it, i might have slipped it in a little bit. i come from an area, a particular area in south carolina that is the, i call it the, it's the everything belt, the stroke belt, the heart attack belt, the diabetes belt. so telemedicine and what we're putting forth from a health initiative standpoint in the national broadband plan, i am passionate about it. i am running away from my doctor right now. [laughter] but i am constantly trying to monitor and improve my own health via the internet. i think if we can empower persons to augment their outcomes doing just that, then we have done a good job. and, of course, that relates to education too. so those things i am passionate about, and we didn't mention. >> host: final question. >> host: we talk about consumers, what do you think, where are consumers hurting the most, what area or issue is

hurting consumers the most? >> guest: i think when we hear about the challenges and the complaints, it boils down to disclosure. often times they don't know what they've signed. they go into an office, and they are enamored about a device, and they sign up for it with an exchange. they sign a bunch of forms with dozens of pages, and when there's an issue on paragraph such and such, paragraph so and so, they discover that they have no recourse. it is important to me that the public clearly understands what they're getting. the speeds, what the speeds are, if they're advertised, they should be what they are, and what you expect from your service should be clearly enumerated. you should know what you're getting when you sign a contract. that's important. >> host: commissioner mignon clyburn, first time at "the communicators" table. >> guest: hopefully not last.

>> host: hopefully. and cecilia kang of the washington post. there are >> now the chair of the fdic, sheila bair, and john bowman. they recently spoke before a senate subcommittee that examined the role of banking regulators in the 2008 recession. senator carl levin chairs this hearing. it's about 35 minutes.

>> our final panel this afternoon, sheila bair, chairman of the federals do state insurance -- deposit insurance corporation, john bowman, acting directer of the office of thrift supervision. we are grateful not just for being with us today, but for your voluntary or involuntary patience. i think you both know what our rules are, so under rule 6 our witnesses, all of them, are sworn in, so we would ask you to, please, stand and raise your right hand. do you solemnly swear the testimony you're about to give to this subcommittee will be the truth, the whole truth, nothing but the truth so help you god? ms. bair, why don't we ask you to go first. >> chairman levin, i appreciate

the opportunity to testify regarding the role of regulators in their supervision of washington mutual bank or wamu. the fdic shares the subcommittee's concerns about issues associated with the primary regulation of large and complex insured depository institutions that posed significant risks to the deposit insurance fund and the fdic's role as back-up supervisor. to assist the fdic in carrying out itses to sit insurance responsibilities, congress has given the fdic back-up authority to examine insured banking organizations like wamu that have a different agency as their primary federal regulator. we have often used this authority in a collaborative process to convince the primary regulator to require collective measures. however, when the collaborative process fails, our ability to independently access information is governed by a 2002 interagency agreement in which the fdic agreed to conduct a special examination only when an institution, quote, represents a heightened risk, end quote, to

the deposit insurance fund. as we learned in the case of wamu, this is a self-defeating requirement as we must first gain entry before we can establish the requisite triggering conditions exist. for example, in 2005 wamu management made the decision to change its business strategy from conventional single-family loans to nontraditional and subprime loan products. ots management determined that fdic should not actively participate in ots examinations at wamu citing the 2002 interagency agreement. in subsequent years, the fdic faced repeated resistance to its efforts to fully participate in examinations of wamu. even as late as 2008 as problems were becoming more apparent, ots management sought to limit the number of examiners involved in the examination and did not permit the fdic to review loan files. in the spring of 2008, wamu raised additional capital, but the amount raised proved to be

insufficient. virtually all other high-risk mortgage lenders had closed, gone bankrupt or chosen to be acquired by other institutions. wamu's board rejected an offer from a large commercial bank in favor of a capital infusion that allowed it to retain independence but limited options for raising future capital. in july and september 2008, wamu suffered substantial deposit loans and liquidity was dissipating. cash on hand had declined to $4.4 billion, a dangerously low amount for a $300 billion institution that had seen average dale si deposit withdrawals exceeding $2 billion in the previous week. the next day the ots closed wamu. it has been an extraordinarily challenging time for the nation's banking industry, and we have all learned lessons at many levels. i am very proud of the fdic's role as an early advocate for banning unaffordable, abusive lending practices, for fighting against large bank capital

