[Senate Hearing 113-53]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 113-53
 
               NOMINATIONS OF: MELVIN L. WATT, JASON 

                 FURMAN, KARA M. STEIN, MICHAEL S. 

                 PIWOWAR, AND RICHARD T. METSGER
=======================================================================


                                HEARING

                               before the

                              COMMITTEE ON

                   BANKING,HOUSING,AND URBAN AFFAIRS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

                            Nominations of:

  Melvin L. Watt, of North Carolina, to be Director, Federal Housing 

                             Finance Agency

                               __________





  Jason Furman, of New York, to be a Member and Chairman, Council of 
                           Economic Advisers

                               __________

  Kara M. Stein, of Maryland, to be a Member, Securities and Exchange 
                               Commission

                               __________

    Michael S. Piwowar, of Virginia, to be a Member, Securities and 
                          Exchange Commission

                               __________

 Richard T. Metsger, of Oregon, to be a Member, National Credit Union 
                          Administration Board

                               __________

                             JUNE 27, 2013

                               __________

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


                 Available at: http: //www.fdsys.gov /





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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson, Deputy Staff Director

                   Glen Sears, Deputy Policy Director

              Brian Filipowich, Professional Staff Member

                      Elisha Tuku, Senior Counsel

                  Greg Dean, Republican Chief Counsel

            Chad Davis, Republican Professional Staff Member

          John O'Hara, Republican Senior Investigative Counsel

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)



                            C O N T E N T S

                              ----------                              

                        THURSDAY, JUNE 27, 2013

                                                                   Page

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

Opening statements, comments, or prepared statements of:
    Senator Crapo................................................     2
        Witness introduction.....................................     8
    Senator Hagan................................................     5
    Senator Schumer..............................................     6
    Senator Reed.................................................     7
    Senator Merkley..............................................    15

                                WITNESS

Richard Burr, a U.S. Senator from the State of North Carolina....     4

                                NOMINEES

Melvin L. Watt, of North Carolina, to be Director, Federal 
  Housing Finance Agency.........................................     9
    Prepared statement...........................................    34
    Responses to written questions of:
        Chairman Johnson.........................................    41
        Senator Crapo............................................    42
        Senator Brown............................................    46
        Senator Vitter...........................................    47
        Senator Toomey...........................................    47
        Senator Kirk.............................................    48
        Senator Coburn...........................................    51
Jason Furman, of New York, to be a Member and Chairman, Council 
  of Economic Advisers...........................................    12
    Prepared statement...........................................    35
    Response to written questions of:
        Senator Brown............................................    54
Kara M. Stein, of Maryland, to be a Member, Securities and 
  Exchange Commission............................................    13
    Prepared statement...........................................    36
    Responses to written questions of:
        Senator Brown............................................    55
        Senator Warner...........................................    56
        Senator Hagan............................................    57
Michael S. Piwowar, of Virginia, to be a Member, Securities and 
  Exchange Commission............................................    14
    Prepared statement...........................................    37
    Responses to written questions of:
        Senator Brown............................................    58
        Senator Warner...........................................    58
        Senator Hagan............................................    60
Richard T. Metsger, of Oregon, to be a Member, National Credit 
  Union Administration Board.....................................    15
    Prepared statement...........................................    37
    Responses to written questions of:
        Senator Brown............................................    60
        Senator Toomey...........................................    62

              Additional Material Supplied for the Record

Center for American Progress letter of support for nomination of 
  Melvin L. Watt.................................................    64
Congressional Hispanic Caucus letter of support for nomination of 
  Melvin L. Watt.................................................    65
National Association of Realtors' letter of support 
  for nomination of Melvin L. Watt...............................    66
Congressional Black Caucus letter of support for nomination of 
  Melvin L. Watt.................................................    67


                            NOMINATIONS OF:

                   MELVIN L. WATT, OF NORTH CAROLINA,

                            TO BE DIRECTOR,

                    FEDERAL HOUSING FINANCE AGENCY;

                       JASON FURMAN, OF NEW YORK,

                      TO BE A MEMBER AND CHAIRMAN,

                     COUNCIL OF ECONOMIC ADVISERS;

                      KARA M. STEIN, OF MARYLAND,

                            TO BE A MEMBER,

                  SECURITIES AND EXCHANGE COMMISSION;

                    MICHAEL S. PIWOWAR, OF VIRGINIA,

                            TO BE A MEMBER,

                SECURITIES AND EXCHANGE COMMISSION; AND

                     RICHARD T. METSGER, OF OREGON,

                            TO BE A MEMBER,

               NATIONAL CREDIT UNION ADMINISTRATION BOARD

                              ----------                              


                         TUESDAY, JUNE 27, 2013

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:30 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. I call this hearing to order.
    Today, we consider five nominations, Congressman Melvin 
Watt, to be Director of the Federal Housing Finance Agency; Dr. 
Jason Furman, to be a Member and Chairman of the Council of 
Economic Advisers; Ms. Kara Stein and Dr. Michael Piwowar, to 
be Members of the Securities and Exchange Commission; and Mr. 
Richard Metsger, to be a Member of the National Credit Union 
Administration Board.
    These five nominees before us exemplify public service and 
we are grateful to them for agreeing to serve in their new 
capacities. If confirmed, they will play an integral role in 
strengthening our economy and in the continued implementation 
of Wall Street Reform.
    One of the most important issues currently before the 
Committee is the health of the housing market and the future of 
housing finance. It has been almost 5 years since Treasury 
Secretary Paulson and the FHFA took Fannie Mae and Freddie Mac 
into conservatorship and the FHFA still not have a confirmed 
Director. We need a Senate-confirmed Director in place to 
ensure that the conservatorships of Fannie and Freddie provide 
stability to the recovering housing market while Congress 
continues to seek a broad consensus on a long-term solution for 
our housing finance system.
    Congressman Watt has represented the 12th District of North 
Carolina for over 20 years, and before that, he specialized in 
minority business and economic development law after graduating 
from Yale Law School. As a member of the House Financial 
Services Committee, Congressman Watt showed leadership and 
foresight in his repeated efforts early on to improve lending 
standards, to better protect borrowers and the borrowing 
economy. Our housing market and our economy need a confirmed 
Director in place at FHFA. Congressman Watt is well qualified 
for the job and should be confirmed without delay.
    Both the National Association of Realtors and the 
Congressional Hispanic Caucus have sent support letters for 
Congressman Watt that I would like to submit for the record.
    Chairman Johnson. On the economic front, we continue to 
recover from the worst recession since the Great Depression. 
Millions of jobs have been created, but too many Americans 
remain out of work. Dr. Furman's extensive experience as an 
economist for the NEC, the World Bank, and the CEA will serve 
him well as he advises the President on our economic 
challenges.
    Financial markets are facing a challenging environment in 
the wake of the financial crisis. As the SEC works to better 
protect investors on a wide range of issues, such as capital 
formation, credit rating agency reform, derivative regulation, 
and market structure, I know Ms. Stein and Dr. Piwowar will 
bring focused and innovative thinking to the Commission. Ms. 
Stein is well qualified for the position, with a wealth of 
legislative branch experience and a keen understanding of the 
issues before the SEC. Dr. Piwowar has served as a Staff 
Economist for the SEC and as Chief Economist for Ranking Member 
Crapo and Ranking Member Shelby. Kara and Mike are familiar 
faces on this side of the dais and I wish them the best.
    Last, the NCUA plays an important role in the strength and 
the success of the credit union industry across this Nation. 
Mr. Metsger is a good candidate for the NCUA Board, having 
served on the Board of the Portland Teachers Credit Union, as 
an Oregon State Senator, and on the Oregon Treasury Debt Policy 
Advisory Commission.
    All of our nominees today are well qualified and I hope we 
can move them through the Committee in a timely manner.
    I now turn to Ranking Member Crapo for his opening 
statement.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    We are here today to consider several nominations across 
the numerous Federal agencies that we have and I welcome all of 
you to our Committee.
    I have met with each of the nominees today and look forward 
to hearing from them about their goals for the positions to 
which they have been nominated as well as their qualifications.
    We have many introductions to make, so I will keep my 
remarks today focused on the highest-profile position before 
us, the Director of the Federal Housing Finance Agency, or 
FHFA. This is a unique position within all of the Federal 
Government and requires very specific expertise. Not only does 
the head of the FHFA act as a regulator to all of the 
Government-Sponsored Enterprises, but as conservator, this 
person actually operates Fannie Mae and Freddie Mac, whose 
combined portfolios exceed $5 trillion.
    Because the powers of this position are so unique and 
unparalleled within Government, any nominee to this important 
position must be politically independent and have the necessary 
policy and technical expertise. Specifically, a nominee must 
understand the traditional economics and concerns of financial 
service regulators, such as credit risk, market risk, operation 
risk, and liquidity risk. Additionally, the nominee must 
understand the business strategies necessary to operate two 
multi-trillion-dollar companies in a manner that conserves 
their assets until Congress determines our future housing 
finance system.
    Finding anyone with that expertise is a challenge, but on 
top of that knowledge, it is essential that the individual have 
a history of demonstrated political independence. This position 
is not a Presidential adviser or a member of a commission who 
must work in a collaborative fashion. As the conservator, the 
Director of the FHFA acts alone, on his own authority, and 
possesses all of the powers of the officers, board of 
directors, and shareholders of Fannie Mae and Freddie Mac.
    The current person holding this job, Acting Director Ed 
DeMarco, is a career civil servant and a Ph.D. economist named 
to his post by President Obama in 2009. Since that time, I have 
not heard anyone question his technical expertise. He is also 
an apolitical financial regulator who has resisted political 
pressure from all sides of the political spectrum. Yet, since 
he decided against supporting the Administration's push for 
principal reductions in underwater mortgages, an effort has 
been waged for his removal.
    Within that context, we have received the nomination of 
Representative Watt. I have previously expressed my concern 
about the President choosing to make an appointment of this 
political nature. This is not a reflection on Representative 
Watt. The Congressman has a long and successful career in 
Congress and on the Housing and Financial Services Committee, 
representing his constituents very well. He is also a member 
who is well liked by his colleagues and someone who is 
respected and with whom I enjoy discussing these issues.
    My concerns, rather, reflect the unique position of the 
FHFA Director, who needs to be the regulator, operator, and 
shareholder of Fannie Mae and Freddie Mac. As I said, the 
Director has virtually unchecked power to control two multi-
trillion-dollar companies, and through them, the entire 
mortgage market. This requires an in-depth knowledge of the 
operations of the mortgage industry, the mortgage-backed 
security industry, structured securitizations, investment 
portfolios, the operations of both public and private insurance 
and guarantees, and the expertise to oversee the nearly 12,000 
employees employed by these entities. In addition, the Director 
must be able to adequately transition both the FHFA and Fannie 
Mae and Freddie Mac for whatever Congress ultimately decides 
for the GSEs.
    Recently, earning reports indicate that perhaps we have 
turned a corner, at least for now, as it relates to the losses 
at Fannie Mae and Freddie Mac. However, the taxpayers have 
already spent nearly $190 billion bailing out these two 
companies. With the size of their operations, a decision 
resulting in even the smallest negative variation could mean 
the loss of billions more and a return to the Treasury draws 
that have plagued these conservatorships.
    With that in mind, we must gain a better understanding of 
Representative Watt's positions on a great variety of issues as 
well as how he plans to insulate himself from the political 
winds that surround Fannie and Freddie.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Crapo.
    Senator Crapo and I have agreed that in the interest of 
time, opening statements today are limited to the Chair and 
Ranking Member. The record will remain open for Senators who 
wish to submit an opening statement.
    We will now proceed to witness introductions. Senators Burr 
and Hagan will introduce Congressman Watt. Senator Burr.

  STATEMENT OF RICHARD BURR, A U.S. SENATOR FROM THE STATE OF 
                         NORTH CAROLINA

    Senator Burr. Thank you, Mr. Chairman, and thank you, 
Senator Crapo and my esteemed colleagues, for this opportunity.
    Mr. Chairman, I want to thank you for holding this hearing 
and for giving me the opportunity and the pleasure to introduce 
Mel Watt to my colleagues. I know his wife, Eulada, and his 
children, Brian and Jason, are proud of him today, and his wife 
is behind him.
    Finding a nominee for Director of the Federal Housing 
Finance Agency has been a long time coming. I sat in this seat 
introducing a fellow North Carolinian only a few years ago for 
the same position before the Banking Committee, so I would like 
to note that the President obviously thinks my State holds a 
key answer to addressing the very complex nature of the FHFA 
and how we reform Fannie and Freddie.
    [Laughter.]
    Senator Burr. Congressman Watt and I share a personal 
history, serving together in the House for many years. Our 
districts bordered each other during the time, so I had the 
opportunity to get to know Mel quite well. I saw his commitment 
to his constituents and, more importantly, to North Carolina. 
Above all, Mel always prioritized service to North Carolina 
during his more than 20 years in the U.S. Congress.
    Mel is a true North Carolinian, having grown up in 
Charlotte. As a graduate of Wake Forest, I have come to 
overlook his attending the University of Chapel Hill. I might 
say that since I had two sons that graduated from there, I have 
become soft on the rivalry between the two schools.
    From there, Mel received his law degree from Yale and 
entered private practice for over 20 years. He went on to serve 
with distinguished tenure in the House, representing one of the 
most geographically diverse and challenging districts in 
America. Those who know Mel or have worked closely with him 
will say that he is an honest, kind, and truly thoughtful 
individual.
    Let me just say to my colleagues, Mel is a good man. He is 
a good husband. He is a good father. I am proud to call him my 
friend. Without a doubt, the job Mel has been nominated for 
will not be easy. In my conversations with him, I have made it 
perfectly clear that he is not going to be able to go back to 
North Carolina as often. He is going to have to stay in 
Washington, which is something most of us fear.
    [Laughter.]
    Senator Burr. But I have promised him, Mr. Chairman, that 
if he got homesick for barbecue, I would bring some up so that 
he could stay here and fix this problem once and for all.
    With that said, I want to thank the Committee for the 
opportunity to speak before you and offer my personal thoughts 
on this nomination and some of the characteristics that I think 
Mel Watt brings to this position, if confirmed.
    Mr. Chairman, I thank you, I thank the Ranking Member, and 
I thank my colleagues for their time.
    Chairman Johnson. Thank you, Senator Burr.
    Senator Hagan.

                 STATEMENT OF SENATOR KAY HAGAN

    Senator Hagan. Thank you, Mr. Chairman and Ranking Member 
Crapo.
    I certainly want to echo my colleague, Senator Burr's, 
comments on Representative Mel Watt. It is certainly a pleasure 
to join with Senator Burr in welcoming and introducing my 
friend and colleague, Congressman Mel Watt, to my colleagues 
here on the Senate Banking Committee.
    I also want to thank his wife, Eulada, who has been with 
Mel for many, many years, and also, thank you for being here 
today with certainly your steadfast support.
    And I am honored to introduce Congressman Watt today. 
Congressman Watt is a true North Carolinian. He was born in 
North Carolina. He was a Phi Beta Kappa graduate of the 
University of North Carolina at Chapel Hill. He had an 
undergraduate degree in business administration and was the 
President of the Business Honors fraternity. He received a law 
degree from Yale and was a published member of the Yale Law 
Journal.
    Congressman Watt practiced law for over 20 years, 
specializing in minority business and economic development law. 
Since 1992, Congressman Watt has spent his distinguished career 
working for the people of North Carolina as a member of the 
House of Representatives.
    Congressman Watt is an outstanding choice to lead the 
Federal Housing Finance Agency. Over his 20 years on the House 
Financial Services and Judiciary Committees, Congressman Watt 
has been a champion for affordable housing in North Carolina 
and across the country. He has worked tirelessly to protect 
families from predatory and deceptive lending practices. He has 
been able to work across the aisle to find common ground on 
issues that promote economic opportunity for the middle class.
    Before the housing crisis, Congressman Watt raised concerns 
that predatory lending practices were harming consumers and 
putting the housing market at risk. Since the housing market 
collapsed, Congressman Watt has advocated for legislation to 
turn around communities hit hardest by the foreclosure crisis 
and to support hundreds of thousands of jobs across the 
country. He was instrumental in enacting the Dodd-Frank Act and 
in supporting its anti-predatory lending provisions that are 
working to protect middle class families and our service 
members.
    Congressman Watt has also worked across the aisle on other 
issues during his distinguished tenure in Congress. He worked 
with Republicans to pass legislation that addressed Patent and 
Trademark Office backlogs and on legislation that ensured 
adequate transparency for ATM fees while eliminating excessive 
regulatory burdens.
    With experience in the private sector and more than two 
decades of service on the House Financial Services Committee, 
Congressman Watt has the background, the skills, and the 
history of bipartisan cooperation necessary to confront the 
challenges facing our recovering housing market. I know 
Congressman Watt will work successfully with Congress, with us, 
to strengthen the backbone of our current housing finance 
system, and I look forward to today's hearing and his 
confirmation by the full Senate.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senators Burr and Hagan. 
Senator Burr, please feel free to excuse yourself at your own 
convenience.
    Senator Schumer will introduce Dr. Furman. Senator Schumer.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman.
    First, I want to acknowledge--I just see our Member from 
North Dakota came in. She hit a great single yesterday at the 
women's softball game, so congratulations, Heidi.
    Anyway, it is my honor to be here today to introduce Jason 
Furman, the nominee to be the next Chairman of the Council of 
Economic Advisers. I see sitting behind him, all three, happy 
as could be, are his wife, Eve, and his son, Henry, and his 
daughter, Louisa. Welcome, particularly you kids.
    Now, Mr. Chairman, this is not the first Furman that I have 
introduced to the Senate. Two years ago, I introduced Jason's 
younger brother, Jesse, to be a Federal judge, and he is now 
serving with distinction on the bench in the Southern District 
of New York. Welcome, Jesse. He is here, too.
    But, this is the first time that I have introduced someone 
the President has referred to as, quote, ``one of the most 
brilliant economic minds of his generation.'' Dr. Furman has 
served the President for the past four-plus years, working on 
virtually every facet of economic policy. Early on, he 
developed a reputation as a brilliant academic economist. But 
above all, his career is marked by a commitment to public 
service. Time and time again, Jason has heeded the call to 
serve, including at the World Bank in the late 1990s, in the 
middle of the Asian fiscal crisis, and this will not be Jason's 
first stint at the Council of Economic Advisers. He worked 
there and at the NEC under President Clinton.
    Jason's work has garnered him praise from across the 
political and ideological spectrum. He has brought together 
both sides in a way that I wish we could do more often here in 
the Senate. He is supported by both liberal and conservative 
think tanks and organizations, from CAP and SEIU on the more 
liberal side to the AEI and National Association of 
Manufacturers on the more conservative side. And he receives 
uniformly high praise from economists of all stripes, from 
Jared Bernstein, Larry Summers, and Christina Romer to Martin 
Feldstein, Greg Mankiw, and Glenn Hubbard.
    Apparently, Mr. Chairman, the only thing economists can 
agree on is that Jason is abundantly qualified to be the next 
CEA Chairman, and I am confident that the Senate will feel the 
same say. I am also confident he will not have to rely on his 
boyish good looks to get confirmed. He is thorough, accurate, 
balanced, and as the President noted, he is pretty smart to 
boot. As 11 conservative economists from the American 
Enterprise Institute wrote, quote, ``We are confident he will 
provide President Obama with advice that presents both the 
advantages and disadvantages of the policy proposals under 
consideration.''
    In short, Mr. Chairman, Dr. Furman is exactly what we 
always look for in the Chairman of the CEA, someone who can 
deliver rigorous, unvarnished economic advice to the President 
and help the President translate good economics into good 
public policy. I am confident that, if given the opportunity, 
Jason will prove to be an outstanding Chairman of the Council 
of Economic Advisers and I urge all my colleagues to support 
his nomination.
    Thank you.
    Chairman Johnson. Thank you.
    Senator Reed will introduce Ms. Stein. Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman.
    It is indeed a privilege to be able to introduce Kara Stein 
as a nominee to the United States Securities and Exchange 
Commission, but simply stated, Kara really does not need much 
of an introduction to the Members of this Committee. She has 
worked in a collaborative spirit with us for years on both 
sides of the aisle. I am pleased to see her husband, Steve, and 
Isabel and Rowan here, her proud family. We have all benefited 
from her counsel, her expertise, and I am delighted that she is 
going to continue, with our help, to bring that expertise and 
that sense of public spirit to the Securities and Exchange 
Commission.
    Kara is an extraordinarily gifted individual. She graduated 
Cum Laude from Yale College, then received her J.D. from Yale 
Law School. She has been in both public and private practice, 
including working at firms such as Wilmer Cutler Pickering on 
financial services issues. She worked on banking, municipal 
securities, and insurance matters in private practice and was a 
law professor. She could have taken a very lucrative career as 
a lawyer in one of the biggest firms in the country, but she 
chose public service, and for over a decade, she has worked for 
the people of Rhode Island and for the people of this country, 
and she has done extraordinary work for me. I am and will be 
forever in her debt.
    She has expertise and, importantly, the temperament to be 
an extraordinarily effective Commissioner in the Securities and 
Exchange Commission. She understands the complexities of the 
financial system. She understands how integral a well-
functioning financial system is to the health of our economy. 
She is someone who not just talks, but listens carefully and 
wisely. She is inherently fair. She values transparency and 
accountability. And I am confident she will be an extraordinary 
addition to the Commission.
    It, indeed, has been a privilege both personally and 
professionally to work with Kara. I am in her debt, and today, 
I will recommend her without reservation to my colleagues to 
assume a position as a Commissioner in the Securities and 
Exchange Commission.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you.
    Senator Crapo will introduce Dr. Piwowar. Senator Crapo.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    I am pleased to introduce Dr. Michael Piwowar today for 
consideration by the Committee as a Commissioner for the 
Securities and Exchange Commission. I also want to acknowledge 
and welcome Dr. Piwowar's family, several of whom are joining 
us in the audience today, and I am sure you are all quite proud 
of him.
    Dr. Piwowar's experience and expertise will be a real asset 
to the SEC. Not only has he served on the Senate Banking 
Committee for a number of years, but he also worked in the 
SEC's Office of Economic Analysis and served on the Council of 
Economic Advisers for two Presidents.
    With a Ph.D. in finance, he appreciates the value that 
economic analysis plays in SEC rulemaking, examination, and 
enforcement processes. Dr. Piwowar will bring that appreciation 
to bear as the SEC moves forward with its demanding regulatory 
agenda.
    Dr. Piwowar also recognizes the significant and important 
effect that securities legislation and regulation have to 
protect individual investors, as well as bringing about fair, 
efficient, and orderly markets for market participants and 
investors.
    Both he and fellow nominee Kara Stein have faced the rigors 
of legislating the Dodd-Frank Act, the JOBS Act, and a number 
of other securities-related matters during their time on the 
Banking Committee. This battle scar expertise, if you will, 
will serve them both very well at the SEC. As a Commissioner, 
he will make informed decisions and be able to fully appreciate 
and understand the consequences of the agency's actions.
    I congratulate Dr. Piwowar on his nomination to be an SEC 
Commissioner and I also congratulate you, Kara Stein, for your 
nomination, as well. I am very happy that your family is here 
to witness this, Mike, and thank you, Mr. Chairman.
    Chairman Johnson. I will now introduce Mr. Richard Metsger. 
Senator Merkley wanted to be here, but is unable.
    Mr. Metsger is President at Parakletos Strategic Public 
Affairs LLC, a public affairs firm dedicated to forging 
strategic solutions to issues of important public policy. Mr. 
Metsger served as an Oregon State Senator from 1999 to 2011 
with Senator Merkley, where his Committee work centered around 
the areas of finance, transportation, and economic development. 
He was selected by his colleagues as Senate President Pro Tem 
in 2009. Mr. Metsger also served for 10 years concurrent to his 
Senate responsibilities as one of five Commissioners on the 
Oregon State Treasury Debt Policy Advisory Commission, which 
advises the legislature on prudent management of the State's 
long-term indebtedness.
    We will now swear in the nominees. 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. Watt. I do.
    Mr. Furman. I do.
    Ms. Stein. I do.
    Mr. Piwowar. I do.
    Mr. Metsger. I do.
    Chairman Johnson. Do you agree to appear and testify before 
any duly constituted committee of the Senate?
    Mr. Watt. I do.
    Mr. Furman. I do.
    Ms. Stein. I do.
    Mr. Piwowar. I do.
    Mr. Metsger. I do.
    Chairman Johnson. Please be seated.
    Please be assured that your written statement will be part 
of the record. I invite you to introduce your family and 
friends in attendance before beginning your statement.
    Congressman Watt, please proceed.

