[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


           TEN YEARS OF TARP: EXAMINING THE HARDEST HIT FUND

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

                             JOINT HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       INTERGOVERNMENTAL AFFAIRS

                                AND THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 22, 2018

                               __________

                           Serial No. 115-85

                               __________

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              Committee on Oversight and Government Reform

                  Trey Gowdy, South Carolina, Chairman
John J. Duncan, Jr., Tennessee       Elijah E. Cummings, Maryland, 
Darrell E. Issa, California              Ranking Minority Member
Jim Jordan, Ohio                     Carolyn B. Maloney, New York
Mark Sanford, South Carolina         Eleanor Holmes Norton, District of 
Justin Amash, Michigan                   Columbia
Paul A. Gosar, Arizona               Wm. Lacy Clay, Missouri
Scott DesJarlais, Tennessee          Stephen F. Lynch, Massachusetts
Virginia Foxx, North Carolina        Jim Cooper, Tennessee
Thomas Massie, Kentucky              Gerald E. Connolly, Virginia
Mark Meadows, North Carolina         Robin L. Kelly, Illinois
Ron DeSantis, Florida                Brenda L. Lawrence, Michigan
Dennis A. Ross, Florida              Bonnie Watson Coleman, New Jersey
Mark Walker, North Carolina          Raja Krishnamoorthi, Illinois
Rod Blum, Iowa                       Jamie Raskin, Maryland
Jody B. Hice, Georgia                Jimmy Gomez, Maryland
Steve Russell, Oklahoma              Peter Welch, Vermont
Glenn Grothman, Wisconsin            Matt Cartwright, Pennsylvania
Will Hurd, Texas                     Mark DeSaulnier, California
Gary J. Palmer, Alabama              Stacey E. Plaskett, Virgin Islands
James Comer, Kentucky                John P. Sarbanes, Maryland
Paul Mitchell, Michigan
Greg Gianforte, Montana

                     Sheria Clarke, Staff Director
                  Robert Borden, Deputy Staff Director
                    William McKenna, General Counsel
                 Kelsey Wall, Professional Staff Member
                         Kiley Bidelman, Clerk
               Subcommittee on Intergovernmental Affairs

                     Gary Palmer, Alabama, Chairman
Glenn Grothman, Wisconsin, Vice      Jamie Raskin, Maryland, Ranking 
    Chair                                Minority Member
John J. Duncan, Jr., Tennessee       Mark DeSaulnier, California
Virginia Foxx, North Carolina        Matt Cartwright, Pennsylvania
Thomas Massie, Kentucky              Wm. Lacy Clay, Missouri
Mark Walker, North Carolina          (Vacancy)
Mark Sanford, South Carolina
                                 ------                                

                 Subcommittee on Government Operations

                 Mark Meadows, North Carolina, Chairman
Jody B. Hice, Georgia, Vice Chair    Gerald E. Connolly, Virginia, 
Jim Jordan, Ohio                         Ranking Minority Member
Mark Sanford, South Carolina         Carolyn B. Maloney, New York
Thomas Massie, Kentucky              Eleanor Holmes Norton, District of 
Ron DeSantis, Florida                    Columbia
Dennis A. Ross, Florida              Wm. Lacy Clay, Missouri
Rod Blum, Iowa                       Brenda L. Lawrence, Michigan
                                     Bonnie Watson Coleman, New Jersey
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 2018.....................................     1

                               WITNESSES

Mr. Kipp Kranbuhl, Deputy Assistant Secretary for Small Business, 
  Community Development, and Affordable Housing Policy, Office of 
  the Assistant Secretary for Financial Institutions, U.S. 
  Department of the Treasury
    Oral Statement...............................................     7
    Written Statement............................................     9
The Honorable Christy Goldsmith Romero, Special Inspector General 
  for the Troubled Asset Relief Program, U.S. Department of 
  Treasury
    Oral Statement...............................................    12
    Written Statement............................................    14
Ms. Verise Campbell, Chief Executive Officer, Nevada Affordable 
  Housing Assistance Corporation
    Oral Statement...............................................    64
    Written Statement............................................    66
Ms. Cathy James, Business Development Manager, Alabama Housing 
  Finance Authority
    Oral Statement...............................................    71
    Written Statement............................................    73
Mr. Scott Farmer, Executive Director, North Carolina Housing 
  Finance Agency
    Oral Statement...............................................    81
    Written Statement............................................    83

