[Senate Hearing 112-381]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-381
 
               NOMINATIONS OF: MAURICE A. JONES, CAROL J. 
                     GALANTE, AND THOMAS M. HOENIG

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


                                HEARING

                               before the

                              COMMITTEE ON

                   BANKING,HOUSING,AND URBAN AFFAIRS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

                            NOMINATIONS OF:

 Maurice A. Jones, of Virginia, to be Deputy Secretary, Department of 
                     Housing and Urban Development

                               __________

Carol J. Galante, of Virginia, to be Assistant Secretary, Department of 
                     Housing and Urban Development

                               __________

Thomas M. Hoenig, of Missouri, to be Vice Chairperson and Member of the 
       Board of Directors, Federal Deposit Insurance Corporation

                               __________

                      THURSDAY, NOVEMBER 17, 2011

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Charles Yi, Chief Counsel

              Brian Filipowich, Professional Staff Member

                 Beth Cooper, Professional Staff Member

              Erin Barry Fuhrer, Professional Staff Member

                 William Fields, Legislative Assistant

                  Brett Hewitt, Legislative Assistant

                 Andrew Olmem, Republican Chief Counsel

                Mike Piwowar, Republican Chief Economist

                     Beth Zorc, Republican Counsel

            Chad Davis, Republican Professional Staff Member

            Dana Wade, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                     Riker Vermilye, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, NOVEMBER 17, 2011

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     2
    Senator Vitter...............................................     3
    Senator Moran................................................     3

                               WITNESSES

Claire McCaskill, a United States Senator from the State of 
  Missouri.......................................................     5
Roy Blunt, a United States Senator from the State of Missouri....     6
Barbara Boxer, a United States Senator from the State of 
  California
    Prepared statement...........................................    24
Maurice A. Jones, of Virginia, to be Deputy Secretary, Department 
  of Housing and Urban Development...............................     8
    Prepared statement...........................................    26
    Response to written questions of:
        Senator Shelby...........................................    31
Carol J. Galante, of Virginia, to be Assistant Secretary for 
  Housing-Federal Housing Commissioner, Department of Housing and 
  Urban Development..............................................     9
    Prepared statement...........................................    27
    Response to written questions of:
        Senator Shelby...........................................    33
        Senator Toomey...........................................    36
Thomas M. Hoenig, of Missouri, to be Vice Chairperson and Member 
  of the Board of Directors, Federal Deposit Insurance 
  Corporation....................................................    11
    Prepared statement...........................................    28

              Additional Material Supplied for the Record

Coalition of housing and social services letter of support for 
  Carol J. Galante nomination....................................    38
Stewards of Affordable Housing for the Future (SAHF) letter of 
  support for Carol J. Galante nomination........................    40
Mortgage Bankers Association letter of support for Carol J. 
  Galante nomination.............................................    41
National Association of Home Builders letter of support for Carol 
  J. Galante nomination..........................................    42
Michael R. Haverty, of Kansas City Southern, letter of support 
  for Thomas M. Hoenig nomination................................    44


                            NOMINATIONS OF:

                     MAURICE A. JONES, OF VIRGINIA,

                        TO BE DEPUTY SECRETARY,

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;

                     CAROL J. GALANTE, OF VIRGINIA,

                       TO BE ASSISTANT SECRETARY,

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;

                     THOMAS M. HOENIG, OF MISSOURI,

                   TO BE VICE CHAIRPERSON AND MEMBER,

       BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION

                              ----------                              


                      THURSDAY, NOVEMBER 17, 2011

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:07 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. Good morning. I call this hearing to 
order. Thanks to all of our nominees for joining us here today. 
I also extend a warm welcome to their families and friends who 
are here with us.
    Today we consider two nominees for the Department of 
Housing and Urban Development and one for the Federal Deposit 
Insurance Corporation.
    Mr. Maurice Jones is the Administration's nominee for the 
post of HUD Deputy Secretary. The HUD Deputy Secretary plays an 
important role in the management of a Department responsible 
for providing critical rental assistance for 5.5 million 
families, countercyclical support for the housing market, and 
assistance to State and local governments. Today HUD and its 
partners face a challenging and changing fiscal economic 
environment as well as human capital and technology challenges. 
It is important that Secretary Donovan have a management team 
in place to help HUD respond effectively and responsibly to 
these challenges.
    Ms. Carol J. Galante has been nominated to be the HUD 
Assistant Secretary for Housing and Federal Housing 
Commissioner. FHA has played an important countercyclical role 
in the housing market, providing credit as private sources of 
capital have withdrawn. Much has been done by the 
Administration and Congress to strengthen FHA's underwriting 
and fiscal position in recent years. But as we have seen in a 
recent report on the financial status of the FHA fund, the 
legacy of loans insured in prior years still pose a threat to 
the fund that must be managed. It is important that the 
Administration have its management team in place to continue 
oversight of FHA.
    We also have Mr. Tom Hoenig before us today. As a former 
President and CEO of the Federal Reserve Bank of Kansas City 
from 1991 to 2011, Mr. Hoenig is well prepared to serve as Vice 
Chair of the FDIC. I have been long committed to helping small 
banks in rural communities continue to be a vital engine for 
economic growth. I know Mr. Hoenig shares my interest in rural 
communities and the need to preserve the community banking 
model. With Mr. Hoenig's nomination and today's hearing, I am 
hopeful that we are one step closer to moving the other 
nominees who will make up the FDIC's Board of Directors: Mr. 
Gruenberg to be FDIC Chair, Mr. Curry to serve as Comptroller 
of the Currency and FDIC Board member, and Mr. Cordray to be 
CFPB Director and FDIC Board member.
    Given the FDIC's new responsibilities and powers to unwind 
failing financial firms to prevent systemic problems, ensuring 
that its Board is operating at full strength is a top priority.
    I now turn to Senator Shelby for any opening remarks he may 
have. Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman. Today, as the 
Chairman has indicated, the Committee will consider three very 
important nominations.
    Mr. Maurice Jones has been nominated, as he said, to be the 
Deputy Secretary of the U.S. Department of Housing and Urban 
Development, a very, very important post. Previously, Mr. Jones 
was President and Publisher of Pilot Media Group, a print, 
digital, and direct marketing organization. He also has many 
years of experience serving the Government, including working 
at the U.S. Treasury Department. I look forward to hearing how 
his private and public sector experience will help guide his 
management of the Department of Housing and Urban Development.
    The Committee will also consider today the nomination of 
Ms. Carol Galante to be Assistant Secretary of the U.S. 
Department of Housing and Urban Development and Commissioner of 
the Federal Housing Administration. If confirmed, she will face 
difficult tasks. We have talked about this. She brings a lot of 
experience to this position she has been nominated to. As we 
all will recall, earlier this week FHA's annual report to 
Congress on the mutual mortgage insurance fund stated that 
there is nearly a 50-percent chance that the fund would require 
a taxpayer bailout. That is not good news.
    She has been involved--she has led the FHA's Multi-Family 
Division since 2009, and her appointment as FHA's Acting 
Commissioner in July has, I hope, served her well. Given her 
familiarity with FHA, I look forward to hearing how she would 
ensure that the taxpayers hopefully would not need a bailout of 
FHA.
    Also before us today is Dr. Thomas Hoenig, who has been 
nominated to serve as the Vice Chair and a Member of the Board 
of Directors of the Federal Deposit Insurance Corporation. He 
brings a sterling resume here. Dr. Hoenig has many years of 
experience in banking supervision. He joined the Federal 
Reserve Bank of Kansas City in 1973 as an economist in the 
Banking Supervision and Regulation Division. Later he was 
promoted to Vice President and then to Senior Vice President of 
Banking Regulation until ultimately serving as President, a 
role he filled for 10 years until this past October.
    Given the many years of experience, Doctor, that you have 
in banking supervision, I look forward to hearing from you here 
today about the policy that you believe will work to keep the 
banking sector safe and sound as any additional work that 
remains to ensure you know we will be faced with.
    I look forward to hearing from all the nominees, and I look 
forward to moving them along with you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Shelby.
    Are there any other Members who wish to make a brief 
opening statement before we proceed to introducing the 
nominees?
    Senator Vitter. Mr. Chairman?
    Chairman Johnson. Yes.

               STATEMENT OF SENATOR DAVID VITTER

    Senator Vitter. Thank you, Mr. Chairman. I will be brief, 
but I also want to thank you for the hearing and thank Mr. 
Hoenig in particular for his past service at the Board of 
Directors of Kansas City Federal Reserve and hopefully his 
future service if the confirmation goes through.
    His comments about the past crisis and steps we need to 
continue to take to ensure that we are not in the position of 
sort of open-ended bailouts we were in 2008 I think are very 
important, and I hope the Committee gives them thought as we 
look at policy issues, including outside the ambit of FDIC.
    In terms of the FHA, this is no comment on the nominee, but 
I certainly share Senator Shelby's and others' concerns about 
this significant chance, rated at a 50-percent chance, that 
there will have to be a taxpayer bailout in the next year, and 
whether there is or not, of course, they are way below their 
normal required capital compliance requirements, so I hope we 
as a Committee and as a Senate and as a Congress address that 
also apart from this confirmation process.
    Thank you, Mr. Chairman.
    Chairman Johnson. Senator Moran.

