-
use projects, subdivisions, both in-fill subdivisions,
lifestyle communities, and entry-level communities.
I appreciate the time to speak to this committee and would
note that we are all here today because the world has been
turned upsidedown. And by turning the world upsidedown, there
is obviously some fallout and things that should be reviewed
and addressed.
As an Atlanta-based developer, I am particularly affected
by the fact that Georgia has seen more bank closures than any
other State in the country. For me, that has resulted in
multiple banks being closed, the assets of those failed banking
institutions being transferred through whole bank purchasing
assumption agreements where the FDIC will backstop the losses
sustained on those loans through a loss share, through
structured transactions with private partners, multiple
partners, as well as directly liquidated to private investors.
The subcommittee and the prior witnesses talked previously
about the methodologies and how these loans are liquidated and
transferred, and it is important that we do analyze that.
The whole bank purchasing assumption is a situation where
the FDIC is capable of taking all the assets of a failed
banking institution and transferring those assets to a
financially solvent institution. That institution doesn't get
to choose the good or the bad. They take the loans, they work
the loans out. The loans that are unable to be sold through a
whole bank purchasing assumption end up in these structured
transactions.
The primary difference between these two methods of
liquidation is that when a bank fails and an acquiring bank
purchases the assets, the borrower is dealing with the bank.
When a bank fails and the FDIC is incapable of selling those
assets to another acquiring bank, they end up in the hands of a
private partner, and in most instances that private partner is
a direct competitor of the borrower.
These structures provide, as previously discussed,
management fees to be paid on the unpaid balance of the loans.
They also provide for interest-free financing for a significant
term.
Further, something that has not been addressed in this
hearing is that these structures actually have a disincentive
for the private partner to perform. Meaning that for the
private partner to liquidate the assets in the structured
transaction, they will get to a point where the profits that
are being split between the private partner and the FDIC will
actually increase to the FDIC and decrease to the private
partner, thereby diluting the amount of asset management fees
that are available to be collected. If you have 7 years, why
finish anything? Why liquidate? Why deal with it?
Another matter which has been touched on today is, when a
bank fails and the FDIC comes in and takes over the assets of
the failed institution through a receivership, and elects to
not fulfill the obligations that are required under the loan
agreement, that issue has a very specific legal term; it is
called repudiation.
Now, the consequences of repudiation are very significant.
In many instances, borrowers have borrowed moneys for the
purposes of construction projects. Depending on what point in
time the assets or the bank fails, that borrower may be subject
to repudiation. And the FDIC, because of other problems the
bank may have, will elect not to proceed forward. Many
borrowers around the country are facing this issue, and it is
resulting in very dire consequences and dire situations.
Now, the acquiring bank or the private partner through the
structured transaction also then has the opportunity to pursue
the borrower, pursue the guarantor for the full amount that has
been drawn, except for the lender failed to perform. They
repudiated. It is interesting that the rules are written in
pencil in some instances.
I think that the subcommittee should take consideration of
the fact that structured transactions are important. They are
important to the FDIC's ability to liquidate assets. But what
we need to do is we need to resolve the issue where direct
competitors are coming in and they are being given access to
private borrowers' financial information. It creates an unfair
advantage, particularly when the Federal Government assists and
is driving competition out of the marketplace.
Tremendous litigation is ensuing around the country; and
while many borrowers have the right under the Federal
Bankruptcy Code to seek some sort of debtor protection, they
should not be forced to if the opportunity exists to work those
loans out.
I am moving very quickly. I have one last point, Mr.
Chairman, if you would allow my indulgence. I see the clock has
changed.
It is very important that we recognize that in a lot of
litigation which is going on around the country, while
structured transaction partners are seeking to recover and get
judgments on the obligation, meaning the note and the guarantee
without first foreclosing on the property or the collateral
that secures the loan, you see communities all over,
particularly in Georgia, wasting. And that means that the
surrounding properties have severe effects from the fact that
the neighboring property is just wasting away because a dispute
is going on between two different parties and it is unrelated.