 
           TEN YEARS OF TARP: EXAMINING THE HARDEST HIT FUND

                              ----------                              


                         Tuesday, May 22, 2018

                  House of Representatives,
  Subcommittee on Intergovernmental Affairs, joint 
    with the Subcommittee on Government Operations,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittees met, pursuant to call, at 10:01 a.m., in 
Room 2154, Rayburn House Office Building, Hon. Gary J. Palmer 
[chairman of the Subcommittee on Intergovernmental Affairs] 
presiding.
    Present from the Subcommittee on Intergovernmental Affairs: 
Representatives Palmer, Grothman, Duncan, Massie, Walker, and 
Raskin.
    Present from the Subcommittee on Government Operations: 
Representatives Meadows, Hice, Jordan, Sanford, DeSantis, Blum, 
and Connolly.
    Mr. Palmer. The Subcommittee on Intergovernmental Affairs 
and the Subcommittee on Government Operations will come to 
order.
    Without objection, the presiding member is authorized to 
declare a recess at any time.
    Today's hearing marks the 10th anniversary of the Troubled 
Asset Relief Program, also known as TARP. Since 2009, this 
committee has conducted oversight of TARP programs and 
management. TARP was created in 2008 in the aftermath of the 
Nation's worst economic recession in modern history.
    Often referred to as the bank bailout program, TARP was a 
$400 billion program intended to stabilize the U.S. financial 
system and preserve home ownership. In 2010, the Treasury 
Department created the TARP program known as the Hardest Hit 
Fund to mitigate the impact of the housing crisis and to 
prevent foreclosures. The Hardest Hit Fund allocates up to $9.6 
billion in TARP funds for locally tailored aid to 19 
participating State housing finance agencies through 2020.
    Early in the program's tenure, the Government 
Accountability Office and the Special Inspector for TARP issued 
reports on State implementation challenges and the program's 
lack of established merits and goals.
    In 2017, the Office of the Special Investigator General of 
TARP, or SIGTARP, issued a report questioning $3 million in 
administrative expenses charged by State housing finance 
agencies. Such expenses included bonuses, barbecues, gym 
memberships, severance payments, trips to the zoo, and other 
perks funded by Federal TARP dollars through the Hardest Hit 
Fund.
    The Treasury Department determined approximately 70 percent 
of these expenses are allowable under the terms of its 
participation agreement with the States. In other words, less 
than 30 percent of the $3 million questioned by SIGTARP was 
deemed recoverable by Treasury.
    It is the duty of Federal and State partners to ensure that 
taxpayer dollars for Federally funded, State-administered 
programs are used for their intended purposes. None of the 
payments identified by SIGTARP's report advance the main 
purpose of the program, to prevent foreclosure and provide 
assistance to homeowners most affected by the housing crisis.
    Although many States have, according to Treasury, 
voluntarily refunded over $450,000 to the program since 
SIGTARP's report, it is apparent that the questions over 
appropriate expenditures and program efficiencies remain.
    According to SIGTARP's 2017 semi-annual report to Congress, 
fewer than half of all homeowners who sought assistance were 
admitted to the program, and nearly 30 percent of homeowners 
withdrew their applications.
    With nearly 2 billion in remaining funds left to be 
disbursed by the Treasury to the States, it is necessary to 
ensure proper safeguards are in place.
    I thank the witnesses from the Treasury Department, 
SIGTARP, and the representatives from three States, including 
my home State of Alabama, for being here today.
    I now recognize the ranking member of the Intergovernmental 
Affairs Subcommittee, Mr. Raskin, for 5 minutes for his opening 
statement.
    Mr. Raskin. Chairman Palmer, Chairman Meadows, thanks so 
much for calling today's hearing. And I want to thank all the 
witnesses for coming.
    The Hardest Hit program was set up to provide targeted aid 
to families in States that were decimated by the downturn of 
the housing markets. Funded by the Feds but administered by 
State governments, the Hardest Hit Fun has financed mortgage 
modification, unemployment assistance, transition assistance, 
mortgage reinstatement, and blight elimination.
    Since 2010, when it was created, the fund has assisted over 
350,000 families and removed 24,000 blighted properties in 18 
States and D.C., so I don't want to understate the 
contributions it's made.
    But although it's helped many people avoid losing their 
homes, the diligent work of the Special Inspector General for 
TARP has provoked a lot of bipartisan anxiety about how State 
agencies are administering the program. And I have a number of 
profound concerns that I look forward to addressing today.
    The first is why my State, Maryland, and other States where 
people were hit very hard during the financial crisis were 
excluded completely from the Hardest Hit Fund.
    It has been very tough for me to read reports about 
scandalous abuses of the program, waste of money taking place, 
feather-bedding, and bloated budgets, while my State was 
completely excluded from it. And I would like somebody to 
explain that to me, why did the Treasury Department exclude 
Maryland.
    In addition, why do we still have no analysis from Treasury 
about the success and potential expansion of the program now 7 
years into it?
    While States in need like mine receive zero dollars under 
the program, others received many millions of dollars that 
ended up going to fund excessive and egregious wasteful 
expenditures that were uncovered in the audits.
    And so I want to know, along with the chairman, why did all 
of this money go and why is this money going to lavish catered 
barbecue parties, Visa gift cards, employee bonuses, catered 
lunches with Treasury employees, fancy cars, and employee trips 
to the zoo.
    Now, I know a lot of States did not break the rules in any 
way. The California Hardest Hit Fund program seems to have the 
highest rate of homeowner approval, with over 73,000 Americans 
that have been assisted with apparently no wasteful 
expenditures reported.
    So I look forward today to our digging into the work of the 
Special Inspector General and her team at SIGTARP who uncovered 
the fact that Federal dollars meant to help people recovering 
from the greatest economic catastrophe since the Depression 
were being wasted on things like a car allowance of $11,000 for 
a Mercedes-Benz for a CEO.
    A September SIGTARP audit report found that the Nevada 
Affordable Housing Assistance Corporation misspent $8.2 
million. In 2017, Treasury reported to SIGTARP that Nevada's 
HHF did not meet its utilization threshold and will have its 
allocation reduced by $6.7 million. Nevada was the only State 
participating in the program to have funds cut.
    The Georgia Department of Community Affairs provided the 
Hardest Hit funds to only 9.000 homeowners and rejected two-
thirds of the applicants.
    So, Mr. Chairman, there's a lot of questions here that I 
want us to get to the bottom of today, and I thank you for 
calling this hearing.
    Mr. Palmer. I now recognize the chairman of the 
Subcommittee on Government Operations, Mr. Meadows, for 5 
minutes for his opening statement.
    Mr. Meadows. Thank you, Mr. Chairman. I'll be very brief.
    Inspector General Goldsmith Romero, thank you so much for 
being here. It was a pleasure to not only visityour workplace 
with so many dedicated individuals, but to see your leadership. 
And I just wanted to go on record to recognize that, and thank 
you for that.
    Mr. Farmer, welcome. You know, this isn't Raleigh. 
Actually, if we could operate D.C. as well as we do Raleigh, we 
might be in better position. But I want to just say welcome.
    I also want to acknowledge your thoughtful insight on some 
of the issues that we may be talking about today in terms of 
your proactive stance there. I want to acknowledge that and 
thank you.
    And then my good friend, Mr. Oglesby, who's actually in the 
audit. Bill is a constituent. And so I want to thank him for 
his advocacy on this particular area.
    And as we look at all of this, this is all about being 
accountable for the hardworking American taxpayer dollar and 
making sure that those priorities go and are invested in those 
areas that best help those that are in need. And so as we look 
at that, it's critically important that we do that.
    Mr. Chairman, I want to thank you for your leadership on 
this particular area. And I will yield back.
    Mr. Palmer. I now recognize the ranking member of the 
Government Operations Subcommittee, Mr. Connolly, for 5 minutes 
for his opening statement.
    Mr. Connolly. Thank you, Mr. Chairman. And thank you to Mr. 
Meadows for calling today's hearing to look into mismanagement 
and wasteful spending in the Hardest Hit program. And thanks to 
our witnesses for being here.
    The Oversight and Government Reform Committee has broad 
jurisdiction to look into fraud, waste, and abuse throughout 
the government, including when Federal dollars go to State and 
local governments or other recipients. Taxpayer dollars should 
not be viewed as a slush fund, and I welcome the committee's 
oversight into this issue today.
    To ensure accountability wherever taxpayer dollars are 
spent, it's also important that this committee look into 
wasteful spending elsewhere in the Federal Government.
    I would welcome a deeper look into wasteful spending at the 
Environment Protection Agency, for example: $43,000 on a 
soundproof booth for Administrator Scott Pruitt in violation of 
spending laws; $105,000 on Administrator Pruitt's first-class 
fights in the first year on the job; $100,000 for a 4-day trip 
to Moscow; $120,000 on a 4-day trip to Italy; $45,000 for EPA 
aides to fly to Australia and prepare for yet another trip that 
had to be cancelled because of Hurricane Harvey; five-figure 
salary increases for preferred staff even after the White House 
Office of Personnel denied the request.
    This is not to mention Administrator Pruitt's ethical 
challenges, including his cozy relationship with lobbyists for 
the industries regulated by the EPA.
    This committee should also look into how the Department of 
Interior was able to spend $139,000 on new doors for Secretary 
Zinke's office, which makes the $31,000 dining set at the 
Department of Housing and Urban Development look like small 
potatoes.
    And this is just what we know from publicly reported 
expenditures. I'm sure if the committee took on a full-fledged 
and vigorous investigation into the wasteful spending by the 
Trump Cabinet we'd be able to find other examples of the 
flagrant misuse of taxpayer dollars.
    Ten years ago, a financial crisis hit the American people, 
the likes of which were unseen since the Great Depression. 
Housing prices plunged, 8.8 million jobs were lost, a liquidity 
crisis hit the financial sector, and the unemployment rate hit 
10 percent.
    The meltdown left hundreds of thousands of homeowners 
underwater in their mortgages, owing more than their houses 
were worth. In 2008, U.S. foreclosure filings spiked more than 
81 percent, and over 860,000 families lost their homes in 
foreclosures that year alone.
    In response to this crisis, Congress enacted the Emergency 
Economic Stabilization Act, which, among other things, created 
the TARP, Troubled Asset Relief Program. TARP is widely 
considered a bank bailout authorizing the Secretary of the 
Treasury either to purchase or insure up to $700 billion in 
troubled assets owned by financial firms.
    TARP also sought to provide assistance to homeowners facing 
foreclosure by stabilizing housing markets and engaging in 
foreclosure mitigation through the Home Affordable Modification 
Program, the Federal Housing Administration Short Refinance 
Program, and the Hardest Hit Fund.
    The Hardest Hit Fund made funding available to the State 
housing finance agencies that had experienced the greatest 
declines in home prices. The program has helped homeowners stay 
in their houses and knock down blighted properties, raising 
property values of the surrounding homes. It's grown into a 
$9.6 billion program funded by the Federal Government but 
administered by the States and has assisted more than 300,000 
homeowners in 18 States and the District of Columbia.
    I support the cooperative federalism embedded in this 
program with the States and the Federal Government working 
together to solve common problems. But today's hearing will 
highlight instances where that cooperative federalism has gone 
array. A number of Hardest Hit Fund partner States severely 
mismanaged their programs and/or misspent Federal funds.
    In September of 2016, the Special Inspector General for 
TARP found that the Nevada Housing Division allowed abuse and 
waste of $8.2 million in Hardest Hit Fund dollars instead of 
helping homeowners who were facing foreclosure. This included a 
car allowance of $500 a month for the CEO to drive a Mercedes-
Benz totaling $11,000. Nearly the same amount of money was 
spent on employee bonuses, gifts, outings, and other perks, 
over 5,800 spent on holiday parties and gifts, 43,000 in 
bonuses, almost all of which were paid to a CEO who was later 
terminated.
    At the same time, the State agency had all but stopped 
homeowners from getting assistance through the Hardest Hit 
Fund, admitting only 117 Nevada homeowners in 2015, a year-on-
year drop of 96 percent.
    The Special Inspector General for TARP also found that 
State agencies charged more than 100,000 for barbecues, 
picnics, celebrations, and other outings that included food and 
beverage. Instead of putting $14,124 toward assisting 
homeowners, the North Carolina Housing Finance Agency charged 
that amount for employee food and beverages.
    Overall, SIGTARP found that the agency charged more than 
$100,000 in unnecessary expenses. At the same time, that same 
agency denied 18.8 percent of homeowners who applied for 
housing assistance. State agencies even charged employee 
parking fees at the Hardest Hit Fund, as was the case in 
Michigan, which spent over 330,000 for that purpose.
    Eight years after the passage of TARP, the Special 
Inspector General for TARP continues to conduct audits of the 
Hardest Hit Fund expenditures to ensure that money is spent 
properly. In August 2017, SIGTARP found that the States had 
misspent 3 million in TARP funds. We must remember, that's $3 
million which could have been used to provide mortgage 
assistance to underwater homeowners or to rehabilitate 
neighborhoods.
    The only thing more disappointing than State agencies using 
money meant to help homeowners on unnecessary expenditures is 
the Treasury Department's reluctance to recover those misspent 
taxpayers dollars. After receiving SIGTARP's audit, Treasury 
decided to claw back only 29 percent of the improperly spent 
funds.
    So long as TARP programs exist, it's important that SIGTARP 
keep a watchful eye on those expenditures to ensure that 
taxpayer dollars are spent judiciously and for the purpose of 
which Congress intended.
    I'm glad we're having this hearing. I'm glad we're looking 
at the improper use and expenditure of funds. But I believe the 
same standard ought to be applied to the Trump Cabinet, and 
this committee should have hearings on those issues that are 
just as important to the American public.
    I yield back.
    Mr. Palmer. Thank you.
    I'm pleased to introduce our witnesses. Mr. Kipp Kranbuhl, 
deputy assistant secretary for small business, community 
development, and affordable housing policy in the Office of the 
Assistant Secretary for Financial Institutions at the U.S. 
Department of Treasury.
    Does all does that fit on one business card?
    The Honorable Christy Goldsmith Romero, Special Inspector 
General for the Troubled Asset Relief Program at the U.S. 
Department of Treasury.
    Ms. Verise Campbell, chief executive officer of the Nevada 
Affordable Housing Assistance Corporation.
    Ms. Cathy James, business development manager at the 
Alabama Housing Finance Authority.
    And Mr. Scott Farmer, executive director of the North 
Carolina Housing Finance Agency.
    Welcome to you all.
    Pursuant to committee rules, all witnesses will be sworn in 
before they testify, so please stand and raise your right hand.
    Do you solemnly swear or affirm the testimony you're about 
to give is the truth, the whole truth, and nothing but the 
truth, so help you God?
    The record will reflect that all witnesses answered in the 
affirmative.
    Please be seated.
    In order to allow time for discussion, please limit your 
testimony to 5 minutes. Your entire written statement will be 
made part of the record.
    As a reminder, the clock in front of you shows the 
remaining time during your opening statement. The light will 
turn yellow--it's kind of like a yellow light at a traffic 
stop, that means speed up, you have 30 seconds left--and red 
when your time is up. Please also remember to press the button, 
turn your microphone on before speaking.
    Mr. Kranbuhl, we'll look forward to your testimony.

                       WITNESS STATEMENTS

                   STATEMENT OF KIPP KRANBUHL

    Mr. Kranbuhl. Chairman Meadows, Chairman Palmer, Ranking 
Member Connolly, Ranking Member Raskin, and members of the 
subcommittees, thank you for the opportunity to testify today 
about Treasury's efforts to mitigate the effects of the 
financial crisis on American homeowners through the Hardest Hit 
Fund, or HHF.
    Treasury established HHF in 2010 as a part of the Troubled 
Asset Relief Program, or TARP, in order to help prevent 
foreclosure and to stabilize housing markets in States hit 
hardest by the housing crisis. State housing finance agencies, 
or HFAs, in 18 States and the District of Columbia were 
selected to participate as these areas experienced unemployment 
rates at or above the national average and/or home price 
declines of greater than 20 percent.
    HHF was designed to give the participating HFAs the maximum 
flexibility to design and administer their own programs, each 
tailored to local conditions in their respective communities.
    As a part of this flexibility, the States have been able to 
adapt their programs in order to address the changing needs in 
their communities over time. As of December 31, 2017, States 
had assisted approximately 350,000 homeowners and funded the 
demolition and greening of nearly 24,000 blighted properties in 
distressed communities.
    However, the flexibility afforded to HFAs by the Hardest 
Hit Fund has made Treasury's oversight a critical aspect of the 
program. Treasury maintains a strong commitment to ensure that 
the program achieves its goals and that Federal taxpayer 
dollars are used for their intended purpose.
    Treasury requires each HFA to set specific goals for its 
HHF program and to demonstrate steady progress towards meetings 
these goals. Treasury also maintains an ongoing dialogue and 
works with each of the HFAs to identify and address barriers 
that would keep the HFA from achieving its goals.
    Treasury has also connected more than 100 on-site 
compliance reviews across the participating HFAs, as well as 
additional targeted review to address specific programmatic 
risks.
    These reviews evaluate a number of critical program 
functions, such as whether the homeowners are evaluated in 
accordance with the HFA's guidelines, program disbursements and 
administrative expenditures are appropriate, the information 
reported to Treasury is accurate, and the HFAs' internal 
controls are functioning as intended to minimize the risk of 
noncompliance.
    Treasury takes corrective action when instances of 
noncompliance arise. This includes, for example, requiring the 
HFAs to reevaluate homeowners that were improperly denied, to 
reimburse HHF for improper expenditures, and to strengthen 
internal controls in order to prevent further noncompliance.
    In addition to compliance reviews, Treasury also shares 
this committee and SIGTARP's commitment to preventing fraud, 
waste, and abuse in all TARP programs, and we certainly 
consider the recommendations in that regard. Treasury responds 
to SIGTARP recommendations in writing, and our responses are 
made available to the public. We work hard to address the 
concerns raised by these recommendations in a manner that 
allows the programs to function as intended and in the context 
of TARP's wind-down.
    For example, Treasury thoroughly reviewed the $2.2 million 
of cost questions in SIGTARP's August 2017 report. This 
involved analyzing thousands of individual transactions 
incurred by all 19 HFAs dating back to the program's inception 
in 2010.
    Following this review, Treasury determined that $656,141 of 
the questioned cost did not comply with the Federal 
Government's cost principles. The HFAs were required to 
reimburse HHF.
    For the reasons set forth in our April 6, 2018, letter to 
SIGTARP, a copy of which has been provided to the committee and 
is available on our website, Treasury determined that the 
remaining costs questioned by SIGTARP were allowable under 
Federal cost principles.
    As is the case with all TARP programs, HHF is winding down. 
Although Congress authorized additional funding in 2015, the 
program remains a temporary one. As of the end of April 2018, 
Treasury has disbursed $8.8 billion, or 92 percent of the $9.6 
billion obligated under HHF.
    Although HFAs may continue issuing new approvals through 
December 31, 2020, most of the States have already begun to 
close down HHF programs or will do so this year as they exhaust 
their available funds. This includes California and Florida, 
the two largest States in the program.
    Treasury's outstanding commitments under TARP represent 
just 1 percent of the 475 billion authorized by Congress. As 
TARP winds down, Treasury remains committed to robust oversight 
and monitoring of all of its TARP programs, including HHF.
    I thank you again for the opportunity to testify today and 
welcome your questions.
    [Prepared statement of Mr. Kranbuhl follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Palmer. I thank the gentleman for his testimony.
    The chair recognizes Ms. Goldsmith Romero for her 
testimony.