reductions, and most importantly, for maintaining confidence in the nation's banking system by resolving failed institutions in an orderly way and insuring that insureds doers have seamless access to their money. however, we, too, are learning important lessons from the crisis, and a central one is we need to be more proactive in the using our back-up authority, particularly for the larger institutions where our exposure is the greatest. we have welcomed the findings and recommendations of the inspectors general of the fdic and treasury from their wamu review and have already begun a number of their suggested initiatives. in addition, the fdic strongly supports pending legislative reform efforts to address the orderly resolution of large financial organizations. the ability to resolve these institutions in this same way that smaller banks are treated as we did with wamu is essential to ending the too big to fail doctrine. the fdic also strongly supports the need for an independent consumer financial protection regulator. products and practices that strip personal wealth undermine

the foundation of the economy. finally, we support legislation to require that issuers of mortgage securitizations retain some skin in the game to provide added discipline for underwriting quality. in fact, the fdic board will consider a proposal for banks to retain a portion of the risk of any securitizations they sponsor. the fdic would always like to see troubled institutions returned to health and safe and sound practices. however, as was the case with wamu, when an institution is no longer viable, closing resolution represents the best course. further delay by the government would have significantly raised the cost to the fdic, imposed losses on uninsured depositors and exposed creditors to even greater losses. the resolution went smoothly, the fdic was able to preserve all of wamu's deposits both insured and uninsured. the resolution left branches open, preserved jobs and allowed for a seamless transition for wamu's customers the day after the bank was closed.

in other words, most of wamu was saved. the institution was not bailed out, but rather competitively bid to the private sector. we were able to sell it at zero cost to the deposit insurance fund. in contrast, had the fdic been forced to liquidate wamu, the fdic estimates it would have suffered approximately $41 billion in losses. thank you for the ability to testify, and i'm pleased to answer your questions. >> thank you very much, ms. bair. mr. bowman. >> good afternoon, chairman levin. my name is john bowman, i am a career federal employee. during the height of the financial crisis after about five years as the agency's chief counsel. it is not a role that i sought, but i am honored to serve. my written testimony summarizes ots' supervision of washington mutual or wamu and the reasons why wamu failed. it is important to note that this failure came rat no cost -- came at no cost to the deposit

insurance fund and to the taxpayer. unlike the near collapse of some of the nation's largest banks which were deemed too big to fail and, therefore, provided government assistance. the demise of wamu came early in the procession of more than 200 banks and thrifts that have closed during this crisis. lifelines, such as the treasury's t.a.r.p. program and the fdic's increase in deposit insurance coverage, came too late for wamu. during the real estate boom before the crisis, wamu and other financial firms made a critical error by widely underwriting home mortgages based more on the value of the collateral represented by the homes than on the borrowers' documented ability to repay. as home prices continued to rise, these practices supported a widely-praised initiative to increase homeownership in america. yet as we now know, homeownership reached unsustainable levels and became too much of a good thing. like all the players in the home

mortgage market, bank managers at wamu and elsewhere mistakenly believed they were effectively averting risks by moving loans off their books and securitizing them. similarly, homeowners received little risk in their adjustable rate mortgages because they thought they could sell their homes at a profit before rate resets kicked in. investors believed mortgage-backed securities carried little risk because credit rating agencies rated them highly. those beliefs proved misplaced when the real estate market collapsed, the secondary market froze and the risks turned out to be all too real. the fallout hit financial institutions large and small with state and federal charters overseen by every banking industry regulator. since wamu's failure, the ots has taken lessons to heart from our own internal failed thrifts,

and we have made strides to address the resulting recommendations. we have instituted controls to better track problems identified in our examines reports and to take timely, effective action when necessary. we have established a large bank unit to keep close watch over our largest regulated institutions, strengthened oversight of our ots regions, enhanced supervisory consistency among regions, heightened scrutiny of problem banks and set deadlines for taking enforcement actions after safety and soundness downgrades. in short, we have made meaningful changes. although some thrifts help to overinflate the housing bubble, traditional thrifts whose managers stuck to their conservative business practices of lending to people they knew and keeping loans on their books weathered this economic storm and continued to provide badly-needed credit in their communities. because consumer and community lending remains important for

american families, i continue to believe in the thrift charter and the need for thrifts to have a separate regulator. with the changes we have instituted, i believe we have made the ots significantly stronger for the future. thank you again, mr. chairman, i'm happy to answer your questions. >> thank you very much, mr. bowman. throughout the last few years of wamu's operation, the fdic as the back-up regulator made repeated requests to participate in ots exams and was continually rebuffed. we heard in the second panel how the fdic sought to participate in ots exams of washington mutual, was limited in terms of staff, forbidden to do file review. for periods of time, ots blocked fdic access to examine material. mr. bowman, are you familiar with that? was that the right course of action? >> i can't say that i'm familiar with it, mr. chairman, given my responsibilities prior to becoming the acting directer,