So Mr. Jones, who lives in a home that is right next door
to a partially developed house or partially constructed house
where the FDIC has come in and repudiated the loan, a successor
has then come in and wants to litigate for the amount of that
debt, that homeowner living next door's appraised value has
declined. They can't get new financing. That borrower is now
upside down.
[The prepared statement of Mr. Leventhal can be found on
page 91 of the appendix.]
Chairman Neugebauer. I thank the gentleman.
Mr. Fogg, you are recognized for 5 minutes.
STATEMENT OF EDWARD L. FOGG, OWNER, FOGG CONSTRUCTION COMPANY
AND FOGG MORTGAGE COMPANY
Mr. Fogg. Good afternoon, Chairman Neugebauer, and members
of the subcommittee.
My name is Ed Fogg, and I am grateful to be here. I would
have never in my wildest dreams believed that my company's
ultimate failure would come directly from the governmental
policy of the FDIC and the partners they selected--
Mr. Westmoreland. Mr. Fogg, would you speak into the
microphone?
Mr. Fogg. Yes, sir--only because my bank failed. My story
is not one of a borrower who gave up and walked away from any
of his obligations. I am not a borrower who took out loans with
a bank with no intention of paying them back.
In late 2008, the Bank of Clark County approached me to
purchase some of their distressed properties and develop rental
homes. We closed our last construction loan on Christmas Eve,
2008, and the bank failed 23 days later.
Without any of the promised help from the FDIC, I still
completed my construction projects out-of-pocket and paid every
subcontractor. All of our loans were current at the time of the
bank failure.
I am one of the many borrowers whose loans were repudiated
for no good reason, and this has created my problems. I am sure
you know that when a loan is repudiated, it requires me to hold
up my end of the deal, but the FDIC does not have to the hold
up the end of the deal of the failed bank. In my case, it did
not fund approximately $650,000 of the original loan
commitment. To many small businesses, this is devastating.
Put yourself in my shoes. Your bank just failed, the FDIC
says there are no funds available to complete your project, and
there is no construction financing in 2009. But, today, I
really feel I am here to represent the little guy who
unfortunately just banked with the wrong bank, and then
eventually our loans were sold into some sort of structured
transaction.
I heard Ms. Sheila Bair speak about the responsibilities of
the American public to make their mortgage payments. I have
done this, and it has really meant nothing.
I have also read the FDIC book called, ``Managing the
Crisis'' and the clear message is that the FDIC recognized in
the past the need to protect and not hurt communities by not
cutting off credit to businesses and to work with the local
communities. I hope in the future, they emphasize these actions
once again.
I do believe the FDIC needs to recover as much money as
possible to reimburse the American taxpayer, but it should
never be done by creating further economic harm in the
communities where they have unfortunately closed banks.
Structured relationships with the FDIC need to be much more
careful in selecting their long-term partners. The partners'
goals should not be to become the prize of Wall Street but the
solution for Main Street.
The FDIC's partnership with Rialto/Lennar was tricky from
the beginning. All of the loans were basically primarily
construction loans, land development loans, and it is obviously
the same line of work that their parent company Lennar is in.
Unfortunately, what incentive do they have to work out the
problems of their competitors? It doesn't make much sense to
hire someone that is your direct competitor to try to help you
fix your problems.
In my case, with Rialto, we never had missed any sort of
payments on any programs, even after they repudiated our loans
and we had to come up with the $650,000 out-of-pocket. They
eventually negotiated four different settlements with us, but
every time, they would back out of the settlement. When they
finally did offer me a settlement, they told me to pay my
upside down home off completely or they would foreclose on me.
But they did come back with another option. They offered me
a rate of 8 percent with a $10,000 up-front loan fee on a
$250,000 loan. It took me a year-and-a-half to negotiate this
loan extension, and the only extension they would give me was
for an additional year-and-a-half. I am a mortgage broker, and
if I had offered this to one of my clients it would have been
conceived as predatory lending, as the APR in this loan is 38
percent.