                STATEMENT OF SENATOR JERRY MORAN

    Senator Moran. Mr. Chairman, thank you. I welcome all the 
nominees and look forward to their testimony. I want to 
particularly express my appreciation for the service of Mr. 
Hoenig at the Kansas City Federal Reserve, and I know he will 
be introduced by his proud home State Senators. Only until 
recently did I discover that Mr. Hoenig was not a Kansan, and 
it is his one chink that I can find in fault, that poor 
discretion was made on his part some years ago.
    [Laughter.]
    Senator Moran. But it is one of the few things at the 
moment that Kansans and Missourians agree upon, the tremendous 
service that Mr. Hoenig has provided the Federal Reserve, and I 
am pleased that Ms. McCaskill and Mr. Blunt are here in support 
of their home State nominee.
    Mr. Hoenig has been a friend and an adviser of mine for 
several years now, and I always appreciated his frank and 
honest advice and suggestions. He is highly regarded in our 
State and in our region, and the role at FDIC is a significant 
one, and there are significant issues to be resolved now that 
Dodd-Frank is being implemented, questions such as: How do you 
restrict a bank from becoming systemically significant such 
that its failure will cause significant problems to the entire 
economy? How should policymakers wind down a large financial 
institution without exposing taxpayers to loss? And one that is 
especially important to me, how do we make certain that the 
benefits of community banking in rural America are preserved in 
light of the ever increasing regulatory burden?
    Tom has spent his professional life pursuing answers to 
those questions, and it is always appealing to me that while 
his positions have been thoughtful, they have not always been 
popular. And to me that shows the sign of significant 
intellectual capabilities and analyzing not for the crowd at 
the moment but for what is in the long-term best interest of 
our country. And we as elected officials could learn something 
from that role model.
    I received a letter from one of Mr. Hoenig's friends, 
Michael Haverty, of Kansas City, in which he was supporting 
this nomination, and I would ask that it be included in the 
record. But in Mr. Haverty's letter, he praises Tom for ``being 
honest, open, and dedicated to doing the right thing, even when 
it is difficult.'' And that is exactly the kind of nominees 
and, those that we will confirm, the officials that we need in 
this country. I welcome all of you and encourage you to pursue 
that same kind of reputation that Mr. Hoenig has in his current 
position.
    I thank the Chairman and ask unanimous consent to include 
the letter in the record.
    Chairman Johnson. Without objection.
    Senator Moran. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you.
    I want to remind my colleagues that the record will be open 
until next Tuesday for opening statements and any other 
materials you would like to submit.
    We will now introduce our three nominees. Senator Warner 
will introduce Maurice Jones. Senator Warner.
    Senator Warner. Well, thank you, Mr. Chairman. I again want 
to welcome all the nominees, and let me assure you, considering 
the temperature in the room, this is not a frosty reception 
from the Committee.
    I am honored today to introduce the nominee for Deputy 
Secretary of the Department of Housing and Urban Development, 
Maurice Jones. Senator Shelby laid out part of Maurice's 
background. He left out what I think is perhaps one of the most 
critical parts of Mr. Jones' background. He also had the 
distinction to serve with a certain Virginia Governor's 
administration, and I am going to get to that in a moment.
    Following an impressive academic record, Maurice entered 
the Treasury Department, becoming Director of the CDFI Fund in 
2000. In 2002, I had the honor of recruiting Maurice Jones to 
serve in my then-new administration, first as my deputy chief 
of staff, where he performed admirably, and then he took on the 
role of Commissioner at the Department of Social Services. I 
cannot speak to every State, but generally, most States' 
Departments of Social Services, while terribly important, are 
bureaucratic nightmares. My State's Department of Social 
Services was that, and Maurice brought a remarkable both 
management ability, ability to kind of sort through and seize 
on problems, get to the core of a problem, help with structural 
reorganization, and really brought a sense of long-term vision 
and planning to an organization that, while there had been many 
competent heads of Social Services in the past, there had 
always been a bureaucracy there that was hard to overcome. 
Again, no reflection on anybody in the current HUD 
administration, but I think HUD has some of those same long-
term systemic challenges as well. And I think Maurice will be a 
great, great asset on the organizational and management side at 
HUD.
    After he left our administration, he did actually make, as 
you pointed out, Senator Shelby, the good choice on the one 
hand of going to the private sector side--a little strange 
going into the news business--where he served ably as Vice 
President in Landmark Publishing Group, ended up becoming 
publisher of one of our leading daily newspapers in the 
Commonwealth of Virginia. And, obviously, anybody that manages 
a newspaper and publishing organization through these 
challenging times as well I think reflects a great deal of 
skill and expertise.
    Based on his service for Virginia, his service at the 
Treasury Department, his service in the private sector, I am 
most confident that he will be able to enter HUD at this 
critical time when there are so many challenges around the 
housing crisis that still overhangs our economy. I want to 
welcome him to the Banking Committee. I know he has got members 
of his family here as well. This is a good guy, and we are 
lucky to have him before us.
    So I am proud, Mr. Chairman, to present and introduce my 
good friend and someone who I hope the Committee will act 
favorably on, Maurice Jones, as the nominee for Deputy 
Secretary for the Department of Housing and Urban Development.
    Chairman Johnson. Thank you, Senator Warner.
    Senators McCaskill and Blunt will introduce Tom Hoenig. 
Senator McCaskill?

STATEMENT OF CLAIRE McCASKILL, A UNITED STATES SENATOR FROM THE 
                       STATE OF MISSOURI

    Senator McCaskill. Thank you, Mr. Chairman. I am not going 
to spend any time on Tom Hoenig's resume because you all have 
it in front of you and you know how strong it is. But I do want 
to talk about him as a Member of a Board of Directors, because 
if you look around this country and some of the frustration 
that this country has with some of the abuses that are out 
there, a lot of it can be traced to boards of directors that, 
as one CEO said to me, ``We have too many lap dogs and not 
enough Doberman Pinschers.'' I want to say that I think Tom is 
capable of being a Doberman pinscher if the intellectual policy 
is there.
    He is so respected in Kansas City. In fact, I do not know 
what his secret is, but I wish I could emulate him because he 
manages to be completely forthright and completely engaging and 
get respect from all quarters. This is a guy who went to a Tea 
Party rally to speak to them and listen to them when they were 
chanting in the Fed.
    This is a guy who sits down with the AFL-CIO even though he 
strongly disagrees with their views on monetary policy. He 
wants to sit down with them and listen.
    This is a guy who is not afraid to tell community banks 
about supervision being needed, but still they know he respects 
their business model and that he is the kind of man that they 
can rely on to never play to the cheap seats.
    So in this environment in this country right now, with the 
challenges that face our economy and our financial sector, I 
can think of no better member we could find in this country for 
the Board of Directors of the FDIC. I wish I could command the 
respect in all quarters that he has in Kansas City and the 
Greater Kansas City Region, which, unfortunately--or, 
fortunately--may include a little bit of Kansas.
    But it is my honor to introduce him today, and I know that 
there are many, many times that my colleague and I agree on 
things, and I know that this is one where Senator Blunt and I 
feel very fortunate that we have the opportunity to introduce a 
man of this stature and this capability who I know will help at 
the FDIC in terms of their Board of Directors.
    Chairman Johnson. Thank you, Senator McCaskill.
    Senator Blunt.

STATEMENT OF ROY BLUNT, A UNITED STATES SENATOR FROM THE STATE 
                          OF MISSOURI

    Senator Blunt. Thank you, Senator Johnson. Thank you, 
Chairman and Senator Shelby, for holding the hearing today. I 
am pleased to join with Senator McCaskill to present Tom Hoenig 
to the Committee. I particularly appreciated the comments that 
Mr. Vitter made and Mr. Moran made about Tom's service in the 
job that he has had for the last 10 years. And we are proud 
that he is a Missourian and proud that he is still a friend of 
Mr. Moran in spite of that.
    He works hard. All the things that Senator McCaskill said 
are exactly right in terms of his courage and his commitment to 
his job. He has been the Kansas City Fed President for 10 
years. He has a Ph.D. in economics. He has had 35 years of 
experience at the Federal Reserve and is well qualified for the 
job that he is nominated for. In fact, he is probably well 
overqualified for the job he is nominated for, but he is 
willing to do it, and we are lucky to have him as a nominee and 
to be able to present him today.
    He has advocated for a careful and cautious approach when 
addressing the problems facing our economy. He is known for his 
candor. Through the economic challenges that we have faced 
recently, he has given consumers, stakeholders, Members of 
Congress, and the media a perspective that is both unique and 
valuable as we seek an appropriate path in recovery.
    Often Tom Hoenig was cited as the lone dissenter at the 
Fed. He not only possesses the courage to speak out against 
excessive risk taking by large institutions, but he also have a 
real sense of Main Street, of the agriculture economy, of 
community banks and regional banks, and he has spent his career 
figuring out how those banks operate, how critical they are to 
what happens in communities. And my experience with him as a 
trusted adviser for some time has been that he has a 
perspective at all levels of what it takes to make this economy 
work.
    His ability to shed light on areas of concern when others 
are unable to see beyond the status quo will serve him well as 
Vice Chairman of the FDIC. He is not afraid to speak up. 
However, he is equally talented at listening to the concerns of 
stakeholders and consumers alike. It is certainly my pleasure 
to present him to the Committee and to join Senator McCaskill 
and others already on the Committee, including Governor/Senator 
Johanns, and our deep respect for him and his ability.
    Chairman Johnson. Thank you, Senator Blunt.
    I appreciate that Senators McCaskill and Blunt have very 
busy schedules, and you may be excused.
    I will now introduce Ms. Carol Galante. Ms. Galante 
currently serves in the position for which she has been 
nominated, Acting Assistant Secretary for Housing-Federal 
Housing Commissioner at the U.S. Department of Housing and 
Urban Development. Prior to her designation as the Acting FHA 
Commissioner, Ms. Galante served as HUD's Deputy Assistant 
Secretary for Multi-Family Housing Programs. Prior to joining 
HUD, Ms. Galante was President and Chief Executive of BRIDGE 
Housing Corporation and has also served the local governments 
of Santa Barbara, Philadelphia, and Richmond, California.
    Will the nominees please rise and raise your right hand? Do 
you swear or affirm that the testimony that you are about to 
give is the truth, the whole truth, and nothing but the truth, 
so help you God?
    Mr. Jones. I do.
    Ms. Galante. I do.
    Mr. Hoenig. I do.
    Chairman Johnson. Do you agree to appear and testify before 
any duly constituted Committee of the Senate?
    Mr. Jones. I do.
    Ms. Galante. I do.
    Mr. Hoenig. I do.
    Chairman Johnson. Please be seated. Please be assured that 
your written statement will be part of the record. Please also 
note that Members of this Committee may submit written 
questions to you for the record, and you should respond to 
these questions promptly in order for the Committee to proceed 
on your nomination.
    I invite all the nominees to introduce your family and 
friends in attendance before beginning your statement.
    Mr. Jones, please proceed.

   STATEMENT OF MAURICE A. JONES, OF VIRGINIA, TO BE DEPUTY 
     SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Jones. Thank you, Mr. Chairman and Ranking Member 
Shelby. I do have my wife here with me, Lisa, who is sitting to 
my right, and we have been married for 10 years now. So she is 
with me.
    Mr. Chairman, Ranking Member Shelby, and distinguished 
Members of the Committee, thank you for the opportunity to 
appear before you today as President Obama's nominee to be 
Deputy Secretary of HUD. I have already introduced my wife. Our 
most precious gift, our 9-year-old daughter, is in school this 
morning, but she is with us in spirit.
    I am humbled by the nomination and grateful to the 
President for the trust he is bestowing upon me. I am also 
thankful to Secretary Donovan for his support. If confirmed, I 
pledge to work collaboratively with the Members of this 
Committee to ensure that HUD achieves the operational 
excellence the country needs from this organization.
    Public service has been a passion of mine since at least my 
high school days in rural Lunenburg County, Virginia. In 1979, 
as a ninth grader, I was fortunate enough to be selected to 
serve as a page during that year's legislative session of the 
Virginia General Assembly. The experience changed my life. I 
observed and assisted legislators working on the public's 
business, and I was inspired. I resolved then to try to enter 
public service when I grew up.
    Following law school and 3 years of law practice, I was 
blessed with the opportunity to work at the Treasury 
Department. Over the course of 6 years at Treasury, I served as 
Special Assistant to the General Counsel, Legal Counsel to the 
CDFI Fund, Deputy Director for Policy and Programs, and 
Director of the Fund. I loved these jobs, and they taught me 
valuable lessons and skills.
    My experiences at the CDFI Fund, in particular, called upon 
me to lead people in the building of a high-performing, 
results-oriented Government organization with a compelling 
mission. And because the Fund was essentially a startup entity 
at that time, we had to put in place the necessary 
infrastructure for the programs and operations of the 
organization. It was on-the-job training in building a 
Government entity. Over a 5-year period, working 
collaboratively with Congress, we grew from a 10-person 
organization with an annual budget of $50 million to a 60-
person organization with an annual budget of $120 million. We 
invested approximately $400 million in over 300 mostly 
nonprofit entities that used those monies to make loans and 
other investments in low-income communities across America.
    Following my time at the Fund and approximately 9 months 
with a foundation, I was honored to be asked by then-Governor, 
now-Senator Warner to join his administration. I started as his 
deputy chief of staff and subsequently also became his 
Commissioner of the State Department of Social Services. At 
Social Services, I led a team of more than 1,500 State 
government employees who worked with several thousand local 
government workers to provide social services to the people of 
the Commonwealth of Virginia. I spent the bulk of my time 
attempting to transform structures, processes, practices, and 
people in an effort to make the system more efficient and more 
effective. During my tenure, Social Services received a 
$922,000 reward for increasing the number of children adopted 
from State-supervised foster care; earned over $28 million in 
Federal incentives for record performances in child support and 
collections; and received around $24 million in Federal awards 
for successfully placing welfare participants in jobs.
    I departed the Warner administration after more than 3 
years to join a regional media company. I wanted to run a 
newspaper because I wanted the challenge of leading a private 
sector enterprise that pursued both excellent business results 
and distinguished public service. Little did I know that I was 
entering an industry that was and is in the midst of the most 
far-reaching transformation of its history.
    Very quickly I had to develop a point of view about the 
newspaper's biggest challenges and attempt to set us on a path 
to achieve our double bottom line mission. It has been an 
incredible educational journey, and I continue to learn lessons 
from the challenge. We have had to transform the way we do 
business in every area of the company, from integrating 
departments to launching new businesses, to eliminating 
products no longer valued by our customers. As a result, we are 
a debt-free, profitable enterprise well positioned to assist 
the community in taking advantage of its opportunities. The 
Virginian-Pilot has been voted the best newspaper in Virginia 
by its peers every year I have been its publisher.
    These are the experiences I bring to the opportunity we are 
discussing today. HUD aspires to transform itself into an 
organization that consistently delivers excellent results. To 
realize this aspiration, bold changes are needed across the 
agency. I want to help lead this journey. My public and private 
sector work have helped to prepare me for this role. And 
particularly in light of the housing and related economic 
challenges our country continues to face, which have come down 
so hard on so many Americans, I can think of no more important 
time to be at HUD.
    I am humbled by the President's decision to nominate me for 
this role, and I am grateful to the Committee for allowing me 
to appear before you today and for considering my nomination. I 
would be happy to answer any questions.
    Thank you very much.
    Chairman Johnson. Thank you, Mr. Jones.
    Ms. Galante, please proceed.