             STATEMENT OF CHRISTY GOLDSMITH ROMERO

    Ms. Goldsmith Romero. Chairman Palmer and Chairman Meadows 
and Ranking Member Raskin, Ranking Member Connolly and members 
of the committee, I really thank you for the support that 
you've given to SIGTARP.
    SIGTARP's a law enforcement agency as well as a watchdog 
auditor; 415 defendants we investigated have been charged with 
crimes, including 100 bankers; 349 have already been convicted; 
247 sentenced to prison. We've recovered $10 billion from our 
investigations. That's money going back to the government, to 
victims, to homeowners. That's a 35 times return on investment 
on our budget.
    SIGTARP auditors have identified hundreds of millions of 
dollars in waste, questioned costs, cost savings. So I'm 
grateful that you're examining the Hardest Hit Fund, because 
I've been there for the full 8 years of the program.
    At the very beginning of the program, Phyllis Caldwell, 
who's the senior Treasury official who created the program, 
said to SIGTARP that what they were trying to do at Treasury 
was develop locally tailored strategies. And she explained this 
to us as: State agencies choose the type of program, the amount 
of funding, the number of homeowners that they want to help.
    The White House announced that the program would be under 
strict transparency and accountability rules, and Treasury 
promised that they would measure performance.
    Now, Phyllis Caldwell told us that meant: Are we reaching 
the right number of people? Are the States meeting their 
targets? If not, we'll learn and we'll adjust.
    By 2012, we found Treasury had moved away from that. The 
senior Treasury official who was in charge of implementing the 
program told SIGTARP: This is not our program, this is their 
program.
    After 2 years, at the height of the recession, only 3 
percent of the money had gone out to only 7 percent of the 
homeowners who the program was estimated to help. Treasury has 
never taken ownership of this program or brought 
accountability. We made bread and butter IG practices, 
recommendations for best practices that were often dismissed.
    Some State agencies performed well. And so for low-
performing State agencies, what we did was we did was we did 
data analytics. We talked to homeowners. We talked to 
whistleblowers. We talked to housing counselors and others. We 
identified obstacles that could be removed.
    For example, in Florida, seniors had trouble with online 
applications, that's not surprising, or trouble getting 
documents such as tax assessments. In Georgia, homeowners had 
trouble because they had to go to the IRS and get a tax 
transcript within 30 days, which you can't do and which other 
State agencies don't require.
    After our report, some of these obstacles were removed and 
the performance improved. We found waste and misused dollars, 
which you've already talked about: parties, picnics, catered 
barbecues, gifts, steak and seafood dinners, $500 a month for 
an executive to drive a Mercedes.
    I found one receipt in Illinois, $549 at a pizza 
restaurant, and it said: HHF funds officially given from U.S. 
Treasury and to celebrate, and the name of employee's upcoming 
wedding.
    In comparison, Arizona and California, which has the most 
dollars, spent zero dollars on food and parties.
    We applied Treasury's contract criteria. In 2010, 
Treasury's top lawyer said that under appropriations law an 
expense must be necessary to what Congress authorized in TARP. 
And if the homeowner could get this assistance without it, it 
wasn't necessary.
    Well, the Federal cost principles that have been talked 
about today start with ``necessary.'' Next, ``reasonable.'' 
Next, ``allocable to the program.'' And that top lawyer at 
Treasury warned that if you open this up farther, it's going to 
authorize an almost unlimited number and variety of 
expenditures rendering the TARP law meaningless.
    And that's what we found, days at the zoo and gym 
memberships and lawyers' fees to settlement discrimination 
claims and Visa gift cards, custom shirts, building a customer 
center where most of the customers are not Hardest Hit Fund, 
moving to a luxury building, $20,000 severance package.
    Ultimately, every misused dollar is one less dollar for 
homeowners that would reduce the cost. We found that there were 
no Federal competition requirements that could save money and 
prevent fraud. We found that blight demolition rose 90 percent 
in Michigan, 65 percent in Ohio, 70 percent in Indiana. Army 
Corps of Engineers found asbestos mismanaged.
    So what are the top threats today in the program? Waste, 
anti-competitive conduct. In the blight program, corruption, 
fraud, antitrust, asbestos exposure. These are the types of 
areas we are investigating and auditing, so we have a vested 
interest in prevention.
    Greater accountability and controls are needed. There are 
billions of dollars at stake. More than 100,000 people applied 
for this program this year. Demolitions are just starting this 
year or haven't even started in some cities. So it's not too 
late.
    Thank you.
    [Prepared statement of Ms. Goldsmith Romero follows:]
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    Mr. Palmer. The chair now recognizes Ms. Campbell for her 
testimony for 5 minutes.

                  STATEMENT OF VERISE CAMPBELL

    Ms. Campbell. Thank you, Mr. Chairman.
    Chairman Palmer, Chairman Meadows, and members of the 
committee, thank you for the opportunity to participate in 
today's hearing and appear before you regarding implementation 
and oversight of the Hardest Hit Fund.
    For the record, my name is Verise Campbell. And since June 
of 2016, I have been the chief executive officer for the Nevada 
Affordable Assistance Corporation, also known as NAHAC.
    I was selected by the State of Nevada to restructure NAHAC 
after the organization experienced a series of operational 
issues and a decrease in production. No State was hit harder 
than Nevada during the Great Recession and subsequent housing 
crisis, and the Nevada Hardest Hit Fund has been instrumental 
in helping people save their homes and get back on their feet.
    These are actual quotes from some of our homeowners:
    ``This program saved my life; it saved my children's 
life.''
    ``I feel like the weight of the world has been lifted off 
of my shoulders.''
    ``We were under so much pressure, we didn't know what to 
do. We thought we were going to lose our home until we spoke to 
the Hardest Hit.''
    Providing benefits to Nevada homeowners has not been 
without challenges. NAHAC acknowledges that there have been 
issues with its performance.
    Specifically, the most critical report was a SIGTARP report 
that actually indicated that there was fraud, waste, and abuse 
in Nevada in the amount of $8.2 million. However, subsequent 
Treasury audits for the same period found a significantly 
reduced amount of unallowable expenses, $136,000, not $8.2 
million.
    NAHAC immediately reimbursed the $136,000 to Treasury. 
Nevertheless, it was without a doubt changes had to be made if 
NAHAC was going to effectively serve Nevada homeowners.
    Major changes were, in fact, made to NAHAC's organizational 
structure, systems, and programs. In fact, our newest program 
is a downpayment assistance program entitled Hope Brings You 
Home, which was launched on May 1, 2018. $36 million was 
allocated to this program to assist 1,800 homeowners. To date, 
the downpayment assistance program has over 200 reservations, 
with over $3.8 million committed in its short time.
    The Nevada Affordable Housing Assistance Corporation has 
helped over 5,000, almost 6,000 Nevada households to date, and 
that number continues to grow. Programs have been instituted to 
solve Nevada's housing crisis with the assistance of Treasury, 
Nevada's business and industry, and the Nevada Housing 
Division.
    There were issues with the operations of NAHAC initially, 
but NAHAC has improved its organizational structure and its 
operations, resulting in better oversight, transparency, and 
controls, and increased capacity to help more Nevada families.
    New management is committed to efficiently and effectively 
utilize the remaining allocation of government funds to help 
more citizens of one of the hardest hit States stay in their 
homes and stabilize Nevada's housing market.
    Thank you.
    [Prepared statement of Ms. Campbell follows:]
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    Mr. Palmer. The chair now recognizes Ms. James for her 
testimony, 5 minutes.

                    STATEMENT OF CATHY JAMES

    Ms. James. Good morning.
    Chairman Palmer, Chairman Meadows, and members of the 
subcommittees, thank you for the invitation to discuss with you 
Alabama's Hardest Hit program. My name is Cathy James. I'm the 
business development manager for the Alabama Housing Finance 
Authority. I also serve as the manager of the Hardest Hit Fund 
program in Alabama, which we call the Hardest Hit Alabama 
program.
    Alabama's introduction to the Hardest Hit Fund began with a 
notification in 2010. Hardest Hit funds had already undergone 
two rounds of funding when HFA was invited to participate in 
round three. We quickly began creating our program and program 
guidelines. We began by reviewing term sheet templates that 
were furnished to us by the Department of Treasury which had 
been adopted by other States in rounds one and two.
    During the development of our process, close attention was 
paid to the respective allocations of program funds and 
administrative expenses. In total, Alabama's allocation is 
$162.5 million, and 16.75 percent is allocated to 
administrative expenses.
    During the 7 years of Hardest Hit assistance, the 
Department of Treasury has approved 12 term sheet changes for 
the State of Alabama. Our current portfolio of programs 
includes a mortgage payment assistance program, a loan 
modification program, a short sale program, and a blight 
elimination pilot program.
    More than 6,500 homeowners have been approved and received 
more than $63.8 million in program dollars. We have an average 
of $9,828 per household for assistance. Eighty-five percent of 
the households who received assistance in our mortgage payment 
assistance program had an annual income of $50,000 or less. 
Forty-five percent of the homeowners who received assistance 
were 90-plus days delinquent on their first mortgage at the 
time of application. And the Hardest Hit funds have been 
disbursed in all 67 counties in the State of Alabama.
    HFA undertakes the administration of the Hardest Hit funds 
program with great seriousness. To ensure regulatory and 
program compliance, Alabama's Hardest Hit program is reviewed 
on a monthly basis by our internal audit team, an annual basis 
by an independent audit firm. And since the program's 
inception, Alabama has completed five compliance reviews with 
the Department of Treasury.
    The 2017 SIGTARP report asserted that $705 of expenses 
charged by HFA to the Hardest Hit Fund was unreasonable and 
therefore unallowable. All noted expenses were related to 
Hardest Hit activities, such as in-house lunches for working 
conferences, in one instance lunch with a servicer 
participating in the Hardest Hit funds program, and promotional 
items to two homeowners who volunteered for radio and 
television ads.
    Alabama contested the allegations and defended the charges. 
Even so, per the March 2018 compliance review, HFA agreed to 
reimburse Treasury $397. The balance of expenses were found to 
be reasonable.
    Since notification of Alabama's allocation of Hardest Hit 
funds, we have worked to ensure that the program is 
programmatically sound and funds were not spent unnecessarily. 
HFA's commitment to the proper use of Hardest Hit funds is 
unchanged. We will continue to provide Hardest Hit assistance 
to homeowners across the State of Alabama in compliance with 
the agreed-upon terms in the term sheets and in compliance with 
Federal guidelines.
    Thank you.
    [Prepared statement of Ms. James follows:]
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    Mr. Palmer. The chair now recognizes Mr. Farmer for his 
questions for 5 minutes.