Also, with the attractive financing the FDIC has offered
their partners, it should be able to be passed along to the so-
called experts of the community.
We understand what is in our projects. None of us went into
these loans with the idea of not paying them back. We are
experts in our local markets. We are experts in the product
that we are putting out there. And we alone should be allowed
to try to work with the FDIC to maximize the return to the
American taxpayer. None of us wants to see our projects fail or
not succeed.
The problem also isn't just with structured transactions. I
have five loans with another bank called Frontier Bank. It was
acquired by Union Bank of California. We worked for years and
years to come up with a long-term solution and provided
thousands of pages of income documentation and assets. We
finally did receive a denial for our modification from this
bank a few months ago, and the most amazing part about our
denial is they actually mailed the decline of my modifications
to a friend of mine's P.O. Box. Union Bank cared so little that
they could not even get my address right. The FDIC should be
disgraced by the actions of this partner.
We, the borrowers, did not go into these banks with the
goal of defrauding them or not paying them back. I truly
believe that given the time and acceptable terms, the FDIC
would recover much more money and not force borrowers like
myself into bankruptcy or foreclosure.
I thank you for letting me be here.
[The prepared statement of Mr. Fogg can be found on page 63
of the appendix.]
Chairman Neugebauer. I thank the gentleman.
We now have votes, and so I am going to recess the hearing
until after this series of votes.
With that, we are in recess.
[recess]
Chairman Neugebauer. The committee will reconvene.
We will go to questions with Members, and I will recognize
myself for 5 minutes.
Mr. Leventhal and Mr. Fogg, you know the basics of why FDIC
is doing these structured transactions. There has been a pretty
unprecedented amount of bank closures over the last few years,
taking on a lot of assets. Some of these assets the acquiring
banks don't want to take on, and you are familiar with that.
Tell me what you would change about the way the FDIC is
handling the structured asset program?
Mr. Leventhal. Thank you, Mr. Chairman.
As I mentioned earlier, the Structured Transaction Program
is an important tool for the FDIC to be able to liquidate
assets, and it is very sensible that the FDIC goes into
partnership with private partners who are experts in the field.
It would not make sense to get someone who is not an expert.
I think that the primary issue that needs to be addressed
is that borrowers should have an expectation that they are
doing business with banks. Banks operate in a manner that
borrowers are accustomed to. If we could divest the obligations
of some of these individual borrowers in these structured
transactions before they are entered into, where the private
partner comes in and they acquire all the assets and they take
the skill set they have and the assistance they are getting
from the FDIC to be able to improve on the assets, I think that
a structure could come about that would result in one, a better
financial reward to the FDIC, and two, an improvement within
local economies.
Chairman Neugebauer. Mr. Fogg?
Mr. Fogg. Why does the FDIC think that for their 40 percent
stake in the deal, they are actually getting a better deal than
working with the local communities? Why is somebody like Rialto
more of an expert on my project than I am? Why do they have to
go out and hire somebody to try to liquidate it, to try and
recover, when I obviously have a vested interest in getting
through it?
We didn't go into these transactions trying to commit
fraud. We went into them to try to make money for our families.
So by the FDIC putting them in a big structured
transaction, hiring some guys from who knows where in the
country, how are they more of an expert on my piece of property
or my particular grocery store or high-rise building than I am?
All they do is they go out and, after they get the property,
they come back and hire other people from our community to be
their so-called experts when we were there to begin with.
Chairman Neugebauer. So you heard the FDIC say that there
is a transition period between the time when they acquire those
assets and when they put them into the structured transaction.
That period of time is in the neighborhood of 9 to 12 months.
In your own experience, Mr. Leventhal, in that 12-month period
before your loans were put into the structured transaction,
tell me a little bit about your dealings with the FDIC.
Mr. Leventhal. Thank you, Mr. Chairman.