but i have read enough about it, and i've been watching these proceedings to have a sense of what's alleged to have gone on. >> what's your reaction? >> my action is twofold, actually. one is the two people who were probably the two most senior people within our organization were both prior employees of the fdic, john rich who spoke earlier was the vice chairman of the fdic for five years. scott who was the senior deputy directer had served at the fdic i think probably in excess of 25 years including that as a regional directer out in chicago. my sense was they knew what the issues were, their perspective, i assume, would be as close to the fdic's as anyone's within ots, so i followed their lead. >> i mean, why should it take the fdic four months to get a desk or access to the examiner's library with wamu documents? does that make any sense to you? >> well, sir, that's sort of a

specific allegation, sir, that i really don't have any response to. >> all right. and did you follow the e-mail traffic? back and forth here? >> no. >> well, fdic was going to discuss with wamu the recommendation that it was going to make to downgrade it standing. from a two to a three. and ots got wind of it, said, quote, i cannot -- this is, from heich and polakoff, rating disagreement. i cannot believe the continuing audacity of this woman. the audacity being that they were going to sit down and

discuss their recommendation to downgrade wamu. what, you know, why is that so audacious? >> are you reading from a particular e-mail, sir? >> i am. exhibit 68. >> all right. >> so the question again? i'm sorry. >> what's audacious about the fdic seeking access to a -- not in this case access, sitting down with a bank which has had the kind of problems that that

bank had and to tell that bank that they were going to recommend a downgrading in their rating? why is that so audacious? >> well, i think you'd probably have to ask john reich that, sir. >> i did. >> i don't mean to make light of it, but i'm not sure what might have been going on, what his perspective was and why he would have put it into an e-mail like this. >> and in terms of access to files being, sitting next to ots when you do your examination, is there anything particularly problematical about that? does that happen? >> i'm sorry? >> should that happen? >> that fdic should sit next to an ots examiner -- >> no, that they should be rejected when they try. >> well, the difficulty i'm having with the characterization of rejected is that i'm looking at the fdic ig's report issued as part of that, and that seems to indicate that, in fact, many

the end, and i'm quoting, now, from page 45 of the report, in the end the information obtained from invoking back-up examination authority did not prompt fdic to challenge ots's rating of wamu until mid 2008. so that indicates -- >> it took four months. >> maybe not in a timely fashion. >> mr. bowman, it took four months to get a desk. >> a desk? >> yeah, a desk. if your office. in fdic offices -- excuse me, in -- >> wamu's offices. >> no, ots' offices. wamu's offices, let me get it straight. wamu's offices where ots had space, it took four months for the fdic to get a desk. now, there's a problem here. there was a turf war going on here, it's obvious. they couldn't get to the examiner's library, we had testimony here today. did you hear that testimony? >> i heard some of it, yes, sir. >> should that be the case? should that happen?

>> it depends upon the circumstances. >> all right. do you know anything about these circumstances? >> i know there was a dispute going on in terms of how the 2002 agreement should be implemented, yes, sir, i know that. >> all right. and do you know that mr. will coa in july of '08 sends a message about, you know, that memorandum of understanding that was finally issued relative to this bank, the first thing he wanted to know is how come that went to the fdic before it came to me, but the answer that he gets back that mr. doe coa sends, he apologizes, sends the mou, and he says it came up yesterday with a call i had with mr. reich, mr. polakoff. it went to the fdic because it committed to consider their comments in an effort to minimize their letter writing and posturing. fdic's posturing. this is e-mail traffic between your people.

does that bother you if the that's the case, that there's this feeling that exists here, there's a rejection of access to files, to doing an examination with the fdic sitting next to it, that memorandum of understanding which is shared with the fdic that the fdic is viewed as being a posturer and that's why it was sent, to try and avoid that posturing? is that kind offing? that folks in your agency feels about the fdic? does it trouble you and how do you cure it? >> well, i'm not sure what other people within the agency think about the fdic, i know what i think -- >> no, but your people. this is the expression. >> right. >> does it trouble you, is my point. >> i have two responses. to the extent that an employee of the ots, and i say that as the acting directer, uses that kind of language in an e-mail