                   STATEMENT OF SCOTT FARMER

    Mr. Farmer. Chairman Meadows, Chairman Palmer, and 
honorable members the committee, my name is Scott Farmer, and 
I'm the executive director of the North Carolina Housing 
Finance agency.
    Since January of 2017, it has been my honor to serve as 
executive director, and I'm proud to be with you today 
representing our board of directors and more than 160 dedicated 
staff.
    Thank you for the opportunity to share information about 
one of our most effective programs, the NC Foreclosure 
Prevention Fund, and its accomplishments on behalf of citizens 
in danger of losing their homes in the face of a significant 
economic downturn.
    The NC Foreclosure Prevention Foreclosure Fund helps 
responsible North Carolina homeowners struggling with mortgage 
payments while they search for work or retrain for a new 
career. Eligible homeowners include those facing foreclosure 
due to a no-fault job loss, reduction of income, or temporary 
financial hardship, such as illness, death of a spouse, or a 
natural disaster.
    The fund also provides housing counseling and assistance to 
veterans who are transitioning to civilian life. Veterans who 
have given so much in service to our Nation should never face 
the prospect of losing their home. This initiative has already 
saved more than 400 veteran families from losing their homes.
    The fund was launched in 2010 in the wake of the Great 
Recession when our State was identified by Treasury as hardest 
hit due to high unemployment and a high number of foreclosure 
filings. Since then, the fund has helped more than 26,000 
homeowners keep their homes during difficult times. 
Approximately $706 million was allocated to our agency under 
the Hardest Hit Fund.
    To develop this program, we had to significantly expand our 
agency capacity. This included hiring more staff, leasing 
additional office space, building a complex application portal 
and website, and training hundreds of partners statewide.
    We were notified by Treasury that we were to receive 
Hardest Hit funds in April of 2010. The initial program was 
approved by Treasury in August of 2010, and we built, marketed, 
and implemented the program by October, in only 6 months.
    Standing up a program of this scale and complexity in that 
timeframe required long hours for staff, many of whom already 
had existing full-time workloads within our agency. The work is 
specialized, involved, and stressful when assisting homeowners 
who are understandably upset at potentially losing their homes.
    Among the thousands of hardworking families assisted by the 
fund is a small business owner in Alleghany County who has 
owned a thriving business since 1998. That changed when the 
recession hit, and by 2011 he and his wife were about to lose 
their home. Our assistance enabled them to hold onto their 
home. And I am pleased to report their business emerged from 
the recession stronger and recently celebrated its 20th 
anniversary.
    The fund also helped a Lee County veteran who struggled to 
find employment after his discharge from the U.S. Army. The 
assistance kept his family in their home while he used the GI 
bill to acquire skills he needed for a civilian job. He is now 
employed by a local government.
    A worker in Buncombe County who was laid off from her job 
was able to keep her home with assistance from the fund while 
she sought new employment. She still lives in her home and now 
works for a healthcare nonprofit that focuses on providing 
medical care for underserved rural communities.
    The fund has also had a noteworthy impact on State and 
local economies. It has preserved an estimated $4.5 billion in 
property values, sustaining wealth not only for the homeowners 
we assisted but for their neighbors as well.
    On average, lenders and investors can expect to lose almost 
half of their investment in a foreclosed mortgage. Foreclosures 
prevented by our work have saved an estimated $1.5 billion in 
our State. This work also offsets the costs associated with 
broader social impacts of foreclosure, such as familial stress, 
neighborhood destabilization, crime, and degraded health 
outcomes.
    As noted, we have helped more than 26,000 North Carolinians 
in the nearly 8 years since the program was launched using a 
significant portion of the allocated Hardest Hit funds. We are 
currently winding down the program and expect to have committed 
all of our program funds by the second quarter of 2019.
    We are proud of what has been accomplished for North 
Carolina and its citizens through the NC Foreclosure Prevention 
Fund, and we would continue to ensure that eligible homeowners 
have the opportunity to benefit from this program.
    Thank you for the opportunity to share our story today, and 
I will be happy to answer any questions.
    [Prepared statement of Mr. Farmer follows:]
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    Mr. Palmer. I thank the witnesses for their testimony.
    The chair now recognizes the gentleman from Tennessee, Mr. 
Duncan, for 5 minutes for his questions.
    Mr. Duncan. Well, thank you very much, Mr. Chairman. And 
thank you for calling this very important hearing.
    Ms. Goldsmith Romero, you listed a very impressive record 
for your office, but you also said that Nevada, for instance, 
had committed $8.2 million--or lost $8.2 million in waste, 
fraud, or abuse. And then Ms. Campbell just turned right beside 
you and said: Oh, it was only $136,000.
    What is the discrepancy there? Or what do you think about 
her statement that none of it really was waste, fraud, and 
abuse, or very little?
    Ms. Goldsmith Romero. So it wasn't--we didn't label it as 
fraud. We would label it as waste and abuse. I want to make 
that distinction clear, because it was our auditors.
    But it doesn't make sense. I mean, to be honest, what NAHAC 
paid back was what Treasury requested, which also didn't make 
sense.
    So, for example, the CEO that was driving a Mercedes-Benz 
was forced to resign and got a $20,000 severance package, and 
that's been paid. That's not necessary for a homeowner to get 
assistance in the Hardest Hit Fund.
    So what I found was that Treasury officials were applying 
the wrong standards. They were not applying the necessary 
standard, which is not only what's baked into their contract 
but is the first requirement of the Federal cost principles, 
nor is it reasonable.
    That's just one example. But there are many, many examples, 
like moving into a luxury building to improve employee morale, 
then deciding it's more cost than you need because you doubled 
the rent. Breaking the lease, $20,000 in legal fees to break 
the lease, then move and pay rent.
    None of that was paid back. And this was all at a time when 
they really weren't helping homeowners, getting this money out 
to homeowners.
    Mr. Duncan. All right. Thank you very much.
    The report says that as of December 2017, 347,000 people 
had been helped by this HHF program.
    Can somebody tell me how this works exactly? How many homes 
is that? In other words, most homes are in the name of the 
husband and wife both, or maybe more than one person. So how 
many homes are we talking about, does anybody know, of the 
347,000?
    Ms. Campbell. Mr. Committee Member, Verise Campbell from 
Nevada.
    We count households, so those numbers represent the 
household.
    Mr. Duncan. So those are 347,000 homes then.
    Ms. Campbell. Households.
    Mr. Duncan. All right. And how long can somebody stay on 
this program? Ms. Goldsmith Romero mentioned it's 8 years old. 
Have there been people that have been on this program from day 
one and they're still on the program? Can anybody tell me?
    Ms. Campbell. This is Cathy with Alabama Housing Finance 
Authority.
    I think that each State is a little bit different. But for 
the State of Alabama, for the mortgage payment assistance 
program, our homeowners have up to 12 months, not to exceed 
$30,000.
    Mr. Duncan. And is that pretty typical of--you say each 
State is different, Ms. Campbell?
    Ms. Campbell. Mr. Committee Member, our homeowners--it 
depends on the program. We have an unemployment program where a 
homeowner can stay on the program up to 18 months. And we have 
a limit for all of our programs combined, no more than $100,000 
per household.
    Mr. Duncan. All right. Is that typical, Ms. Goldsmith 
Romero?
    Ms. Goldsmith Romero. Again, it varies, 2 years, 3 years, 1 
year. It just depends on the State.
    Mr. Duncan. All right.
    And now, Mr. Kranbuhl, it says there's $2 billion unspent, 
is that correct, in one of these reports?
    Mr. Kranbuhl. It's actually around $800 million. The $2 
billion was the new authorization and around 5 from the 2015 
vote, starting in 2016, could be spent through 2021. So there's 
about $800,000 left, or about 8 percent of the Hardest Hit 
funds remain available.
    Mr. Duncan. Is there a goal or a plan to--since 
unemployment is now so low and the economy is so strong--is 
there a plan to end this program or phase it out?
    Mr. Kranbuhl. Yes, sir. This program, the applications are 
available for those who have dollars, that $2 million that--
sorry--$2 billion was allocated across the 19 States.
    So of the remaining funds, that applications may be 
accepted through December 31 of 2020, and dollars can be put 
out through December 31, 2020, if there are any remaining 
dollars. Certain States have already wound those down, so there 
are no longer dollars available.
    Mr. Duncan. So how many of the 19 States have wound down 
the program?
    Mr. Kranbuhl. California and Florida are already wound down 
or the final stages of winding down. Many of the others are 
initiating that wind-down now.
    Mr. Duncan. Thank you very much.
    Thank you Mr. Chairman.
    Mr. Walker. [Presiding.] Thank you.
    The chair now recognizes the gentleman from Maryland for 5 
minutes.
    Mr. Raskin. Mr. Chairman, with your permission, I'll yield 
to Mr. Connolly and switch places with him, if that's okay.
    Mr. Walker. So moved.
    Mr. Connolly. I thank the chair, and I thank my good friend 
from Maryland. I have a hearing and markup in Foreign Affairs, 
so I appreciate his consideration and gracefulness.
    I'm concerned about the apparent mismanagement of the 
Hardest Hit Fund program by some of our partner States. 
According to the Special Inspector General's report, States 
spent over $600,000 on cars for executives, free parking for 
staff, and monthly parking bus passes. States also spent 
$50,000 on events with housing counselors, $14,000 for employee 
meals, and $8,000 on gym memberships. In 2017, the SIGTARP 
found nearly $3 million in such wasteful spending.
    Mr. Kranbuhl, where in the world did the States get the 
idea that this was permissible spending?
    Mr. Kranbuhl. Well, again, Mr. Ranking Member, I appreciate 
your question. I can't speak for why the States make decisions 
they make, but they are required to follow Federal cost 
principles in all of their administrative expenses. And that is 
the standard that they're required to follow.
    Mr. Connolly. Well, I mean, okay, but some of them decided, 
based on those standards, that it was permissible to spend up 
to $8,000 in gym memberships using Federal funds that were 
intended for housing relief.
    How could that happen? Was there any oversight by the 
Department of Treasury with respect to the use of these funds?
    Mr. Kranbuhl. We have conducted more than 100 in-person 
reviews----
    Mr. Connolly. I'm sorry?
    Mr. Kranbuhl. The Treasury Department has conducted more 
than 100 in-person reviews with the States to review their 
administrative expenses. We work with them up front to make 
sure that there are standards followed, that there are--cost 
principles and compliance platforms are very clear. And we 
review those with them on the phone frequently if there is 
any----
    Mr. Connolly. Well, let me ask it differently. I mean, I 
get all that. We'll stipulate all that. But the fact is 
somebody spent money on gym memberships.
    Does that meet with your approval? Did that meet with your 
standards?
    Mr. Kranbuhl. There are a range of expenses that are 
eligible and ineligible under Federal cost principles.
    Mr. Connolly. Is gym membership ineligible or eligible?
    Mr. Kranbuhl. Sir, if you'd like to go through each line 
item, I'd be happy to meet with you and your staff.
    Mr. Connolly. No, sir, I have a simple question in a public 
hearing. Is a gym membership payment a permissible use of these 
funds, from your point of view?
    Mr. Kranbuhl. Well, sir, again, all I can tell you is that 
the Federal cost principles are followed. And under certain 
circumstances there are wellness programs that are eligible.
    Mr. Connolly. Oh, for God's sake.