First, I think I would be remiss if I didn't let this
committee know that I have been very fortunate, and I have
recently settled my disputes, which I had one with Rialto. I
have had other matters with other structured transactions which
have not resulted in any poor experiences for me.
And I can say that my experience with the FDIC may be a
little bit surprising, but during the term of receivership, I
worked well with them. Unfortunately for me, during the term of
receivership, which I believe was approximately October or the
fall of 2009 for about 10 or 12 months, we were facing one of
the worst real estate recessions this country has ever seen.
And the FDIC's willingness to compromise with me did not lead
me to have the ability of raising the necessary capital to come
in and acquire and resolve it. But I did have a very pleasant
experience with the receiver during that time period.
Chairman Neugebauer. So while they were cooperating with
you, you were in a market where going out and getting
additional financing to take that loan out was not available to
you?
Mr. Leventhal. Capital was completely scarce, in particular
for the type of property that was the subject of that loan. It
just was not available. And it still in large part is not
available.
Chairman Neugebauer. Was that a condo project?
Mr. Leventhal. No, the FDIC receivership and Rialto
transaction were an anomaly for the business I am actually
involved in. It was a suburban townhome project. I had acquired
the property because it was all presold to a major national
builder. Three weeks after I bought the property, the builder
canceled on it, terminated. And that is where I think the
Lennars of the world would have an opportunity of creating
value in partnership with the FDIC.
Chairman Neugebauer. All right. Thank you.
I now yield to the ranking member, Mr. Capuano.
You pass?
I will go to Mr. Westmoreland. You are recognized for 5
minutes.
Mr. Westmoreland. Thank you, Mr. Chairman, and thank you
for doing this. And I want to thank Mr. Edwards from the FDIC
for sticking around.
Mr. Leventhal, when did you have a settlement with Rialto?
Mr. Leventhal. The settlement has occurred within the last
7 days.
Mr. Westmoreland. Okay.
And, Mr. Fogg, did you have any instances where you had
some houses--were you in the residential business?
Mr. Fogg. I am a residential contractor. But I also build a
number of rental properties and maintain those and keep those.
Mr. Westmoreland. Did you have any projects that were maybe
partially completed when the bank failed and you could not
continue on with the construction?
Mr. Fogg. I would like to also answer the chairman's
question with this, because it kind of ties together.
The bank had approached me to purchase their distressed
properties to build rental housing, because we were experts in
that arena, to get them off their books. The bank failed 23
days later. We had purchased the land, bought the permits, and
put the foundations in. And at that point, we met with the FDIC
when they called us in on the weekend. They said, please come
in on Monday morning and talk to us. It is a pretty unpleasant
surprise when you sit in their meeting and they have an armed
guard sitting next to you. It is not exactly what you expect
from your financial institution.
They asked me to provide them with a business plan of what
I wanted to do to work out the problem. Being in a situation I
could not fail, because obviously I have a lot of other real
estate assets going on, I came up with a plan where I had loans
of approximately $285,000 a unit. My plan was, okay, you don't
need to give me $285,000; I will do $200,000 a unit.
The contractor at that time thanked me for the plan and
said it is the best business plan that they had ever written.
Please proceed.
I never got anything in writing. I am an honorable guy. So
I took my own funds and any money I could scrape up to complete
my project.
At the time of completing the project, I brought them lien
releases, paid bills, you name it. And at the end of the day,
the FDIC contractor said, I am sorry, there is someone at the
FDIC who, unfortunately, has made the business decision to not
honor their funding commitment. I didn't have anything in
writing; shame on me.
During that period of time, we constantly talked to them. I
talked to them 2 or 3 times a week, trying to see, who do I
speak with? How do I resolve this? I have other unresolved
issues. And they always led me down the path. They led me down
the path every single time.
Mr. Westmoreland. This was the FDIC? And was it a branch or
was it the FDIC in D.C. or--
Mr. Fogg. When you deal with the local contractor, they are
not actually--I guess--
Mr. Westmoreland. This was an FDIC contractor? Somebody the
FDIC had contracted with?