  STATEMENT OF CAROL J. GALANTE, OF VIRGINIA, TO BE ASSISTANT 
     SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Galante. Good morning, Chairman Johnson, Ranking Member 
Shelby, and Members of the Committee. I am honored to be here 
today to testify and humbled by President Obama and Secretary 
Donovan's decision to nominate me as Assistant Secretary for 
Housing, FHA Commissioner. I would also like to thank this 
Committee for the time you are committing to this hearing. I 
look forward to hearing your thoughts on the housing challenges 
facing the Nation, particularly FHA.
    Before I begin, I would like to introduce my youngest son, 
Chris Roberts, who is here today. He and my older son, Matt, 
are both exceptional young men who I know will make the world 
an even better place as they proceed through their careers.
    I also want to thank my wonderful husband of 26 years, Jim 
Roberts. Without his steadfast support, I surely would not be 
sitting before you all today.
    Mr. Chairman, my entire professional life has been 
dedicated to real estate development, finance, community 
planning, and affordable housing and economic development. My 
more than three decades of experience in all three business 
lines served by FHA--single family, multifamily, and health 
care--has equipped me with a deep understanding of the 
industries, organizations, and individuals that HUD serves.
    Immediately before my appointment as Deputy Assistant 
Secretary for Multifamily Housing at HUD and my subsequent 
tenure as Acting Assistant Secretary for Housing, I served for 
13 years as President and Chief Executive of BRIDGE Housing 
Corporation, the largest nonprofit housing developer in 
California. During my tenure, I developed BRIDGE into a 
financially sustainable family of companies with annual 
revenues in excess of $115 million and assets of more than $1 
billion. I also developed new and innovative business lines to 
serve our mission, such as HOMEBricks, which assists first-time 
homebuyers to access affordable ownership opportunities.
    At BRIDGE and throughout my career, I have worked to 
demonstrate that partnership between the Government, private, 
and nonprofit sectors to create opportunity is not just good 
policy, but smart business, and I brought that conviction with 
me to HUD.
    As a Deputy Assistant Secretary for Multifamily Housing, I 
led major changes in the office. Under my leadership, FHA 
Multifamily grew from an annual level of $2.5 billion in 2008 
to over $12 billion in 2011, providing key liquidity to this 
market segment during the toughest housing environment since 
the Great Depression. In addition, I led the first major 
overhaul of underwriting standards and loan documents in the 
40-year history of the FHA Multifamily Insurance Program. These 
changes allow us to more effectively manage risk while better 
aligning programs with the norms and practices of the private 
sector.
    As Acting Assistant Secretary for Housing, I have continued 
to focus on making FHA's programs work for all our 
stakeholders. Toward that end, I am spearheading an overhaul of 
HUD's Housing Counseling Program, including the development of 
a new Office of Housing Counseling. Given that families 
receiving housing counseling are twice as likely to receive a 
mortgage modification, this work is particularly important as 
our economy continues to recovery.
    In addition, I have placed a strong focus on risk 
management. This includes continued development of FHA's Office 
of Risk Management and Regulatory Affairs as well as a 
commitment to hold lenders accountable for noncompliance with 
FHA's requirements. Just last week, I hosted a kickoff meeting 
with FHA's new Senior Advisor for Risk and many of the recently 
hired Credit Risk Officers, along with their counterparts in 
all the program offices, so that we can ensure that risk 
management is fully integrated into FHA's operational 
practices.
    If confirmed by the Senate, I will continue to provide 
effective leadership for FHA in achieving its important role of 
providing liquidity in the Nation's housing markets while 
maintaining a strong focus on protecting the Department's 
insurance funds.
    As is clear from the report we released on Tuesday 
regarding the current status of the FHA Mutual Mortgage 
Insurance Fund, FHA is at a critical juncture. As a result of 
the sweeping reforms instituted under Secretary Donovan's 
leadership, the MMI capital reserve remains positive and we 
have originated the highest quality books of business in FHA's 
history.
    However, the residual effects of poor performing books from 
prior years will require FHA to be vigilant in managing its 
business moving forward. Therefore, should I be confirmed, my 
highest priority would be balancing of FHA's historic mission 
with responsible management of risk. At this important point in 
our economic recovery, ensuring the flow of mortgage capital 
necessary to restore our housing markets is vital and FHA is 
playing a key countercyclical effort, particularly for low- and 
moderate-income minority and first-time homebuyers. However, 
FHA can fulfill its mission only if it effectively manages the 
resources that make its programs available.
    Thank you again for your time and for considering my 
nomination. I appreciate the opportunity to be here, and if I 
am honored to be confirmed, I will look forward to earning your 
ongoing trust. Thank you.
    Chairman Johnson. Thank you, Ms. Galante.
    Mr. Hoenig, please proceed.

    STATEMENT OF THOMAS M. HOENIG, OF MISSOURI, TO BE VICE 
   CHAIRPERSON AND MEMBER OF THE BOARD OF DIRECTORS, FEDERAL 
                 DEPOSIT INSURANCE CORPORATION