STATEMENT OF MELVIN L. WATT, OF NORTH CAROLINA, TO BE DIRECTOR, 
                 FEDERAL HOUSING FINANCE AGENCY

    Mr. Watt. Chairman Johnson, Ranking Member Crapo, and 
Members of the Committee, I appreciate very much the 
opportunity to appear before you today to discuss my nomination 
to become the Director of the Federal Housing Finance Agency 
and to request formally that your Committee recommend that the 
Senate confirm me to this position.
    I want to express my thanks to Senator Hagan and Senator 
Burr for taking the time to introduce me and for the kind 
comments they made.
    I am deeply honored by the nomination and I am honored that 
members of my family and others are here to support me in this 
effort, especially my wife of 45 years, Eulada, who is seated 
right behind me, my brother-in-law, and my friend and freshman 
roommate at the University of North Carolina. Our friendship 
goes back 50 years, to a time that was critically important in 
my life, as a freshman at Chapel Hill. I am deeply honored by 
the nomination, also.
    In the interest of time, I will just give a brief summary 
of my background. I was born and grew up in a little community 
called Dixie out in the country, but with a Charlotte, North 
Carolina, address. I attended the Charlotte-Mecklenberg Public 
Schools, obtained a degree in business administration from the 
University of North Carolina at Chapel Hill, and a law degree 
from Yale University Law School.
    I returned to Charlotte in 1971 to join a law firm that was 
best known as a civil rights law firm. But the definition of 
civil rights law was changing to include economic and business 
development, and I joined the law firm to stand up a business 
practice.
    Over the course of 22 years in the practice of law, I 
practiced business law, representing individuals, partnerships, 
and corporations of all sizes and descriptions. Over half of my 
legal practice was real estate or related to real estate, and I 
also became the managing attorney of the law firm. Representing 
the city of Charlotte, my joint venture partners and I became 
the first North Carolina lawyers to do municipal bond work.
    When I came to Congress in 1993, I was fortunate to be 
assigned to the House Banking Committee and the House Judiciary 
Committee. I have served on both of these committees 
continuously since then. Counting my 22 years in the practice 
of law and my 21 years in Congress, I have had 40-plus years of 
experience in housing, real estate, and other financial 
matters. I learned housing and real estate from the bottom up 
and have learned and worked on it from the top down.
    Let me express my thanks to the Members of the Committee 
who have met with me leading up to today's hearing. During 
those meetings, the two questions I have been asked more than 
any others are why do you want this position, and what do you 
see as the role of the Director of the FHFA? I would like to 
spend the balance of my time addressing those questions.
    Let me start with the latter question, because Congress 
has, in fact, provided clear statutory directions on the role 
that the FHFA and the Director should play. In the Housing and 
Economic Recovery Act, which authorized the creation of the 
FHFA, Congress directed the FHFA and its Director to carefully 
and prudently, quote, ``oversee the prudential operations of 
each regulated entity,'' and to, quote, ``foster liquid, 
efficient, competitive, and resilient national finance 
markets'' during the transition period until decisions are made 
about housing finance and how it will be done in the future.
    While a broad consensus, which I fully support, has emerged 
that the future of housing finance must move toward a system 
driven by private capital that minimizes risk to taxpayers, 
what that system will look like will, of course, be up to the 
House and Senate. In the interim, however, I want to assure you 
that if I am confirmed, I will rigorously follow the directives 
of the Housing and Economic Recovery Act in an open and 
transparent manner, working with all stakeholders. You can be 
assured that we will continue to build a solid bridge from 
where we are now to whatever you decide the future housing 
finance system will be, that we will continue to test risk-
sharing models that move housing finance aggressively to the 
private sector, and that we will cooperate fully and be a 
resource to members of the Senate and the House as you decide 
the future of housing finance.
    The answer to the other question, why I want this position, 
is perhaps a little more complex, but to me, it is equally 
clear. Throughout my life, I have come to understand deeply 
just how important where you live is to who you are. I have 
observed that having a place to live is basic, and that is true 
regardless of whether you rent or whether you own. I suspect 
that my recognition of this started when I spent the earliest 
years of my life in a run-down house my mom rented, which had a 
tin roof, holes in the floor, no electricity, and no inside 
plumbing.
    I still get emotional when I recall as a little boy 
watching a big, long truck maneuver what had been a four-room 
omni-barracks slowly down the road from the Charlotte airport 
to place it on a little lot that someone gave to my mother. 
That became the house I grew up in. I also get emotional when I 
recall watching them drill the well on that lot so we could 
have running water for the first time, and helping my Uncle 
Leonard dig the septic tank lines so we could have a bathroom 
inside.
    While home ownership and home equity have become primary 
assets and source of retirement security for many families over 
the years, a place to live is still a basic necessity, whether 
you rent or whether you own. Having a place to live provides a 
sense of stability. It impacts our decisions about schools and 
transportation. It impacts our sense of community.
    Growing up, there was nothing more basic to me except 
family, food, and the little country church that adjoined our 
front yard. You could say that where I lived even predestined 
that I would become a Presbyterian, because I am still a member 
of that church today.
    Because a place to live is basic, over the years, I have 
worked to eliminate homelessness and I have been active in 
community development and neighborhood revitalization. And, of 
course, I have walked hundreds of families through real estate 
closings, for many of them, the most important financial 
transaction they will ever make.
    So I was devastated when our housing finance system started 
to lose its way, and I was among the first to realize that. And 
Representative Brad Miller and I became the first to introduce 
anti-predatory lending legislation, 4 years before the housing 
meltdown precipitated our economic meltdown.
    Now, we are at a unique moment in the history of how 
housing finance will be carried out in our country. Coming 
through the worst housing crisis in our history, we are 
struggling to find the right path out of a status quo that no 
one believes is desirable, and I cannot think of anything I 
would rather do now than help build the bridge and facilitate 
the transition to a more reliable housing finance future.
    I look forward to answering any questions the Committee may 
have. Thank you.
    Chairman Johnson. Thank you, Congressman Watt.
    Dr. Furman, please proceed.

  STATEMENT OF JASON FURMAN, OF NEW YORK, TO BE A MEMBER AND 
             CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS

    Mr. Furman. Chairman Johnson, Ranking Member Crapo, and 
other distinguished Members of the Committee, I am honored that 
President Obama nominated me to serve as Member and Chairman of 
the Council of Economic Advisers and I am honored to appear 
before you today as you consider my nomination. Thank you, as 
well, to Senator Schumer for those kind and generous words.
    I want to begin by introducing my family members who are 
here today. My first exposure to economics was from my father, 
Jay Furman, who is back there somewhere, who was pursuing 
graduate studies in economics when I was a young child. From an 
early age, I knew that I wanted to follow a similar path, and 
when I was 13, I got my first subscription to The Economist 
magazine. My mother, Gail Furman, also here today, a child 
psychologist, has always set an example for me when it comes to 
her unrelenting commitment to helping others.
    I also want to acknowledge my brother, Judge Jesse Furman, 
his wife, Professor Ariela Dubler, and my father's wife, Vicki 
Moran Furman.
    When I was in graduate school, focusing on starting a 
career in pure research, I met a woman who changed my future 
and eventually became my wife. Eve Gerber convinced me to 
follow her to Washington for my first job in government, not 
just because I would have followed her anywhere at that time, 
but because she convinced me that I could use my training to 
help contribute to better public policy. Eve has been 
supportive of me ever since.
    When my daughter was just born and my son was barely one, 
Eve encouraged me to return to public service, even though it 
entailed hardship for her and early sacrifices for my children, 
Henry, who is now 6-years old, and Louisa Bettina, who is now 
five. Their future remains an important motivation for all of 
my work.
    The job Eve convinced me to take at 25 was as a staff 
economist at the Council of Economic Advisers, then under the 
leadership of Joe Stiglitz. My time at CEA imbued me with a 
deep respect for the institution, its nonpartisan professional 
staff, and the role that unvarnished economic policy advice can 
play in helping to shape and advance the President's agenda. If 
confirmed, I would be proud to continue in that tradition, one 
that has strived in both Democratic and Republican 
administrations. I would also be guided by the example of 
former CEA Chairs Marty Feldstein and Greg Mankiw, among 
others. Marty was my first formal teacher in economics and Greg 
was my principal dissertation adviser at Harvard.
    As you all know, economists certainly do not always agree 
with each other, but economists do agree on a lot, most 
importantly, that questions should be addressed with a 
combination of logical theories and careful reading of the 
data, and that is exactly what CEA does, applying the tools of 
economics to the fundamental challenges facing American 
families. That is the approach I have always tried to bring to 
my research, teaching, policy advising, and public service, and 
that is the approach I would bring to advising the President on 
the economic goals we strive for today, including job growth, 
fostering sustainable growth, and helping families share in 
that growth.
    Thank you, and I look forward to your questions.
    Chairman Johnson. Thank you, Dr. Furman.
    Ms. Stein, please proceed.

   STATEMENT OF KARA M. STEIN, OF MARYLAND, TO BE A MEMBER, 
               SECURITIES AND EXCHANGE COMMISSION

    Ms. Stein. Chairman Johnson and Ranking Member Crapo and 
distinguished Members of the Committee, thank you for the 
opportunity to be here with you this morning. It is an 
incredible privilege to appear before you as one of President 
Obama's nominees to be a Commissioner of the Securities and 
Exchange Commission. I would also like to thank Senator Jack 
Reed for the kind introduction that he gave.
    I would like to begin by thanking my family for their 
tremendous support. I am grateful to be joined today by my 
husband, Stephen Miller, and my children, Isabel and Rowan, who 
are sitting directly behind me. I also would like to thank my 
mother, Norma Stein, and my sister, Katherine Stein, both of 
whom are here, as well. I also would like to thank and 
congratulate my colleague, Mike Piwowar, who, like me, is 
sitting here next to me, has been nominated to serve on the 
Commission.
    The United States has the largest, most robust, and most 
dynamic securities markets in the world. As the Federal 
securities regulator, the SEC has a critical three-part 
mission: To protect investors, to facilitate capital formation, 
and to ensure the integrity, transparency, and efficiency of 
these constantly evolving markets. The breadth and scope of 
that mission and the responsibilities and duties that flow from 
it are significant.
    I am honored to be nominated to serve in such a vital 
agency with a proud and distinguished history and alongside a 
staff known for its tremendous skill and expertise.
    Whether as a practicing attorney, an assistant law 
professor, or a person deeply involved in Senate Banking 
Committee policy for the past 15 years, including my time as 
Staff Director of the Securities, Insurance, and Investment 
Subcommittee, I have learned how essential it is to listen to a 
variety of viewpoints and develop public policy solutions to 
complex issues from the facts. If confirmed, I would look 
forward to engaging with the Commission, the SEC staff, and 
interested members of the public on an array of issues 
currently in the Commission's jurisdiction.
    I also believe that capital formation and strong investor 
protections go hand in hand, as a lack of fairness and 
transparency in the markets can lead to higher transaction cost 
and less capital. If confirmed, I would strive to meet the 
challenge of protecting investors while ensuring that 
businesses have access to the financial services they need to 
grow and create jobs.
    Beyond this, strong enforcement is critical to investor 
confidence and well-functioning markets. If confirmed, I would 
endeavor to be fair in assessing enforcement recommendations 
that come before the Commission, supporting aggressive actions 
and sanctions when supported by the facts and the law.
    Thank you again for the opportunity to appear before you 
today, and I look forward to answering any questions you may 
have.
    Chairman Johnson. Thank you.
    Dr. Piwowar, please proceed.

 STATEMENT OF MICHAEL S. PIWOWAR, OF VIRGINIA, TO BE A MEMBER, 
               SECURITIES AND EXCHANGE COMMISSION

    Mr. Piwowar. Thank you, Chairman Johnson. Chairman Johnson, 
Ranking Member Crapo, and Members of the Committee, I am 
honored to appear before you here today. I am humbled by the 
confidence the President has shown in me by nominating me to 
serve as Commissioner of the United States Securities and 
Exchange Commission.
    I would like to thank Senator Crapo for that very kind 
introduction. Thank you. I would also like to express my 
sincere gratitude to Senator Crapo and Senator Shelby for 
allowing me to work on a wide range of Dodd-Frank Act, JOBS 
Act, and other SEC-related issues during my time on the Senate 
Banking Committee.
    Mr. Chairman, thank you for allowing me to introduce my 
family members who are here with me today. First, I would like 
to introduce you to my wife, Eileen. I am incredibly fortunate 
to have the encouragement and support of such a wonderful wife.
    I would also like to introduce you to my daughter, Brigid, 
who is here with Eileen. My son, Sean, could not be here. He is 
at Boy Scout summer camp in Pennsylvania. Apparently, he thinks 
that is more fun than being here with his dad, so----
    [Laughter.]
    Mr. Piwowar. Eileen and I are extremely proud of both Sean 
and Brigid.
    I would also like to introduce you to my mom, Linda Dulan, 
and my step-father, Jim Dulan. I am glad they could be here 
with me today, as well, too.
    Sitting here today, I recall the first time I was in this 
hearing room. It was almost exactly 9 years ago at a June 2004 
hearing on an overview of the regulation of the bond markets. I 
was a visiting academic scholar at the SEC at the time. I was 
extremely proud that empirical evidence from two SEC-related 
research projects, one on the municipal bond market and one on 
the corporate bond market, were included in the testimony of 
the Director of the Division of Market Regulation at the SEC 
and the subject of a question by the Chairman of the Committee 
at the time, Senator Shelby. It was through work like those 
research projects that I learned how valuable the economic 
analysis could be to advance the mission of the SEC.
    As a visiting academic scholar and later as a Financial 
Economist at the SEC, I provided economic analysis and other 
technical support to the Commissioners and the Division 
Directors and other staff in the divisions and offices at the 
SEC in rulemaking, compliance, and enforcement matters. While 
at the SEC, I had the privilege of working with a number of 
outstanding economists, accountants, lawyers, and other 
professionals. Some of them are still at the Commission, and if 
I am confirmed, I look forward to working with them again.
    Over the past almost 4 years, I have had the privilege of 
working on many important issues under the jurisdiction of this 
Committee with a number of talented and professional Banking 
Committee staff on both sides of the aisle. These include a 
number of SEC-related issues, such as securities, over-the-
counter derivatives, investor protection, market structure, and 
capital formation issues.
    For many of the SEC-related oversight and informational 
meetings, hearings, and briefings, I have had the privilege of 
working directly with my fellow nominee, Kara Stein. If we are 
confirmed, I look forward to continuing our collegial, 
bipartisan working relationship to advance the important 
mission of the SEC: To protect investors, maintain fair, 
orderly, and efficient markets, and promote capital formation.
    As Senator Crapo likes to point out, the U.S. capital 
markets must remain the preferred destination of investors 
throughout the world. For that to happen, the SEC must remain 
the preeminent securities regulator in the world. If I am 
confirmed, I will faithfully work with my fellow Commissioners 
to achieve that goal.
    On a final note, the President has nominated me to fill the 
seat being vacated by Commissioner Troy Paredes. Commissioner 
Paredes has been an outstanding Commissioner who has earned 
widespread praise for being a thoughtful regulator, a friendly 
colleague, and a dedicated public servant. If I am confirmed, I 
hope to serve as ably as he has.
    Thank you again for the opportunity to appear before you 
today. I am happy to answer any questions you may have.
    Chairman Johnson. Thank you.
    Senator Merkley would like to briefly introduce Mr. 
Metsger.

               STATEMENT OF SENATOR JEFF MERKLEY

    Senator Merkley. Thank you very much, Mr. Chair, and to be 
very brief, you have all heard--I want to say Senator Metsger, 
since he served in the Oregon Senate--his extensive background 
in credit union work, but I wanted to add a little bit.
    I want to make sure people know that his life has included 
being an award winning journalist, being a high school teacher, 
being involved on a board that pursues financial literacy, 
going back just recently to teach financial literacy in high 
school, serving on the Oregon State Debt Policy Advisory 
Committee, but most of all, that as the chair for 8 years of 
the key committee on the Oregon Senate on financial issues, he 
did an extraordinary job of bringing the conversation together 
with the points of view of stakeholders from many different 
directions and working to execute sound public policy.
    It was a job well done in Oregon and I know that he will be 
a terrific Member of the National Credit Union Administration 
Board.
    Chairman Johnson. Thank you.
    Mr. Metsger, please proceed.