correspondence is inappropriate. number one. number two, to the extent that it reflects other issues that may have prompted that language, there has to be a way to work those issues out. >> now, with the fdic when they were not given the access to the files, they weren't given space and they were asked for reasons, they're not even given reasons. when i asked, what was the reason given by ots, they said, we weren't given any reason. then you have a interagency memorandum which has now been entered into. as i understand this, the agency ies that negotiated this memorandum, there's a standard in there for fdic access and fdic involvement. is this interagency memorandum, and i ask this of you, ms. bair,

is this memorandum sufficient now, or is it being renegotiated? what's the status of this hem reason ran dumb -- memorandum? >> no, it's not sufficient, and it is being renegotiated. >> why is that? >> because i think as our ig pointed out it's circular in that it requires us to show risk before we can get access, and frequently we need access to prove the risk. so we really need much broader authority to be able to go in when we feel it's necessary to protect the deposit insurance fund or gauge our risk exposure. >> and, mr. bowman, what's your reaction to that renegotiation? >> i have a couple of thoughts. one is going back to your earlier question about information and the accessed information. you know, my sense is, and again, i go to the report of the fdic ig that was issued today. in that document it states categorically that the fdic had sufficient information to arrive at and concur with the camel rating that the ots had entered

into. that's a significant amount of information in terms of who got to sit at which desk or who got to sit -- >> or no desk. no, no, it's not which desk. >> well, whether they got a desk or not or whether they had to -- >> no, whether they had access. mr. bowman, the question here is access. >> right. and it appears, sir, that they got the access because they came up with a -- >> mr. bowman, it took them four months to get a desk with your folks. they were denied access for four months at a critical moment of a bank that was in deep, deep trouble. i hope you're not going to justify that. i hope you'll look into what happened and why it -- >> i will certainly look into it, sir. i can't justify it because i don't have any knowledge of it other than what's being presented here today. >> well, i think your folks did have knowledge of it long before today, and i think you should have looked into it -- >> i think at least two of those folks that spoke today, sir, no longer work at the agency. >> yeah. but your folks, legislative folks have access to this

material. >> okay. i also should point out, sir, the first i saw of the information i'm being asked about in terms of this book here was when it was placed on the desk in front of me. we asked access to it so i could, perhaps, be a little more helpful yesterday and was refused. >> these are your documents. >> well, but, you know, there were probably how many different documents turned over? >> according to my staff, these documents were shown to you in your interview. we had an interview -- >> the number of documents numbered ten. i see a significant number of tabs beyond ten. >> and how many did we ask your staff about, your former staff about today, more than ten? >> i don't know. >> well, let's take a look at something which comes from your documents which i've asked them about. these were ots documents, these are excerpts from documents. i don't know if i want to read these again. i don't think you were here earlier.

>> [inaudible] >> you can? well, if you want to look at 1d in your book. ps be hot earn -- this is the pattern. underwriting of loans in '04 remains less than satisfactory. in our samples it's been an ongoing examination issue, in other words, a problem for several years. and one that magemen has found difficult to address. residential quality assurance, 2003 originations disclosed critical error rates as high as 57% of certain loan samples. sfr loan underwriting, this has been an area of concern for several exams. securitizations prior to '03 have horrible performance. these year after year after year. these are the findings, and yet no formal action taken by ots against this bank. that was a problem. i don't know whether -- i guess

you didn't hear me ask questions about it before, but this is not effective regulation. it is feeble regulation. year after year after year. the inspector general's report is highly critical. i don't know if you've read that report or not. did you? >> i actually read the report prior to providing the management response in which i said i accepted his report, and we, in fact, have already adopted the one recommendation that was made in that report in terms of further changes by the office of thrift supervision which was the implementation of a system to track measurement responses which, in fact, had been put in place in october of 2007. >> so you have read that critical report? >> i have read it, and the fdic's as well.

>> mr. bowman, are you willing to work with the fdic to come up with a interagency memorandum which will make it possible for the fdic to promptly access information about insured institutions whenever it finds the need for information? >> sir, up until whenever it finds the information i was prepared to say, yes, i would be prepared to work with them along with the federal reserve board, the occ which are the four federal regulators. i should point out, sir, that my only hesitation in saying that whenever they would like to get the information is that we do have a statutory structure which assigns certain responsibilities to different agencies. the fdic's authority as it roles to the office of thrift supervision is that of a back-up regulator. one of the complaints and i think one of the reasonable complaints by congress coming out of this crisis is that there was no one to provide or assign