    Ms. Goldsmith Romero, is it permissible or not? Since, 
apparently, Mr. Kranbuhl doesn't want to answer a reasonable 
question put to him that's pretty simple.
    Ms. Goldsmith Romero. No. I mean, no.
    Mr. Connolly. Thank you so much, Ms. Goldsmith Romero. 
That's called declarative English, useful thing when we're 
trying to get to the problem of problems.
    Can you elaborate, since Mr. Kranbuhl wants to gives us--
read us, you know, strictures from a manual somewhere?
    Ms. Goldsmith Romero. Treasury sent me a letter and in 
April saying that they did think that gym memberships were 
allowed in the Federal cost principles.
    Number one of Federal the cost principles: Got to be 
necessary to what Congress authorized.
    Mr. Connolly. So unless the only way I can reach an 
agreement with a homeowner is at the gym, it wouldn't be a 
permissible expense?
    Ms. Goldsmith Romero. No. And I think that raises a real 
danger of what could be allowed.
    Mr. Connolly. Right. Well, in listening to Mr. Kranbuhl's 
convoluted answer, right here, right now, I've got more 
concerns than I had going into this hearing, because apparently 
we're not clear. And no wonder States are, you know, approving 
expenditures that clearly, to any commonsense witness, would 
not be allowable because of this kind of fuzzy guidance.
    The Treasury Department, Ms. Goldsmith Romero--since Mr. 
Kranbuhl is not going to be cooperative in answering, I'll ask 
you--the Treasury Department only sought to recuperate 29 
percent of the money that was misspent or wasted.
    Is that acceptable, from your point of view? And why only 
29 percent?
    Ms. Goldsmith Romero. No, it's not acceptable. You know, we 
worked hard to look at this. We didn't put--we didn't 
substitute our own judgment. We applied the Federal cost 
principles. You know, there's a long history of applying the 
Federal cost principles. They apply to every grant. This is 
just standard IG work. So, no, it's not acceptable.
    And I also want to say, when he said this program's in 
wind-down or that there's not $2 billion, there is $2 billion 
remaining to be spent. The numbers that he's talking about is 
what's gone out of Treasury's door, but it's not been spent. So 
when he says California is closing down, California has $334 
million to be spent.
    Mr. Connolly. Very helpful. Thank you. And thanks for 
declarative answers.
    I yield back.
    Mr. Walker. Thank you, Mr. Connolly.
    I will take a few minutes to follow up with some questions 
and then yield some time to Mr. Raskin.
    What actions, if any, did your agency, Mr. Farmer, take to 
address the concerns raised in the Special Inspector General 
for TARP's report?
    Mr. Farmer. Yes. Thank you, sir.
    Immediately following the release of the report, our agency 
made the decision to repay a portion of those costs related to 
meals, primarily because there were a number of charges in 
there that we could have spent an inordinate amount of time 
debating back and forth whether or not it was allowed or not 
allowed. So we decided to repay the meals immediately.
    In addition to that, we hired a third party audit firm. We 
brought them into our office, had them look at the expenses, 
look at the categories and how we were categorizing expenses to 
give us advice to help us address any questions related to 
those expenses highlighted in the report. In addition to that, 
we also revised our travel and expense policies based on that 
guidance.
    In addition to that, we also provided all of the same 
records to Treasury. They did a similar review. While we did 
not agree with everything that was included in the initial 
report and the categorization of some of the categories, we 
respect the role and responsibilities of SIGTARP in reviewing 
it.
    And so we tried to get back to the place where we knew the 
expenses, so we had better guidance moving forward so we would 
not make expenses or charge things that may not be allowed 
under the Federal principles. Treasury did their additional 
review, and we have since repaid all the dollars that have been 
requested of us to repay.
    Mr. Walker. Why did your agency decide to return those 
funds to the Treasury?
    Mr. Farmer. Excuse me?
    Mr. Walker. Why did your agency make the decision to return 
those funds to the Treasury?
    Mr. Farmer. For the initial amount, we actually had made 
the decision prior to the release of the report for some of the 
expenses. We had reviewed it and recognized some of those were 
questionable, and we were better off to repay than to, again, 
debate each and every fee.
    The other fees we repaid in March following the exit 
interview with Treasury. We paid an additional $5,100 at that 
point in time.
    Mr. Walker. Have you received any guidance or training to 
your agency, received from the Treasury on the use of 
administration funds? Have you had any kind of correspondence 
or any kind of guidance from the Treasury?
    Mr. Farmer. We have received guidance over time from 
Treasury at different points. They were in our office, I think 
it was five times over a 7-year period, with on-site reviews. 
The administrative expenses were not an issue at any of those 
reviews. They have since provided some additional guidance 
regarding the Federal principles. And, again, those have been 
what we reviewed and instituted across the board for this 
program.
    Mr. Walker. So their primary communication means is just 
visiting on-site? Is there any other way that they communicate 
with you?
    Mr. Farmer. No, it's regularly with staff, with the staff 
that are administering the program, regularly communicate 
through emails, through phone calls, conference calls. As 
issues come up, they would bring that to the attention. There's 
regular calls with the Hardest Hit Fund States as well where 
information is communicated out to the group.
    Mr. Walker. Thank you very much.
    Ms. James, summary of questions and topics there. Would you 
like just to take maybe 30 seconds and kind of--instead of me 
going back to those same questions, give a summary of what I 
was asking of Mr. Farmer?
    Ms. James. So, yes, sir.
    The SIGTARP report disclosed that there was $705 in misuse 
of funds. And we, of course, did not agree with that. But we 
did, after the Treasury report, reimburse $397.
    The funds were used concerning Hardest Hit activity, 
lunches, promotional items for some homeowners. So we did not 
consider the funds to be a misuse or unnecessary.
    Mr. Walker. What were some of the Hardest Hit Fund 
implementation challenges, Mr. Farmer?
    Mr. Farmer. Some of the difficulties were it was a 
relatively new program. We had a small-scale program in the 
State. But receiving the dollar amounts, it required us to 
basically start from scratch.
    As I mentioned in my remarks, we had to hire staff. Most of 
those were contractors, temporary contractors. We knew this was 
a time-limited program, so we tried to go out and hire. At our 
peak, I think we had 50 contractors that were working on the 
program. We continue to maintain that same staff.
    It was a Statewide program. And we've got a really large 
State with 100 different counties. We had to work with partners 
across the State. We held events as we were rolling out the 
program. We had to educate all the partners on what the program 
was going to be and then figure out a delivery vehicle to get 
that out to the homeowners.
    It required--we built, in-house, we built a database system 
for the portal, as we refer to it, for intake of the 
application, that not only our partners but also homeowners had 
the access. So that whether they were computer savvy, they had 
that ability. If they needed to go a counseling agency, we made 
sure they knew there was a counseling agency available.
    So it was really just the size and scale of the program 
initially and knowing that there was--there was a great need, 
and it was not an area that our agency had a lot of expertise 
in. We're used to providing the affordable housing as opposed 
to saving the affordable housing.
    But it was a challenge that we took on. It was something 
the State needed at the time. And so we were glad to step into 
that role. And it certainly has been a learning experience for 
us.
    Mr. Walker. Thank you, Mr. Farmer.
    The chair now recognizes the gentleman from Maryland, Mr. 
Raskin.
    Mr. Raskin. Mr. Chair, thank you very kindly.
    Ms. Goldsmith Romero, we've got some information indicating 
that your office, the Office of the Special Inspector General, 
found information that led to criminal charges against 415 
people and 349 criminal convictions, with 247 people sentenced 
to prison. So that's not just taking the office out for lunch.
    But what kinds of activities were taking place there? And 
is this just in the Hardest Hit Fund, or is that in TARP 
overall?
    Ms. Goldsmith Romero. Thank you for that question.
    TARP overall. So 100 of those are bankers. A good number of 
them are their banker's co-conspirators, so we're talking about 
bank fraud. There's about 88 people who have gone to prison for 
scamming homeowners in TARP housing programs. So there's a 
number of things related to the crimes that we're looking for.
    Mr. Raskin. Do the kinds of waste, fraud, and abuse that 
you identified in the Hardest Hit program afflict the other 
programs under TARP as well?
    Ms. Goldsmith Romero. Well, I think in terms of the TARP 
housing programs, we've found people who have tried to scam 
homeowners. The other ones are sort of program related, like 
bank fraud related to TARP banks.
    Mr. Raskin. Okay.
    So, Mr. Kranbuhl, let me come back to you. There's some 
suggestion that Treasury, if not washing its hands of what goes 
on at the State level, is somewhat indifferent or lackadaisical 
about it. Is that right? I mean, do you basically just trust 
the State authorities to implement this in an efficient way 
with integrity?
    Mr. Kranbuhl. Thank you for your question, Mr. Ranking 
Member. We work with the States and have conducted more than 
100 in-person reviews. We can't speak to what SIGTARP's 
methodologies that they use are. However, our reviews are 
incredibly detailed. We look at each expenditure to make sure 
that they're complying----
    Mr. Raskin. Have you followed through on all the 
recommendations that were made by the Special Investigator 
General that came out as part of her report?
    Mr. Kranbuhl. There are two reports that are outstanding 
and we're still reviewing. But every--other than those two, 
we've replied to each line item recommendation that the Special 
Inspector General has provided in writing, and that is 
available to the public.
    Mr. Raskin. When you say you replied to them----
    Mr. Kranbuhl. We have written a response letter with each 
line item.
    Mr. Raskin. Right. But, I mean, of course, what we're 
interested in is terminating the underlying practices that are 
wasting public resources that should be going to people who are 
in need, right?
    Mr. Kranbuhl. We certainly are appreciative of that and are 
very focused on making sure no waste, fraud, or abuse occurs. 
We follow Federal cost principles along with every other 
Federal program. It's a standard.
    Mr. Raskin. Yeah. I mean, I guess, you know, you detected 
some frustration in Mr. Connolly's response to you. But I also 
detect a certain kind of passivity about the enterprise: that 
we follow the principles and we stand by the law and so on.
    I mean, one expense that I think would make some sense is 
to bring all these people in from the 50 States to have a big 
meeting and say, ``Here are the principles, and here's what's 
getting to get you sent to jail. And we're very serious about 
enforcing this, because it's the public's money and it's people 
who need it.''
    And I'm just curious about what kind of high octane 
intensity you're bringing to the task of enforcing integrity 
within the system.
    Mr. Kranbuhl. Sure. We have had several annual meetings to 
share best practices and certainly review compliance 
procedures. Any time there's an instance called into question, 
we work with the States to augment those and to strengthen 
their internal controls.
    With respect to Ranking Member Connolly's question, the 
Federal cost principles allow for healthcare platforms for 
employees and health and wellness programs, and gym memberships 
do fall under that.
    Mr. Raskin. Okay.
    Ms. Goldsmith Romero, do you feel confident that Treasury 
has responded positively to your recommendations and is 
implementing them in order to crack down on the waste, fraud, 
and abuse and get the money to the people who need it?
    Ms. Goldsmith Romero. Let me say I do appreciate that 
there's been some movement.
    But, no, this is an absolute misread of the Federal cost 