    Mr. Hoenig. Thank you, Chairman Johnson, Ranking Member 
Shelby, Members of the Committee. It is my honor and privilege 
to come before you as the President's nominee to serve as Vice 
Chairman and Member of the Board of the Federal Deposit 
Insurance Corporation. I do want to thank Senators McCaskell 
and Blunt for their warm introduction and also Senator Moran 
for your kind words.
    I would also like to note my appreciation for the 
Committee's use of technology this morning. My family cannot be 
here in Washington with me today, but my wife, Cynthia, who is 
in Missouri with our grandchildren, is able to join me through 
the Committee's live stream system. So they are watching, and I 
say that for the camera's sake and theirs.
    I recognize that the job as Vice Chair for the FDIC is an 
important responsibility. I believe my experience in bank 
supervision and regulation within the Federal Reserve System 
for the past 38 years has prepare me for this role.
    I started my career as an analyst at the Federal Reserve 
Bank of Kansas City, working in the areas of research and 
policy. During that time, I also shared responsibility as part 
of a team that analyzed bank holding company merger 
applications. Later, I was assigned responsibility for the 
Federal Reserve Bank of Kansas City's discount window lending 
and led the Bank's examination work for the supervision of bank 
holding companies and State member banks.
    In 1986, I was given the opportunity to lead the Bank's 
Division of Bank Supervision and structure, directing the 
oversight of over 1,000 banks and bank holding companies 
ranging in size from less than $100 million to $20 billion in 
assets.
    And finally, I served as President of the Federal Reserve 
Bank of Kansas City for 20 years, actually, from October 1991 
until October of this year.
    During my career, I was involved with the banking crisis of 
the decade of the 1980s that involved agriculture, energy, and 
commercial real estate. In the Tenth Federal Reserve District, 
we dealt with 350 banks in the Midwest and Mountain States that 
either failed or required assistance between roughly 1982 and 
1992, including the failure of Penn Square Bank that later 
contributed to the failure of Continental Illinois National 
Bank and Trust.
    As a member of the Federal Open Market Committee, I was 
involved in an indirect manner in the efforts to mitigate the 
effects of the financial panics in Asia, South America, Russia, 
and Mexico that occurred with regularity during the decade of 
the 1990s.
    Finally, I worked with financial and nonfinancial firms in 
the Midwest through the recent financial crisis and recession.
    Each one of these unfortunate events was difficult for 
Americans. Each one of these events provided me with experience 
in dealing with financial crises. I have observed how distorted 
financial incentives encourage institutions to take on 
excessive risk. Just as importantly, I understand the 
difficulties of managing crisis and restoring confidence to an 
economy that involves both Wall Street and Main Street.
    Should the Senate choose to confirm me, I would serve with 
commitment and with the best interest of the country as my 
first priority as we continue to face national and global 
financial and economic challenges.
    Thank you for the opportunity to appear before you today, 
and I look forward to answering questions.
    Chairman Johnson. Thank you, Mr. Hoenig.
    Ms. Galante, a major cause of the recent financial crisis 
was the relaxed underwriting criteria for thousands of loans 
that were originated during the housing boom. How has the 
quality of loans underwritten by FHA changed since the housing 
crisis? What impact are loans underwritten during the peak of 
the housing bubble, particularly those during 2007 and 2008, 
having on the capital reserve account compared to those 
underwritten after the burst of the housing bubble?
    Ms. Galante. Thank you, Senator, for that question. This 
Administration has put in place, as I mentioned in my 
testimony, sweeping reforms that have resulted in the best book 
of business starting in mid-2009 through 2011, things like--
with the help of Congress--getting rid of the seller 
downpayment program, which created a significant drag on our 
books for the previous books of business. Fourteen billion 
dollars is estimated by the actuary for that class of legacy 
loans alone.
    So we have put in place many, many programs, including 
lender enforcement. We have the highest credit score quality in 
this most recent book of business, with seriously delinquent 
loans basically negligible for early defaults. So we have put 
in place numerous activities, including lender enforcement, 
that are resulting in, as I said, the best book of business FHA 
has ever had.
    Having said that, we are still suffering from the very 
large poor performing legacy books of business and need to 
continue to build on the reforms that we have made.
    Chairman Johnson. Mr. Jones, the Deputy Secretary of HUD 
has often served as the Chief Operating Officer of the 
Department, heading up its management efforts. What do you see 
as HUD's top management challenges? How have the experiences 
you mentioned in your statement prepared you to confront these 
challenges?
    Mr. Jones. Thank you for that question, Mr. Chairman. I 
think there are probably two or three top challenges. I will 
tell you that I suspect I will learn more, if confirmed and get 
on the job. But based on the experience I have had both in the 
public and private sector, usually, your top challenge with 
moving any organization to a standard of excellence is having 
the right people in the right places, and that certainly will 
be one of my first focuses, is making sure that we have got a 
human capital system that enables us to put the best people in 
the best places. So that would be one.
    Second to that, I think you also, particularly in these 
tough times, you have to make sure that the organization is 
operating as efficiently as possible, and that probably will 
require looking at financial systems, procurement systems, IT 
systems, all the things that if they are not running well, you 
will not have excellent program results.
    My both public and private sector experience have enabled 
me to learn about all of those and I look forward to trying to 
bring that experience to HUD.
    Chairman Johnson. Mr. Hoenig, one of the things that made 
the FDIC so effective over the last 3 years was the strong 
working relationship between the Chair and the Vice Chair, and 
it is my hope that will continue. Mr. Hoenig, can you describe 
how you will build a strong working relationship with the Chair 
of the FDIC and the other members of the Board?
    Mr. Hoenig. Yes, Senator. Assuming that Mr. Gruenberg is 
confirmed also, and whoever the Chair is, but in this 
particular instance, I know we have a common interest in 
community banks, which is, I think, a very important part of 
our banking system. I also have had the opportunity to speak 
with members--with the staff of the FDIC. I think there are 
many common areas that we have. And, therefore, I feel like if 
I am confirmed, we would go in there and continue to have a 
common mission. We know we have a huge job ahead of us with 
Dodd-Frank as well as just dealing with the commercial banks 
through this time of stress. So I feel very confident that we 
would have a strong working relationship going forward with 
whomever.
    Chairman Johnson. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    Dr. Hoenig, in a speech you gave earlier this year, you 
stated, and I will quote, ``Today, we have a far more 
concentrated and less competitive banking system. There are 
fewer banks operating across the country, and the five largest 
institutions control more than half of the industry's assets, 
which is equal to almost 60 percent of GDP.''
    Senator Moran raised this earlier, about community banks 
and the demise of them, so we are all concerned about it. What 
do you believe are the principal causes of consolidation in the 
banking sector?
    Mr. Hoenig. Well, Senator, there are probably several, one 
of them being just economies of scale when the technologies are 
brought forward.
    Senator Shelby. Mm-hmm.
    Mr. Hoenig. I think another has been, and this is one thing 
I am sensitive to for community banks, the fact that when you 
do introduce new regulations, whatever the right reasons and so 
forth, it does put a kind of a fixed cost over those banks that 
require more dollars to spread those costs over and that does 
encourage consolidation.
    So I think one of the challenges that the regulatory 
authorities have is to inform community banks, all banks but 
community banks in particular, in terms of how these 
regulations can be put in place, get them at least pointed in 
the right direction so that they can control some of those 
costs and compete on a cost structure basis across the broad 
economy, and that is essential as we go forward.
    Senator Shelby. Are our community banks not inextricably 
linked to a lot of the small businesses and job growth across 
this country----
    Mr. Hoenig. I----
    Senator Shelby.----or lack thereof?
    Mr. Hoenig. Absolutely, they are critical. In fact, during 
the recession, the community banks were, I think, very involved 
in lending. Even though lending was very difficult during that 
period, a good portion of them were still in the business of 
lending. You have small businesses, that it is much easier for 
them in many cases, and especially in communities across the 
United States, to look to these banks for help for loans. And 
so I think they are very important for the future of this 
country and that needs to be recognized.
    Senator Shelby. Ms. Galante, House and Senate negotiators--
you probably know this--recently reached a, I call it a costly 
deal on extending the conforming loan limits. The deal would 
not boost the conforming loan limits for the GSEs but would 
raise FHA's loan limit from $625,000 to $729,000. This means 
that taxpayers will be subsidizing the purchase of expensive 
homes by wealthy buyers. Interestingly, Secretaries Donovan and 
Geithner have stated that the loan limits should revert to the 
limits established under HERA, which would keep FHA's limit at 
$625,000.
    What is your position on increasing FHA's loan limit to 
$729,000 as would occur in this new deal, especially in view of 
the financial challenges that FHA has that have been pointed 
out here, and what steps--do you agree with Secretary Geithner 
and Secretary Donovan on this, or do you have a different view?
    Ms. Galante. Thank you, Senator. Yes, it has been the 
Administration's position since we put out the White Paper on 
the housing reform that we believe that lowering the limits is 
a step to ensuring that private capital will return to the 
market. We understand that at the present time FHA is playing a 
somewhat outsized role in the market, and so we continue to 
support the limits being returned as they did October 1.
    We do understand, though, the markets are fragile and there 
are reasonable people who may want to see us continue to stay 
in the business and I would just say we will implement whatever 
Congress decides on this matter.
    Senator Shelby. How much household income would a borrower 
typically need to qualify for a $725,000 loan from the Federal 
Housing Administration, just roughly?
    Ms. Galante. Yes, I do not have those----
    Senator Shelby. Can you furnish that for the record?
    Ms. Galante. I certainly can furnish that for the record.
    Senator Shelby. In your opinion, is helping wealthy 
homeowners purchase expensive homes at odds with FHA's 
affordable housing mission, which you have been in a long time?
    Ms. Galante. So, again, I would say our traditional mission 
is to help first-time homebuyers, low- and moderate-income 
families, and that continues to be the core of our mission. 
Even when the loan limits were higher, it was a very, very 
small percentage of the work that FHA does.
    Senator Shelby. Mr. Jones, one of HUD's core missions is 
to, quote, ``provide grants to States and communities for 
community development activities.'' The HOME Investment 
Partnerships Program, referred to as HOME, is one of the 
largest community development grant programs that HUD 
administers. HOME has been the subject, as you probably know 
here, of a Washington Post investigation called ``Million 
Dollar Wasteland'' and has been cited by the HUD Inspector 
General as having, quote, ``a pattern of non-achievement in 
delivering its housing goals.''
    If confirmed to your position here, what would you do to 
improve the accountability and effectiveness of the HOME 
Program, which is under attack right now?
    Mr. Jones. Yes, sir. Thank you for that question. The first 
thing I would do is learn the facts.
    Senator Shelby. Mm-hmm.
    Mr. Jones. I have read newspaper reports and I have also 
seen the Department's----
    Senator Shelby. But you also have the Inspector General 
involved here----
    Mr. Jones. I have seen the Department's response----
    Senator Shelby. Yes, sir.
    Mr. Jones.----and I have not read thoroughly the IG's 
commentary, but I think my first job, certainly, being somebody 
who is coming to this new, will be to dig deeply and to find 
the facts. And then my job, as I see it, would be to go where 
the facts take me. And I understand the Department is already 
working on making improvements to the HOME Program. There are a 
proposed set of rules out there now that are being considered.
    Senator Shelby. Would this be one of your high priorities 
if you were confirmed?
    Mr. Jones. If the Secretary says it will be, yes, sir, it 
will be one of my high priorities.
    Senator Shelby. Thank you.
    Dr. Hoenig, a recent report by the Government 
Accountability Office, GAO, found that prompt corrective action 
has not prevented widespread losses to the Deposit Insurance 
Fund. In that report, the GAO found that since 2008, every bank 
that underwent prompt corrective action because of capital 
deficiencies and failed produced a loss to the Deposit 
Insurance Fund. The GAO further found that the presence and 
timeliness of enforcement actions were inconsistent. What steps 
should be taken to fix prompt corrective action and minimize 
losses to the Deposit Insurance Fund?
    Mr. Hoenig. I think that is always a challenge in the bank 
supervision business, Senator Shelby. It is very difficult to 
anticipate where losses are going to be, but I think that is 
where, number one----
    Senator Shelby. But that is part of your supervision, is it 
not?
    Mr. Hoenig. It is. Number one is to make sure you do have a 
strong capital base.
    Senator Shelby. One.
    Mr. Hoenig. Number one; number two----
    Senator Shelby. And what is two?
    Mr. Hoenig. To examine the assets and make sure that they 
are sound, and if not, to force the write-downs and then force 
the actions that will minimize losses, first to the bank and 
then to the Insurance Fund. There is always judgment in that 
and it can be--because there are human beings involved, it can 
become inconsistent. But what you have to do is keep pushing 
that concept, pushing around the capital standards, and strong 
examination procedures.
    Senator Shelby. Last, do you know of any bank--you were 
President of the Federal Reserve of Kansas City and you were 
also a member of the Federal Open Market Committee at the 
time----
    Mr. Hoenig. Yes.
    Senator Shelby. Do you know of any bank in your area that 
was well capitalized and well managed and well supervised that 
failed?
    Mr. Hoenig. I cannot think off the top of a single one. If 
it is well managed, well capitalized, and well supervised, they 
tend to earn consistently----
    Senator Shelby. That is not asking too much, is it?
    Mr. Hoenig. No. That is the standard----
    Senator Shelby. That is the standard.
    Mr. Hoenig. I agree. I agree with you on that.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Warner.
    Senator Warner. It is hard to quibble with the Ranking 
Member's qualifications of well capitalized, well managed, and 
well supervised. I just wish we saw more of that.
    Senator Shelby. But that should be the criteria.
    Senator Warner. Amen. Amen. Amen.
    I will be very brief with my questions. One, I want to go 
back to Mr. Jones's comments about the best people and best 
places. I do think when you are dealing with large 
organizations, and I think about our Department of Social 
Services, and from an outsider, my view of HUD, putting the 
best people in the best places, easy to say, harder to do, and 
I would just like to commend again Mr. Jones for, when he 
served in my administration, what he did at the Department of 
Social Services where there were a series of entrenched folks 
who, regardless of administration, had never changed and he 
managed to shake the place up in a very positive way and I do 
believe and think that--I hope, at least, and one of the 
reasons why I so firmly support him, he would bring that same 
approach to HUD.
    And while I heard your comment about following where the 
facts lead you on the HOME Program and that whether, answering 
Senator Shelby's question, whether that would be a top priority 
or not and your response being that if it was the Secretary's 
top priority, I just have to recall from personal experience, 
at least when we had the opportunity to work together, you 
followed the facts even if it was not the--you tried to at 
least make the case that that ought to be your boss's top 
priority if the facts said there was a problem.
    Mr. Jones. Yes, sir.
    Senator Warner. I would like for you to comment on that in 
terms of perhaps clarifying a little bit to Senator Shelby your 
response.
    Mr. Jones. Yes, you are correct, although I think I 
deferred to you most often, as well.
    [Laughter.]
    Senator Warner. We have different memories of some of the 
conversations.
    [Laughter.]
    Mr. Jones. But, no question, I thank you for the chance to 
clarify. It will be my job to also make the case that HOME and 
other programs should be priorities, and I commit to you that, 
if confirmed, I will dig deeply, find the facts, and try to 
make a contribution to us improving across the board.
    Senator Warner. And if there are inefficiencies, 
inappropriate behavior, or are activities that are not 
commensurate with the standards----
    Mr. Jones. I have one standard and that is excellence, and 
anything that is less than that, I am going to work on moving 
it up.
    Senator Warner. I thank you for that.
    Mr. Jones. Across the board.
    Senator Warner. Ms. Galante, I know you have moved over 
into this FHA acting role now, but I do want to commend you for 
some of your previous work at HUD. I know we have had an 
incident of a case in Virginia where, with some of the HUD 
backlog on some of these multifamily projects, the ability to 
try to cut through some of the bureaucracy, and I know you have 
moved into this new role, but do you have any counsel for those 
who are still looking at HUD in terms of this huge backlog of 
projects that need this kind of HUD financing, since the 
project financing is not there, and how we might find creative 
ways to move it along so we do not have these bottlenecks?
    Ms. Galante. Yes. Thank you, Senator. This is one of the 
consequences of going from, you know, $2 billion a year to $12 
billion a year of business, so we are doing more and more, and 
our staff certainly has not increased during that period of 
time. I have been having a major focus while I was in the 
multifamily role and will continue that--you know, multifamily 
is still part of the responsibilities of the Assistant 
Secretary for Housing--changing our business practices to 
ensure that we are managing the risk but that we also are 
moving projects on the multifamily side through the pipeline as 
quickly as possible, and we have major business improvement 
initiatives underway at this moment. We have folks out across 
the country rolling out changes to our processes to ensure that 
we can get these developments done and get them built and 
generate jobs and homes for people.
    Senator Warner. And I know my time has expired, so I will 
not get to ask Mr. Hoenig the question I wanted about cross-
border resolution. I think, Senator Shelby, you raised the 
issues, and I know Senator Corker and I had a conversation 
about this, as well, on what you called the costly price on 
some of the homes, and I think you make a very, very good point 
that we need to move back from $729,000 to $625,000.
    I would only point out that this notion that $729,000 is 
only buying a mansion in many communities, I can point to, 
unfortunately, many places in Northern Virginia where $729,000 
buys you a one-bedroom condo, and I am not sure that that 
necessarily is the case in every market around the country, 
obviously, but there are areas where that price does not 
compete.
    Again, Senator Corker and I had a great exchange on the 
floor about when and how we move back those numbers and you may 
actually have been right on that.
    Senator Shelby. Well, we are moving in the right direction. 
We just did not get FHA to move.
    Senator Warner. Yes.
    Senator Shelby. You know, FHA should have, of all people, 
moved, in my judgment.
    Senator Warner. Yes. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman, and thank you for 
the exchange we just had and I hope we have many more.
    I want to say to Ms. Galante, thank you for your service. I 
think what I just heard you say is that you all really are not 
in support of FHA's limits being raised to the level that the 
House is sending over to us in this conference report, is that 
correct?
    Ms. Galante. That is correct, Senator. We maintain that it 
is appropriate to take a step back on the loan limits.
    Senator Corker. Yes. I just want to say, I do not know how 
some of the organizations like you lead deal with the hypocrisy 
of Congress basically saying that we need to lower limits and 
move away from Fannie and Freddie and yet finding this back-
door way for FHA to basically fill in the gap. While I agree 
with the comments that Senator Warner made, there are, in fact, 
loans being made in the private markets above the $625,000 
level that are happening every single day. So I have to tell 
you, I think it is unconscionable what is coming over from the 
House, totally unconscionable, and I am going to do everything 
I can to urge as many Senators as I can to vote against the 
conference report because of the lack of courage that this body 
is showing in actually moving in the direction that we all know 
we need to move.
    And I would say to you, this is not reprimanding in any 
way, but the Administration did send out a White Paper, but a 
White Paper and a bill are two very different things, and it 
was a multiple choice White Paper, pick which you like.
    I will say that we have offered a piece of legislation that 
I hope will attract people like Senator Warner and others that 
I think is thoughtful and will move us over a 10-year period 
away from the reliance that we have on Fannie and Freddie, and 
I sure hope that you and your Department will look at that and 
offer any comments that you might have.
    But again, I thank you for your leadership. I thank you for 
your statement. And I am just absolutely so discouraged at 
Congress in lacking the courage to deal with this issue that we 
all know needs to be dealt with.
    With that, I will move to Mr. Hoenig. I thank you for 
coming by the office the other day. I think you know that. We 
talked a little bit about Title II, and obviously as Vice 
Chairman, Title II in the Dodd-Frank bill, as Vice Chairman, 
you are going to be in charge of orderly liquidations, I think, 
and my question to you, number one is do you think that the 
FDIC has the ability to unwind a highly complex top five 
banking entity in this country if it fails?
    Mr. Hoenig. I think, Senator, that will be one of the major 
challenges--is one of the major challenges that the regulatory 
agencies and the FDIC in particular have ahead of them. These 
institutions are, some of them, over a trillion dollars, and 
the impact of a failure on the economy will be unavoidably bad. 
So how you do this under the law that Dodd-Frank has given us 
is, I think, the great challenge that the FDIC has in front of 
it.
    There was reference to, first of all, understanding the 
organization that might be insolvent. You have to make that 
choice of whether it is solvent or a liquidity crisis. You have 
to do it in a very short period of time and you have to have 
the right steps in place to take control, make a decision 
whether it is in bankruptcy and so forth.
    So I think we will find out only when the time comes for 
sure when you have to then execute these actions to deal with 
these very large institutions. It is not magic. It is not 
automatic. It is going to take a lot of hard work between now 
and some hopefully long time in the future situation that we 
have to confront.
    Senator Corker. It is interesting. I have had some calls 
from some of the larger institutions that know that you are 
going to be doing what you are doing, and obviously you have 
made a lot of comments, I think, in the past about the fact 
that any organization that is too big to fail is too big. And 
some of them are concerned. I think it is an interesting 
dynamic, personally, and I thank you for bringing many of these 
thoughts to the table, but a lot of them are concerned that 
maybe their funeral plans do not quite meet your standards and 
you break them apart anyway. I would love for you to expand--
and, by the way, I am not giving judgment on that. I am just 
expressing something that has been expressed to me. I would 
love for you to talk a little bit about what you think ought to 
happen with some of our larger institutions. And, second, will 
that affect how you look at the ``funeral plans'' that each of 
these have to produce and I think you have to approve? Is that 
correct?
    Mr. Hoenig. Correct. Yes. And let me say, I am not against 
big. I have said that several times. I am against ``too big to 
fail'' because ``too big to fail'' does impact the taxpayer in 
significant ways. And what my concern has been--and I voiced 
this--is that if you take the safety net and you place it 
underneath these institutions and you give them and their 
creditors protections that they know or presume strongly are in 
place, then they do increase the risk and they do increase the 
fragility. And you can see it as an example in leverage because 
the higher the safety net, the more you tend to encourage 
leverage, so you get a higher return on equity.
    Now, if you have strong capital, you compete from a 
position of strength. If you are highly leveraged, you are 
vulnerable.
    So I think it is incumbent upon these institutions to 
understand themselves and their risk profile and how much 
capital they have, and then it is very important that the 
regulatory agencies and the Federal Deposit Insurance 
Corporation understand these institutions, and that if they 
present these living wills, what we choose to call them, they 
have to be understandable. And if the management and the 
directors do not understand it, I do not think we can 
understand it.
    So the burden is on them to show that they are manageable, 
that their risks will not impact the taxpayer in the future, 
and that is capitalism. And I think I would be supportive of 
that. But I do not support future bailouts by the taxpayer for 
institutions that are allowed to take on too much risk.
    Senator Corker. Mr. Chairman, I thank you for letting me 
talk with the witness 120 seconds over. I will say to you that 
I am looking forward to this. I could not agree more with you 
that we need to absolutely end any thought of taxpayer 
bailouts.
    Title II was crafted--and it was not crafted exactly 
perfectly, in my opinion, and I want you to know, as I told you 
in the office, we are working on a bankruptcy title to create a 
much bigger bankruptcy--or much better bankruptcy provision 
also for highly complex financial institutions. I look forward 
to working with you on that, and I certainly look forward to 
seeing what you are going to do at the FDIC to ensure that we 
do not have a situation where ``too big to fail'' continues to 
be part of our vernacular. Thank you and I look forward to your 
service.
    Mr. Hoenig. Thank you.
    Chairman Johnson. Senator Menendez.
    Senator Menendez. Well, thank you, Mr. Chairman. I 
appreciate all of the nominees. Congratulations on your 
nominations. I have had the chance to meet with them all.
    I want to start off with something that both Senator 
Isakson and I have been pursuing and that got strong bipartisan 
support here in the Senate of 60 votes, and some of my 
colleagues have talked about it in more disparaging ways, but I 
have a different view of it, and that is, loan limits. The 
reality is that, according to CBO, who does the scoring around 
here, loan limits will not cost the taxpayers one dime, and I 
think that is incredibly important. And the suggestion that 
this is only about the wealthy, the reality is that this does 
not just affect high-cost loans because hundreds of counties 
experienced FHA loan limit declines from around the high 
$300,000s to about $270,000 per year.
    Now, you know, I wish that people throughout the country 
could be able to obtain homes in that price range, but if you 
live on the coasts of this country, which have a huge amount 
not only of the land mass but the population mass of the 
country, the reality is that costs for homes are simply much 
higher than that.
    And so we would be taking out of the housing market at a 
critical time in which the housing market is already facing 
enormous challenges a key component of being able to help a 
large universe of people who can be responsible borrowers and 
for which it will not cost the taxpayers any money at all, you 
know, a vehicle by which they can get access to a mortgage.
    Now, Ms. Galante, am I misstating the fact that it is not 
just a question of the higher limits but the fact that there 
are declines from the high $300,000s to around $270,000 per 
year that affect numerous counties throughout the Nation?
    Ms. Galante. Senator, that is correct. I do not have the 
exact number of counties in front of me, but there are hundreds 
of counties that are affected by the change in the loan limits, 
and you are correct, it is not just about the highest amounts.
    Senator Menendez. And let me ask you this: We have had 
numbers run that suggest that actually the higher-cost loans 
actually have better performance records than others. To your 
knowledge is that true?
    Ms. Galante. Yes, Senator. We have not had a large 
opportunity to investigate this, but based on our historical 
data, again, we have done a small number that are at the higher 
limits. But our data does show lower seriously delinquent 
percentages for loans that are in a higher loan category.
    Senator Menendez. So the reality is, if our information is 
right and, you know, the universe that you have already 
reviewed, although maybe not as large as you would like to, 
shows that, in fact, there are lower loan defaults, it seems to 
me that we improve FHA's financing. So, you know, I certainly 
hope that our colleagues will join the House and support the 
effort here when we come to passage.
    Let me ask you, I announced at a previous hearing that I am 
working on a bill to promote shared appreciation mortgages at 
FHA as one--there is no simple silver bullet to solve our whole 
housing challenge--that has multiple dimensions to it--but as 
one creative solution to part of our housing constants. What do 
you think of shared appreciation mortgages where lenders reduce 
principal in exchange for a percentage of future home price 
appreciation?
    Ms. Galante. Yes, Senator. I think that is something that 
we should look at very carefully and thoughtfully. I do agree 
that shared appreciation can be a good vehicle. I can tell you 
not in the context that you are referring to but in the 
affordability context I have a tremendous amount of experience 
with shared appreciation mortgages and their benefits to 
homeowners.
    Senator Menendez. Mr. Hoenig, let me ask you a question. 
You and I had a conversation. I often hear, as I listen to 
community banks who tell us that their regulators often speak 
to them in a different way than we speak to them--we are saying 
we would like to see responsible lending, not speculative 
lending but responsible lending to take place, and we would 
like to see that as one of the methods in which we grow this 
economy. I listen to business people all the time who say, 
``Senator, even in this economy, I have a business that can 
grow, but I cannot get access to capital unless I give my 
firstborn and several points over LIBOR, in which case I really 
do not need a loan at that point.''
    The question is, they say that the regulators actually go 
in and, for example, on performing assets tell them, well, you 
know, even though it is performing and everything is on time, 
you have to recapitalize this, or there are other messages 
being given. Do you see it as part of your mission, should you 
be confirmed, to strike the right balance here at the end of 
the day?
    Mr. Hoenig. Senator, if I am confirmed, I think the right 
balance is absolutely essential. You know, when you go into a 
recession, the banks are under stress, the borrowers are under 
stress, and, therefore, there are a lot of issues around 
extending loans, growing loans, and so forth. And I think that 
I have noticed in this recession that community banks, broadly, 
have--some of them had to deal with commercial loans problems, 
but many, almost half at least, actually did increase their 
loans to businesses during this period. They were, I think, 
very committed to their communities. I think community banks 
are. And I think examiners want that to happen as well.
    Now, they have their own set of criteria in terms of sound 
supervision, having the right balance, and trying to strike 
that right balance. And it is not simple. There is always that 
shade of gray, what do you do, and I think that is where a lot 
of the confusion comes from. But my own view is, if I were 
confirmed, to work with the regional directors for the FDIC, 
pushing for that balance to make sure that the community needs 
are met and that the banks have a sound portfolio in meeting 
those needs. No simple matter, but essential.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Johanns.
    Senator Johanns. Mr. Chairman, thank you. And to each and 
every one of you who are on the panel today seeking 
confirmation, congratulations on really a great history that 
you all bring here. I have been sitting here, as you know, 
throughout the hearing, and the amount of experience is 
remarkable, and it is encouraging because you face some tough 
problems.
    I just wanted to offer a few thoughts, if I could, and if I 
have any additional questions, then I will submit them for the 
record and get responses back from you. But let me start with 
you, Tom. One thing that strikes me about you is that not only 
do you have bipartisan support, which is obvious, it is also 
very clear that you have community support. The thing about 
your nomination, I can expect to get a call from a president of 
a bank, and the next call might be from the leader of a union. 
And that is not always an easy pathway to navigate through, but 
you have successfully done it. You have earned their respect. 
And I am excited about you serving at the FDIC with all the 
experience that you have.
    If I would offer a thought, it would be I think we have got 
to pay attention to what is happening out in our more rural 
States. Things have been good. We see a very strong AG economy, 
but I must admit I am worried about land values. I see just 
hugely remarkable numbers in terms of land appreciation. We 
know from the 1980s that what goes up does tend to come down, 
and there will be a correction at some point. And if people are 
overleveraged, then this is going to be a bad deal for the 
community banks. We remember how many were closed or 
consolidated or whatever during the 1980s. It can happen again, 
and I just worry that there may be some warning signs out 
there.
    I worry that because of the difficulty of banks being 
profitable, the temptation is going to be to take on more risk. 
Everybody wants the AAA person. They may be stretching now to 
try to figure out how they make some money.
    In terms of the FHA, I have to tell you, I am so worried 
about where we are headed there, and I listened to your 
responses very carefully. Gosh, I am always impressed when 
somebody figures out how to do things better. But that does not 
solve the problem here. The problem is that you inherit a 
portfolio that stinks.
    There are a lot of underwater people out there, and there 
is going to be no easy way to get through this. We need to know 
how to deal with that, and I just think we have got a Fannie 
and Freddie phenomenon headed our way, and I am very concerned 
about how we would deal with that just because of the financial 
condition of the United States.
    Then with HUD, if I were to offer just one thing there, I 
hear from my housing authorities--and they do such great work. 
I worked with them as a mayor and when I was Governor. They 
really feel that the regulatory challenges that they face are 
unnecessary in many respects--not that we believe regulation 
should go away. That is not what I am saying. But they feel 
like, you know, the housing authority for a small community is 
facing the same regulatory issues that Houston is facing, and 
they are going, ``Wait a second. We are not close to that. We 
know the people that we manage by first name, and we know their 
kids and their grand kids.'' And so any way that you can bring 
some stability to that and some balance to that will be greatly 
appreciated.
    Those are my words of wisdom for each of you. I wish you 
all the very, very best. You have huge challenges in front of 
you but great experience to meet those challenges, and I look 
forward to working with all of you.
    Chairman Johnson. I thank the nominees for your testimony 
and for your willingness to serve our Nation. I ask all Members 
of this Committee to submit questions for the record by the 
close of business on Tuesday, November 22. I would also like to 
remind our nominees to please submit your answers to us in a 
timely manner so that we can move your nominations forward as 
quickly as possible.
    This hearing is adjourned.
    [Whereupon, at 11:28 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]