responsibility to. there was no one in charge. to the extent that we mix up or try to shave over who the primary federal regulator is, i think we get ourselves into trouble again with that same kind of charge. if we're responsible for it, if the we made a mistake, we should be held accountable for it. we can work with the fdic, and i'm committed to making sure we work something out so that we don't have a situation like we apparently had with fdic and ots as it relates to wamu. >> you know, is there any reason since they are a back-up regulator that's got major skin in the game as one would say given the fact that they insure these firms, these banks, is there any reason why they cannot work, you cannot work together cooperatively without mixing up your roles in terms of accountability? >> as you also know as the acting directer of the ots i am also a directer on the board of

directers at the fdic, so the answer to your question is there's no reason why we can't work together. >> any reason why we cannot assign principle responsibility to you if the we wanted to or to any other regulator if we wanted to without having that kind of cooperative relationship with the fdic? in other words, if you can assign responsibility to someone and still have them act in cooperation with somebody else, right? >> absolutely. >> all right. so the fact and that was repeated in these e-mails, we've got principle responsibility. fdic doesn't. we went through these e-mails earlier today. we just want to remind the fdic, we're the principle regulator. we're the principle regulator as though they didn't know it. that's what's so darn troubling here is that at critical times in terms of this bank and itses depositors, its impact on the economy, investors and so forth we didn't see that. we didn't see that kind of cooperative -- and we, i can still not understand what the

reluctance was. i don't understand why it was, why fdic was apparently rejected when it sought access to materials and access to joint examination. ..

>> also is a ranking member he member of the congress appropriation subcommittee and a senior member of the full appropriations committee and special committee on aging. and he served on the senate select committee on intelligence from 1995 to 2003. since he was first elected to the senate in 1986, senator shelby has received countless awards for his outstanding record on business, military and aging issues. we very much appreciate he's made time in his incredibly busy schedule to meet with us today. please join me in welcoming senator richard shelby. [applause]

>> i have a prepared speech but in your best interest, i believe i will just hold it [laughter] >> this is a great crowd here. thanks for inviting me. at the historic mayflower. a lot of presidents have been here. a lot of other people have been here. it's a good place to hold a convention. and i'm sure you're enjoying it. but you're not up here this week strictly for the enjoyment. you have a lot at stake. and you're very much aware of that. and if you're not, you should be. if i could, i'd like to go back and talk with you about the regulatory bill, the reform bill, whatever you call it. you know, when you put a reform name on anything up here, it's got a few legs on it, you know? and what's the old saying in washington, d.c.

you can kill something -- you can kill a bad idea. you can bury it. you can do a post-mortem on it. you can do countless obituaries and six months or a year later, at least another congress and it cops up again under another name. you've seen it happen over and over. well, this reform bill is not all bad. i'll tell you why and you know why. but i'll just remind you. 18 months ago we had a real financial crisis in this country. we had a lot of banks mainly big ones at that time, but some small ones, too, that were just basically insolvent. and then we've got the derivatives problems. the question is how will it we do it and will we do it right. i think that's the question. will we do it right.

and will we do it with balance. banks are important not just 'cause you're here in washington but banks are important to a free market economy. without them it won't work. it never would. and small banks, medium-sized banks, there's a lot out there in america and there's a reason for that. a lot of you are out with the community banks. you work the community. you know the community and so forth. then we have some huge money-centered banks. a lot of them got us in trouble. not by themselves but they did. a lot of them were in trouble over time before. so of them are still in trouble. some of them are still sick as you know. well, there are a lot of small banks sick too and there's a lot of them that probably won't make it. i hope all of them make it. but we're where we are and senator dodd who's chairman of

the committee, i told him -- he's an old friend from our house days. we go back a long time. he was on the banking committee when i went there. and i was chairman before he was. and then when the democrats took over, i told him, chris, other than myself and other republicans, i'd just as soon as have you as chairman. he said that's not much of a compliment. [laughter] >> he knew that but i was cutting up with him. i said i would rather have you than a lot of the others and so forth. [laughter] >> but we have worked together on a number of issues. we have differences of opinion on a lot of things. and that's going on today. today, later today, you know, we're going to have a cloture vote. i believe that 41 republicans for right now are going to stand together. i wish we'd stand together, period. and we would make us stronger

and give us more negotiable -- negotiating authority. and more clout. but i'm continuing to work with senator dodd and their staff and our staff to try to see if we can come up with a bipartisan, meaningful, substantive bill that we can be proud of that forever and ever be best we can to end too big to fail. [applause] >> i personally believe if you're a financial institution or a manufacturing company or what, if you fail, you should be wound down. you should not be propped up by the government, by the taxpayers or bailed out or whatever. because most of those -- it's just not right. it's not very popular. but it's just not right. and i go back a long time. i know my first -- one of my first votes as a freshman member of the u.s. house of representatives -- and i'm a