principles, which start with, one, necessary, as to what 
Congress intended;two, reasonable; three, allocable to the 
program.
    So when it comes down to accountability, if you really want 
to stop what's going on, let's just first start with repayment, 
because there's no better way to deter future misuse of funds 
than repayment, and then let's put some controls in here.
    But just because there Federal cost principles have a line 
in there about health and welfare does not mean that gym 
memberships or health and welfare things are actually necessary 
and what Congress intended, and that is being lost.
    Mr. Raskin. Yeah. I mean, I would just like to say, the 
expenditures that are reported here are kind of eye-popping. 
And I think any government agency would be amazed to think that 
they can spend money on lavish Christmas parties, taking people 
on trips, even just purchasing lunch for the office on a daily 
or weekly basis, that kind of thing that we saw. I mean, it 
doesn't make any sense.
    Well, look, the program arose because there was a terrible 
crisis that threw millions of people out of work and millions 
of people lost their homes, and the focus is on that. The big 
banks got essentially this huge subsidy, but we still have a 
lot of people around the country who are hurting and are in 
crisis.
    And so I guess the last point I'd want to ask back to you, 
Mr. Kranbuhl, are you convinced that you've got the controls in 
place right now to make sure that the money that's still within 
the pipeline is going to be spent in the right way? And do you 
have the controls within Treasury to make sure that you guys 
are on top of it?
    Mr. Kranbuhl. I appreciate your question.
    We are very dedicated to working with this committee and 
SIGTARP to make sure, in each state, each program, to make sure 
that they're following the proper Federal cost principles, that 
waste, fraud, and abuse are minimized, if not eliminated 
outright, that the intended use of the dollars that Congress 
has set forth will be followed, and that the real driver of 
this whole platform is to help homeowners in need. And we are 
committed to doing that, sir.
    Mr. Raskin. Thank you, Mr. Chairman. I yield back.
    Mr. Palmer. I thank the gentleman.
    I now recognize myself for a few questions.
    Mr. Kranbuhl, you testified that you've expended $8.8 
billion of the $9.6 billion. Is that correct?
    Mr. Kranbuhl. That is correct, sir.
    Mr. Palmer. So you only have $800 million left in the fund?
    Mr. Kranbuhl. That's a large number but, yes, sir $800 
million.
    Mr. Palmer. Yeah, that is a large number. But it also 
indicates that the program is virtually shut down.
    Mr. Kranbuhl. It is in wind-down. We have less than 1 
percent of all dollars from TARP, a $475 billion program, left 
to deploy, yes, sir.
    Mr. Palmer. Ms. Goldsmith Romero, is that number consistent 
with what the IG has found?
    Ms. Goldsmith Romero. Well, that's what has left the U.S. 
Treasury, but the money has not been spent. So if you think 
about it this way, when we investigate fraud and when we audit 
waste, those are only of spent money. The money is protected. 
There's $2 billion that's left unspent in the program.
    Mr. Palmer. So there's still $2 billion out, but there's 
$800 million left in Treasury? I just want to get that 
straight.
    Ms. Goldsmith Romero. Yeah. For my purposes, whatever is 
sitting in Treasury is nice and safe and secure. Whatever is 
out there and going to be out there in the future, which is $2 
billion, that's what I've got to watch out for.
    Mr. Palmer. What responsibility, Mr. Kranbuhl, do you think 
the Department of Treasury has for ensuring that, over these 
last few years, that this money was spent to achieve the stated 
purposes to help the families who were homeowners keep their 
homes?
    Mr. Kranbuhl. Well, there are several measures taken to 
make sure that the dollars are spent----
    Mr. Palmer. No, I'm asking you.
    Mr. Kranbuhl. --not on the cost principles.
    Mr. Palmer. This is not a filibuster time.
    Mr. Kranbuhl. I agree.
    Mr. Palmer. This is I want to know what responsibility does 
the Department of Treasury have when you're overseeing a 
program like this to make sure that, in this case 
administrative costs, don't get out of hand? I mean, you do 
have an oversight responsibility.
    Mr. Kranbuhl. Certainly.
    From an administrative cost perspective, we work with them 
to--each State--to look at their internal controls. But more 
importantly, we're working with them to make sure that dollars 
are being deployed.
    If they're having a challenge, we're working with each 
State HFA to make sure that their platforms are accessible to 
those who need it.
    Mr. Palmer. Where was Treasury when you had people driving 
Mercedes or renting office space in the Taj Mahal?
    I mean, I really appreciate the work of the inspector 
general, but generally if the inspector general is coming to 
call, the report is not always a good report. And that's 
unfortunate, but it's indicative that there's a problem with 
oversight.
    And Treasury has a responsibility here. And I don't like 
the idea of us having to have hearings like this and then 
coming back and trying to fix a problem that should never have 
occurred to start with.
    So I just want to know, does the Treasury take seriously 
its oversight responsibility to make sure that the people at 
the State level who are handling Federal dollars, taxpayer 
dollars, are not abusing those dollars?
    Mr. Kranbuhl. Certainly. We actually are identifying many 
of the items that SIGTARP has identified ourselves through our 
work, and then we refer it to SIGTARP for their review. But 
we're very focused on that, Mr. Chairman.
    Mr. Palmer. Well, tell me what actions have been taken. Has 
anybody been fired? Has anybody been referred for investigation 
for criminal issues?
    Mr. Kranbuhl. There are many cases where we have required 
the States to replace their management teams to make sure 
that--in the case of Nevada, for instance, we worked with their 
HFA to ensure that proper accountability was occurring and that 
the----
    Mr. Palmer. He was forced to resign and paid $20,000 in 
severance. I mean, for crying out loud, is there anything that 
he could have done that would have gotten him fired?
    Mr. Kranbuhl. Sir, as we reviewed each situation, we 
offered our recommendations.
    Mr. Palmer. Let me ask this question of the folks who 
administer the programs from the State level.
    Did Treasury provide any guidance or training to you or 
your agency on the use of administrative funds? Did you attend 
any kind of training online, in person, face time? I mean, did 
you get any training?
    Ms. Campbell. I know--this is Verise in Nevada--because of 
the way I was brought on, I was in constant contact with 
Treasury. Prior to me coming on, I did read correspondence 
where Treasury and SIGTARP both, as well as the Housing 
Division, had expressed some concern.
    Nevada's situation----
    Mr. Palmer. So you didn't get training? You did not attend 
a training session? I mean----
    Ms. Campbell. No, actually I came in the door with training 
because I was walking hand-in-hand with Treasury because I came 
in after the problem was discovered.
    Mr. Palmer. All right.
    How about you, Ms. James?
    Ms. James. I wouldn't say that we received training. We did 
receive guidance via the agreement that we signed. But in terms 
of face time, it was always discussed at our summits. But 
training, per se, I cannot say that.
    Mr. Palmer. How about you, Mr. Farmer?
    Mr. Farmer. I would agree with Ms. James. That's the same--
--
    Mr. Palmer. Ms. Goldsmith Romero, is that a problem, if 
you're charged with handling hundreds of millions of dollars? 
Is that adequate training?
    Ms. Goldsmith Romero. No.
    Mr. Palmer. Let me ask you this.
    Ms. James, you guys had $35 million for demolition, and you 
repurposed $34 million of that. You spent a million of it and 
only demolished three houses since 2014.
    I hope you didn't spend a million dollars on it, because I 
think for a million dollars I could have gone in there with a 
sledgehammer and a wheelbarrow. And in a 4-year period, Mr. 
Raskin and I probably could have done that, and would have 
gladly done it for a million dollars.
    What do you think, Mr. Raskin?
    Mr. Raskin. No doubt.
    Mr. Palmer. That drives me crazy. Prior to this job, I ran 
a think tank and also worked in the private sector and a couple 
engineering companies. And I had my staff do a little research 
for the Birmingham area, and the average cost to completely 
demolish a house, it ranged from $5,000 for a smaller home to 
$15,000.
    At $15,000, that's 67 houses that should have been 
demolished for a million dollars. Now, if you want to look at 
the median, $10,000, that's 100 houses.
    If you demolish three houses, let's say that's $45,000. 
Let's say they were the toughest ones to take down and haul 
off. What happened to that other $955,000?
    Ms. James. The State is Alabama does have allocated a 
million dollars to the Blight Elimination Program. We've 
actually only disbursed $38,000 for those three properties that 
were demolished.
    Mr. Palmer. So you've got $962,000 in balance?
    Ms. James. Correct. Thatis correct.
    Mr. Palmer. All right. On that, I'm not going to get into 
what the local responsibilities are for those houses, but I 
would point out that if these are homes that were previously 
owned and the mortgage is defaulted on and there are tax liens 
on them--which is typically the case. I know in Birmingham 
there are at least 16,000 abandoned buildings. There's 25,000 
or so in Jefferson County that have tax liens on them.
    Is there any responsibility that the local municipalities 
have or any opportunity for the municipalities to take 
ownership of these homes and dispose of them?
    Ms. James. We have worked very closely with the city of 
Birmingham as well as their land bank in terms of trying to get 
them up and running on our pilot program for the blight 
elimination product that we were offering.
    We reached out for the pilot program to two cities that we 
knew were in great need of assistance. We reached out to the 
city of Mobile as well as to the city of Birmingham.
    The city of Birmingham did submit an application, although 
the application was never completed. We have not heard from 
them. Our last conversation with the city of Birmingham was 
January 29. We had a conversation with a part of their new 
executive committee.
    They do have a new mayor in the city of Birmingham, and Mr. 
Roberts did reach out to us. And we had a conversation with him 
in January, but we have not had a response from his office.
    Mr. Palmer. One of the problems, potential problems that I 
see in some of these programs, particularly demolition, is that 
the State agencies ensure that there's an open bid process for 
that type of work so that you don't have a single source 
contractor, no bid rigging, no brother-in-law contract sort of 
thing.
    Ms. Campbell, I'll start with you, and we'll just go in 
order. Do you have those insurances in place? Would you be 
actively involved in monitoring the disbursement of any money 
to make sure that there was a fair and open bidding process?
    Ms. Campbell. Thank you, Mr. Chair.
    Actually, SIGTARP released an interim report where they 
identified a weakness with our policy and procedures. When I 
came on, it was like restarting the organization all over 
again. And although we got multiple bids, we did not follow a 
specific RFP process. And that was one of the takeaways that we 
took back after SIGTARP recognized that, is that we are taking 
a look at all of the policies and procedures and seeing how we 
can tighten them up.
    Mr. Palmer. Ms. James, considering only three houses have 
been demolished in 3 years, I don't think that's an issue yet. 
But when you do start expending that money, I highly encourage 
that.
    Mr. Farmer, do you have an oversight program in place to 
make sure that contracts are fairly bid?
    Mr. Farmer. We are not actually operating a blight program. 
That's not one of the ones that we run in our State.
    Mr. Palmer. Will you?
    Mr. Farmer. No, we do not have an intention to run a blight 
program at this point.
    Mr. Palmer. Okay.
    Ms. Goldsmith Romero, in your investigation of how funds 
have been handled you've been looking at administrative costs. 
Have you also had an opportunity to look at not just the blight 
programs, but other areas where contracts have been let? And do 
you have any insight into whether or not these are getting 
adequate oversight?
    Ms. Goldsmith Romero. So in my opening statement I 
identified one of the top threats as anticompetitive conduct. 