                 PREPARED STATEMENT OF MAURICE A. JONES
                      Nominee for Deputy Secretary
              Department of Housing and Urban Development
                           November 17, 2011
    Mr. Chairman, Ranking Member Shelby and distinguished Members of 
the Committee, thank you for the opportunity to appear before you today 
as President Obama's nominee to be Deputy Secretary of the Department 
of Housing and Urban Development. Before I begin, I would like to 
introduce my wife, Lisa, who is here with me today and has been my 
partner in life for the last decade. Our most precious gift, our 9-
year-old daughter, Michela, is in school this morning, but she is with 
us in spirit.
    I am humbled by the nomination and grateful to the President for 
the trust he is bestowing upon me. I am also thankful to Secretary 
Donovan for his support. If confirmed, I pledge to work collaboratively 
with the Members of this Committee to ensure that HUD achieves the 
operational excellence the country needs from this organization during 
these challenging times.
    Public service has been a passion of mine since at least my high 
school days in rural Lunenburg County, Virginia. In 1979, as a ninth 
grader, I was fortunate enough to be selected to serve as a page during 
that year's legislative session of the Virginia General Assembly. The 
experience changed my life. I observed and assisted legislators working 
on the public's business, and I was inspired. I resolved, then, to try 
to enter public service when I grew up.
    Following law school and 3 years of law practice in a firm in 
Richmond, Virginia, I was blessed with the opportunity to work for the 
U. S. Treasury Department. Over the course of 6 years at Treasury (from 
1995-2001), I served as Special Assistant to the General Counsel, Legal 
Counsel to the Community Development Financial Institutions Fund, 
Deputy Director for Policy and Programs and Director of the Fund. I 
loved these jobs, and they taught me valuable lessons and skills.
    My experiences at the CDFI Fund, in particular, called upon me to 
lead people in the building of a high-performing, results-oriented 
government organization with a compelling mission. And because the Fund 
was essentially a startup entity at the time I joined the team, we had 
to put in place the necessary infrastructure for the programs and 
operations of the organization. It was on the job training in building 
a government entity. Over a 5-year period, working collaboratively with 
Congress, we grew from a 10-person organization with an annual budget 
of $50 million to a 60-person organization with an annual budget of 
$120 million. We invested approximately $400 million in over 300 mostly 
nonprofit entities that used those monies to make loans and other 
investments in low-income communities across America.
    Following my time at the Fund and approximately 9 months with a 
foundation in the Washington Metropolitan area, I was honored to be 
asked by then Governor, now Senator, Warner, to join his 
Administration. I started as his Deputy Chief of Staff and subsequently 
also became his Commissioner of the State Department of Social 
Services. At Social Services, I led a team of more than 1,500 
Administration government employees who, in turn, worked through 
several thousand local government workers in 121 localities to provide 
social services to the people of the Commonwealth of Virginia. I spent 
the bulk of my time attempting to transform structures, processes, 
practices and people at Social Services in an effort to make it a more 
efficient and effective system throughout the State. During my tenure, 
Social Services: received a $922,000 reward for increasing the number 
of children adopted from Administration-supervised foster care; earned 
over $28 million in Federal incentives for record performances in child 
support and collections; and received around $24 million in Federal 
awards for successfully placing welfare participants in jobs and 
improving their job retention and wage advancement capacities.
    I departed the Warner Administration after more than 3 years to 
join a regional media company in the Hampton Roads area of Virginia, 
Pilot Media. I wanted to run a newspaper because I wanted the challenge 
of leading a private sector enterprise that pursued both excellent 
business results and distinguished public service. Little did I know 
that I was entering an industry that was and is in the midst of the 
most far-reaching transformation of its history.
    I knew nothing about newspapers when I joined The Virginian-Pilot. 
Very quickly I had to develop a point of view about our biggest 
challenges and attempt to set us on a path to achieve our double bottom 
line mission in these uncertain times. It has been an incredible 
educational journey, and I continue to learn lessons from the 
challenge. And we are weathering the times quite well. We have 
transformed the way we do business in every area of the company, from 
integrating departments to launching new businesses, to eliminating 
products no longer valued by our customers. As a result, we remain a 
debt-free, profitable enterprise well-positioned to assist the 
community in taking advantage of its opportunities and confronting its 
threats. The Virginian-Pilot has been voted the best newspaper in 
Virginia by its peers every year I've been its Publisher.
    These are the experiences I bring to the opportunity we are 
discussing today. HUD aspires to transform itself into an organization 
that consistently delivers excellent results, as reflected in Goal 5 of 
its 2010-15 Strategic Plan. To realize this aspiration, transformations 
across the agency are necessary. I want to help lead this journey. My 
public and private sector work have helped me to prepare for this role. 
And particularly in light of the housing and related economic 
challenges our country continues to face, which have come down so hard 
on so many Americans, I can think of no more important time to work at 
HUD.
    I am humbled by the President's decision to nominate me for this 
role, and I am grateful to the Committee for allowing me to appear 
before you today and for considering my nomination. I would be happy to 
answer any questions.
    Thank you very much.
                                 ______
                                 