  STATEMENT OF RICHARD T. METSGER, OF OREGON, TO BE A MEMBER, 
           NATIONAL CREDIT UNION ADMINISTRATION BOARD

    Mr. Metsger. Thank you, Chairman Johnson, Ranking Member 
Crapo, and Members of the Committee. It is an honor to be 
before you today, and I want to thank the Chairman and Senator 
Merkley for their kind introductory remarks, and it was an 
honor and privilege to serve with you in the Oregon 
Legislature.
    While my mother could not travel to be here today, she got 
up early in Oregon and she is watching the Web cast online of 
this Committee proceeding.
    I would also like to recognize my father, who would have 
loved to have been here. He passed away recently. My dad served 
honorably in the U.S. Marine Corps in World War II in some of 
the most difficult situations possible in the South Pacific and 
later served as a public servant himself as a Postmaster in my 
home town of Sandy, Oregon. So my thoughts are about him today, 
as well.
    It is indeed a privilege to be nominated for this very 
critical position. If confirmed, I will do everything in my 
power to fulfill the trust placed in me to maintain the 
integrity and the safety and soundness of the credit union 
system and in an ever-changing marketplace.
    Maintaining a safe and sound credit union system requires 
visionary, attentive, and proactive leadership by those charged 
with regulating federally insured credit unions. In my view, 
the qualities inherent in serving successfully in this position 
include consideration of competing viewpoints, effective 
communication skills, and the wisdom to act prudently and 
decisively when action is required. And, if confirmed, I will 
bring those qualities to the NCUA Board.
    As an Oregon State Senator for 12 years and as chairman of 
the committee charged with most financial legislation, I gained 
great experience and, I hope, wisdom, in weighing varied 
viewpoints, testing assumptions, and acting in a manner that 
effectively balanced consumer needs with the needs of the 
industries that serve them to produce good public policy.
    Earlier in my career, I spent 16 years as a journalist, 
where my old school news director, Ted Bryant, instilled in me 
and the staff on a regular basis, he said that accuracy, 
relevance, and fairness were the cornerstones of responsible 
reporting, and I also believe that they are the building blocks 
for responsible regulating.
    Additionally, as a small business owner, I have worked with 
credit unions and their regional associations. These 
experiences have helped me to better understand the 
perspectives of the regulated community and the importance of 
clear, open, and ongoing communication with the institutions 
that the regulator has under its jurisdiction.
    My first credit union experience was as a 19-year-old 
working my way through Lewis and Clark College as a night 
custodian at an elementary school. There, I found I could join 
Portland Teachers Credit Union, and there, I got my first loan, 
a $350 loan for my first car, a 1957 Chevrolet two-door 
hardtop. Twenty years later, I was privileged to be elected by 
the members to the Board of Directors of that very same credit 
union. Through this experience, I saw the importance of 
visionary, effective leadership in guiding a credit union.
    These collective life and work experiences have given me a 
strong understanding of the role credit unions play in our 
Nation's financial system, the significance of credit unions to 
their members, and the importance of maintaining safety and 
soundness. If confirmed, my experiences would also inform the 
independent judgments and sometimes difficult decisions I would 
need to make as a member of the NCUA Board.
    I firmly believe that a regulatory agency should also 
strive to be its own best critic. To that end, NCUA already has 
in place a policy to review one-third of its rules every year. 
I can assure you that, if confirmed, I will approach this 
rolling review with diligence and vigor, with the aim of 
updating, simplifying, eliminating, and clarifying existing 
rules to ensure that they are effective, but not excessive, and 
consistent, though, with safety and soundness.
    Of utmost importance is the continued protection of the 
Share Insurance Fund. Now, because the fund is capitalized by 
the member credit unions themselves, it is in the best interest 
of member credit unions to have a strong, proactive regulator 
committed to protecting the fund from losses. The safety and 
soundness of the fund is job one of the regulator.
    If confirmed, my vision for NCUA is to be recognized as an 
agency that manages its own fiscal house well, proposes 
regulatory action that is effectively targeted to achieve the 
desired outcomes, without placing unnecessary burden on the 
credit unions themselves, and above all, maintains the 
confidence and trust that the American public places in their 
local credit union.
    Thank you, and I would be happy to answer any questions you 
may have.
    Chairman Johnson. Thank you for your testimony.
    If any Member has questions for the record for the 
nominees, I ask that you please submit them by COB on Monday, 
July 1. I also ask that the nominees respond to the QFRs 
quickly so that we can move the nominations forward.
    We will now begin asking questions of our witnesses. Will 
the Clerk please put 5 minutes on the clock for each Member.
    Congressman Watt, well before this crisis, you helped lead 
multiple efforts in the House to improve lending standards to 
better protect borrowers. You helped draft legislation 
reforming the GSEs that garnered bipartisan support. How does 
your legislative experience translate to running the regulator 
that you helped create? Will you be independent and pursue 
policies that are in the best interest of the public?
    Mr. Watt. Thank you, Chairman Johnson, for the question. 
You are correct that I was in on the ground floor of anti-
predatory lending legislation. We recognized probably earlier 
than a lot of people, because we were dealing with situations 
out in the community and seeing what was happening, that loans 
were being made that were not responsible loans and that the 
borrowers were not going to be able to pay them and that was an 
unsustainable thing.
    So we started from that premise and tried to build a system 
that would take some of the perverse incentives out of it. 
Brokers, lenders were making more money for directing people to 
loans that they could not afford than they were making 
directing people to loans that they could afford. The system 
was essentially out of control.
    And we tried to put together a coalition of people to 
recognize that. It took us one term after we introduced the 
legislation the first time to even get people's attention to 
the matter. The second term, we actually tried to put together 
a strong bipartisan coalition in the House Financial Services 
Committee but we were not able to pull it together. By the 
third term, the meltdown had occurred and everybody had 
recognized that there was a serious problem.
    That translates, because I think understanding that you 
cannot make an unsustainable loan, you cannot make a loan to 
somebody who cannot afford to pay it, is basic to the entire 
system of mortgage finance in this country. And that translates 
all the way up through the system. So, understanding the system 
all the way through, I think, is critical. And legislating to 
correct problems, you cannot legislate unless you really have 
an understanding of the system that you are legislating about.
    I kind of relate it to when I was practicing law, I never 
wanted to walk into a courtroom unless I understood the 
totality of what I was litigating about because I had to 
anticipate questions from both sides. And I think that is 
critical when we are legislating, also, and it is critical to 
be able to work with people and I have demonstrated my ability 
to do that over the years.
    Chairman Johnson. Thank you.
    Dr. Furman, what more should the Federal Government do to 
promote a rapid and broad-based recovery in order to create 
even more jobs and strengthen the middle class?
    Mr. Furman. Thank you, Mr. Chairman, for that question. The 
United States has had 37 straight months of job growth, nearly 
seven million jobs created. But, at 7.6 percent, the 
unemployment rate is unacceptably high.
    I think there are a number of steps that we can take, but 
very briefly, increasing our investments in infrastructure and 
tax credits to help small businesses expand their payroll and 
invest, combined with measures that over the medium- and long-
term would reform our entitlements, reform our tax code, and 
put our deficit on a more sustainable course, and, finally, 
measures in housing that would expand access to credit to help 
us continue the housing progress that we have been making.
    Chairman Johnson. Ms. Stein and Dr. Piwowar, if confirmed, 
how will you balance the complex issues on the SEC's agenda, 
including Wall Street Reform, the JOBS Act, market structure 
and enforcement, to name a few? Ms. Stein, let us start with 
you.
    Ms. Stein. As you know, the SEC has a multi-pronged 
mission, and I think as Chairman White said in her confirmation 
hearing, you need to be pursuing all of those objectives at the 
same time. Dodd-Frank and implementing Dodd-Frank is, to some 
degree, trying to remedy and learn from the lessons of the past 
financial crisis. JOBS Act implementation is critical, and 
other efforts to improve capital formation while still 
protecting investors. Equally important is allowing the SEC to 
evolve so that it can keep up with a very rapidly changing 
computerized marketplace.
    I think these things are not mutually exclusive, because if 
investors believe the market is fair and efficient and 
transparent and well regulated, they are more willing to put 
their money into the markets, and there is greater capital 
formation, which creates more jobs. So I think you need to 
pursue all of those things at one time.
    Chairman Johnson. Dr. Piwowar.
    Mr. Piwowar. Thank you. Yes, I agree that we have to work 
on all those at the same time. So, if confirmed, I will 
definitely work with Chair White, who actually sets the 
rulemaking agenda for the SEC, to make sure that priorities are 
placed on rulemaking that is mandated under the JOBS Act and 
under the Dodd-Frank Act.
    With respect to enforcement, there is a steady slate of 
cases that come forward that the SEC has to deal with on a 
consistent basis and that is just part of the job.
    In terms of rulemaking outside of the JOBS Act and the 
Dodd-Frank Act, obviously, the SEC has a rule proposal on money 
market funds which has to be addressed. And then outside of 
that, there is certainly a need to take a holistic approach at 
market structure issues. That is going to be a longer-term 
issue. But in the short run, I think there is one discrete 
issue that the SEC could move forward on and that is the pilot 
study on the tick size for small cap companies.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman.
    Representative Watt, Fannie and Freddie loans are currently 
exempted from the qualified mortgage, or QM, underwriting 
requirements and the QRM risk retention requirements. And while 
Acting Director DeMarco has indicated that Fannie and Freddie 
will only purchase QM loans, this standard is only as strong as 
the FHFA leadership requires it to be in the future. Exempting 
them from QRM risk retention requirements seems to grant them 
additional market advantages, but requiring them to retain that 
risk builds their portfolios. Do you believe that Fannie and 
Freddie should only purchase or guarantee loans that meet 
market-wide QRM requirements?
    Mr. Watt. I do, and I am not saying that loans should not 
be made by the private sector to people outside the QM, but 
understand that it was the anti-predatory lending provisions in 
Dodd-Frank that led to QM, and those are essentially the same 
standards that we started with 4 years before the meltdown. So 
I have always believed that you cannot make a loan to somebody 
who cannot afford to repay it. That is unsustainable, and so I 
think with taxpayers now explicitly at risk, we have got to 
even be more careful about it because all of those risks are 
being assumed now by the taxpayer. So I do agree with that.
    Senator Crapo. Well, thank you. And with regard to the QRM, 
do you believe that Fannie and Freddie should continue to be 
exempted from the QRM requirements?
    Mr. Watt. Well, I think the rationale for it is that Fannie 
and Freddie are being phased out over a period of time. If they 
were ongoing operating entities, we should expose them to QRM 
standards, also. But the theory now is that taxpayers are 
providing an explicit backstop, so QRM standards, risk 
retention really is not relevant in this interim period and, 
hopefully, will not be relevant long-term because the 
portfolios of Fannie and Freddie are being wound down over 
time.
    Senator Crapo. With regard to the Fannie and Freddie 
portfolios, some politicians and analysts have begun to track 
the cumulative dividend payments to the Treasury by Fannie Mae 
and Freddie Mac and portraying those as offsetting the nearly 
$190 billion capital requirement that is owed to the taxpayers 
rather than recognizing that as a fee for the capital that is 
described in the contract governing their conservatorships. Is 
it your view that the current payments being made to the 
Treasury by Fannie and Freddie are actually paying down their 
debt or is that a dividend-type obligation under the 
conservatorship?
    Mr. Watt. It is certainly not. The way the preferred stock 
purchase agreement is structured, none of it is going to the 
payment of the debt. It is a return to the taxpayers for 
bailing out these entities, and that is the way I view it.
    Senator Crapo. Good. Thank you. And under the current 
contract governing the conservatorships, any revenue above a 
small and diminishing amount is swept into the U.S. Treasury to 
pay this dividend that is owed by Fannie Mae and Freddie Mac. 
Do you believe that under the contract there is the legal 
authority for the Director to use any of the Fannie and Freddie 
revenue to fund social initiatives, even if the Director 
believes that those social initiatives would be in the public 
interest, or, on the contrary, do you believe that the Director 
has an absolute legal obligation to ensure that Fannie and 
Freddie make business decisions to maximize their net worth and 
then submit their net worth above the levels established by 
that to the Treasury?
    Mr. Watt. Ranking Member Crapo, that issue actually has 
been addressed in the statute that created the FHFA and there 
is a directive there that gives leeway to allow the GSEs to do 
things that do not yield the same kind of return in some cases. 
So there is kind of a built-in tension in the statute. What is 
important, though, is that we should definitely not be making 
any loans or guaranteeing any loans that cannot be repaid. Now, 
whether they get the maximum rate of return or not in some 
cases, you can argue about. But the primary responsibility 
ought to be protecting the taxpayers' investments at this point 
through this transition.
    Senator Crapo. Thank you. But just to be clear, you are 
saying that you think that there is legal authority for the 
Director to fund social initiatives?
    Mr. Watt. It is quite explicit in the statute. It says, 
including activities relating to mortgages on housing for low- 
and moderate-income families involving a reasonable economic 
return that may be less than the return earned on other 
activities. Now, that is not an authorization to go and make 
irresponsible loans----
    Senator Crapo. Understood.
    Mr. Watt.----but that was built into the statute, and 
obviously there is tension in the statute and that has to be 
done responsibly, and my pledge to you is that I will continue 
to do it responsibly.
    Senator Crapo. Thank you.
    Chairman Johnson. Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman.
    I had the opportunity and the privilege to commend Kara 
Stein. I want to also commend Mike Piwowar for your 
collaboration, your cooperation, your insights, and your great 
service to this Committee. I think the President has chosen 
wisely in both cases, and very good luck, Mike, and thank you.
    Mr. Piwowar. Thank you, Senator.
    Senator Reed. Let me also say I have had the privilege of 
serving with Congressman Watt and I have been impressed for 
many years with his intelligence, his integrity, and, as he 
explained today, his knowledge of housing from Dixie, North 
Carolina, to Washington, D.C., and----
    Mr. Watt. From the septic tank up.
    Senator Reed. Yes. Yes.
    [Laughter.]
    Senator Reed. But I think the other thing that 
Representative Watt brings, which is, besides his personal 
qualities, is his understanding of sort of where we are, which 
is basically the next Director of FHFA has to continue to 
maintain the value of the assets of Fannie and Freddie and at 
the same time work collaboratively with the Congress, and many 
of my colleagues have done some very good work about proposed 
transitions. In fact, the goal is, essentially, to put you out 
of a job, basically, to eliminate Fannie and Freddie. And I 
just want to get your reaction to sort of that approach, 
Representative Watt.
    Mr. Watt. Well, I think putting me out of a job would mean 
that we have gotten through this transition and built a 
sustainable future for housing finance and mortgage finance in 
this country. So, I would be delighted to have that happen. In 
the interim, however, we have a set of responsibilities that I 
would certainly apply and use the judgment, the good judgment, 
that I have built over the years to make responsible decisions, 
and I do not want anybody to have any doubt about that.
    Senator Reed. Well, I have no doubt about that, 
Representative. I have great confidence and, again, I think the 
President has made a very wise choice in many, many different 
ways--your experience, your, just, character----
    Mr. Watt. Thank you.
    Senator Reed.----so thank you.
    Dr. Furman, we had a chance briefly to chat in the office. 
America is undergoing this great revolution in natural gas. It 
is so cheap and so affordable and so available, except in New 
England.
    [Laughter.]
    Senator Reed. Yes. We happen to be the largest consumers of 
natural gas because of many things, including air quality 
rules, and we are paying a very high price.
    Henry Hub, which is down in Louisiana, but it is sort of 
the national pricing point, $3.25 per MMBtu. The Algonquin City 
Gate, that is the one that--the usual pricing reference for New 
England, $30 per MMBtu. So I think one of the things you have 
to work on is trying to figure out how the benefits of this 
great--and there are benefits to this great revolution in 
natural gas production and cost--can be extended to every 
region of the country, particularly the Northeast, and so that 
we can be competitive in terms of manufacturing, be competitive 
in terms of many things. So, any comments, I would appreciate, 
but it is more of a reiteration of our previous discussion.
    Mr. Furman. Yes, Senator. I enjoyed that discussion and 
very much agree that natural gas plays a really important role 
in the economy. It directly creates jobs in a lot of States, 
like Senator Heitkamp's State, and then indirectly is a 
critical input into manufacturing and is part of why I think 
American manufacturing is undergoing somewhat of a renaissance 
right now.
    But, as you said, those natural gas prices are very 
variable across the country, and figuring out what we can do, 
whether it is investment in infrastructure or other measures to 
help bring those prices down, I think is good for jobs, good 
for clean energy, good for dealing with climate change over the 
long run, and is something I would very much look forward to 
working on if confirmed as Chair of the Council of Economic 
Advisers.
    Senator Reed. Thank you very much, Doctor.
    Just one quick question for Senator Metsger. I am 
cosponsoring legislation with Senator Udall that will increase 
credit union member business only cap to 27.5 percent of assets 
from the current 12.25 percent. Do you think that is a good 
idea?
    Mr. Metsger. I think it is a good idea to recognize that it 
is the purview of Congress to make decisions.
    [Laughter.]
    Senator Reed. Spoken like the Chairman of the Oregon Senate 
Committee on Finance and everything else. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. A series of votes has started on the 
floor. On the last floor vote, I ask Members to vote early and 
hurry back to the hearing so that we can resume. I apologize to 
our witnesses and ask them to be patient in hopes that we can 
resume quickly. Votes have started on the floor. Senator Toomey 
will be the last Member I recognize for questions before we 
recess for votes.
    Senator Toomey.
    Senator Toomey. Thank you very much, Mr. Chairman. I 
appreciate that, and I thank my colleagues for allowing me to 
go next, as I have a conflict later in the day, so thanks very 
much to all of you for your help.
    Congressman Watt, I have got three quick questions, really. 
I want to start with a quote that is attributed to you from a 
financial--a House Financial Services Committee hearing, and in 
it, you said--in September of 2003, you said, quote:

        Private enterprises really have not done very well in achieving 
        things other than making money. Most of them do not really give 
        much of an [expletive deleted] about poor people and whether 
        they have housing or not, and it seems to me that an over-
        emphasis in that direction can only make matters worse.