Mr. Fogg. It was called Quantum Services--Quantum
Investments--or whatever they wanted to call themselves. But
they are the figurehead or the face of the FDIC that you meet
in your local community.
Mr. Westmoreland. Okay.
Mr. Fogg. You never get a chance to speak to anybody
actually at the FDIC.
Mr. Westmoreland. Mr. Leventhal, do you know of any--and I
know you dealt with Starwood, I think. Is that not true?
Mr. Leventhal. Yes, sir.
Mr. Westmoreland. And that was a pretty decent experience
there?
Mr. Leventhal. No. I lost a great building that I had
constructed. I turned it in from a condo project. It was at the
worst time to have built a condo project. Made it a hundred
percent cash flowing building at 90 percent occupancy.
Starwood had a great deal. They came in and they foreclosed
out the building because the building that I spent $51 million
building was not even worth $29 million. That is a really
staggering thought when you consider it. And I had investors
that lost upwards of $15 million in the transaction.
Personally, it wasn't a bad experience. It was a
nonrecourse loan. I wasn't made to suffer, as some debt
collection efforts would. And Starwood has since come in and
they have taken back lots of collateral. And Atlanta is now in
a good position because condominiums have sold so much that it
almost makes sense to build another condo building--almost.
Mr. Westmoreland. One last question. Are any of you
familiar with any subdivisions that were halfway completed or
developed, say that phase one was finished and sold out, had 22
homes in it or whatever number, phase two was being developed,
and all of a sudden the bank went out of business financing it,
and the FDIC sold that to a structured loan agreement, and they
couldn't work it out or sued immediately and it sat there? And
the 22 finished houses suffered the loss--or at least the
previous homeowners were suffering a loss for their equity and
their investment.
Mr. Fogg. I own those homes. I purchased a property from
the Bank of Clark County, built those homes out-of-pocket, as I
said. And then within the same subdivision, there were probably
5 or 6 other bare lots, half-finished houses, holes cut,
overturning weeds, houses turned into drug houses.
I am a direct victim of that in my unfortunate situation of
the houses that I spent $285,000 to build are not worth that
due to the fact that they let this property languish.
And if you drive anywhere within Clark County, you are
going to find subdivisions car-high in weeds. It is a bad
situation for a lot of guys.
So, yes. Personal knowledge? I own those subdivisions. I
own the homes in those subdivisions.
Mr. Leventhal. I drive past many of them in Georgia.
Chairman Neugebauer. The gentleman's time has expired.
Ms. Herrera Beutler is recognized for 5 minutes.
Ms. Herrera Beutler. Thank you.
I am glad you asked that question, because I wanted to
reiterate that it is not that you got out over your skis. You
did it in good faith, you put your own money up, and then the
FDIC was the one, from my understanding, that came in and said,
okay, that is not a deal.
So one of the things that I heard Mr. Edwards talk about
was that period of time, the transition period. And I
understand that during our transition period in some of the
cases I have worked with people were getting good back and
forth, there was a negotiation taking place, and people--
borrowers actually felt like they were in a good place. But
then they made the sale, and those deals were all null and
void. If they weren't completed before it went to Rialto,
whatever the FDIC had negotiated was voided.
But it sounds like in your case Quantum told you--
Mr. Fogg. Yes.
Ms. Herrera Beutler. --before--
Mr. Fogg. We have lots of different issues.
So the first thing is, yes, Quantum did tell me that they
would have no problem getting the approvals from the FDIC for
me to get a reduced amount of funds to finish my construction
project. When that didn't happen, obviously, I spent hundreds
of phone calls and meetings with those contractors to try to
resolve something. The gentleman at the FDIC I think felt so
bad at the end, or the Quantum, of unable to resolve anything
with the FDIC that they actually, on one of my notes at the
time of being prepared for sale to Rialto, they actually
prepared a 1-year extension on one of my notes that had matured
so that I would have adequate time to hopefully work with
Rialto.