                 PREPARED STATEMENT OF CAROL J. GALANTE
                    Nominee for Assistant Secretary
              Department of Housing and Urban Development
                           November 17, 2011
    Good morning, Chairman Johnson, Ranking Member Shelby, and Members 
of the Committee.
    I am honored to appear before you today and humbled by President 
Obama's and Secretary Donovan's decision to nominate me as Assistant 
Secretary for Housing--FHA Commissioner. I would also like to thank the 
Committee for scheduling this hearing and considering my nomination.
    Before I begin, I would like to introduce my youngest son, Chris 
Roberts, who is here today. He and my older son, Matt are both 
exceptional young men who I know will make the world an even better 
place as they proceed through their careers. I also want to thank my 
wonderful husband of 26 years, Jim Roberts. Without his steadfast 
support, I would not be sitting before you all today.
    Mr. Chairman, my entire professional life has been dedicated to 
real estate development and finance, community planning, and affordable 
housing and economic development. My more than three decades of 
experience in all three business lines served by FHA-single family, 
multifamily, and healthcare-has equipped me with a deep understanding 
of the industries, organizations and individuals that HUD serves.
    Immediately before my appointment as Deputy Assistant Secretary for 
Multifamily Housing at HUD and my subsequent tenure as Acting Assistant 
Secretary of Housing, I served for 13 years as President and Chief 
Executive of BRIDGE Housing Corporation, the largest nonprofit housing 
developer in California. During my tenure, I developed BRIDGE into a 
financially sustainable family of companies with annual revenues in 
excess of $115 million and assets of more than $1 billion dollars. I 
also developed new and innovative business lines to serve our mission 
such as HOMEBricks which assists first time homebuyers to access 
affordable ownership opportunities.
    At BRIDGE, and throughout my career, I have worked to demonstrate 
that partnership between the Government, private and nonprofit sectors 
to create opportunity is not just good policy--but smart business. And 
I brought that conviction with me to HUD.
    As the Deputy Assistant Secretary for Multifamily Housing, I led 
major changes in the Office. Under my leadership, FHA multifamily 
lending grew from an annual level of $2.5 billion in 2008 to over $12 
billion in 2011--providing key liquidity to this market segment during 
the toughest housing environment since the Great Depression.
    In addition, I led the first major overhaul of underwriting 
standards and loan documents in the 40 year history of the FHA 
Multifamily Insurance Program. These changes allow us to more 
effectively manage risk while better aligning programs with the norms 
and practices of the private sector.
    As Acting Assistant Secretary for Housing, I have continued to 
focus on making FHA's programs work for all of our stakeholders. Toward 
that end, I am spearheading a major overhaul of HUD's Housing 
Counseling Program, including the development of a new Office of 
Housing Counseling.
    Given that families receiving housing counseling are twice as 
likely to receive a mortgage modification, this work is particularly 
important as our economy continues to recover.
    In addition, I have placed a strong focus on risk management. This 
includes continued development of FHA's Office of Risk Management and 
Regulatory Affairs, as well as a commitment to hold lenders accountable 
for non-compliance with FHA's requirements. Just last week, I hosted a 
``kick-off'' meeting with FHA's new Senior Advisor for Risk and many of 
the recently hired Credit Risk Officers, along with their counterparts 
in all of the Program offices so that we can ensure risk management is 
fully integrated into FHA operational practices.
    If confirmed by the Senate, I will continue to provide effective 
leadership for FHA in achieving its important role of providing 
liquidity in the Nation's housing markets while maintaining a strong 
focus on protecting the Department's insurance funds.
    As is clear from the report we released on Tuesday regarding the 
current status of the FHA Mutual Mortgage Insurance Fund, FHA is at a 
critical juncture. As a result of the sweeping reforms instituted under 
Secretary Donovan's leadership, the MMI capital reserve remains 
positive and we have originated the highest quality books of business 
in FHA's history. However, the residual effects of poor performing 
books from prior years will require FHA to be vigilant in managing its 
business moving forward.
    Therefore, should I be confirmed, my highest priority would be the 
balancing of FHA's historic mission with responsible management of 
risk. At this important point in our economic recovery, ensuring the 
flow of mortgage capital necessary to restore our housing markets is 
vital. And FHA is playing a key countercyclical role in that effort, 
particularly for low-to-moderate income, minority and first-time 
homebuyers. However, FHA can fulfill its mission only if it effectively 
manages the resources that make its programs available.
    Thank you again for your time and for considering my nomination. I 
appreciate the opportunity to be here and, if I am honored to be 
confirmed, I will work hard to earn your ongoing trust.
                                 ______
                                 