    I guess my question is, is that still your view about the 
private sector with respect to the mortgage markets, and if so, 
how could we be confident that you would help lead a transition 
to a mortgage finance model that would rely more on the private 
sector?
    Mr. Watt. Thanks for the question, Senator Toomey, and 
thank you also for meeting with me in advance of the hearing, 
leading up to the hearing.
    We were observing a lot of very negative things that were 
going on in the housing industry at that time, some of which I 
alluded to in answering Chairman Johnson's questions. Loans 
were being made to people based on incentives for profit rather 
than on their ability to repay. There were substantial 
incentives built into the system that were negative incentives 
and they were taking advantage of them, both in the private 
sector, and Fannie and Freddie also got into the act, one foot 
in the public sector and one foot in the private sector.
    So there are circumstances in which the profit motive 
overtakes anything else, responsibility, and I still believe 
that, but I think if you look at my record, you will know that 
I have worked in the private sector responsibly. I worked with 
the private sector responsibly. And I believe that the private 
sector is critical to our economy and I am hoping that we can 
incentivize as much of this business going back into the 
private sector as the private sector will assume as quickly as 
it will assume it.
    Senator Toomey. OK. I have got another question here. With 
respect to the HAMP PRA program, are you prepared to commit now 
that you will not implement principal reductions on mortgages?
    Mr. Watt. Well, as I told you previously, I can tell you 
what the principles will be if I am asked to look at that 
again, and I expect I will be asked to look at it again because 
some people still think it is a relevant question, despite the 
fact that housing prices have gone up and there are fewer and 
fewer people underwater at this point than there have been.
    But I would start as I would with any issue that has been 
decided already by FHFA. I would start by studying carefully 
how that decision was reached, what it was based on, and then I 
would build on that new information. I think the information on 
which that decision was made is a year-and-a-half old now.
    Senator Toomey. But, the problem----
    Mr. Watt. And then I would make a responsible decision 
based on that.
    Senator Toomey. The concern is that the decision was--the 
information was quite recent but available when you signed a 
letter in December urging exactly this principal reduction, 
despite the fact that the FHFA analysis was that this was not a 
good idea. It was not a good idea for the Enterprises. It was 
not a good idea for the taxpayers. And I do not think it is a 
good idea for mortgage credit availability generally.
    And so the concern is that, based on the data then and the 
analysis then that suggested that this was a bad idea, you, 
nevertheless, recommended it. So that is why I am wondering----
    Mr. Watt. Well----
    Senator Toomey.----how we should view this now.
    Mr. Watt. First of all, there was conflicting data out 
there. Obviously, FHFA had made a decision that reached one 
conclusion, but there was conflicting data.
    Second of all, you have got to understand that I was a 
Member of Congress representing my constituents, many of whom 
were underwater, and advocating for relief for them. You should 
have no doubt that I will be a strong and aggressive advocate 
for the taxpayers in this role, because I view them as my 
constituents in this role, not the constituents that I 
represented before.
    Senator Toomey. Mr. Chairman, do I have time for one more 
quick follow-up? It is very quick.
    Chairman Johnson. Make it quick.
    Senator Toomey. Very quick. Thank you.
    You, no doubt, have seen that a number of municipalities 
are actively considering employing eminent domain to purchase 
underwater mortgages. Do you support that, and if you do not 
support that, would you make it the policy of Fannie and 
Freddie not to make mortgage financing available within the 
boundaries of municipalities exercising that?
    Mr. Watt. Well, I have been a long advocate for 
acknowledging the prerogatives that State governments have in 
our Federal system. We cannot make every decision, and eminent 
domain is essentially a State and local issue. But I would 
insist that any decision not put local governments in front of 
our taxpayers and that if a decision was being made, it was 
being made for strictly public reasons, and I think that would 
be the analysis I would make.
    Senator Toomey. Thank you very much, and thank you, Mr. 
Chairman.
    Chairman Johnson. The Committee now stands in recess.
    [Recess.]
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Mr. Chairman, I would just like to start by saying that I 
think the President of the United States has made five very 
strong choices, and I particularly want to say he has made a 
strong choice with Congressman Mel Watt to be the permanent 
head of the FHFA. I worked with Congressman Watt many, many 
years--starting many years before the financial crisis on a 
number of housing-related economic issues. He has always been a 
thoughtful policymaker. He has a deep background in finance. He 
has been a champion of working families. There is much work 
still needed to stabilize the housing market and FHFA is going 
to play an important role in that. And so I very much hope that 
we will not succumb to political bickering, that we will 
confirm a truly excellent candidate for this role.
    So that is my only question for Congressman Watt. Should I 
say, do you agree with me?
    [Laughter.]
    Mr. Watt. I just want to say thank you. I was hoping that I 
would not deflect from the rest of the panel the entire day, 
so----
    Senator Warren. There we go. There we go.
    But I do want to--I do have a question for Mr. Piwowar and 
Ms. Stein. We have talked in this Committee before about 
understanding how important it is for the SEC and other 
agencies to settle with companies that have engaged in 
wrongdoing, but we also understand that if the SEC does not go 
to trial and does not require admissions of guilt, either 
because it is too timid or because it lacks the resources, that 
they will have less leverage in their settlements.
    And now we know that Chairman White has said that the SEC 
will require admissions of guilt in select enforcement cases. I 
think this is a very important step. I think this indicates 
that the SEC will show some backbone in critical cases and I 
think that has important benefits, spillover effects, even in 
other cases, in helping create some credibility behind any SEC 
threat to go to litigation.
    So the question I have, and I will just start with you, Mr. 
Piwowar, do you agree with Chairman White's new policies here?
    Mr. Piwowar. Absolutely. The ``no admit, no deny'' policy 
seemed to be on autopilot, and by definition, enforcement cases 
should be on a case-by-case basis. So I was pleased to see that 
she said that, you know, in some cases it is appropriate, in 
other cases, it is not. They have to be dealt with on a case-
by-case basis.
    Senator Warren. Fair enough, but that she is making an 
important change here. Thank you.
    And, Ms. Stein?
    Ms. Stein. I would agree. I am supportive of the policy 
change and I think that the SEC should use all of the tools it 
has at its disposal to enforce the Federal securities laws. 
Nothing should be on automatic pilot.
    Senator Warren. Good. Thank you very much. I think that is 
very important. I think that Chairman White is onto something 
really important here and I hope other regulators are paying 
attention to the changes that she is instituting. You know, 
every District Attorney and every U.S. Attorney knows that plea 
bargainings will break down and have no real impact if, in 
fact, the Government is unwilling to go to trial. So I think 
this is true. I hope that the other agencies follow suit.
    And I hope that we follow up. It is important that everyone 
know when we are talking about litigation that you do not have 
to have a perfect record. We can tolerate sometimes you will 
bring someone to trial and you may not succeed, but you are out 
there trying. It is important. Thank you. Good.
    Dr. Furman, I have a question for you. We have also spent a 
lot of time in the Banking Committee talking about too big to 
fail, and I think I understand the policy of the Administration 
right there. Chairman Bernanke has said too big to fail is not 
yet in the rearview mirror, and he and others in the 
Administration have said, but Dodd-Frank is chipping away at 
the too big to fail system that we have right now.
    But, we also know that a recent study has indicated that 
the big banks are receiving a subsidy of about $83 billion a 
year in lower borrowing costs because the market believes that 
too big to fail is still out there, and that is a subsidy that 
boosts big banks over community banks in terms of attracting 
capital.
    So my question is one about timing, Dr. Furman. I 
understand the point the Administration is making, but it has 
now been almost 5 years since the financial crisis, 3 years 
since we put Dodd-Frank into place. So, at what point will we 
determine whether or not these tools are sufficient or it is 
time to do more, like instituting Glass-Steagall? Do we wait a 
year? Two years? What do you think, Dr. Furman?
    Mr. Furman. Senator, thank you for that question. I think 
what you would want to see is very steady progress and ideally 
rapid progress. As Chairman Bernanke has said to you in this 
Committee, too-big-to-fail is over. The Federal Reserve would 
not be bailing out an institution. You are right that the 
market continues to have a perception that there is--the credit 
rating agencies, for example, that there is some backstop 
there.
    It is important to understand, markets can be wrong. They 
might have that perception, but that perception is not matched 
in reality. Part of what policy needs to do is continue that 
implementation of Dodd-Frank, everything from the capital 
requirements, the supervision, the reduced risk taking, and the 
resolution authority, so that you are making it crystal clear 
that that perception is wrong. But, at the same time, I agree, 
we would need to continue to monitor the data on things like 
the funding premium for large, complex, risky institutions.
    Senator Warren. Good. Thank you very much, Dr. Furman.
    And, Mr. Metsger, the only thing I would ask is did you 
keep that 1957 Chevy that you bought with the credit union 
money? It is a great investment now.
    Mr. Metsger. Well, it would certainly be worth 60 to 70 
times more now, so my long-term investing decision was not very 
wise on that one.
    Senator Warren. Thank you. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman, and I thank each 
of you for your willingness to serve.
    Over the last, I guess, 9 months, I have worked with Mark 
Warner and others here, as a matter of fact, eight of us, on a 
very detailed piece of legislation dealing with GSEs, and 
during that time, I spent some time with Jason and others, but 
realize the tremendous complexities that Fannie and Freddie 
have within their portfolio and overseeing them is something 
that is very complex.
    Congressman Watt, I know that you and I have a very 
friendly relationship. I see you traveling back home sometimes 
and passing through Charlotte and worked with you on the Dodd-
Frank conference and know that we have had, again, a very, very 
warm relationship. While we had a pretty tough meeting the 
other day privately, we also had a warm meeting, and I do 
appreciate the public service that you have offered. I know you 
have served your district with distinction. I know you have 
been married for many, many years, the number I will not say 
because it does not look possible that that could be.
    [Laughter.]
    Senator Corker. But, in any event----
    Mr. Watt. You are obviously looking at me, right?
    [Laughter.]
    Senator Corker. I was actually looking a little off to the 
side, to be honest.
    But I think you know, and I have said this publicly and I 
have said this privately, I have--I said this long before your 
name ever came up--that I really thought this position, because 
of the nature of it--and I am all for politicians going on to 
do great things--but I really thought, because of the nature of 
it, this was a job that needed a real technician.
    We have sat down with the Fannie and Freddie CEOs. These 
are people who have come in at diminished pay to try and run 
these organizations, $5 trillion worth of very, very complex 
financial instruments, $2 trillion worth of derivatives. We 
have sat down with just people involved in this business and it 
is the most complicated thing I have ever been involved in.
    You know, I have mentioned publicly how disappointed I was 
that anyone other than a technician--you know, we do not have, 
typically, people who oversee the FDIC that are politicians. We 
do not have folks that oversee the OCC. These are people that 
really are specialists in their areas.
    Again, I would just ask you this question, and again, you 
know this is not about you. I do not know of many--as a matter 
of fact, I am not sure I know of anybody today in Congress that 
I would feel good about in this position. Maybe there are one 
or two. I do not know who they are at this moment. But, as you 
know, it is very complex. I know you have spent a lot of time 
looking at this and cramming, and I very much appreciate you 
doing that, and I appreciate the preparation prior to our 
meeting.
    But, in reality, I mean, if you were going to select 
someone to oversee the risk-sharing arrangements that are going 
to be so complex as we move ahead, the winding down of Fannie 
and Freddie, if you were President, would you have selected 
you?
    Mr. Watt. Well, first of all, I want to express my thanks 
to you for meeting with me and for the warm relationship that 
we have had leading up to this. As I told you in our private 
meeting, qualifications for a position is a relevant criteria 
and I have discouraged people privately from taking a position 
other than that, so we should be clear on that.
    I would--if I were the President, I would select me, yes. 
That is exactly what I would select, because I would want 
somebody who understood this business from the ground up. I 
would understand--I would want somebody who had technical 
qualifications, but not arrogance about it, understanding that 
the people who resulted in this meltdown theoretically had 
technical qualifications and they did not do all that great.
    I would want somebody who would surround themselves with 
expertise and not think that they knew everything, but most of 
all, I would want somebody with good judgment who could listen 
to all of the stakeholders and work with all of the 
stakeholders and try to facilitate the transition from where we 
are now to where the House and Senate are going to take us in 
the future.
    So--and be clear, a number of people throughout my life 
have questioned my qualifications to do things. I mean, I got 
it questioned when I went to the University of North Carolina. 
I got it questioned by the Dean of the Law School at the 
University of North Carolina when I selected Yale University 
Law School over UNC's Law School. I have had it questioned time 
after time after time.
    And so it is hurtful to have been doing something for 40-
plus years, be on a panel with people who, most of whom could 
be my children, and I be the person designated out for ``this 
guy is not qualified.'' But, if you have any questions about--
--
    Senator Corker. You notice, I put us all in that category.
    Mr. Watt. Beg your pardon?
    Senator Corker. I put us all in that category.
    Mr. Watt. Well, but understand, I have been doing this from 
ground-up and from top-down.
    Senator Corker. Yes.
    Mr. Watt. Those are the criteria that I would want applied 
to a candidate for this position. You can put as many zeroes 
behind a trillion dollars as you want. The same principles that 
apply in spending $10 a week to work my way through college 
apply at that level. And I tell people all the time, I do not 
understand what a billion dollars or a trillion dollars is, but 
I do know that regardless of how many zeroes you put back 
there, you have got to apply the very same principles that you 
would apply as if you were making a decision when you had only 
$10 a week to live on.
    One final thing, and I just--you know, this helps me get it 
off my chest as we----
    [Laughter.]
    Senator Corker. Go ahead.
    Mr. Watt.----as we did----
    Senator Corker. I have thought about going into therapy 
down the road, but go ahead.
    [Laughter.]
    Mr. Watt.----as we did in private, so, I mean, you have 
heard some of these things before. I just--I think I have the 
skill set to do this job. I think it requires good judgment 
above everything else. I have demonstrated good judgment 
throughout my life. I am not under anybody's thumb. I mean, I 
have been elected to Congress 11 times. You are right, I am an 
elected official. But very few people in my life have called me 
a politician. I have taken some very difficult stances in my 
life, regardless of who the President of the United States was, 
Democrat or Republican, and I will place my record against 
anybody in the House or the Senate when it comes to 
independence and doing what the facts and the substance prove 
to be the right thing to do.
    And that is the kind of person I think I would want for 
this position, and I think on those criteria, I fit your--
technician, I can get somebody to do the technician part. I can 
help them do it. You want somebody who is going to make good 
judgments about the technical work that is being done here, and 
I think that is what I bring to this position.
    Senator Corker. Mr. Chairman, some of my time was eaten up 
during this therapy session. I am wondering if I could ask one 
more question.
    Chairman Johnson. One more question.
    Senator Corker. OK. First of all, thank you.
    I know that the Chairman and others have gotten into this a 
little bit, and for what it is worth, you know that we just 
confirmed your good friend as Secretary of Transportation, 
somebody I think was----
    Mr. Watt. A very good choice.
    Senator Corker. And I think he was confirmed 100-to-nothing 
on the floor, 100-to-0. I think many of us look at these kinds 
of positions different than a cabinet Secretary. We know that a 
cabinet Secretary is going to be oriented toward the agenda of 
the White House. I mean, that is the purpose and we give the 
President a lot of leeway.
    I think in jobs like this, though, and for what it is 
worth, I have had to go through this over and over and over 
again, the plumbing of how all this ties together. And we have 
had the CEOs and CFOs and others in, and Mel, you know, over 
and over, I have got to go through it.
    And so my point is, I understand about the judgment piece, 
and certainly, you have lived the American dream due to your 
hard work and I applaud you for that. But I do think there is a 
high level--a large degree of technical skills that come with 
this, OK----
    Mr. Watt. And I am the first to acknowledge that----
    Senator Corker.----and that is what has troubled me as I 
have gone through it. But I think Senator Crapo brought up a 
point, and I know you answered a question earlier about eminent 
domain and you would not hesitate to use eminent domain to 
foreclose on mortgages. I understand. I know that is sort of 
out in the intellectual way of sort of----
    Mr. Watt. I do not think that is what I said. If you heard 
that, then I need to certainly clarify my answer. I respect the 
right of local authorities. Some people think I am too States' 
rights oriented, given my background. But if somebody is going 
to try to put States' rights or individual eminent domain 
authority above the taxpayers of the United States, that is 
where I would certainly draw the line----
    Senator Corker. Well----
    Mr. Watt.----and I thought I was clear on that.
    Senator Corker. And what I might do is just have a follow-
up QFR so I do not take everybody else's time.
    But here, I guess, is the issue. You know, we have talked a 
little bit about you being a bridge, if you will, because of--
and that was one of the skills you brought. You know, to be 
candid, I do not really want a bridge to Congress on this 
particular job in that we have had so many difficulties with 
Congress trying to influence Fannie and Freddie. I think that 
Congress aided in big ways the problems that occurred. I really 
believe that. And that was the reason, especially with 
potentially--I know the Committee is taking up some, hopefully, 
GSE legislation this fall after FHA. It is certainly their 
decision as to when that occurs.
    But to attach, quote, ``politics'' to it, to me, was 
another element that you and I discussed, and, you know, let us 
face it, that is an element that none of us really want to see. 
I mean, we want some tough, hard-nosed decisions that have 
nothing to do with politics. We do not want the Administration 
influencing. Once we pass a piece of legislation, we want to 
see it happen.
    And I know you want to respond, and I am glad to let you do 
that if the Chairman will, but I would also, in that response, 
would like to, in the event we pass legislation to wind Fannie 
and Freddie down out of business over a short but reasonable 
amount of time, is that something, based on your past, you 
would feel comfortable in doing?
    Chairman Johnson. Please briefly respond.
    Mr. Watt. OK. Thank you, Mr. Chairman.
    Let me address the bridge part of this, because I do not 
want you to misinterpret what I mean by bridge. I am not 
talking about a political bridge. The bridge that has been 
started to be constructed here is the single securitization 
platform, and it is going to be important on the other side of 
that bridge, regardless of what you all come up with as the 
next iteration of mortgage finance in this country, for every 
different kind of element to link into that bridge. Big 
lenders, community banks, credit unions, co-ops, if you all see 
fit, everybody is going to have to connect into that bridge.
    So I hope nobody leaves here thinking that I am talking 
about playing the role of a political bridge builder in this 
process. That is not what I am talking about. I am talking 
about a technical bridge that Fannie and Freddie jointly are 
trying to build that I think needs to continue to facilitate 
whatever you all agree to.
    I applaud the bipartisan effort that you all have made. I 
am glad to see somebody stepping into this space, and I would 
hate for it to be a partisan effort. But in my role, I think I 
have got to cooperate with, as I said in my opening statement, 
with anybody who, in the House or the Senate, has ideas about 
what the next iteration of housing finance should be. And you 
can be assured that I will cooperate fully with you, but not in 
the sense that I am thinking that I am a bridge between you and 
the White House or you and the House. I am talking about a 
technical bridge. That is the bridge I am talking about.
    Chairman Johnson. Thank you, Congressman Watt.
    Senator Corker. Thank you.
    Senator Warren. Mr. Chairman, could I just make one quick 
statement, that I think all five of these positions are based 
on good judgment. That is what we are looking for, people with 
good judgment. And I just want to say, based on my past 
experiences, if I could, I would vote for Congressman Watt 
twice.
    Mr. Watt. You might need to do that to offset his----
    [Laughter.]
    Chairman Johnson. Dr. Piwowar and Ms. Stein, what do each 
of you believe is the best way to address the resources 
challenge at the SEC? Dr. Piwowar.
    Mr. Piwowar. Sure, Senator Johnson. Being here during Dodd-
Frank, I was actually pleased, working for Senator Shelby when 
he worked on the SEC match funding provision with Senator 
Schumer that actually hard-wired in increases in the SEC's 
funding over time.
    In addition, it put in something called the reserve fund 
that actually helped add some certainty to the SEC funding 
during times of uncertainty. That is a key one, is to have that 
fund be able to do that.
    And then, third, the ability of the SEC, when they submit 
their budget to OMB, also do a direct submission to Congress, 
and that allows Congress to have the information as to what the 
SEC would want before OMB gives them the pass-back, which 
sometimes includes a haircut off of what they want, and then be 
able to have the conversation, so Congress could have a frank 
and open conversation with the SEC in terms of what would you 
do with those additional monies in the case that there was a 
haircut there.
    Chairman Johnson. Ms. Stein.
    Ms. Stein. As you know, Chairman, the SEC collects fees 
based on transactions in the securities markets that are 
matching what the appropriators set as their budget that 
particular year. So I would agree with Dr. Piwowar that the SEC 
has the capability of getting the resources it needs, with 
Congressional approval. However, in a world of limited 
resources, the SEC needs to be doing what it does smartly, 
effectively, efficiently, and some of that, I think, at the end 
of the day, is going to mean improvements in technology, being 
able to keep up with fast-paced markets, and oversee them more 
efficiently, allowing employees at the SEC to use what they do 
have more effectively.
    Chairman Johnson. Mr. Metsger, what lessons have credit 
unions learned from the financial crisis, and are there 
additional steps that NCUA should take to further strengthen 
the credit union system?
    Mr. Metsger. Thank you, Mr. Chairman. I think one of the 
key lessons is that the regulator needs to be watchful in good 
times and bad.
    Number two, that the rules need to be modernized to look at 
the threats in the modern marketplace.
    I think there are some things on the horizon now that the 
NCUA needs to look at, and if I am confirmed, will be part of 
that agenda moving forward. Number one is interest rate risk. 
Credit unions are very involved in the mortgage industry. We 
all know what happens in low interest rate environments. It is 
going to change eventually. We do not know when or where or how 
much. Just look in the last 30 days on the average 30-year 
mortgage or look at the 10-year Treasury and what has happened, 
60 basis points in the last 30 days. So credit unions need to 
be prepared. As a regulator, I will work to ensure that credit 
unions are prepared for interest rate risk and can manage that 
risk, number one.
    Number two is access to emergency liquidity. Because of the 
crisis that hit in the last 5 years, the Central Liquidity 
Facility is not subscribed to now by a lot of credit unions, 
and to insist that all credit unions have a plan to access 
liquidity for emergency situations.
    The third is, as we all know, no matter how well a credit 
union is run, how well their underwriting is, the technology 
that has helped our lives so much has also now created 
tremendous risk, systemic risk, to the Share Insurance Fund. A 
credit union can, in a matter of milliseconds, possibly have 
tens of millions of dollars taken away. I will work diligently, 
if I am confirmed, to see that the rules and regulations of the 
NCUA are as contemporaneous as possible to meet the 
technological risk, particularly in the area of cyber security.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman. I just have a 
couple more questions of Mr. Watt.
    Representative Watt, when we were discussing this issue 
prior to the break, I asked you a question about whether it 
would be legally permissible under the conservatorship, in your 
view, to utilize some of Fannie and Freddie's revenue to fund 
social initiatives, and you read me the authorization under the 
statute.
    My understanding is--and you indicated at the time, there 
were some competing tensions in the statutes, and I agree with 
that. I just want to confirm this issue with you, because the 
statute that you were reading to me was the National Housing 
Act, which lays out the authorities for Fannie and Freddie, 
among other things.
    But as I see it, we have now moved Fannie and Freddie into 
a conservatorship, which is an exceptional circumstance, and we 
have actually passed subsequent legislation, the HERA 
legislation, that established the conservatorships and the 
rules under which the conservatorships will be operated. And 
the language of the conservatorship is--in multiple cases 
details the powers of the conservator to be, and I quote, ``to 
conserve and preserve the assets of the regulated entities.'' 
And so that is a tension that I see there.
    As I see it, the conservatorships are a unique circumstance 
and the HERA legislation trumps, if you will, other policy 
considerations that were established when Fannie and Freddie 
were operating under normal circumstances. And so, again, I 
want to come back to that.
    Do you interpret this circumstance in the statutes to give 
the conservator, or the Director of FHFA, the authority to 
utilize revenue of Fannie Mae and Freddie Mac to fund social 
programs which would then reduce the function of conserving and 
preserving the assets of the regulated entity?
    Mr. Watt. Senator Crapo, you are right that the 
conservatorship built in an additional tension that was in 
addition to the tensions that existed in the original 
authorizing statute that stood up FHFA and you have got to 
respect both of those things. I agree with that.
    I am not sure I understand, and perhaps I should have 
clarified it when you first asked the question, what a social 
expenditure is. I do not think the GSEs should have ever been 
in the business of carrying out any kind of social agenda. 
Their authorization was to do housing, and as I have indicated 
previously, I do not think you should ever be doing housing 
where people cannot afford to repay the loans that they are 
getting.
    So unless you are defining some other--something else as 
social, I think you and I would be in complete agreement. I 
just think that is how we lost our way in the first place, 
making loans to people who could not afford to pay them, not 
looking at their creditworthiness, not assessing their ability 
to repay, and that is what the QM standards are all about, and 
I was the first to support that and continue to support it and 
you can count on it.
    Senator Crapo. Well, it sounds like we are talking the same 
thing. Let me give you just an example of what could be. As you 
indicated, for those who are not in a position to be able to 
repay their loans, we should not be incentivizing Fannie or 
Freddie to create such loans, which got us into the kinds of 
troubles that we got into earlier. And there is the potential, 
and I am just coming up with an example, of the possibility 
that some would say that the resources of Fannie and Freddie 
should be utilized to establish, say, a housing fund to provide 
subsidies for loans that otherwise could not work out, or--and 
that may actually be a policy decision that we would want to 
establish here in Congress as we develop the ultimate outcome 
for our national housing policy.
    Mr. Watt. As, in fact, you did in the original bill.
    Senator Crapo. Exactly.
    Mr. Watt. Yes.
    Senator Crapo. And so I am not saying that that should not 
be established. My question is whether you see that you have 
the role to establish that as opposed to Congress when we 
determine the outcome of what housing policy should be.
    Mr. Watt. I do not see that as my role to establish it. The 
conservator made a determination, and it might be my role to 
evaluate that determination of whether there is sufficient 
capital to do that. I mean, there are criteria that the 
conservator has to apply under the conservatorship statute for 
cutting on or cutting off contributions to the trust fund. And 
as I have said before, my starting point on making that 
determination would be to fully understand how the 
determination was made before, why it was made before, and 
whether there have been additional developments since then that 
would result in a different outcome.
    Senator Crapo. Well, thank you. I would just wrap up with a 
statement rather than another question to you, and that is as I 
see the role that you would fulfill as the Director of the 
FHFA, in the conservatorship role, I think that Congress very 
specifically intended that the assets of Fannie Mae and Freddie 
Mac be conserved and be managed in such a way that they return 
the maximum support back to the taxpayer and then let Congress 
make the decision as to how those assets should be managed in 
terms of housing policy moving forward. And that is what I 
think the statute clearly says, and I just wanted to be sure 
that I got your perspective on that.
    Mr. Watt. Thank you.
    Chairman Johnson. I thank you all for your testimony today 
and for your willingness to serve our Nation.
    I ask that a letter of support from the Congressional Black 
Caucus regarding Congressman Watt's nomination also be included 
in the record.
    Chairman Johnson. I remind Members to submit questions for 
the record by COB on Monday, July 1. I also ask that nominees 
respond to the QFRs quickly so that we can move the nominations 
forward.
    This hearing is adjourned.
    [Whereupon, at 1:12 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                  PREPARED STATEMENT OF MELVIN L. WATT
          Nominee for Director, Federal Housing Finance Agency
                             June 27, 2013
    Chairman Johnson, Ranking Member Crapo and Members of the 
Committee, I appreciate very much the opportunity to appear before you 
today to discuss my nomination to become the Director of the Federal 
Housing Finance Agency and to request formally that your Committee 
recommend that the Senate confirm me to this position. I am deeply 
honored by the nomination and I am honored that members of my family 
and others are here to support me in this effort.
    In the interest of time, I'll give just a brief summary of my 
background. I was born and grew up in a little community called 
``Dixie,'' out in the country but with a Charlotte, North Carolina 
address. I attended the Charlotte-Mecklenburg public schools at a time 
when they were still segregated. After graduation, I gained admission 
to the University of North Carolina at Chapel Hill where I graduated 
with a degree in business administration in 1967. I obtained my law 
degree from Yale University Law School in 1970 and returned to 
Charlotte to join a law firm that was best known for its civil rights 
reputation. However, the definition of ``civil rights law'' was 
changing to include economic and business development and I agreed to 
join the law firm with the understanding that my role would be to stand 
up a business practice.
    Over the course of 22 years in the practice of law, I practiced 
business law, representing individuals, partnerships and corporations 
of all sizes and descriptions. Over half of my legal practice was real 
estate or related to real estate and I also became the managing 
attorney of the law firm. Representing the city of Charlotte, my joint 
venture partners and I became the first North Carolina lawyers to do 
the legal certifications required to issue municipal bonds.
    When I started in Congress in 1993, I was fortunate to be assigned 
to committees that matched my background, the House Banking Committee 
(now the House Financial Services Committee) and the House Judiciary 
Committee. I have served on both of those committees continuously since 
then. Like the Senate Banking Committee, the House Financial Services 
Committee has general jurisdiction over housing, banking, insurance and 
other financial services matters. I have served on subcommittees that 
deal with all the various matters under the Committee's jurisdiction. 
Counting my 22 years in the practice of law and my 21 years in 
Congress, I have had 40+ years of experience in housing, real estate 
and other financial matters.
    As part of the nomination process, I have had the opportunity to 
meet with a number of members of the Senate. During these conversations 
I've been asked two questions more than any others. The questions are:

    ``Why do you want this position?'' and

    ``What do you see as the role of the Director of the 
        FHFA?''

For me, the answers to these questions are very much related and I'd 
like to roll my answers to them together in the short time I have left.
    Throughout my life, I've come to understand deeply just how 
important where you live is to who you are. I've observed that having a 
place to live is ``basic'' and that's true, regardless of whether you 
rent or whether you own. I suspect that my recognition of this started 
when I spent the earliest years of my life in an old house my Mom 
rented which had no electricity and no inside plumbing. My brothers and 
I could see the stars at night through the tin roof and we could see 
the ground through our rickety floors. I still get emotional when I 
recall, as a little boy, watching a big, long truck maneuver what had 
been an army barracks slowly down the road from the Charlotte airport 
to place it on a little lot that someone gave to my mother. That's the 
house I grew up in, four rooms--one bedroom for my Mom, one for me and 
my two brothers, a kitchen and a living room. I also get emotional when 
I recall watching them drill the well on our lot so we could have 
running water for the first time and helping my Uncle Leonard dig the 
septic tank lines so we could have a bathroom inside.
    Over the years, home ownership and home equity have become the 
primary asset and source of retirement security for many families. A 
place to live is a basic necessity, however, whether you rent or 
whether you own. Having a place to live provides a sense of stability. 
It impacts our decisions about schools and transportation. It impacts 
our sense of community. Growing up, there was nothing more basic for 
me, except family, food and the little Presbyterian Church that 
adjoined our front yard and made it impossible for us to get to the 
road without crossing the church lot. I'm still a member of that 
church. So where I lived even guided my choice of religions.
    A place to live is basic. So over the years, I've worked to 
eliminate homelessness and I've been active in community development 
and neighborhood revitalization. And, of course, I've walked hundreds 
of families through real estate closings, which for many of them was 
the most important financial transaction they will ever make. So I was 
devastated when our housing finance system started to lose its way. And 
I was among the first to realize that which is why Representative Brad 
Miller and I became the first to introduce anti-predatory lending 
legislation, 4 years before the housing meltdown became obvious. And 
much of what was in that that legislation became a central part of the 
anti-predatory lending standards in Dodd-Frank.
    I really can't think of anything I'd rather do now that would be 
more important than helping our housing finance system find a reliable 
way forward. I believe we're at a unique moment in the history of how 
housing finance is carried out in our country. Coming through what is 
arguably the worst period in our history related to housing, we're 
struggling to find the right path out of a status quo that no one 
believes is desirable.
    The good news is that a broad consensus has emerged on the 
direction that our next steps must take us--toward a system driven by 
private capital that minimizes the risk to taxpayers. The legal 
framework for getting to that destination will, of course, be up to the 
House and Senate. But in the Housing and Economic Recovery Act, the 
House and Senate authorized the creation of the FHFA and provided clear 
statutory directions on the role that the FHFA will play in the interim 
to help get from here to there. That statutory role directs the FHFA 
and its Director to carefully and prudently ``oversee the prudential 
operations of each regulated entity'' through the transition in a way 
that protects the interests of the taxpayers and to make sure that each 
of these entities continues to ``foster liquid, efficient, competitive 
and resilient national finance markets'' in the meantime, until 
decisions are made about how housing finance will be done in the 
future. Acting Director DeMarco and the FHFA have followed these 
mandates effectively and I applaud their work.
    I want to be clear about my role and the role of the FHFA under my 
leadership should I be confirmed. The Housing & Economic Recovery Act 
clearly defines the role of the FHFA and the Director. And, if 
confirmed, you can be assured that I will rigorously follow the statute 
in an open and transparent manner working with all stakeholders. You 
can also be assured that we'll continue to build a solid bridge from 
where we are now to whatever you decide the future housing finance 
system will be, we'll continue to test risk-sharing models that move 
housing finance aggressively to the private sector and we'll cooperate 
fully and be a resource to members of the Senate and the House as you 
decide the future of housing finance.
    I look forward to answering any questions you may have.
                                 ______
                                 
                   PREPARED STATEMENT OF JASON FURMAN
     Nominee for Member and Chairman, Council of Economic Advisers
                             June 27, 2013
    Chairman Johnson, Ranking Member Crapo, and other distinguished 
Members of the Committee, I am honored that President Obama nominated 
me to serve as Member and Chairman of the Council of Economic Advisers 
(CEA) and I am also honored to appear before you today as you consider 
my nomination. Thank you.
    I want to begin by introducing my family members who are here 
today. My first exposure to economics was from my father Jay Furman, 
who was pursuing graduate studies in economics when I was a young 
child. From an early age, I knew that I wanted to follow a similar 
path, and when I turned thirteen I got my first subscription to The 
Economist magazine.
    Watching my mother Gail Furman, a child psychologist, helped teach 
me that analytical training can be used to make a meaningful difference 
in people's lives. I also want to acknowledge my brother, Judge Jesse 
Furman, and his wife Professor Ariela Dubler.
    When I was in graduate school focusing on starting a career in pure 
research I met a woman who changed my future, and eventually became my 
wife. Eve Gerber convinced me to follow her to Washington for my first 
job in government, not just because I would have followed her anywhere 
but because she had persuaded me that I could use my training to help 
contribute to better public policy. Eve has been supportive of me ever 
since.
    When my daughter was just born, and my son was barely one, Eve 
encouraged me to return to public service, even though it entailed 
hardship for her and early sacrifices for my children, Henry who is now 
6 years old and Louisa Bettina who is now five. Their future remains an 
important motivation for all of my work.
    The job Eve convinced me to take, at 25, was as a Staff Economist 
at the CEA, under the leadership of Joe Stiglitz. My time at CEA imbued 
me with a deep respect for the institution, its nonpartisan 
professional staff, and the role that unvarnished economic policy 
advice can play in helping to shape and advance the President's agenda. 
If confirmed, I would be proud to continue in that tradition-one that 
has thrived in both Democratic and Republican Administrations. I would 
also be guided by the example of former CEA Chairs Marty Feldstein and 
Greg Mankiw, among others. Marty was my first formal teacher in 
economics and Greg was my principal dissertation adviser at Harvard.
    As you all know, economists certainly do not always agree with each 
other. But economists do agree on a lot--most importantly that 
questions should be addressed with a combination of logical theories 
and careful reading of the data. CEA applies the tools of economics--
rigorous data based analysis--to the fundamental challenges facing 
American families.
    That is the approach I have always tried to bring to my economic 
research, teaching, policy advising and public service. And that is the 
approach I would bring to advising the President on the economic goals 
we strive for today, including creating jobs, fostering sustainable 
growth and helping families share in that growth.
    Thank you and I look forward to your questions.
                                 ______
                                 
                  PREPARED STATEMENT OF KARA M. STEIN
      Nominee for Commissioner, Securities and Exchange Commission
                             June 27, 2013
    Chairman Johnson, Ranking Member Crapo, distinguished Members of 
the Committee:
    Thank you for the opportunity to be here this morning. It is an 
incredible privilege to appear before you as one of President Obama's 
nominees to be a Commissioner of the Securities and Exchange Commission 
(SEC).
    I would like to begin by thanking my family for their tremendous 
support. I am grateful to be joined today by my husband, Stephen 
Miller, and my children Isabel and Rowan, who are sitting directly 
behind me. I also would like to thank my mother, Norma Stein, and my 
sister, Katherine Stein, both of whom are here as well.
    I also would like to congratulate my colleague, Mike Piwowar, who 
like me has been nominated to serve on the Commission.
    The United States has the largest, most robust, and most dynamic 
securities markets in the world. As the Federal securities regulator, 
the SEC has a critical three-part mission: to protect investors; to 
facilitate capital formation; and to ensure the integrity, 
transparency, and efficiency of these constantly evolving markets.
    The breadth and scope of that mission--and the responsibilities and 
duties that flow from it--are significant. I am honored to be nominated 
to serve in such a vital agency with a proud and distinguished history, 
and alongside a staff known for its tremendous skill and expertise.
    Whether as a practicing attorney, an assistant law professor, or a 
person deeply involved in Senate Banking Committee policy for the past 
15 years, including my time as Staff Director of the Securities, 
Insurance, and Investment Subcommittee, I have learned how essential it 
is to listen to a variety of viewpoints and develop public policy 
solutions to complex issues from the facts. If confirmed, I would look 
forward to engaging with the Commission, the SEC staff, and interested 
members of the public on the array of issues currently in the 
Commission's jurisdiction.
    I also believe that capital formation and strong investor 
protections go hand in hand, as a lack of fairness and transparency in 
markets can lead to higher transaction costs and less capital. If 
confirmed, I would strive to meet the challenge of protecting investors 
while ensuring that businesses have the access to the financial 
services they need to grow and create jobs.
    Beyond this, strong enforcement is critical to investor confidence 
and well-functioning markets. If confirmed, I would endeavor to be fair 
in assessing enforcement recommendations that come before the 
Commission, supporting aggressive actions and sanctions when supported 
by the facts and the law.
    Thank you again for the opportunity to appear before you today, and 
I look forward to answering any questions you may have.
                                 ______
                                 
                PREPARED STATEMENT OF MICHAEL S. PIWOWAR
      Nominee for Commissioner, Securities and Exchange Commission
                             June 27, 2013
    Chairman Johnson, Ranking Member Crapo, Senator Shelby, and Members 
of the Committee, I am honored to appear before you today. I am humbled 
by the confidence the President has shown in me by nominating me to 
serve as a Commissioner on the United States Securities and Exchange 
Commission.
    I would like to thank Senator Crapo for that very kind 
introduction. I would also like to express my sincere gratitude to 
Senator Crapo and Senator Shelby for allowing me to work on a wide 
range of Dodd-Frank Act, JOBS Act, and other SEC-related issues during 
my time on the Senate Banking Committee.
    With your permission, Mr. Chairman, I would like to introduce the 
members of my family who are here with me today. First, I would like to 
introduce you my wife, Eileen. I am incredibly fortunate to have the 
encouragement and support of such a wonderful wife. I would also like 
to introduce you to my daughter, Brigid, who is here with Eileen. My 
son, Sean, could not be here today. He is at Boy Scout summer camp in 
Pennsylvania. Eileen and I are extremely proud of both Sean and Brigid. 
I would also like to introduce to my mom, Linda Dulan, and my step-
father, Jim Dulan. I'm glad they could be here with me today.
    Sitting here today, I recall the first time I attended a hearing in 
this room. It was almost exactly 9 years ago at a June 2004 hearing on 
``An Overview of the Regulation of the Bond Markets.'' I was a visiting 
academic scholar at the SEC at the time. I was extremely proud that 
empirical evidence from two SEC research projects I had collaborated 
on--one on the municipal bond market and one on the corporate bond 
market--were included in the testimony of the SEC's Director of the 
Division of Market Regulation and the subject of a question by then-
Chairman of the Committee, Senator Shelby.
    It was through work like those research projects that I learned how 
valuable economic analysis could be to advance the mission of the SEC. 
As a visiting academic scholar and later as a financial economist, I 
provided economic analyses and other technical support to the SEC 
Commissioners and other SEC divisions and offices on a wide range of 
rulemaking, compliance, and enforcement matters. While at the SEC, I 
had the privilege of working with a number of outstanding economists, 
accountants, lawyers, and other professionals. Some of them are still 
at the Commission, and if I am confirmed, I look forward to working 
with them again.
    Over the past almost 4 years, I have had the privilege of working 
on many important issues under the jurisdiction of this Committee with 
a number of talented and professional Banking Committee staff on both 
sides of the aisle. These include a number of SEC-related issues, such 
as securities, over-the-counter derivatives, investor protection, 
market structure, and capital formation issues. For many of the SEC-
related oversight and informational hearings, briefings, and meetings, 
I have had the privilege of working directly with my fellow nominee, 
Kara Stein. If we are confirmed, I look forward to continuing our 
collegial, bipartisan working relationship to advance the important 
mission of the SEC--to protect investors, maintain fair, orderly, and 
efficient markets, and promote capital formation.
    As Senator Crapo likes to point out, the U.S. capital markets must 
remain the preferred destination for investors throughout the world. 
For that to happen, the SEC must remain the preeminent securities 
regulator in the world. If confirmed, I will faithfully work with my 
fellow Commissioners to achieve that goal.
    On a final note, the President has nominated me to fill the seat 
being vacated by Commissioner Troy Paredes. Commissioner Paredes has 
been an outstanding Commissioner, who has earned widespread praise for 
being a thoughtful regulator, a friendly colleague, and a dedicated 
public servant. If I am confirmed, I hope to serve as ably as he has.
    Thank you again for the opportunity to appear before you today. I 
am happy to answer any questions you may have.
                                 ______
                                 
                PREPARED STATEMENT OF RICHARD T. METSGER
     Nominee for Board Member, National Credit Union Administration
                             June 27, 2013
    Chairman Johnson, Senator Crapo, and Members of the Committee, 
thank you very much for the opportunity to appear before you today as a 
nominee for the National Credit Union Administration Board. I would 
also like to thank my former legislative colleague, Senator Merkley, 
for his kind introduction.
    It was an honor to serve with you Senator in the State legislature. 
The legacy of your thoughtful leadership continues to reverberate 
through the halls of the Oregon State Capitol.
    While she could not travel here to join us today, my mother was 
also very pleased when I told her about my nomination to serve on the 
NCUA Board. She is watching today's proceedings online.
    It is indeed an honor and privilege to be nominated for this 
critical role. If confirmed, I will do everything within my power to 
fulfill the trust placed in me by the President and the Congress to 
ensure both the integrity and the continued safety and soundness of our 
Nation's credit union system in a rapidly changing marketplace.
    Maintaining a safe and sound credit union system requires 
visionary, attentive and proactive leadership by those charged with 
regulating federally insured credit unions. In my view, the qualities 
inherent in serving successfully in this position include experience in 
considering competing viewpoints, effective communication skills, and 
the wisdom to act prudently and decisively when action is required. I 
believe that, if confirmed, I will bring those qualities to the NCUA 
Board.
    Over the last three decades, I have dedicated my professional life 
to analyzing, exploring and creating solutions to public policy issues 
that affect people from all walks of life.
    As an Oregon State Senator from 1999 to 2011, I focused on 
business, finance and transportation policy. I believe each of these 
issues is integral to fostering an economic climate that provides 
individuals an opportunity to obtain financial stability in their own 
lives.
    As Chairman of a State legislative committee charged with hearing 
most legislation involving the financial services industry in Oregon, I 
gained valuable experience, and I hope wisdom, in weighing varied 
viewpoints, testing assumptions and acting in a manner that effectively 
balanced consumer needs with the needs of the industries that served 
them to produce good public policy.
    During my legislative career, I also served as one of the five 
appointed members representing both the public and private sectors on 
the Oregon State Debt Policy Advisory Commission. The Commission 
provides guidance to the legislature on prudent and risk-based 
management of the State's long-term debt obligations.
    My private sector experience consists of leading a strategic 
communications and policy firm. I was energized by working with private 
sector clients who had a focus on job creation and improving the 
financial health of citizens across the economic spectrum.
    Earlier in my career, I spent 16 years as a broadcast journalist. 
My ``old school'' news director, Ted Bryant, drilled into his staff, 
including me, that accuracy, relevance and fairness are the 
cornerstones of responsible reporting. They are also the foundation of 
effective regulating.
    Additionally, as a small business owner, I have worked with both 
individual credit unions and a regional credit union association. These 
experiences have allowed me to better understand the perspectives of 
the regulated community and the importance of clear, open and ongoing 
communication between the regulator and the institutions it oversees.
    My first credit union experience was as a 19-year-old paying my way 
through college by working as a night custodian at a local elementary 
school. I found myself eligible to join Portland Teachers Credit Union 
and that credit union gave me a $350 loan to purchase my first car. 
Twenty years later, I was privileged to be elected by the members to 
the board of directors of that very same credit union. During my 8 
years on this board, I served in a time of extensive membership and 
asset growth.
    A changing regulatory environment and evolving compliance 
requirements accompanied that growth. Through this experience, I saw 
the importance of visionary, expert and effective leadership in guiding 
a credit union. I also worked to position the credit union's executive 
team to better serve the needs of the credit union's growing membership 
while maintaining the membership's and the public's trust as a safe and 
sound, not-for-profit consumer financial cooperative.
    My credit union policy background has only strengthened my ability 
to critically examine and thoughtfully consider the arguments by all 
stakeholders before deciding on any regulatory course of action. With 
safety and soundness in mind, I am committed to using the best 
available information to reach the right regulatory result and will do 
so by carefully testing stakeholder advocates and NCUA staff on issues 
that come before the Board, if confirmed.
    These collective life and work experiences have further given me a 
strong understanding of the role credit unions play in our Nation's 
financial system, the significance of credit unions to their members, 
and the importance of maintaining safety and soundness. If confirmed, 
my experiences would also inform the independent judgments and 
sometimes difficult decisions that I would need to make on the NCUA 
Board.
    I firmly believe a regulatory agency should strive to be its own 
best critic. To that end, NCUA already has a solid policy in place to 
re-evaluate a third of its rules and regulations every year. I can 
assure you that, if confirmed, this will not be merely a mechanical 
exercise for me. I will approach this rolling review with diligence and 
with the aim of updating, simplifying, eliminating and clarifying 
existing rules to ensure that they are effective, but not excessive, 
consistent with safety and soundness.
    Today's financial services industry, including credit unions, is 
more diverse and sophisticated than ever, and it is growing more 
complex every day. A large portion of our Nation is dominated by small 
communities that rely on the services of equally small credit unions 
and community banks as their economic lifeblood. Not only have I been a 
board member of Oregon's largest State-chartered credit union, I have 
also been a member of one of the smallest credit unions in the State. 
If confirmed, I will add a fresh set of eyes to policies old and new to 
reflect that diversity.
    Of utmost importance is the continued protection of the Share 
Insurance Fund, which protects credit union member deposits up to 
$250,000. Because the fund is capitalized by member credit unions 
themselves, it is in the best interest of member credit unions to have 
a strong, forward-looking regulator, committed to protecting the fund 
from losses. The safety and soundness of the credit union is ``job 
one'' of the regulator. It goes to the very core of consumers trust and 
confidence. That must not be compromised. If confirmed, I will be 
vigilant in this regard.
    Our Nation's credit unions have weathered the past 5 years of 
unprecedented financial challenges extremely well. This is due in large 
part to the dedicated efforts and innovative management of Chairman 
Matz, Board Member Fryzel and previous board members, along with the 
team of NCUA professionals who strive diligently and effectively to 
navigate those challenges to protect and ensure a strong federally 
insured credit union system depended upon by almost 95 million 
Americans.
    If confirmed, my vision is for NCUA to be recognized as an agency 
that manages its own fiscal house well, proposes regulatory action that 
is effectively targeted to achieve the desired outcome without placing 
unnecessary burden on the credit unions themselves and, above all, 
maintains the confidence and trust the American public places in their 
local credit union.
    Thank you again for the invitation to appear. I am happy to answer 
any questions you may have.
 RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM MELVIN 
                            L. WATT