When my attorney and I brought that note to Rialto,
Rialto's response was, that note is not signed. That is not
valid. You are in maturity default.
I am like, I have gone this far. Do you really believe that
I would fake a note from the FDIC to try to gain a six-more-
months extension?
The only reason we had done it at that time was so that
once we did get somebody in place that could hopefully make
some sort of a decision to help us get through these assets, we
would be able to show we were still in good standing. Because
we had never missed a payment on one loan at that time.
Ms. Herrera Beutler. This brings me to the point--from your
first to final communication with Rialto, the first one that
you got, was it a letter saying that you cannot use a lawyer?
Were those precondition notices that they sent out? Was that
how they started it with you? Or were you already in that?
Mr. Fogg. It has been so long ago on that. The only thing I
remember from those conversations was I was supposed to sign a
pre-negotiation agreement that said I could not bring any legal
action against them for any reason. They wanted, obviously, all
my financial data and all my documentation. But that was kind
of the first hello, I am your lender, give me all your
information. That was basically it. We never signed the
agreement. At that point, I felt I wasn't going to sign my
rights away in the beginning.
Ms. Herrera Beutler. Very good.
With that, I yield back.
Actually, if I could ask one more quick question?
Chairman Neugebauer. Sure.
Ms. Herrera Beutler. Thank you, Mr. Chairman.
In meeting with some folks--and I will say this is more for
the record--I have had a number of folks who were in similar
situations in our area who will not--do not want me to use
their names or their companies, because they are terrified of
repercussions, because Rialto now owns part or all of them, and
they don't want to go on record.
But I have had them talk to me, and one of the ones brought
up the question of--and I don't know if you can even answer
this question--two Quantums. There is a Quantum contractor
through the FDIC, but I believe there is another Quantum that
is in or a subsidiary of Rialto. And there is confusion. The
borrowers don't know who they are talking to. Can you bring--
Mr. Fogg. Yes. Initially, when the FDIC closed the bank,
they brought in Quantum--I don't know--Quantum somebody. And
their job was to unwind the operations of the daily bank who
collects your information and gets your loans off to whoever at
the FDIC.
When Rialto took over the loans, they hired a company
called Quantum Servicing, and they are the ones who are
supposed to do your payment processing of your checks. I would
say it is probably one of the poorest organizations I have ever
dealt with. I had never missed a payment to those guys, until,
unfortunately, we had to file Chapter 11 last week. But they
could not track your payments. They didn't have billing
statements.
So there are two distinct Quantums, and neither of them are
very good.
Ms. Herrera Beutler. Thank you. I yield back.
Chairman Neugebauer. Thank you.
And I thank the witnesses for coming. I think we had two
good panels.
My takeaway is that, while this process probably has some
merit to it and it is helping work through a tremendous amount
of inventory, we have heard concerns. We have folks from the
FDIC who stayed over, and we appreciate that. Hopefully, they
are listening to those concerns.
And the Inspector General is doing an audit and has done an
audit. I think we will want to review the findings of that.
It is unfortunate that we had these kind of market
conditions that created the need for these kinds of activities.
But we appreciate the thoughtful testimony that the witnesses
gave.
If there are no other--
Mr. Westmoreland. Could I ask one question?
Chairman Neugebauer. Yes.
Mr. Westmoreland. Mr. Fogg, could you furnish a letter for
the record of the first letter you received? Do you still have
that?
Mr. Fogg. I am sure my attorneys have it.
Mr. Westmoreland. Okay.
Mr. Fogg. I can get that for you.
Mr. Westmoreland. If you could just get that to us, I would
like to put that in the record, if there is no objection.
Chairman Neugebauer. Without objection, it is so ordered.
If there are no other questions, this committee is adjourned.
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.
[Whereupon, at 5:58 p.m., the hearing was adjourned.]
A P P E N D I X
May 16, 2012
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