                 PREPARED STATEMENT OF THOMAS M. HOENIG
             Nominee for Vice Chairperson and Member of the
       Board of Directors, Federal Deposit Insurance Corporation
                           November 17, 2011
    Thank you. Chairman Johnson, Ranking Member Shelby, Members of the 
Committee, it is my honor and privilege to come before you as the 
President's nominee to serve as Vice Chairman and Member of the Board 
for the Federal Deposit Insurance Corporation.
    I recognize that the job as Vice Chair for the FDIC is an important 
responsibility. I believe my experience in bank supervision and 
regulation within the Federal Reserve System for the past 38 years has 
prepared me for this role.
    I started my career as an analyst at the Federal Reserve Bank of 
Kansas City, working in the areas of research and policy. During that 
time, I also shared responsibility as part of a team that analyzed bank 
holding company merger applications.
    Later, I was assigned responsibility for the Federal Reserve Bank 
of Kansas City's discount window lending and led the Bank's examination 
work for the supervision of bank holding companies and State member 
banks. In 1986, I was given the opportunity to lead the bank's Division 
of Bank Supervision and Structure, directing the oversight of over 
1,000 banks and bank holding companies ranging in size of less than 
$100 million to $20 billion in assets. Finally, I served as President 
of the Federal Reserve Bank of Kansas City for twenty years from 
October 1991 until October of this year.
    During my career, I was involved with the banking crisis of the 
decade of the 80s that involved agriculture, energy and commercial real 
estate. In the Tenth Federal Reserve District, we dealt with 350 banks 
in the Midwest and Mountain states that either failed or required 
assistance between 1982 and 1992, including the failure of Penn Square 
Bank that later contributed to the failure of Continental Illinois 
National Bank And Trust.
    As a member of the Federal Open Market Committee, I was involved in 
an indirect manner in the efforts to mitigate the effects of the 
financial panics in Asia, South America, Russia and Mexico that 
occurred with regularity during the decade of the 90s. Finally, I 
worked with financial and nonfinancial firms in the Midwest through the 
recent financial crisis and recession.
    Each one of these unfortunate events was difficult on Americans. 
Each of these events provided me with experience in dealing with 
financial crises. I have observed how distorted financial incentives 
encourage institutions to take on excessive risk. Just as importantly, 
I understand the difficulties of managing a crisis and restoring 
confidence to an economy that involves both Main Street and Wall 
Street.
    Should the Senate choose to confirm me, I would serve with 
commitment and with the best interest of the country as my first 
priority as we continue to face national and global financial and 
economic challenges.
    Thank you for the opportunity to appear before you today and I look 
forward to answering any questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM MAURICE A. 
                             JONES

Q.1.-a. Mr. Jones, the HOME Investment Partnerships Program 
(``HOME''), has been the subject of additional oversight by the 
HUD Office of Inspector General and is the focus of a 
Washington Post investigation called ``Million-Dollar 
Wasteland.''
    At a Congressional hearing earlier this year, the HUD 
Assistant Inspector General for Audit testified on HUD's 
management of the HOME program. He stated:

        The most common finding throughout our audit reports is the 
        lack of adequate controls, including: subrecipient activities, 
        recapture provisions, over-reporting program accomplishments, 
        and ineligible activities. There is also a repetitive thread of 
        not meeting the HOME objective to provide affordable housing or 
        not meeting local building code requirements for housing 
        rehabilitation work.

If confirmed, will you commit to ensuring that HUD tightens its 
internal controls of HOME, provides adequate oversight over 
funds spent, holds recipients accountable for results, and 
carefully monitors projects through completion?

A.1.-a. As I stated at the Committee hearing, if I am 
confirmed, I commit to find the facts with respect to these and 
other allegations concerning the HOME and other programs, and I 
will then work hard to help improve HOME and other programs. My 
priority will be to ensure that HUD serves as a responsible 
steward of taxpayer funds while meeting the needs of the 
individuals the program is designed to serve. My standard will 
be excellence across the board.
    My understanding is that as a result of provisions included 
in FY 2012 appropriations legislation for HUD, as well as in 
HUD's proposed HOME rule, increased oversight, monitoring, 
accountability, and tightening of controls with respect to HOME 
will be mandated. For example, I understand that jurisdictions 
participating in HOME will be required to: certify that 
underwriting of projects has occurred indicating that 
developers have the experience and financial capacity to carry 
out projects; monitor construction progress and conduct an 
inspection at completion; and complete projects in 4 years 
(with a 1-year extension in some cases) or return HOME funds to 
the treasury.

Q.1.-b.What, in particular, would you do in each of these areas 
to make HOME a more effective program?

A.1.-b.Without having investigated the facts and reviewed in 
detail the steps already underway, it would be difficult to be 
more specific at this point than to say that I commit to find 
the facts and then work hard to help make any appropriate 
improvements. Based on my understanding of the relevant 
provisions in the FY 2012 appropriations legislation and in 
HUD's proposed HOME rule, there will be improvements in each of 
these areas.
    If confirmed, I would be pleased to discuss this issue 
further with you or your staff after completing that review, as 
well as the other questions you have raised concerning the HOME 
program.

Q.2. Related to this, one of HOME's most significant issues is 
its lack of clear audit trails. The HUD Assistant Inspector 
General for Audit testified that:

        In sum, we believe that HUD's information systems used to 
        administer the HOME program are incapable of producing complete 
        and reconcilable audit trails throughout the entire grant life 
        cycle and are unable to produce reports which would facilitate 
        timely identification of fraud, waste and abuse in the 
        programs.

If confirmed, what would you do to clarify HOME's audit trails 
and improve its information systems?

A.2. As I stated at the Committee hearing, if I am confirmed, I 
commit to find the facts with respect to these and other 
allegations concerning the HOME and other programs, and I will 
then work hard to help improve HOME and other programs. It is 
my understanding that under this Administration, HUD has agreed 
with many of the Inspector General concerns about the HOME 
information system, has raised such concerns on its own, and 
has sought funding to make improvements. I further understand 
that a number of system improvements are in the process of 
being implemented, and I look forward to learning more about 
them and seeking further improvements as appropriate if I am 
confirmed.

Q.3. In addition, in recent testimony, the HUD Acting Deputy 
Inspector General specifically pointed out the lack of 
oversight of sub-grantees receiving HOME funds. He remarked 
that ``in some instances, no monitoring is occurring, 
particularly at the subrecipient level.''
    If confirmed, would you commit to additional monitoring and 
oversight of HOME subrecipients?

A.3. As I stated at the Committee hearing, if I am confirmed, I 
commit to find the facts with respect to these and other 
allegations concerning the HOME and other programs, and I will 
then work hard to help improve HOME and other programs. My 
understanding is that because HOME is a block grant program, 
significant responsibility for monitoring and oversight of 
subrecipients is placed on participating jurisdictions, who 
have accountability for the results of HOME projects, and that 
some of the changes discussed above in the FY 2012 
appropriations law and in the proposed HOME rule will improve 
monitoring and oversight in this area.

Q.4. The Washington Post illustrated that some of the metrics 
used to signify completion of HOME projects are often 
unreliable and confusing. The Post mentions ``dozens of 
projects that HUD claimed were built and occupied had 
inconsistencies in completion dates and unit counts.''
    If confirmed, what would you do to fix flaws in HUD's 
reporting system and improve the program's metrics?

A.4. If I am confirmed, I would find the facts with respect to 
these allegations and work hard at improving HOME in 
appropriate respects, using the priorities and the standard of 
excellence described above. My understanding is that there are 
pending improvements in HUD information systems and 
accountability by participating jurisdictions, as a result of 
the FY 2012 appropriations law, the proposed HOME rule, and 
pending information system improvements initiated by HUD, which 
may help remedy any such problems.

Q.5. Mr. Jones, during your tenure there, the Community 
Development Financial Institutions (``CDFI'') Fund was the 
subject of a Majority Staff Report compiled by the House 
Committee on Financial Services Subcommittee on General 
Oversight and Investigations. The report highlights a lack of 
documentation associated with certain CDFI awards and the 
presence of undated evaluation memos found in CDFI files. The 
Inspector General for the Treasury Department concluded that 
the undated memos were written at the last minute prior to a 
Congressional staff review and that they contained deliberately 
misleading information about CDFI awards.
    Are you aware of this report? Can you clarify your 
involvement, if any, in the actions described by the report?