Q.1. Congressman Watt, community banks are concerned that 
changes in the secondary market could make it more difficult to 
provide credit in rural areas and unfairly target small 
lenders. In the short term, would you commit to reviewing the 
policies at the GSEs regarding small lenders and mortgages in 
rural areas to ensure continued access to the secondary market?

A.1. Mortgage lending in rural areas is a very important part 
of housing finance and lenders in those areas face unique 
challenges under the current system. I am fully supportive of 
community banks and their important role in providing mortgage 
finance in rural and other underserved regions. I would 
certainly commit to reviewing the policies of the GSEs 
regarding small lenders and mortgage availability in rural 
areas to ensure continued and equitable access to the secondary 
market for community banks. I would also work to encourage 
Congress to ensure continued access to the secondary market by 
small lenders and lenders in rural areas in any legislation to 
reform the housing finance system.

Q.2. Congressman Watt, at your nomination hearing, you had a 
discussion with Ranking Member Crapo about the statutory role 
of the FHFA Director. The Emergency Economic Stabilization Act 
of 2008 (EESA), which passed the Senate on October 1, 2008 and 
passed the House on October 3, 2008 before being signed into 
law, states that the Director, at that time also the 
conservator, shall ``implement a plan that seeks to maximize 
assistance for homeowners and use its authority to encourage 
the servicers of the underlying mortgages, and considering net 
present value to the taxpayer, to take advantage of the HOPE 
for Homeowners Program under section 257 of the National 
Housing Act or other available programs to minimize 
foreclosures.'' How would you balance the statutory directives 
from HERA and EESA?

A.2. The FHFA Director has several critical responsibilities to 
balance. HERA mandates the Director take necessary steps to 
protect taxpayers, and conserve and preserve the assets of the 
GSEs. The EESA statute requires the consideration of net 
present value to the taxpayer while taking steps to minimize 
foreclosures. I do not view the directives of HERA and EESA as 
being at odds as long as any plan that ``seeks to maximize 
assistance to homeowners'' and ``minimize foreclosures'' 
assesses each homeowner's ability and willingness to meet his 
or her mortgage obligations and insures positive ``net present 
value to the taxpayer.'' The primary mandate under the 
statutory language of both HERA and EESA is to ensure that the 
FHFA protects the interest of and maximizes returns to the 
taxpayers. Accordingly, I will insist that any actions of the 
FHFA be pursued only after careful and responsible analysis and 
undertaken to protect the taxpayers' interest.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM MELVIN L. 
                              WATT

Q.1.1. Twenty-nine States and the District of Columbia have 
redemption laws that obviously impact the disposition of Real 
Estate Owned portfolio, or REO, in those jurisdictions. These 
laws can range from 5 days to 3 years.

   LWhich State and local laws do you feel pose the 
        most risk to the enterprises and why?

A.1.1. State redemption laws, which give homeowners the right 
to redeem (in some States for up to 6 months to a year) or 
require in some States that a court confirm any sale, present 
particular problems for the Enterprises because they delay the 
GSEs' ability to sell properties quickly when prospective 
homebuyers usually want to purchase a home quickly. These laws 
also typically result in extra costs to the GSEs for 
maintenance and upkeep before the disposition of the property. 
Similar problems may also arise under Federal bankruptcy laws 
or practice.

Q.1.2. Are there any legal positions regarding these matters 
that FHFA has taken that you plan to reverse or reexamine? 
Please be specific and explain why.

A.1.2. I am advised that the FHFA has taken the position that 
the Enterprises must comply with these laws. As Director, I 
would review this determination in a careful and diligent 
manner. However, in the absence of compelling legal precedent 
to the contrary, this would likely be the position of the FHFA 
and the Enterprises going forward.

Q.1.3. What are your plans for dealing with future laws both 
from the standpoint of:

  i) Lyour legal strategy if other States consider similar 
        laws: and

  ii) Lfrom the perspective of how it might affect Fannie and 
        Freddie's disposition strategies in these 
        jurisdictions?

A.1.3. If confirmed, I look forward to analyzing this issue 
carefully and determining what strategy FHFA might be able to 
pursue to reduce the costs that these laws pose. I understand 
that FHFA supports harmonizing these laws and I would intend to 
examine both the purpose of the laws as they stand--since it is 
a local issue--and the benefits to harmonizing them as a 
benefit to the taxpayer.

Q.1.4. Are there additional State laws in any other subject 
area that you believe pose risk to the value of Fannie and 
Freddie?

A.1.4. While the Enterprises and the national programs 
administered by the GSEs should work as smoothly as possible 
with State regulation, I have been advised that several State 
laws have posed or continue to pose some risks and challenges 
to the GSEs. From what I've been informed, they include laws 
that attempt to impose obligations on the GSEs for vacant 
properties even though the Enterprises are not the owners, 
create obligations on the GSEs to post high bonds for REO 
property maintenance, collect ``transfer fees'' notwithstanding 
that the GSEs may be taxed only on real property ownership, and 
recent State enactments of homeowner protections that either 
create legal uncertainty or differ significantly from the 
Servicer Alignment Initiative that provides great benefits for 
homeowners. If confirmed, I will carefully study these issues 
and update FHFA policy where warranted by facts and 
circumstances at the time I make any decisions.

Q.2. A handful of local communities have discussed seizing 
underwater mortgages by eminent domain. Once that occurred, the 
homeowners would be offered a mortgage that would put them 
above water, with the previous mortgage owners absorbing the 
loss. In your hearing you indicated that you would oppose any 
plan that put any entity in front of the taxpayer.

   LDo any of the current plans being considered by 
        jurisdictions meet this test to oppose or take action 
        to mitigate Fannie and Freddie's risk such that you 
        would take action to prevent Fannie or Freddie from 
        being involved? If so, please indicate specific 
        examples.

   LWould you allow for Fannie and Freddie to buy or 
        guarantee mortgages in any of the jurisdictions if they 
        adopted the current plans they are considering?

   LWould you allow for Fannie and Freddie to buy or 
        guarantee mortgages in any jurisdiction that adopted a 
        plan to seize mortgages not currently owned or 
        guaranteed by Fannie or Freddie, but then subsequently 
        sought loans to be owned or guaranteed finance the new 
        mortgages on these properties?

   LDo you believe it appropriate for any Government 
        entity to buy, guarantee or insure loans to replace 
        seized mortgages, regardless of whether the original 
        mortgage was an agency or private label mortgage?

A.2. As I indicated in my testimony, while I have deep respect 
for local and States' rights to take necessary steps to protect 
their communities, I will draw the line on any actions that are 
contrary to the interests of the taxpayers of the United 
States. As Director, I will insist that the FHFA evaluate any 
eminent domain proposals carefully and take the necessary 
actions to ensure that the Enterprises fully meet the statutory 
responsibility to protect taxpayers and conserve its assets.

Q.3.1. During your hearing you indicated that it would be up to 
the Congress to establish any kind of funds that might meet 
housing needs of various constituencies. You also noted that 
Congress has already done so through with the Housing Trust 
Fund.

   LIs it your interpretation that the Director of the 
        FHFA, while acting as conservator, currently has the 
        authority to set aside revenue from Fannie Mae and 
        Freddie Mac, to fund already established funds, such as 
        the Housing Trust Fund, the Capital Magnet Fund, or any 
        other currently established fund?

A.3.1. The Director of the FHFA has the authority to suspend 
allocations to the Housing Trust Fund and the Capital Magnet 
Fund based on the determination that such payment would 
contribute to the financial instability to the Enterprise, 
cause the Enterprise to be classified as undercapitalized, or 
prevent an Enterprise from successfully completing a capital 
restoration plan as outlined in Section 1337(b) of the statute. 
As conservator of the GSEs' assets, I would be obligated to 
apply the same three statutory criteria to any future decision. 
As with any standing FHFA policy, I intend to start with the 
current determination and base any changes solely on new facts 
and circumstances that have arisen since the decision was made.

Q.3.2. If you believe there is this authority, while as 
conservator would you under any circumstances exercise this 
authority or evaluate the exercising of this authority without 
express authorization from the Congress granted after this 
date?

A.3.2. As stated above, as conservator of GSEs' assets, I would 
be obligated to apply the same three statutory criteria to any 
future decision. As with any standing FHFA policy, I intend to 
start with the current determination, and base any changes 
solely on new facts and circumstances that have arisen since 
the decision was made.

Q.4. At times the Director will necessarily find conflict 
between his requirements to protect the taxpayer and to support 
the housing market. Are there any circumstances in which you 
believe efforts to support the housing market should take 
priority over protecting Fannie and Freddie's value and thus 
the taxpayer?

A.4. The purpose of the conservatorships is to preserve and 
conserve each Enterprise's assets and property and restore the 
Enterprises to a sound financial condition so they can continue 
to fulfill their statutory mission of promoting liquidity and 
efficiency in the Nation's housing finance markets during the 
transition to the new housing finance system. Accordingly, I 
believe that the efforts of supporting the housing market is a 
core mission of the Enterprises and that helping maintain a 
healthy housing market protects Fannie Mae's and Freddie Mac's 
value and guards against taxpayer losses.

Q.5. The Emergency Economic Stabilization Act is cited for its 
mandate that FHFA ``maximize assistance to homeowners.'' 
However, the bill also caveats that requirement with a 
stipulation that the agency ``consider the net present value to 
the taxpayer.'' In evaluating the costs of approving an 
activity by Fannie and Freddie, do you believe that this 
requirement extends to considering the costs of all taxpayer 
funds, regardless of the agency or program from which those 
taxpayer funds originate, or is the duty of the Director to 
consider the taxpayer costs limited to the costs incurred by 
Fannie Mae and Freddie Mac?

A.5. Yes, I believe that the wording of the statute extends to 
considering the costs to all taxpayers funds, not just the 
taxpayer costs incurred by Fannie Mae and Freddie Mac.

Q.6.1. Given the involvement of both Treasury and HUD in loan 
modification programs in which Fannie and Freddie participate 
or have similar offerings, there may be instances in which 
these agencies have strong opinions as to what actions Fannie 
and Freddie should take regarding certain policies. Likewise, 
certain the White House may also have strong opinions 
surrounding policies in which the President becomes politically 
active, as he has in the past.

   LWhat is your view of the appropriate role for the 
        Secretary of Treasury, Secretary of HUD or any other 
        executive branch or White House official with respect 
        to the management of Fannie Mae and Freddie Mac?

A.6.1. The Preferred Stock Purchase Agreements give the 
Treasury, as a party to the Agreements, certain rights to 
consult with the FHFA as conservator for the GSEs. However, the 
FHFA has complete management and regulatory authority over 
Fannie Mae and Freddie Mac and neither the PSPAs nor the 
applicable statutes give the Treasury any authority to manage 
or regulate the GSEs. Consequently, while I would consider 
input from the Administration, as I would consider input from 
Members of Congress, I would exercise the authority granted to 
me by the governing statutes consistent with the provisions of 
those statutes and consider external views, but make my own 
independent decisions.

Q.6.2. What specific barriers would you establish to prevent 
political influence that you believed to be improper?

A.6.2. I would maintain appropriate firewalls around myself and 
the FHFA consistent with firewalls that exist between other 
regulators and external political influences.

Q.6.3. Given your long political career, what specific steps 
would you further take to insulate you and your staff from the 
influence of your former political colleagues and the 
Administration across your decisionmaking as conservator?

A.6.3. In an effort to insulate myself from external influence 
as conservator, I will abide by the terms of the ethics 
agreement that I have entered into with FHFA's Designated 
Agency Ethics Official. Additionally, I will abide by all 
applicable prohibitions imposed on me by the Hatch Act (5 
U.S.C. Sec. Sec.  7321-7326).

Q.7.1. Fannie and Freddie a large Real Estate Owned, or REO, 
portfolio and face many options when choosing the appropriate 
disposition channel, such as: selling directly to an owner 
occupant; selling to an investor, either individually or in 
bulk; renting the property; or even demolishing the property. 
Choosing the appropriate disposition channel can be difficult, 
especially considering the answer can vary by region, 
localities or even individual properties.

   LWhat specific criteria would you construct to 
        evaluate the REO disposition strategy of Fannie and 
        Freddie?

A.7.1. I believe that REO properties must be sold in a manner 
that is beneficial to the Enterprises and thus the taxpayer, 
which will generally mean ensuring the sale also benefits the 
neighborhoods in which the properties are located, so as to 
help preserve the value of other Fannie Mae and Freddie Mac REO 
properties. Consequently, the criteria I would evaluate include 
efficiency; timeliness and effectiveness in management, 
restoration and repair; sales preparation, and marketing of the 
properties.
    Both Fannie Mae and Freddie Mac rely on retail sales 
strategies in which properties are sold one at a time, most 
often to buyers who plan to use the properties as their primary 
residence. During 2011, approximately 65 percent of the GSEs 
REO properties were sold to owner-occupants, the majority 
within 60 days of listing and at close to market value. 
Properties that do not sell within 6 months are generally sold 
at auction or, alternatively, in small bulk sales if they are 
sufficiently concentrated in a particular geographic area. I 
would continue efforts to meet or exceed those results.

Q.7.2. Do you believe these are decisions most appropriately 
handled by Fannie and Freddie under the supervision of the 
conservator, or should these strategies actually be developed 
by the conservator?

A.7.2. I believe that decisions of this kind are best handled 
by the GSEs, but only after consultation with and approval by 
the conservator.

Q.7.3. As conservator, how would you evaluate situations where 
maximizing value to Fannie and Freddie (and thus the taxpayer) 
may conflict with other goals such as: neighborhood 
homeownership rates, affordable housing needs of a community, 
investor versus owner-occupied goals?

   LIf you find that meeting community goals is 
        beneficial to those communities but would harm the 
        financial return to Fannie and Freddie, as conservator, 
        what do you believe is your number one priority in a 
        decision of this nature?

A.7.3. REO decisions should take into account what is most 
beneficial to the GSEs and the neighborhoods in which the 
properties are located. I would try to balance and meet both of 
these objectives and believe that situations would rarely, if 
ever, arise in which these objectives are at odds with each 
other. If any such instances arise, however, my top priority 
would be protecting the taxpayer.

Q.8. During the time in which the Senate is considering your 
nomination, if there are any votes within the House Financial 
Services Committee or on the floor of the House of 
Representatives on legislation that could affect FHFA, any of 
the regulated entities or the future markets that FHFA may 
regulate, do you plan to recuse yourself from these votes?

A.8. No. Not unless there was a clear conflict of interest.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN FROM MELVIN L. 
                              WATT

Q.1.1. You stated in your testimony that ``a broad consensus 
has emerged. toward a [secondary housing market] driven by 
private capital that minimizes the risk to taxpayers. The legal 
framework for getting to that destination will, of course, be 
up to the House and Senate.''
    Given that Congress has yet to finalize the legal framework 
for how the secondary housing market will operate, what 
challenges do you foresee in your role as FHFA director to 
effectively execute the FHFA's mission given legal and 
institutional uncertainty?

A.1.1. If confirmed, I believe my responsibility would be to 
help form a bridge to whatever future housing finance system 
Congress ultimately decides. While there are multiple 
challenges due to the uncertainty about the timing of the wind 
down of the GSEs, including maintaining competent and engaged 
staff and maintaining commitments to continuing upgrades to 
technology, my job would continue to build, solidify and test 
that bridge. For example, I plan to test different types of 
risk syndication efforts to help Congress determine how private 
capital can best be part of the future system. My mission, if 
confirmed, is clear and is set out in statute by HERA and EESA. 
My job is to adhere to those requirements even if there is near 
term uncertainty about what is ultimately decided about the 
future of the housing finance system.

Q.1.2. How do you plan to address this to ensure FHFA continues 
to support a stable housing finance market that includes access 
to affordable housing?

A.1.2. I plan to insist that we continue to support a deep and 
liquid secondary mortgage market while taking steps to 
encourage private capital to assume responsibility for as much 
mortgage credit risk as quickly as possible or until 
legislation informs how housing finance will take place going 
forward. This is consistent with the statutory mandate given to 
the Director and the FHFA.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR VITTER FROM MELVIN L. 
                              WATT

Q.1. Congressman Watt, at a recent House hearing where Acting 
FHFA Director Edward DeMarco testified you recused yourself 
from asking questions because of the speculation that you were 
a candidate for the permanent job. There are now news reports 
today that Chairman Hensarling will introduce his GSE reform 
bill shortly after the House returns from the 4th of July 
district work period. If the Committee or House considers that 
legislation while your nomination is still pending in the 
Senate do you plan to also recuse yourself from debating and 
voting on that legislation?

A.1. No. I do not believe that the responsibilities I would 
assume if confirmed as the Director of the FHFA result in a 
conflict of interest that would prevent me from voting on GSE 
reform legislation while I am still a member of the House of 
Representatives.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY FROM MELVIN L. 
                              WATT

Q.1. A number of municipalities are considering using the power 
of eminent domain to acquire underwater performing mortgages 
out of private label securities and then refinancing them into 
an FHA product. While the courts will ultimately decide the 
constitutionality of this scheme, I am concerned that using 
eminent domain this way will scare off private capital, dry-up 
new mortgage credit, and harm investors and taxpayers.
    FHFA has previously expressed concerns with this proposal 
given that Fannie Mae and Freddie Mac are collectively the 
largest holders of private label securities and taxpayers would 
bear the losses from any seizures. Under Acting Director 
DeMarco, the agency published a notice in the Federal Register 
indicating its ``significant concerns'' with this proposed use 
of eminent domain. FHFA noted that eminent domain would 
``[alter] the value of the companies' securities holdings.'' 
FHFA further stated ``FHFA has determined that action may be 
necessary on its part to avoid a risk to safe and sound 
operations at its regulated entities and to avoid taxpayer 
expense. Additionally, FHFA has concerns that such programs 
could negatively affect the extension of credit to borrowers 
seeking to become homeowners and on investors that support the 
housing market.''
    The Obama administration, on the other hand, has been 
largely silent on the subject and FHA Commissioner Carol 
Galante recently went so far as to say in testimony before the 
Senate Appropriations Committee that ``the idea of [using 
eminent domain] on mortgages is trying to get at an important 
issue of people's inability to refinance their mortgages that 
are in private label security . . . ''
    Eminent domain is a local issue, but its effects on Fannie 
Mae and Freddie Mac, particularly while these two companies are 
in Federal conservatorship, is a Federal matter.
    So are the effects these local decisions would have on our 
broader goals, shared by many in Congress and within the Obama 
administration, to stabilize our Nation's housing markets and 
draw more private capital into the housing finance system. And 
the issue is national in scope because a mortgage seized in 
Richmond, California affects a pension fund in Charlotte, North 
Carolina.
    If you are confirmed to serve as Director of FHFA, would 
you stand with the current FHFA leadership or the Obama 
administration on this potential use of eminent domain? Would 
you allow the GSEs, and by extension the taxpayer, to take the 
risk of continuing to purchase loans in communities that 
implement eminent domain programs for underwater mortgages?