And we're actively conducting audits and investigations.
    And I would just say this. Our investigations are criminal 
investigations run by special agents at SIGTARP. They are 
confidential. So I'm not at liberty to discuss those. But I 
will say it's a real issue, it's a real issue in this program.
    Mr. Palmer. I want to go back to you, Mr. Kranbuhl. And I'm 
being a little generous to myself in the time, but I think this 
is very serious. I think we all take this seriously.
    The thing that disturbs me more than anything else, and 
this is particularly true in Alabama, Ms. James, that there 
were people out who lost their homes who were eligible for this 
program, but only 24 percent of Alabamians were able to get 
help from this fund. That's the third lowest in the country.
    And it looks like new homeowners were given preference over 
existing homeowners. And from my perspective, the whole point 
of the program was to help people who owned their homes to be 
able to stay in their homes.
    Ms. James. We don't make a distinction in Alabama new 
versus existing homeowners. Our program is open to applicants 
who have suffered a hardship prior to their application of the 
program. We do have a significantly high withdrawal rate of 
applications, but----
    Mr. Palmer. But that's because the process is so impossibly 
complex and cumbersome. I mean, some of the same things that 
Ms. Goldsmith Romero has already testified about in Georgia and 
other places.
    What's the national average? Wasn't it like 80 something 
percent of the new homeowners got approved?
    Ms. Goldsmith Romero. Yeah, you're talking about the Down 
Payment Assistance program.
    Mr. Palmer. Yeah.
    Ms. Goldsmith Romero. That's like 88 percent.
    Mr. Palmer. Eighty-eight percent.
    Ms. Goldsmith Romero. Eighty-eight percent compared to like 
national average in the 40s for homeowners.
    Mr. Palmer. We're in the wind-down stage of this program, 
but from my perspective, particularly in Alabama, it was a 
failure. When two-thirds of the people who needed help couldn't 
get help, for whatever reason, that's a failure.
    Mr. Kranbuhl, I want to go back to you. How does Treasury 
go about monitoring these programs? I want to get back to the 
oversight.
    Mr. Kranbuhl. Well, I want to make it clear that every 
identified case of waste, fraud, or abuse, we've reclaimed 
every dollar that was----
    Mr. Palmer. But you only reclaimed $400-and-something 
thousand dollars out of $3 million.
    Mr. Kranbuhl. Sir, I can't speak to the standards that 
others have reviewed. However, at Treasury, in our program at 
HHF, we have reviewed each one and we've reclaimed each case 
that did not meet Federal cost principles.
    We can't just decide, although things might sound improper, 
we have to have a standard, and that standard is the Federal 
cost principles that we follow, sir. And every time those have 
been violated, the dollars have been fully reclaimed.
    Mr. Palmer. So none of these things--well, I won't say none 
of them. But it took SIGTARP bringing this before you to 
identify this. My guess is, is you didn't provide this to 
SIGTARP, SIGTARP provided it to you.
    Mr. Kranbuhl. I can't speak to each case there. There are, 
I suspect, cases that were provided to SIGTARP. However, we 
undertake a sample-based program that is risk adjusted in terms 
of how we pursue our review. So we do a sample study. I will 
tell you that less than 0.01 of 1 percent of all administrative 
dollars have been deemed improper per the Federal cost 
standards.
    Mr. Palmer. How would you respond to that assertion, Ms. 
Goldsmith Romero?
    Ms. Goldsmith Romero. So there's like more than
    $800 million spent. I haven't audited all of it. And 
nothing has been provided to us from Treasury.
    But, again, it is like not seeing the forest through the 
trees. I keep hearing Federal cost principles. And it starts 
with necessary. And why necessary? Because under appropriations 
law, you've got to get back to what Congress intended with 
TARP.
    So, yes, there might be some statement about rent as being 
allowed, but that doesn't--you've still got to look at the 
program, is it necessary for the program. So if in Nevada 
they're really not letting people into the program, moving to a 
luxury building, it is not the same, I mean.
    And so that seems to be lost, the context of something 
seems to be lost, getting back to what Congress intended.
    And I want to say this. When we apply the Federal cost 
principles, this is not like an IG shop going out on an island. 
There is years and years and years of GAO and other IG reports. 
This is just bread-and-butter work for an IG shop. This is not 
doing something that's somehow remarkably different than anyone 
else. This is just really, really basic, get back to what 
Congress intended for spending.
    Mr. Palmer. Well, I'm about to gavel myself. But I just 
want to say this. One of the reasons this really, really 
bothers me is that we sent out $140 billion in improper 
payments last year. And it will be more than that this year.
    This is possibly not in that realm, but it all adds up. And 
every dollar that is improperly expended, every dollar that's 
wasted, every dollar that's misused is a dollar that we've had 
to borrow and that adds to our interest burden.
    So I guess my concluding remark on this is, is that you've 
got to do better. And we're going to insist that you do better 
and that the State agencies receiving Federal money do better.
    With that, I recognize Mr. Grothman, the gentleman from 
Wisconsin, for 5 minutes for his questions.
    Mr. Grothman. Right. You guys have about $2 billion left in 
the TARP overall in your program. Is that right? Is that what 
you have here?
    Ms. Goldsmith Romero. Those are the unspent funds.
    Mr. Grothman. Correct.
    What year was this program originally established, 2010?
    Mr. Kranbuhl. 2010, yes, sir.
    Mr. Grothman. 2010. What do you plan on having happen with 
that $2 billion.
    Mr. Kranbuhl. So to be clear, the $2 billion, the amount 
that was appropriated, is an extension of the program. Congress 
extended the program through an additional $2 billion in 2015 
with dollars made available in 2016. They go out to the States 
to be spent at the State level deciding how they should help 
homeowners most.
    Mr. Grothman. Given that, I can't remember whether I heard 
this on the news this morning or whatever, the housing market 
is booming, right, nationwide, I mean, in general housing costs 
are up everywhere, do you think it would be appropriate to take 
these funds back now and kind of what the chairman said, vice 
chairman said, give them back to the Treasury? Is it necessary 
that we help anybody else in this program?
    Mr. Kranbuhl. Mr. Vice Chairman, we at Treasury are 
administering a program put forth that Congress deemed 
necessary. And if the States are unable to use those dollars at 
the end of 2021, they will be returned to Treasury.
    Mr. Grothman. What would happen if we grabbed the money 
now?
    Mr. Kranbuhl. My understanding is there would have to be a 
change to the----
    Mr. Grothman. Right, right, right. If we would change the 
law, we would change the law and say we're not going to send 
any more money to the States, what bad thing would happen?
    Mr. Kranbuhl. Mr. Vice Chairman, States are utilizing 
dollars they believe are needed. If they cannot use them, they 
will return them.
    Mr. Grothman. But we're broke, kind of getting back to what 
the chairman said, we're broke out of our mind, okay?
    Now, I know if you send money to States, they will always 
find a way to spend it ultimately. But, I mean, the question I 
have is, given that the housing market in this country right 
now is booming like never before, I am told, do you feel it is 
necessary to send any more of these dollars to the States?
    What would happen if we didn't? What would happen if we'd 
say we're taking them back and we're giving them back to the 
Treasury or whatever?
    Mr. Kranbuhl. Mr. Vice Chairman, I think that question 
might be best for the States. We are solely allowed to 
administer the program you set forth----
    Mr. Grothman. You can't make any observations on the 
program you're administering? So your mind is a blank.
    Mr. Kranbuhl. To your point, sir, the States have found 
plenty of uses for the dollars.
    Mr. Grothman. Just out of curiosity here, there's a general 
lack of urgency in this whole building upon spending Federal 
dollars.
    Does anybody on the panel know what percent of the Federal 
budget we're borrowing this year? Just out of curiosity. We 
have five informed people here. You want to guess?
    Ms. Campbell, how much of the budget do you think we're 
borrowing this year? We'll call on you.
    Ms. Campbell. Mr. Vice Chair, I do not care to guess. Thank 
you.
    Mr. Grothman. Nobody is going to? Twenty-two percent. 
That's kind of high, isn't it, 22 percent?
    Okay. Well, we'll give you some questions here that I 
prepared.
    Which State housing finance authorities perform better than 
others and to what do you attribute their success?
    Mr. Kranbuhl. Well, Mr. Vice Chairman, I would say that the 
States that have utilized the dollars most quickly have 
performed the best, States like California, Florida. However, 
their performance is really probably best gauged over time and 
history will decide that, sir, after the program is completed.
    Mr. Grothman. Define success in these programs.
    Mr. Kranbuhl. We've helped more than 350,000 homeowners and 
demolitioned and greened 24,000 blighted properties.
    Mr. Grothman. I have a question to either one of you that 
has got a housing finance authority. How would you describe the 
goals of the Hardest Hit Fund in your State?
    Mr. Farmer. I think the goal for North Carolina was to try 
and help as many as folks as we could during the economic 
crisis and recognizing that there was a real challenge with the 
high foreclosure rates that were not anything we had ever seen 
before and trying to help as many families as we could.
    Mr. Grothman. Help them how?
    Mr. Farmer. Help them out. In our case, there were a number 
of different programs we operated. The primary one was the 
mortgage payment, where we would make their payment while they 
were out of work or had reduced work and while they were being 
retrained for their jobs. So it was basically getting them back 
on a good footing, bringing the mortgage payment current, 
getting them back to where they can remain in their homes.
    Mr. Grothman. Okay. I'll ask you because you're from North 
Carolina. Do you have any money out there? You're still 
operating, obviously. What would happen if we took back all the 
money that hasn't been spent right now to the Federal 
Government, our poor, broke, destitute Federal Government?
    Mr. Farmer. If you took back the money, we would basically 
have to shut down the programs sooner than anticipated.
    Right now, we anticipate closing out the second quarter of 
next year. So we would have to close it out at whatever point 
that the State recovered the dollars.
    So what it would amount to would be fewer households that 
would benefit from the foreclosure prevention.
    Mr. Grothman. How are housing prices in North Carolina 
right now?
    Mr. Farmer. They're doing really well. We are a growing 
State now, so obviously the economy has turned around.
    Mr. Grothman. If housing prices were booming like they are 
in North Carolina in 2010, would they ever in a million years 
have thought up this program?
    Mr. Farmer. No, sir, I do not believe they would.
    Mr. Grothman. Right, right, right.
    We'll say the same thing, Ms. James from Alabama. If I gave 
you the same questions, what would you say?
    Ms. James. We definitely enjoy the use of the Hardest Hit 
funds in the State of Alabama. We have helped several 
homeowners actually maintain home ownership.
    If, for some reason, these funds were withdrawn from our 
State, I do believe that there would be some people that would 
actually go into foreclosure. There has been a turnaround in 
our State. But removing the funds would cause some families to 
actually go into foreclosure.
    Mr. Grothman. How are housing prices in Alabama?
    Ms. James. Housing prices are doing well in Alabama as 
well.
    Mr. Grothman. If housing prices were booming like they are 
now in Alabama like they were in 2010, do you think ever in a 
million years Congress would have begun such a program?
    Ms. James. I would have to agree with North Carolina. I 
don't think so.
    Mr. Grothman. I have used more than enough time, so I thank 
the chairman for giving me an extra 20 seconds.
    Mr. Palmer. My pleasure. I thank the gentleman for his 
questions.
    I'll now recognize the ranking member, Mr. Raskin, for 
followup.