A.5. I am aware of this report and cooperated fully in 
extensive interviews with Subcommittee staff with respect to 
its preparation, as I did concerning the Inspector General 
(``IG'') report. Most of the staff report focuses on issues 
relating to the conduct of the then-director and deputy 
director of the CDFI Fund concerning its first round of awards, 
which were almost complete by the time I joined the Fund as 
legal counsel in the spring of 1996. With respect to the 
undated memos, as the staff report and the IG report state, in 
my capacity as legal counsel to the Fund, I specifically 
``rejected'' the deputy director's suggestion of placing 
undated memos in the files and ``advised him to place current 
dates'' on such materials.\1\ The Subcommittee and the IG found 
that the deputy director nevertheless placed undated memos in 
the files, and he and the director resigned from the Fund 
shortly after the IG report. The staff report also noted that I 
advised as legal counsel that awards should not be made until 
evaluation memos and other required documentation was 
completed, and that I was involved in seeking to improve the 
CDFI Fund award process for the second round of awards. See 
Staff Report at 35, 53-54, 99. I continued to work at the CDFI 
Fund on further improvements to the award process, keeping in 
mind the concerns raised both by the IG and the staff report.
---------------------------------------------------------------------------
    \1\ See Review of Management Practices at the Treasury Department's 
Community Development Financial Institutions Fund, Majority Staff 
Report for Subcommittee on General Oversight and Investigations, House 
Committee on Banking and Financial Services (June, 1998)(``Staff 
Report'') at 23 (quoting Inspector General report). The Staff Report 
specifically noted that I denied the former deputy director's claim 
that I had ``vaguely concurred'' with his decision to leave the memos 
undated. Id. at 42.
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                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM CAROL J. 
                            GALANTE

Q.1. During your confirmation hearing you seemed to suggest 
that by making more loans to people with high income, FHA could 
improve its financial condition and, therefore, Congress should 
raise FHA's loan limits. In previous questioning, however, you 
have stated that you oppose raising the loan limits, as is 
consistent with the positions of Treasury Secretary Timothy 
Geithner and HUD Secretary Shaun Donovan.
    Setting aside the accounting differences that cause loan 
limit increases to cost the Government money for the GSEs, but 
appear to save money within FHA, do you believe that FHA should 
increase the number of larger mortgages to wealthy borrowers in 
an effort to improve its financial condition?

A.1. Let me begin by clarifying my statements on the topic of 
loan limits. First, I did state and continue to maintain that 
the Administration's position is that lowering the loan limits 
back to their historical levels (as happened on October 1, 
2011) is an important step in enabling private capital to begin 
to reassert itself in the marketplace. As you mention, this 
position is consistent with the positions of both Treasury 
Secretary Timothy Geithner and HUD Secretary Shaun Donovan. I 
also stated that the Administration certainly understood why at 
this point in the market's fragile recovery, some people may 
believe this is not the time to take such a step. While 
acknowledging that, the Administration still stands behind its 
position.
    In response to a question regarding the potential impact of 
a proposed increase to FHA's loan limits, I stated that based 
on the limited data available to FHA on higher loan limit 
borrowers, I did not see that such a move would have a negative 
impact on FHA finances, and in fact, based on default rates of 
these borrowers being somewhat lower than for average FHA 
borrowers, it could have a positive impact on the Fund's 
finances. I would add here for the record that our data is 
limited on this point because the percentage of high loan limit 
borrowers is based only on the 2008-2011 book of business that 
enabled the higher loan limits, and further, that the 
percentage of FHA's business in this high loan limit space was 
approximately 2-3 percent by loan count and 6-7 percent by 
dollar volume in 2010 and 2011. We also do not know, given that 
FHA is generally a more expensive alternative in terms of 
monthly payment (because of the mortgage insurance premium) how 
much of this business will eventually come to FHA as opposed to 
using private capital sources.
    The fact is that while higher loan limits are not likely to 
hurt the FHA, and could in fact add some modest benefit, the 
Administration continues to believe that it is an appropriate 
time to lower the loan limits in order to encourage private 
capital to return to the market.

Q.2. In your testimony you state, ``my highest priority would 
be the balancing of FHA's historic mission with responsible 
management of risk.''
    What specific borrower characteristics do you believe place 
FHA most at risk? If confirmed, what changes would you make to 
reduce this risk?

A.2. There is not one particular borrower characteristic that 
places the FHA at risk. It is almost always a combination of 
factors that predict success or failure of a borrower, 
including FICO score, consistency of employment/source of 
income, debt-to-income ratios, down payment and source of down 
payment, cash reserves, and other related factors. These 
factors are considered in ``TOTAL Scorecard''--FHA's system for 
evaluating the credit risk of a loan. This Administration has 
taken significant steps to evaluate these borrower 
characteristics and has already made major improvements 
including requiring a minimum FICO score of over 500 and a two 
tier evaluation of FICO and down payment amount. FHA now 
requires a 10 percent down payment for borrowers with FICO 
scores under 580.
    Additional credit factors that are being evaluated moving 
forward include a requirement for housing counseling for 
certain higher risk loans, changes in cutoff points within 
TOTAL for automatic approval (and requiring more manual 
underwriting), and publication of a final rule regarding 
allowable seller concessions, which lowers the amount of seller 
funded concessions permitted for closing costs (thereby 
ensuring that borrowers possess the necessary cash to close and 
protect FHA from inflated appraisals).
    If confirmed, I would continue to be vigilant in protecting 
the Fund, while ensuring access to credit for borrowers who can 
responsibly sustain homeownership.

Q.3.-a. According to HUD, the mission of FHA is to administer 
active mortgage insurance programs that are ``designed to make 
mortgage financing more accessible to the home-buying public 
and thereby to develop affordable housing.''
    During your hearing you stated that you would supply the 
Committee with an answer to the following question: How much 
household income does a borrower typically need to qualify for 
a $725,000 loan from FHA?

A.3.-a. In practice, the answer to this question is that there 
are a range of borrower incomes required to qualify for a 
$725,000 loan from FHA, depending on both the cash available 
for down payment as well as other borrower debts and expenses. 
The required household income if the borrower paid 31 percent 
of their income toward their monthly housing expense, 
contributed the minimum down payment (and had a good credit 
score) and had no other significant debt or expenses would be 
an estimated $205,774.\1\
---------------------------------------------------------------------------
    \1\ Assuming a purchase price of $751,295, loan amount of $725,000, 
3.5 percent down payment of $26,295, interest rate of 4.25 percent and 
taxes and insurance of $1,565.

Q.3.-b. Do you believe this is an appropriate income level to 
---------------------------------------------------------------------------
be served by FHA?

A.3.-b. The Administration believes that it is appropriate for 
the loan levels insured by FHA to return to their lower levels. 
We do understand that in this period of recovery it is 
difficult to ensure that private capital will return as hoped, 
and we will of course implement Congress' determination to 
maintain Government support for lending at the higher level for 
some additional period of time.

Q.4. In FHA's annual report to Congress on the Mutual Mortgage 
Insurance Fund, it was projected that the capital reserve 
ratio, which FHA has a statutory obligation to maintain at a 
minimum of 2 percent, has fallen to less than one quarter of 1 
percent. Furthermore, it revealed that there is nearly a 50 
percent chance that the Fund will require a taxpayer bailout.
    If faced with the prospect of obtaining money from the U.S. 
Treasury or increasing premiums and other risk mitigation 
actions, what will be your course of action?

A.4. If confirmed, focusing on this critical issue will be 
among my highest priorities. The first place where additional 
support would come from is the net receipts on new 
endorsements. Under the base-case scenario utilized in the 
independent actuarial review, the FY 2012 book will add an 
additional $9 billion in economic value to the Fund. The second 
source of revenue I would consider is increasing the premiums 
going forward. There are a variety of specific premium options 
to be considered, including determinations as to whether up-
front premium increases versus annual premium increases are 
most appropriate (or some combination), as well as whether 
premium increases would be done across the board or on specific 
types of business. These alternatives are currently being 
evaluated both for their revenue generation capability as well 
as their impact on both loan volumes and particular types of 
FHA borrowers. Other avenues are also being evaluated, 
including lender enforcement activities and policies to enhance 
REO or pre-REO recovery rates.
    To be clear, the independent actuary does not indicate that 
there is ``nearly a 50 percent chance that the Fund will 
require a taxpayer bailout''. Rather, the report states that 
there is a close to 50 percent chance that should market 
conditions worsen further than anticipated in the base-case 
economic scenario envisioned by Moody's Analytics, net losses 
on the current outstanding portfolio could exceed current 
capital resources. As new books of business are expected to be 
highly profitable, these profits can be used to offset losses 
on earlier books, reducing the potential need for additional 
support for the MMI Fund. In any case, we are actively 
considering alternative courses of action to maintain FHA's 
ability to be self-sufficient and to rebuild its required 
reserves.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM CAROL J. 
                            GALANTE

Q.1. If FHA is permitted to insure loans up to $729,000, what 
are steps that FHA can take to improve its financial condition 
and scale back its market share to reduce its risk?

A.1. FHA has a number of tools available to both improve its 
financial condition and scale back its market share. FHA is 
currently reviewing a number of alternative options including 
increasing its premiums (the upfront premium, the annual 
premium, or some combination). It is also possible to increase 
premiums for specific types of loans or for borrowers with 
certain characteristics. These actions could begin to ``price'' 
FHA out of the market for some borrowers, however, so FHA must 
be conscientious of its mission as it explores available 
alternatives.

Q.2. Isn't FHA's central mission undermined by expansion into 
more high-cost areas? Shouldn't FHA begin to refocus its 
efforts on only insuring loans for borrowers who are unable to 
access the conventional loan market?

A.2. As stated previously, I do believe that it would be 
appropriate for FHA to step back and encourage private capital 
to serve borrowers above $625,500. FHA's core mission is two-
fold: 1) to ensure access to mortgage credit for low- to 
moderate-income, first-time and minority borrowers, and 2) to 
play a countercyclical role in the Nation's mortgage markets by 
facilitating liquidity during periods of market constriction. 
In times of economic stress, as we are seeing today, FHA is 
being called upon to act with respect to both aspects of its 
mission. We continue to provide access to homeownership for 
responsible low- to moderate-income, minority, and first-time 
homebuyers while also ensuring the flow of capital throughout 
the various price points of the market. FHA has taken steps 
over the past year to begin stepping back and encouraging 
private capital to return to the market. This can be seen in 
the fact that FHA premiums have been raised three times in the 
past several years and are at their historic highs. FHA volume 
has begun to drop from its peak in 2009 as a result of stepping 
in to keep mortgage capital flowing. In 2011, FHA volume was 
down over 30 percent. We are hopeful that these trends will 
continue as the market recovers, and that in the near future 
FHA's countercyclical role will no longer be necessary and FHA 
support can once again largely be focused on the underserved 
borrowers FHA has consistently served.

Q.3. Doesn't raising FHA's loan limit to $729,000 while 
maintaining Fannie's and Freddie's at $625,000 provide FHA with 
access to parts of the market that are closed to Fannie and 
Freddie, thereby expanding FHA's market share and exposing 
taxpayers to the very real possibility of another expensive 
bailout?

A.3. Raising FHA limits and not Fannie's and Freddie's does 
enable FHA to reach certain borrowers that the GSEs cannot. 
However, higher loan limits alone do not expose taxpayers to 
more risk. As mentioned in an earlier response to a question, 
FHA does not believe these higher loan borrowers pose 
additional risk to FHA. In fact, based on limited historical 
information, it appears these borrowers have a lower default/
claim risk.
    Notwithstanding that these borrowers do not appear to 
increase FHA risks, the Administration still believes that it 
would be appropriate for FHA to begin to step back and 
encourage private capital to serve these borrowers.

               Additional Material Supplied for the Record














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