A.1. As I stated in my response regarding eminent domain during 
my June 27, 2013, Senate Banking Committee confirmation 
hearing, while I have deep respect for local and States' rights 
to take necessary steps to protect their communities, I will 
draw the line on any actions that are contrary to the interests 
of the taxpayers of the United States. As Director, I will 
insist the FHFA evaluate any eminent domain proposals carefully 
and take the necessary actions to ensure that the Enterprises 
fully meet the statutory responsibility to protect taxpayers 
and conserve its assets.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR KIRK FROM MELVIN L. 
                              WATT

Expertise
Q.1. The Acting Director of FHFA has identified the ``immediate 
goals''\1\ of FHFA while the Enterprises are in conservatorship 
as ``taking necessary actions to put the Enterprises in a sound 
and solvent condition and to preserve and conserve their assets 
and property.'' Do you agree with FHFA's stated goals and will 
these be the goals you would prescribe if confirmed?
---------------------------------------------------------------------------
    \1\ http://www.fhfa.gov/webfiles/23930/
FHFA%20Draft%20Strategic%20Plan%202013-2017.pdf, page 5.

A.1. I strongly agree with the stated goals and direction 
articulated in the FHFA's 2013 scorecard for the Enterprises. 
As conservator, FHFA's primary statutory responsibility is to 
preserve and conserve the assets of Fannie Mae and Freddie Mac 
in order to maximize returns to the taxpayers. As Director, I 
will continue to take every necessary action, including those 
articulated in the 2013 scorecard, to meet the statutory 
responsibility of the FHFA.
    In particular, I commend the inclusion of risk-sharing 
pilots that will transfer more mortgage credit risk to the 
private sector. These transactions will take immediate steps to 
reduce taxpayers' exposure to the mortgage market, create 
mechanisms for more accurate price discovery of mortgage risk, 
and help inform the design of a more sound and safe future 
system of housing finance to be determined by Congress.
Transition to a Private Market
Q.2.1. You state in your written testimony that ``[t]he good 
news is that a broad consensus has emerged on the direction 
that our next steps must take us--towards a system driven by 
private capital that minimizes the risk to taxpayers''. Yet, in 
September 2003, you note that ``private enterprises really have 
not done very well in achieving things other than making 
money''. Are you committed to returning the two enterprises 
that currently control 90 percent of the mortgage market, to 
the private market? Are you now confident that the private 
market can take on a greater market share in the mortgage 
finance system successfully?

A.2.1. Long-term housing finance reform will ultimately be up 
to Congress to determine. That said, I am fully committed to 
ending the failed model of Fannie Mae and Freddie Mac, and 
bringing back private capital to the mortgage market as quickly 
as possible, while ensuring mortgage finance remains broadly 
available and accessible. I am confident that the private 
market can take on a greater share of the housing finance 
system successfully. My concerns expressed in 2003 were 
regarding predatory lending activities that contributed to the 
financial crisis. These types of predatory lending were wrong 
and irresponsible and I am proud to have cosponsored 
legislation that not only sounded the alarm but offered 
sensible solutions to rein in these practices years before the 
financial crisis.
    In the interim, the FHFA's role will be to build a solid 
and reliable bridge (the single securitization platform) that 
private market participants of all sizes and descriptions can 
access and rely on in any future system. I am committed to 
building that bridge. On the other end of the bridge, I do 
believe that the private market can successfully take on a 
greater share in the mortgage finance system.

Q.2.2. In responding to a question before the House Financial 
Services Committee in March 2013, Acting Director Edward 
DeMarco stated that he believed that the time it would take to 
wind down Fannie Mae and Freddie Mac should be a ``multiyear 
process'' but that it ``should not take more than 5 years''. If 
confirmed do you feel that you could and will pursue a goal of 
winding down Fannie Mae and Freddie Mac within 5 years?

A.2.2. If confirmed as the FHFA director, I will aggressively 
pursue a wind-down of GSEs as quickly as possible, while 
ensuring that there remains broad availability of mortgage 
credit in the country during the transition to what Congress 
decides as the future system of housing finance. However, the 
specific timing of any wind-down plan will be up to Congress.

Q.3.1. The Director of FHFA is also a member of the Financial 
Stability Oversight Council (FSOC).

   LWhat specific market trends/activities do you see 
        the Director of FHFA as having a unique perspective on 
        that he/she can bring to the Council?

A.3.1. As a member of the Financial Stability Oversight 
Council, the FHFA Director has a leading role in helping inform 
the members of the Council on how the housing markets are 
performing and where risks might be emerging. The Director also 
has the opportunity to help shape macro housing finance policy 
by coordinating with others members on the Council on key 
decisions that will impact the housing finance system.

Q.3.2. The Council has been tasked with identifying 
``systemically significant'' institutions--what do you see are 
the critical activities/features within the housing finance 
system that you think could fall into these categories that 
would deem them as systemically important?

A.3.2. Housing and the housing finance markets play a key role 
in the U.S. economy and financial system. When the housing 
markets are healthy, the economy tends to perform well and when 
the housing markets are weak, significant financial risks can 
arise. If confirmed, I will work with the other members of the 
Council to study carefully what aspects of and participants in 
the housing finance system could pose systemic risk to our 
markets and economy if not functioning appropriately. I believe 
that it is imperative that the future housing finance system 
allow entities of all sizes (community banks, credit unions, 
cooperatives, etc.) to be active and important participants 
instead of allowing one or two entities to dominate. If one or 
two entities dominate the market they could easily become 
``systemically significant.''
Principal Reductions
Q.4. Are you comfortable with implementing principal reductions 
for borrowers though it goes against the Director's requirement 
while the enterprises are in conservatorship to ``protect the 
tax payer'' above all else and preserve the quality of the 
assets of the enterprises?

A.4. My first priority as the FHFA director is to conserve the 
assets of the GSEs and to protect the taxpayers. I will not 
make any decision that conflicts with this first principle. 
Furthermore, in making any decision as the FHFA director, I 
will start with the standing decision of the agency, fully 
understand the original rationale, and give appropriate 
deference to the prior decision. I would then evaluate any new 
information and make the determination as to whether a 
different conclusion would be justified in light of new data or 
circumstances. In making any final decision, including 
regarding principal reduction, I would be careful to fulfill my 
statutory responsibility to protect the taxpayers and preserve 
the assets of the enterprises.
Eminent Domain
Q.5. You have indicated that you are a strong supporter of 
States rights--though you have not indicated whether or not you 
would support the use by States of eminent domain. Eminent 
domain brings with it legal issues, and will be very 
destructive to U.S. mortgage markets. In general, if 
contractual relationships between borrowers and creditors are 
undermined, it is only logical that lenders and investors will 
contract credit availability weakening the housing recovery.
    Given your strong legal background:

   LDo you think the use of eminent domain is 
        constitutional?

   LWould you consider allowing States to use eminent 
        domain to revise existing financial contracts and the 
        alternation of the value of the companies' securities 
        holdings?

   LPension funds, IRAs and other retirement funds are 
        among the largest traditional investors in the mortgage 
        back security market. Do you think it is prudent to 
        create ``winners and losers''--winners, if eminent 
        domain is permitted, being fund managers and losers 
        being investors on both sides with current investors in 
        MBS (pension funds and retirement funds) taking the 
        biggest hit?

A.5. As I indicated in my testimony, while I have deep respect 
for local and States' rights to take necessary steps to protect 
their communities, I will draw the line on any actions that are 
contrary to the interests of the taxpayers of the United 
States. As Director, I will insist the FHFA evaluate any 
eminent domain proposals carefully and take the necessary 
actions to ensure that the Enterprises fully meet its statutory 
responsibility to protect taxpayers and conserve its assets.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR COBURN FROM MELVIN L. 
                              WATT

Q.1. The previous directors of FHFA--James Lockhart and Edward 
DeMarco (acting director)--both had extensive backgrounds in 
finance and economics. Mr. Lockhart held various posts at the 
Federal Reserve, Treasury, HUD, and SEC. Mr. DeMarco studied 
the bank portfolios as part of the dissertation and then 
several in financial analysis positions at the Office of 
Federal Housing Enterprise Oversight, SSA, Treasury, and GAO. 
How do you feel your resume compares to those of these 
directors? How has your experience prepared you to manage 
multi-trillion portfolios?

A.1. I have enormous respect for both Directors Lockhart and 
DeMarco. Both Directors brought significant qualifications to 
this critical position.
    I believe I also bring extensive qualifications to the 
position as I outlined in my testimony at my confirmation 
hearing. My 40+ years of private sector and public service 
experiences have prepared me well to take on the challenges and 
responsibilities of the Director of the FHFA.

Q.2. The current leadership of FHFA has laid out a plan to 
promote risk-sharing between the GSEs and private market 
participants. The current goal is $30 billion in risk-sharing 
transactions for 2013. Can you lay out several examples of the 
types of transactions that might promote risk sharing? How will 
you measure the success or failure of these transactions? Do 
you plan to change the goal for 2013?

A.2. The FHFA's strategic plan for conservatorship and target 
for 2013 in the conservatorship scorecard is intended to 
evaluate and promote new alternatives for several types of risk 
sharing. Because these activities have different risks and 
advantages, I believe it would be prudent to allow data from 
these pilots to inform decisions regarding the best future 
strategy or mix of strategies.
    Currently, Fannie Mae and Freddie Mac are engaged in 
developing their approaches and transactions to meet the 2013 
scorecard target to transfer the credit risk on $30 billion of 
mortgage credit exposure through risk-sharing transactions. As 
appropriate based on market conditions, I intend to scale up 
the $30 billion goal in subsequent years and to begin to set 
timelines to provide greater certainty and clarity in an effort 
to move more of the housing finance market to the private 
sector as quickly as possible. Some of these strategies 
include:

   LCredit risk sharing with mortgage insurers. A 
        variety of insurance structures may deserve 
        consideration. Several design choices exist including 
        loan vs. pool level coverage and size of the pools. 
        Risk-sharing with mortgage insurers inevitably involves 
        some counterparty risk that must be considered and 
        carefully evaluated.

   LCredit risk sharing through senior/subordinate 
        structures. The simplest form of credit risk taken 
        through structured products is to create a senior/
        subordinate cash-flow structure. This would divide the 
        actual cash-flows from a pool of mortgage collateral 
        paid out to investors based on the credit risk they 
        bear. The subordinate tranche holders would bear the 
        bulk of the credit risk, while the senior tranches 
        would carry a wrap provided by the GSEs similar to 
        current agency MBSs.

   LCredit risk sharing through synthetic senior/
        subordinate structures. GSEs could issue credit linked 
        notes (CLN) to offset losses on diversified pools of 
        mortgages. The proceeds of the bonds or CLNs are placed 
        in a trust and provide a secured funding source to 
        offset losses from the underlying pool of mortgages. 
        One critical advantage of this structure is that it 
        would not impact the existing TBA market as the 
        investors in the CLNs would bear any losses in the 
        underlying pools of mortgages. However, CLN deals are 
        complex and technically a derivative.

    I expect to be able to develop other strategies as well, in 
transparent consultation with the private sector, and to pilot 
and test those strategies.

Q.3. Explain, in your view, the role the GSEs played in the 
country's financial crisis in terms of the amount of risk the 
institutions posed to the financial system. In your view, what 
are the top three problems the GSEs have had to address since 
2008?

A.3. While there are many factors that contributed to the 
financial crisis, the GSEs were a contributor to the financial 
crisis in that they used the benefits of an implicit Government 
guarantee to pass on risks to the taxpayers while overzealously 
seeking profits that benefited their executives and 
shareholders. Specifically, the poor judgment exercised by 
Fannie Mae and Freddie Mac in pursuing unsafe businesses in an 
attempt to maintain market share resulted in both of these 
institutions needing to be bailed out by the taxpayer. While I 
believe that the GSEs were contributors to the crisis, other 
participants in the housing sector also contributed the types 
of irresponsible behavior we witnessed leading up to the 
financial crisis. This shared responsibility includes 
politicians who too aggressively championed homeownership or 
were naive or turned a blind eye to the abuses that were taking 
place.
    I believe the three major challenges facing the GSEs since 
2008 are:

   LDigging out of the terrible decisions made in the 
        preceding years;

   LUncertainty about their future; and

   LTechnology shortcomings that contribute to their 
        inefficiency (See Answer 4 below.)

Q.4. FHFA's 2012 annual report states of Fannie Mae, 
``Unresolved system issues continue to make the Enterprise 
difficult to manage, impede efficiency, and raise serious 
questions about the reliability and effectiveness of Fannie 
Mae's modeling and forecasting of data.'' Describe the key 
factors that have perpetuated these inefficient systems, how 
the Enterprise needs to resolve the problem, and the timeframe 
over which improvements can be made.

A.4. Both GSEs' businesses rely on extensive technology systems 
to purchase and securitize a high volume of mortgages in the 
secondary market, thereby freeing up capital for lenders to 
make more loans. Currently, they are processing about $100 
billion in new loans each month. These complex systems require 
continual maintenance and upgrading, which has been a challenge 
for both GSEs and even more so in light of their uncertain 
future.
    The conservatorships of the GSEs have continued for almost 
5 years, forcing the FHFA and the GSEs to make decisions on 
longer term investments to upgrade and maintain their 
technology systems. This led the FHFA to direct the GSEs to 
invest in developing the common securitization platform, which 
will replace legacy systems at both GSEs when complete. The 
FHFA has projected that the platform will be operational within 
5 years. I anticipate trying to shorten this timeline, but 
acknowledge the complexity and difficulty of this task and that 
this must be done carefully and responsibly.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM JASON 
                             FURMAN

Q.1.1. The Obama administration has consistently stated that 
policymakers should wait until Dodd-Frank is finalized before 
looking for additional policy solutions to address the existing 
moral hazard issues associated with too-big-to-fail (TBTF).

   LCan you define what benchmarks need to be met to 
        declare that Dodd-Frank has been implemented?

A.1.1. The most important metric for ``full implementation'' of 
Dodd-Frank is the completion of core reforms. Currently many 
significant reforms, including the stand-up of the Consumer 
Financial Protection Bureau, new mortgage protections, stress 
testing requirements, resolution authority, and many of the 
core derivatives rules, are effectively complete. However, 
there still remains significant work to be done with 
outstanding rules that have not been finalized, such as work to 
implement the Volcker Rule, rules governing securitization, and 
the completion of outstanding rulemakings on derivatives.

Q.1.2. What steps will you take to examine whether the 
provisions of Dodd-Frank have successfully resolved TBTF?

A.1.2. Economics clearly shows that policymakers should be 
concerned about the possibility that institutions are ``Too Big 
to Fail''--a short-hand for the dynamic that we saw during the 
financial crisis in which certain institutions were so large, 
interconnected and risky that policymakers did not allow them 
to fail in order to protect the financial system and the 
broader economy. In the crisis, we saw how the failure of a 
large, complex financial institution like Lehman Brothers could 
have severe repercussions throughout financial markets and the 
economy as a whole, leading, for example, to fire sales of 
assets, impairing collateral and contracting credit. Subsequent 
support of other firms, moreover, contributed to an expectation 
that certain large, complex financial institutions may receive 
taxpayer assistance in a crisis, leading creditors to provide 
cheaper funding. For both of these reasons, these institutions 
might take more risk than is warranted, recognizing that they 
get the full potential upside benefit, but without 
internalizing the full costs of the downside--what economists 
call moral hazard. This is a classic source of market failure 
that regulation can and should address.
    The most important assessment of the status of the ``Too 
Big to Fail'' dynamic is the law itself. Since the passage of 
Dodd-Frank, reforms have made it less likely that an 
institution would fail through curbs on risk-taking activities 
and requirements for greater capital, have put in place a 
resolution authority in the case that they do fail and 
bankruptcy would disrupt markets, and have banned tax-payer 
funded bailouts, requiring that any costs are borne by the 
company's investors and creditors and the financial industry--
not taxpayers.
    An important place to start an assessment is to understand 
the degree to which the market perceives that these steps have 
actually ended ``Too Big To Fail.'' Although these measures are 
imperfect, for instance, it would be valuable to monitor and 
evaluate indicators including the pricing of credit for large, 
complex institutions.
    It is important, however, to understand that these are 
measures of the market perception of ``Too Big to Fail.'' To 
the degree that funding differences reflect a market 
perception, the key task for policymakers is to implement the 
laws which make clear that the financial industry and not 
taxpayers will bear the losses from the failure of any company.

Q.2. Some argue that financial services rules should be 
included in the Transatlantic Trade and Investment Partnership 
(TTIP). U.S. financial regulators have been negotiating 
international financial regulations with their international 
counterparts, including a new regime for capital standards, 
agreements for coordinating cross-border resolutions with 
international financial institutions, and international rules 
for derivatives transactions.

   LWith so many delicate financial regulations being 
        implemented domestically, and so many complex 
        international regulations being negotiated among 
        regulators, do you believe that it would be appropriate 
        to inject financial services into the TTIP?

A.2. U.S. Trade Representative and Department of Treasury 
officials have stated that financial services are a critical 
component of the transatlantic relationship, and in TTIP, as in 
all our Trade Agreements, the Administration will seek robust 
market access commitments for financial services.
    Since the financial crisis, it is my understanding that 
Treasury and our financial regulators have been actively 
engaged on a range of financial regulatory issues. There is an 
ongoing robust agenda with ambitious deadlines on regulatory 
and prudential cooperation in the financial sector--both 
bilaterally under the Financial Markets Regulatory Dialogue, 
and under the auspices of the G-20 rubric and international 
standards setting and other bodies such as the Financial 
Stability Board, the Basel Committee on Banking Supervision, 
and the International Organization of Securities Commissions. 
The ongoing work is expected to continue making progress 
alongside the TTIP.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM KARA M. 
                             STEIN

Q.1.1. While the Jumpstart Our Business Startups (JOBS) Act was 
passed with the worthwhile goal of spurring job creation, one 
of its central tenants is to reduce long-standing investor 
protections to make it easier for companies to raise capital. 
Chairman Schapiro opposed this piece of the legislation, and I 
am concerned that the SEC may continue to press for further 
deregulation.
    How will the JOBS Act alter conditions for investors? Do 
you have any concerns about the impact of these changes for 
non-institutional investors?

A.1.1. Since many of the provisions of the Congressionally 
mandated JOBS Act have yet to be implemented, it is not yet 
clear how it may alter conditions for either investors or 
small- and medium-sized businesses. If confirmed, I would work 
to get the JOBS Act rules implemented as quickly as possible in 
a way that balances the need of smaller businesses to have 
access to the capital and financial services they need to grow 
and create jobs while still protecting investors.

Q.1.2. As commissioner, what will you do to ensure the SEC will 
not, absent a specific directive from Congress, move forward 
with any further deregulatory proposals?

A.1.2. The SEC has a three-part mission to protect investors, 
maintain the integrity of the markets, and promote efficient 
capital formation. In an increasingly complicated, high-speed 
and interconnected marketplace, it is critical for both the SEC 
and Congress to think about how to update, modernize, and 
improve the securities market regulatory infrastructure. If 
confirmed, whatever proposals may come before the SEC, the 
determinative issue will not be whether the proposal provides 
for more or less regulation, but rather whether it is smart and 
efficient and effective at achieving the SEC's three-pronged 
mission.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER FROM KARA M. 
                             STEIN

Q.1. The Securities Exchange Commission (SEC) has been 
deliberating about how best to write implementing regulations 
for the 2012 Jumpstart Our Business Startups (JOBS) Act for 
more than a year. In the meantime, some States have already 
passed or are moving to pass and implement their own intra-
State crowdfunding exemptions instead of waiting for the SEC to 
issue regulations.

   LIn your view, are these State laws and 
        deliberations instructive to the SEC? Can anything be 
        learned from this going forward?