    Mr. Raskin. Mr. Chairman, thank you very much.
    Mr. Kranbuhl, I wanted to come back to something I started 
off with that is still bugging me, which is, why is Maryland 
not part of this program? What about the States that have been 
left out?
    Does Hardest Hit refer to the States or does it refer to 
the people who were the victims of the downturn?
    Mr. Kranbuhl. Mr. Ranking Member, the decisions on what 
States were eligible to participate in the Hardest Hit Fund 
were made under a set of criteria developed by a prior 
administration.
    If would you like, my team and I would be happy to come in 
and sit down with you and run through those criteria and talk 
about the other programs that Treasury has for helping the 
State of Maryland.
    Mr. Raskin. Well, are you actively reconsidering those 
criteria? I mean, it seems like there's a lot of money that's 
being wasted in other States, and maybe it is not necessary 
there. But we've got parts of Maryland that were just 
devastated and demolished by the crisis. So, I mean, is that 
something that's under active consideration with you?
    Mr. Kranbuhl. We do not have authority to change the 
criteria at this point, sir. The changes to which States are 
eligible----
    Mr. Raskin. Well, why not?
    Mr. Kranbuhl. The criteria were set forth. The program is 
closed to----
    Mr. Raskin. But it's a matter of administrative discretion, 
right? It was not built into TARP itself.
    Mr. Kranbuhl. Sir, I can't answer that specifically. I 
would be happy to work with my team and sit down and we can go 
through that.
    Mr. Raskin. Well, do you know of a Supreme Court case 
called Shelby County v. Holder?
    Mr. Kranbuhl. I do not.
    Mr. Raskin. But in that case the Supreme Court said--it 
basically cut the heart out of the Voting Rights Act because 
different States were being treated differently.
    And here's a program that has been set up by the Department 
of Treasury where some States get the benefit of it and other 
States are completely excluded from it. And if there's billions 
of dollars that are sitting around that still haven't been 
programmed, I would like you to reconsider why all these other 
States, including my own, were roped off from it.
    Mr. Kranbuhl. Vice Chairman Raskin, my understanding is 
that the legislation required that the funds had to be 
committed by October 2010 for the eligibility. Again, that was 
a prior administration. We can go through that with your office 
and my staff, if you'd like, sir.
    Mr. Raskin. I would love it if Treasury would present us a 
legal memorandum analyzing whether you've got the authority to 
include the large parts of America that were excluded from the 
program. So, yes, I would very much appreciate that.
    Let me just ask you one other question, Mr. Kranbuhl, and I 
want to go to Nevada for a second. Whose job is it to 
coordinate and oversee the Hardest Hit Fund within Treasury?
    Mr. Kranbuhl. We have our 0ffice of Financial Stability, 
which administers all of the TARP programs, including the 
Hardest Hit Fund.
    And as far as oversight goes, they report to me as the 
deputy assistant secretary for small business community 
development and affordable housing policy and I report to the 
assistant secretary for financial institutions.
    Mr. Raskin. The name of the office again is the Office of--
--
    Mr. Kranbuhl. Financial Institutions.
    Mr. Raskin. Financial Institutions. Okay. So is there a 
director of the Office of Financial Institutions?
    Mr. Kranbuhl. Assistant secretary.
    Mr. Raskin. Assistant secretary. And who is that person?
    Mr. Kranbuhl. Assistant Secretary Christopher Campbell.
    Mr. Raskin. Christopher Campbell. So is he the person who 
is really in charge of it on a day-to-day basis.
    Mr. Kranbuhl. Sir, the program is administered by the 
Office of Financial Stability and their chief financial officer 
is day-to-day working with the--overseeing the team.
    Mr. Raskin. What I'm trying to get the sense of is, is this 
somebody's job at Treasury where they're focused on this 
massive program with billions of dollars to distribute? Or is 
it just part of somebody's portfolio of 10 or 15 different 
things they do?
    Mr. Kranbuhl. We have a team that is specifically focused 
on this program, as well as other--the Hardest Hit Fund program 
specifically. And then there's also a team overseeing the 
overall TARP programs. We have roughly 30 folks who oversee the 
platform.
    Mr. Raskin. Okay. So----
    Mr. Kranbuhl. Administer the platform, too.
    Mr. Raskin. Okay. So the buck stops where ultimately? If 
something goes wrong in the program, who within Treasury is the 
person who says, ``We really need to make big changes in 
Nevada,'' or, ``We need to revolutionize what's going on in 
Alabama because the money is not getting to the people''? Whose 
job is that?
    Mr. Kranbuhl. That specific job would fall to our Hardest 
Hit Fund team and the program director for that. And then that 
would be elevated to say, we want to make you aware of this, 
we're going to recommend a change. For instance, in the State 
of Nevada, a new program was just put into place in April of 
this year to make sure that those dollars are spent properly.
    Mr. Raskin. Okay. So, let me come to Nevada, Ms. Campbell.
    Now, I understand you're part of the new regime. You're not 
part of the people under whom there was a lot of waste and 
fraud and abuse. But to what do you attribute the problem that 
plagued the problem before you got there?
    Ms. Campbell. Thank you for the opportunity to answer that 
question.
    I think there were multiple issues that I identified right 
off. The first thing was that there was really no systems in 
place that would create a strong foundation to administer such 
a program. I mean, the program was massive.
    The second thing was staffing. There were people, they had 
a great resume, however, they came from the banking industry. 
And I think that's where some of the misunderstanding of how to 
interpret certain guidelines came in, they were coming from 
private sector.
    And then also I think----
    Mr. Raskin. Would you just elaborate that point? You mean 
they were accustomed--you're talking about like the gym 
memberships and the----
    Ms. Campbell. Yes.
    Mr. Raskin. --and the freewheeling spending and so on?
    Ms. Campbell. Yes. For example, I'll take lunches. And I 
think for one of ours, there was a staff member who was 
pregnant and they bought a baby gift. Well, that might be 
appropriate if you're in private practice, but it is not 
appropriate under----
    Mr. Raskin. In government everybody kicks in their $10 or 
whatever, right? That's how we do it.
    Ms. Campbell. Right, right.
    Mr. Raskin. But you're saying they were just writing 
checks----
    Ms. Campbell. Right. I think there was just a complete 
misunderstanding.
    And then also, as is demonstrated here today, there's 
certainly, I guess, a difference of interpretation between 
SIGTARP and Treasury. It would be most helpful to the States if 
we had some uniformity there.
    So, I mean, even coming on, it was difficult. We hired a 
CPA firm as well. And we get this large super-circular and it 
is left to interpret. So----
    Mr. Raskin. Okay. I yield back. Thank you very much.
    Mr. Palmer. I thank the ranking member.
    Ms. Goldsmith Romero, I'm going give you the last word on 
this. And I would just like to hear from you about what you 
think we need to do from this point on.
    Ms. Goldsmith Romero. I think there needs to be greater 
accountability and greater controls. I mean, I went up and, 
just so you know, I met with Secretary Mnuchin. He said, 
``You've got to recover all this money.
    And I said, ``Look, we don't recover it. That's up for 
you.'' And then I met with Treasury's general counsel.
    I think people in Treasury need to sit down, they need to 
reread the Federal cost principles. And they need to look at 
first page, which says ``necessary.''
    And it goes beyond. We can talk about Federal cost 
principles all you want, but it comes down to appropriations 
law. In the Federal Government, you cannot spend money unless 
Congress authorized it. That's what it all comes down for.
    And so that's why the ``necessary'' provision can't be left 
out. They need to go back and read this memorandum by their own 
general counsel. They need go back and take a look at all of 
this.
    Because what I've not seen in Treasury's work papers is 
that determination about what's necessary, that idea that if in 
California hundreds and thousands of people can get this help 
without this kind of expenses, without lunch every week, it's 
not necessary.
    And so if you go back and look, Secretary Geithner said, 
much to the chagrin of a number of Congressmen, you can't use 
this money for legal aid, you can't use it for broad housing 
counselors. But we know a lot of people get into this program 
through legal aid or through general housing counselors, but 
you can't charge it.
    So if you can't charge that kind of reasonably related 
because it's not necessary under appropriations law, then how 
can you take those same housing counselors to the zoo?
    So really I understand that Treasury is saying, well, 
there's a provision in these cost principles that say this. But 
you got to read page 1. You got to read page 1, which says 
``necessary.''
    Federal cost principles cannot override appropriations law. 
That's what it comes down to.
    So what I think everyone should do here, all the State 
agencies and everyone in Treasury involved, let's get back to 
what did Congress intend in the TARP law and what is this 
program for. And it doesn't matter whether something is related 
or reasonably related. That's not the standard. Do you have to 
spend the money?
    And what I also suggest they do is they talk to each other 
and say, California, you're not spending anything on this. 
Arizona, you're not spending anything on this. Other State 
agencies, you're not spending anything. And they talk to each 
other and say, are you using this money for bonuses?
    You know, I think that's where accountability comes in, is 
really--all it is about is getting back to what Congress 
authorized. And if they do that, and if they talk to each other 
and they work something out, then I think it will be back on 
track. But there's got to be controls in there. It shouldn't be 
just left up to each State.
    Mr. Palmer. Well, my concluding remarks on that is that, 
first of all, you have to take seriously what Congress intends. 
That's true of every Federal agency. And if Treasury doesn't 
take it seriously, then the State agencies may or may not take 
it seriously, but very likely they won't even know what those 
criteria are.
    And that's my whole point about the lack of training. I 
think when the Treasury or any Federal agency is overseeing 
money that is sent down to the States, there has to be a clear 
understanding of the parameters within which that money can be 
spent.
    Now, some of the money, as Mr. Raskin pointed out and that 
others have pointed out, was spent on things that anyone with 
any common sense would have known that if it wasn't just 
plainly wrong it was definitely in the gray area. And I think 
Treasury has a responsibility to monitor that. That's an 
oversight responsibility that you have.
    And what I'd like for you to do, Mr. Kranbuhl, is when you 
get back to Treasury, I would like for you to submit some 
suggested changes for the guidelines. I think on our end, as 
Members of Congress, we've got to be more diligent in making 
sure that our instructions are clear, that when we're 
hemorrhaging funds like we are with deficit spending we can't 
afford to waste another dollar.
    So with that, I just would say there seems to, in my 
opinion, there seems to be a lack of seriousness and commitment 
to help the hardest hit homeowners keep their homes and to 
prevent those abandoned homes from becoming blight on cities. 
And I don't know what we can do to go back and fix what's 
already been done, but I guarantee you, we're going to pay 
attention to what happens going forward.
    And I think, Mr. Kranbuhl, that Treasury needs to inform 
everybody of that. I think the inspector general, SIGTARP, has 
done a good job on that, and I think they'll be happy to let 
you know when those things are getting outside the lines.
    With that, I thank our witnesses again for appearing before 
us today. The hearing record will remain open for 2 weeks for 
any member to submit a written opening statement or questions 
for the record.
    If there's no further business, without objection, the 
subcommittees stand adjourned.
    [Whereupon, at 11:38 a.m., the subcommittees were 
adjourned.]

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