   LDo these activities by various States increase the 
        need for the Commission to release its crowdfunding 
        rules in a timely manner?

A.1. Crowdfunding is an innovative and new idea that should 
help infuse small businesses with needed capital to grow and 
create jobs. If confirmed, I would look forward to discussing 
with SEC staff and my fellow commissioners how State laws and 
deliberations may be instructive to the SEC. As a general 
matter, I believe it is important for the SEC to implement in 
as timely a manner as possible the rulemakings mandated by 
Congress under both the JOBS Act and the Dodd-Frank Act, 
including the rulemaking pertaining to crowdfunding.

Q.2. The JOBS Act established that ``funding portals'' would be 
viewed as distinct entities with fewer obligations and 
reporting requirements than traditional broker-dealers, so long 
as the portals meet the requirements and restrictions outlined 
in the law. Nonetheless, portals will be facilitating the sale 
of securities and playing a role in coordinating payment for 
those securities.

   LIn your view, how can the SEC rulemaking best 
        effectuate those disclosures and requirements? Which 
        obligations and requirements for broker-dealers are 
        essential and should be applied to crowdfunding funding 
        portals?

   LWhich restrictions on funding portals, beyond not 
        giving investment advice or directly handling the 
        investors' funds, should also be implemented?

   LIn addition to background checks, what steps should 
        the SEC take to prevent fraud in crowdfunding, and to 
        make sure that participants understand the meaning of 
        fraud?

A.2. The creation of ``funding portals'' is a new concept in 
the securities context. A funding portal would be exempt from 
broker registration, but would remain subject to the SEC's 
examination, enforcement and rulemaking authority and would 
have to become a member of a national securities association. 
While I understand that SEC staff have already been in contact 
with interested members of the public about the manner in which 
this concept will be implemented, the notice and comment 
process standard in SEC rulemaking is going to be critical. The 
issues you identified are important, and if confirmed, I would 
work with the SEC staff and my fellow commissioners in an 
effort to get this new concept right and adopted in a way that 
allows small businesses access to the capital they need while 
still protecting investors.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR HAGAN FROM KARA M. 
                             STEIN

Q.1. State and local governments and municipal organizations 
have expressed concern about money market mutual fund reforms. 
Municipalities obtain substantial, short-term funding from 
money market mutual funds and are concerned that if investors 
no longer find the product attractive, money market mutual fund 
assets will shrink and an important source of capital for 
public projects will become more costly. Given that money 
market mutual funds provide such a substantial share of short-
term lending to local governments, do you have concerns that 
new regulations on money market mutual funds could make it more 
difficult for municipalities to obtain cost-effective financing 
for projects?

A.1. Following the financial crisis, the Securities and 
Exchange Commission (SEC) adopted new rules to strengthen money 
market mutual funds and ensure that they remain a stable, 
reliable investment product and a robust capital source for 
those who rely upon them for funding, including municipalities 
and many businesses. In November 2012, the Financial Stability 
Oversight Council proposed for public comment additional 
recommendations for structural reforms regarding money market 
mutual funds. In June 2013, the SEC issued a proposal that 
would further change this product. Included within the proposal 
were two principal reforms that could be adopted alone or in 
combination. One proposed reform would require a floating net 
asset value for prime institutional money market funds. The 
other would allow the use of liquidity fees and redemption 
gates in times of stress. The comment period should help the 
SEC learn about the potential impact of these proposals from 
those who rely on money market funds as a source of funding, 
such as State and local governments and municipal 
organizations, and those who invest in them.
    If confirmed, I would look forward to reviewing the 
comments regarding these proposed changes and working with my 
fellow commissioners and the SEC staff to see what, if any 
changes, need to be made.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN FROM MICHAEL S. 
                            PIWOWAR

Q.1.1. While the Jumpstart Our Business Startups (JOBS) Act was 
passed with the worthwhile goal of spurring job creation, one 
of its central tenants is to reduce long-standing investor 
protections to make it easier for companies to raise capital. 
Chairman Schapiro opposed this piece of the legislation, and I 
am concerned that the SEC may continue to press for further 
deregulation.

   LHow will the JOBS Act alter conditions for 
        investors? Do you have any concerns about the impact of 
        these changes for non-institutional investors?

A.1.1. Because many of the provisions of the JOBS Act have not 
yet been implemented, I believe it is too early to predict how 
the JOBS act will alter conditions for investors. If confirmed, 
I look forward to working with staff and my fellow 
Commissioners complete the JOBS Act rulemakings in a thoughtful 
manner that takes into account all three parts of the SEC's 
mission--protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation.
    Given the SEC's threefold mission, investor protection 
should always be a concern for SEC Commissioners. With respect 
to non-institutional (retail) investors, they participate in 
the securities markets directly through individual purchases of 
securities as well as indirectly through the asset management 
industry. If confirmed, I look forward to working with the 
staff and my fellow Commissioners to understand how the JOBS 
Act will impact retail investors who, directly and indirectly, 
provide investment capital to entrepreneurs and businesses.

Q.1.2. As commissioner, what will you do to ensure the SEC will 
not, absent a specific directive from Congress, move forward 
with any further deregulatory proposals?

A.1.2 Any SEC regulatory proposal designed to promote capital 
formation should be considered with the SEC's two other 
mandates--investor protection and market integrity--in mind. If 
confirmed, I will commit to do so.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER FROM MICHAEL S. 
                            PIWOWAR

Q.1.1. The Securities Exchange Commission (SEC) has been 
deliberating about how best to write implementing regulations 
for the 2012 Jumpstart Our Business Startups Act (JOBS) Act for 
more than a year. In the meantime, some States have already 
passed or are moving to pass and implement their own intra-
State crowdfunding exemptions instead of waiting for the SEC to 
issue regulations.
    In your view, are these State laws and deliberations 
instructive to the SEC? Can anything be learned from this going 
forward?

A.1.1. While the SEC is the primary overseer of U.S. securities 
markets, the SEC works closely with many other institutions, 
including State securities regulators. If confirmed, I look 
forward to discussing with members of the National Association 
of State Securities Administrators (NASSA) their concerns about 
crowdfunding, as well as their perspectives on the 
deliberations for intra-State crowdfunding exemptions in their 
States.

Q.1.2. Do these activities by various States increase the need 
for the Commission to release its crowdfunding rules in a 
timely manner?

A.1.2. I have not yet had the opportunity to review the 
crowdfunding activities by various States. But, as a general 
matter, if confirmed, I am committed to working with my fellow 
Commissioners to complete all JOBS Act mandated rulemakings in 
a thoughtful and timely manner.

Q.2.1. The JOBS Act established that ``funding portals'' would 
be viewed as distinct entities with fewer obligations and 
reporting requirements than traditional broker-dealers, so long 
as the portals meet the requirements and restrictions outlined 
in the law. Nonetheless, portals will be facilitating the sale 
of securities and playing a role in coordinating payment for 
those securities.

   LIn your view, how can the SEC rulemaking best 
        effectuate those disclosures and requirements? Which 
        obligations and requirements for broker-dealers are 
        essential and should be applied to crowdfunding funding 
        portals?

A.2.1. I understand the important role that disclosures and 
other requirements play in helping investors make informed 
decisions about whether to purchase a company's securities. If 
confirmed, I look forward to working with the staff and my 
fellow Commissioners to determine which obligations and 
requirements for traditional broker-dealers should be applied 
to crowdfunding portals.

Q.2.2. Which restrictions on funding portals, beyond not giving 
investment advice or directly handling the investors' funds, 
should also be implemented?

A.2.2. In addition to prohibitions on giving investment advice 
and directly handling investor funds, the JOBS Act mandates two 
other prohibitions that should be implemented. One provision 
prohibits funding portals from soliciting purchases, sales or 
offers to buy the securities offered or displayed on its Web 
site or portal. The other provision prohibits compensating 
employees, agents or other persons for such solicitation or 
based on the sale of securities displayed or reference on its 
Web site or portal. The JOBS Act also allows the Commission to 
determine, by rule, other activities that may be prohibited. If 
confirmed, I look forward to working with the staff and my 
fellow Commissioners to determine what additional prohibitions 
should be implemented.

Q.2.3. In addition to background checks, what steps should the 
SEC take to prevent fraud in crowdfunding, and to make sure 
that participants understand the meaning of fraud?

A.2.3. The SEC's Office of Investor Education and Advocacy 
(OIEA) is the office within the Commission that is dedicated to 
helping investors invest wisely and avoid fraud. If confirmed, 
I look forward to working with the Director and staff of OIEA 
to determine what specific steps the Commission can take to 
help educate investors and prevent fraud in crowdfunding.
    In addition, the local offices of State securities 
regulators are often the first to receive complaints from 
investors about potentially fraudulent activity. If confirmed, 
I look forward to discussing with members of the National 
Association of State Securities Administrators (NASSA) their 
front line experiences with crowdfunding.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR HAGAN FROM MICHAEL S. 
                            PIWOWAR

Q.1. State and local governments and municipal organizations 
have expressed concern about money market mutual fund reforms. 
Municipalities obtain substantial, short-term funding from 
money market mutual funds and are concerned that if investors 
no longer find the product attractive, money market mutual fund 
assets will shrink and an important source of capital for 
public projects will become more costly. Given that money 
market mutual funds provide such a substantial share of short-
term lending to local governments, do you have concerns that 
new regulations on money market mutual funds could make it more 
difficult for municipalities to obtain cost-effective financing 
for projects?

A.1. The SEC's recent money market reform rule proposal 
includes an alternative that would require a floating net asset 
value (NAV) for prime institutional funds. Government money 
market funds and retail money market funds would be exempt from 
the floating NAV requirement, but there is no exemption for 
municipal funds. However, the SEC solicits public comment on a 
number of questions in the rule proposal, including ``Should 
money market funds that invest primarily in municipal 
securities be exempted from the floating NAV requirement? Why 
or why not? To what extent would such funds expect to qualify 
for the retail exemption?'' and ``Should the exemption for 
Government money market funds be extended to municipal money 
market funds? Why or why not?''
    I understand that money market funds are substantial 
purchasers of short-term securities issued by States, local 
governments, and municipal authorities. If confirmed, I will 
work closely with staff and my fellow Commissioners to 
carefully consider the public comments on the important 
questions above.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM RICHARD T. 
                            METSGER

Q.1. In response to questions on what additional steps NCUA 
should take to implement lessons learned from the financial 
crisis, you stated that NCUA's regulations need to be 
modernized to identify and address threats in the modern 
marketplace. More specifically, how do you plan to 
``modernize'' NCUA's regulatory approach?

A.1. NCUA needs to have in place balanced rules that reflect 
the risks of the modern marketplace. In essence, the agency 
must have forward-looking rules to mitigate small risks before 
they turn into large ones. In terms of risks on the horizon, I 
see three areas for NCUA to act upon.
    First, the agency needs to provide appropriate tools to 
permit well-managed, experienced credit unions to hedge 
interest rate risk. Second, the agency needs to enhance 
emergency liquidity access for all credit unions. If confirmed, 
I am committed to working to quickly complete the rulemakings 
already begun by the NCUA Board on both of these important 
matters.
    Third, credit unions need to have in place safeguards to 
protect against cyber-security and technological threats. As 
these risks evolve, the industry must also change. For example, 
credit unions ought to continue to update their procedures to 
test the security of their electronic payment systems, Internet 
platforms, and other electronic network functions.
    To address these matters, I understand that the Federal 
Financial Institutions Examination Council, of which NCUA is a 
member, has recently created a working group to enhance 
communication among the FFIEC member agencies and build on 
existing efforts to strengthen the activities of other 
interagency and private sector groups. Among other things, this 
group is reviewing existing examination policies and guidance 
addressing cyber-security and critical infrastructure 
resilience in order to make recommendations for reform.
    Because cyber-security threats can lead to credit union 
losses and potentially affect the Share Insurance Fund, I am 
committed to working within the FFIEC framework to address 
these matters and, as necessary, adopt narrowly targeted 
regulations and issue industry guidance to protect against 
cyber-security threats.

Q.2. You also stated that interest rate risk is at the top of 
your list of market threats. How do you plan to address this 
threat? What proposals do you plan to champion to ensure credit 
unions are prepared for rising interest rates?

A.2. If confirmed, I am firmly committed to ensuring that 
credit unions have the policies and tools in place to protect 
against rising interest rates. Last year, the NCUA Board issued 
a final rule on managing interest rate risk. This rule requires 
covered credit unions to have a written interest rate policy 
and an effective interest rate management program. NCUA has 
issued guidance on this rule that provides credit unions with 
the flexibility to manage their business models with NCUA's 
interest rate risk management expectations.
    Earlier this year, the NCUA Board also issued a proposed 
rule to provide certain well-managed federally insured credit 
unions with the authority to purchase limited amounts of simple 
derivatives. Access to tools like interest rate swaps and 
interest rate caps would help credit unions to offset interest 
rate risk.
    If confirmed, I am committed to working with my colleagues 
on the NCUA Board to complete the derivatives rulemaking. 
Additionally, I would work to ensure that NCUA has specialists 
in the field to examine, and provides examiners with sufficient 
training on, interest rate risk. Finally, through speeches and 
other public communications, I would work to educate the 
industry on the importance of protecting against interest rate 
risk, diversifying portfolios, and avoiding heavy reliance on 
long-term loan obligations.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM RICHARD T. 
                            METSGER

Q.1. NCUA's budget has gone up for the last 5 years. Should 
containing costs be a priority for NCUA, and what do you think 
can be done to keep a lid on future budget expenditures?

A.1. As detailed in my written statement, if confirmed, my 
vision is for NCUA to be recognized as an agency that manages 
its own fiscal house well. I believe NCUA should strive to 
demonstrate efficiency in managing its budget, while focusing 
on NCUA's core mission of protecting safety and soundness.
    NCUA needs sufficient resources to address the increasing 
size, complexity and risk profile of the credit union industry. 
While NCUA's overall budget has increased in recent years, the 
agency's budget expressed as a share of industry assets has 
remained essentially flat. If confirmed, I am committed to 
considering what further steps could be taken to lower the 
budget as a percent of the industry's assets, consistent with 
statutory requirements, contractual obligations and prudential 
priorities.
    To contain future budget expenditures, I believe that NCUA 
should utilize zero-based budgeting, in which each expense is 
justified anew each year. This is an important tool to use to 
validate the continued need for each expenditure without 
sacrificing required oversight.

Q.2. Credit unions have raised concerns about an NCUA proposal 
under which the agency would assess fees for activities it 
considers risky. Would this proposal set the stage for fees to 
become a more common regulatory tool of the NCUA?

A.2. As part of an overall strategy for helping credit unions 
manage interest rate risk, I understand that the NCUA Board has 
issued a proposed rule to provide well-managed federally 
insured credit unions with more than $250 million in assets the 
authority to purchase limited amounts of simple derivatives. 
With appropriate safeguards in place, these interest rate swaps 
and interest rate caps would allow participating credit unions 
to hedge against that risk.
    As I understand, the supervisory costs associated with this 
proposed rule are, however, significant. To determine how to 
pay for these costs, the proposed rule has requested comments 
on whether to institute fees on credit unions that apply for or 
obtain this expanded authority.
    If confirmed, I would closely read the comment letters 
received as part of the derivatives proposed rulemaking to 
evaluate the appropriateness of imposing such fees. I would 
also carefully weigh the factors about whether NCUA should 
continue to cooperatively charge all credit unions for the 
costs of supervision or create new fees like the ones in the 
proposed rule to address the unique circumstances of this 
rulemaking.

Q.3. A number of credit unions have raised concerns about 
examinations and their ability to dispute findings. How can we 
make sure that credit unions receive fair treatment from their 
examiner and have appropriate avenues of appeal?

A.3. To prevent appeals, I believe examinations should be 
consistent. Additionally, the process for resolving complaints 
must be clearly understood. Open and direct communication 
between NCUA examiners and credit unions is also a key to 
resolving problems at the first opportunity. As a result, NCUA 
examiners must have appropriate training on successful 
communications techniques. Such training will help to prevent 
appeals from occurring.
    When the relationship between an examiner and a credit 
union fails to produce a mutually agreeable result, credit 
unions need to have access to a fair, equitable and reliable 
appeals process. As I understand, NCUA presently has in place a 
multi-layered appeals process that involves informal and formal 
channels. NCUA also communicates the process for filing appeals 
as part of the cover letter that accompanies every exam.
    If confirmed, I would carefully examine the agency's record 
on appeals, once I have access to the records, and the need to 
further improve the effectiveness of appeals procedures. If 
necessary, I will press staff to see if, in my judgment, the 
process is flawed or the appeals are handled correctly. To 
enhance fairness, equity and reliability, I would not hesitate 
to recommend changes aimed at improving the appeals process, if 
I believe they are warranted.

Q.4. Some have raised concerns that prompt corrective action 
and capital requirements for credit unions are too 
prescriptive. Do you have similar concerns and is there a role 
for NCUA in addressing those concerns?

A.4. Risk-based capital and leverage capital rules are critical 
components to an effective, well-developed regulatory regime 
for credit unions. Together, they ensure that the right level 
of capital is applied to the right level of risk without 
overburdening low-risk institutions. They also ensure that 
capital regulation is dynamic based on the size and risk 
appetite of a credit union.
    Capital also plays a central role in the cooperative credit 
union system. Losses to the Share Insurance Fund are ultimately 
borne by the surviving credit unions that must pay higher 
premiums to offset the losses. An effective capital regime 
therefore protects the entire industry, not just an individual 
credit union.
    I believe that forward-looking indicators of capital 
adequacy can aid in identifying risks and the impact of 
potential adverse outcomes on a financial institution. A 
January 2012 report by the Government Accountability Office 
also recommends that NCUA should consider additional prompt 
corrective action triggers that would require early and 
forceful regulatory action and make recommendations to Congress 
on how to modify prompt corrective action.
    NCUA has not revised the risk-based net worth requirement 
of the prompt corrective action standard since its introduction 
in 2000. If confirmed, I am committed to exploring what steps 
NCUA could take to modify its risk-based capital rule to 
reflect today's marketplace realities. I am also committed to 
following up expeditiously on the GAO report's recommendations 
on the need for statutory changes to credit union capital 
standards.

              Additional Material Supplied for the Record

                               Center for American Progress
                              1333 H Street, NW, 10th Floor
                                               Washington, DC 20005
                                                      June 27, 2013

Hon. Tim Johnson
Chairman
Committee on Banking, Housing & Urban Affairs
534 Dirksen Senate Office Building
United States Senate
Washington, D.C. 20510

Hon. Mike Crapo
Ranking Member
Committee on Banking, Housing & Urban Affairs
534 Dirksen Senate Office Building
United States Senate
Washington, D.C. 20510

Dear Chairman Johnson and Ranking Member Crapo:

    We are writing to express our support for the nomination of 
Congressman Melvin Watt to lead the Federal Housing Finance Agency. The 
U.S. Senate should move quickly to confirm him.
    The Federal Housing Finance Agency, or FHFA, urgently needs a 
confirmed director as it moves forward in collaboration with Congress 
to reform and rebuild the U.S. housing finance system. The agency has 
been operating as conservator of Fannie Mae and Freddie Mac without a 
confirmed director for close to 5 years.
    Initially, much of FHFA's work focused on restoring the financial 
health of Fannie Mae and Freddie Mac, which were on the brink of 
failure when Congress appointed the FHFA to act as their conservator in 
2008 and are now generating revenues. Now, however, the agency is 
turning to very significant decisions concerning the access to and 
price of mortgage credit, the supply of affordable rental, and the 
nature of the securitization process that will shape the future of the 
U.S. housing finance system without the benefit of a presidentially 
appointed director.
    While Congress considers options for reforming the Nation's housing 
finance system, a process that will likely take significant time, FHFA 
will continue to play a key role in determining whether affordable 
credit is broadly available to diverse populations and geographic 
locations, or whether credit will be more costly, more limited, and 
less sustainable, especially for first-time home buyers, low- and 
moderate-income households, rural communities, and communities of 
color.
    We believe that Mr. Watt has the vision, expertise, and experience 
necessary to provide strong leadership for FHFA. His personal 
background and professional experience have provided him with a deep 
commitment to affordable housing and sustainable credit, which not only 
support a robust housing market, but also provide shelter and 
opportunity for America's families and spur economic growth for the 
Nation as a whole. Having spent more than two decades running a law 
practice focusing on business, real estate, municipal bonds, and 
community development, he knows the details of housing finance from the 
ground level. At the same time, as one of the first policymakers to 
sound the alarm about dangers of predatory lending--which ultimately 
led to the foreclosure crisis--he has demonstrated an equal ability to 
see how what's happening on the ground can threaten the larger housing 
market and economy as a whole.
    We appreciate your attention to this important nomination and would 
be happy to respond to any questions or concerns that you may have.

        Sincerely,
                                              Julia Gordon,
                              Director, Housing Finance and Policy,
                                       Center for American Progress






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