proud voter on that. was to vote against the crisis -- or bailout in 1979. and so it was easy for me. philosophically to bail out the -- vote against the bailout of the banks 'cause you got to say where does it stop? and you remember the t.a.r.p. deal. the t.a.r.p. deal was supposed to take bad assets off of some of the banks but that's not what happened, you know? they changed on it. now i have to say this. some of the banks who -- a lot of the banks who got t.a.r.p. money paid it back and paid the warrants back and the premium and so forth. but anybody in this room believe that general motors and chrysler and aig and all of them are going to pay that money back? gosh, no. if you do i have a lot of things to sell you. [laughter] >> i wish it were true and i wish it would happen. but we've got seriously to be unambiguous as far as we can -- and this is part of the negotiations.

to make sure that we don't create the status quo. the dodd bill -- and i tell him that and i told him in the committee when we voted against it. it was 13-10 vote all the republicans voted against it. i said that bill as it's now created i believe doesn't really deal sufficiently to too big to fail and that should be the number one thing in this bill. now, that's going to be a fight. because dr. volcker, as you whole know, he said if you're too big to fail, maybe you're too big to exist. you know, think about it. now, i'm not advocating breaking up banks here today. because i don't necessarily believe that being big is bad. but being big and thinking you're going to be bailed out by the taxpayer and the u.s. government and the taxpayer ultimately i think that's worse than bad. and that's something we've got to work on. [applause] >> thank you.

the second big section that we're dealing with as you know are derivatives. we knew people hedged in commodities and hedged in everything like that but they didn't -- but the commodity market has grown way past derivatives as you well know. i do believe there's a bona fide use of derivatives every day in america and the world. to hedge and manage risk. and we got to recognize that. but at the same time, i believe banks that are operating basically a casino with the implicit backing of the taxpayer -- that's wrong. and we got to put an end to it, you know? [applause]

>> i don't mind people trading in a proprietary way. but trading and taking big risk thinking, my gosh, you're on the edge and you could be bailed out and have been bailed and that's something we got to get around. so the derivatives title they're working on it. you know, the ag committee has some jurisdiction here. i know that there's some movement dealing with it last night. we're looking at some of the language. you got to remember the republicans -- we're only 41 of us. i like 55, you know? [laughter] >> and for a lot of reasons. if we had 55 i would be chairman of the banking committee. [laughter] >> and if we had 51, i'd be chairman of the banks committee. -- banking committee. and maybe we would have, i hope, a very good regulatory bill. but it wouldn't be as sweeping in some areas. it would be very sweeping in too

big to fail. we're all consumers, everybody is. and without the consumer, none of you would exist very long. but i have advocated from the beginning and unsuccessfully thus far that the prudential regulators ought to have a big say so in the consumer unit. you know, they're going to create. they're going to create this consumer agency. and it's going to have sweeping powers, probably too much. but at the same time, i said we ought to have some say so by the prudential regulators. that is the fed, the fdic the comptroller and the state bank people. we're not there yet. maybe we'll get some consulting -- consutation with them and so forth. but if i were writing the bill, the prudential regulator would have a big say so.

[applause] >> there are a lot of things and there's always a lot of clutter in a bill of 1300 pages. somebody said this morning -- i was on a tv show this morning and george stephanopoulos is wanting to know how close. i said well, we're conceptually very close but being conceptually close and dotting the i's and crossing the t's, you know, you're not there. and i hope we will not rush to judgment on this. but i believe we will get a bill, if we continue to work together and that's what i would like. a bad bill is a bad bill. a good bill -- or a relatively good bill is something maybe -- is what i'm looking for. thank you. [applause] >> the senator has agreed to take a couple of questions. if there are any.

>> senator, thank you so much for being here. [inaudible] >> i'd like to guide the nation but i'm not the president. [laughter] >> we got a commission in place that's trying to go back and study what the issues were for the financial meltdown. in progress, are we in a position in working up this bill in the senate that ready, fire, aim? or do you feel confident that we're covering the basis? >> that's a good question. and i think that goes right to the central part of what we're trying to do. first, do we know what happened, who caused it. heck you didn't cause it. you hadn't caused a meltdown in america. the community banks. you may be a victim of some of it, you know, in some ways. and so forth. but i think a lot of it is caused by hubris, by greed, by

looking for the edge, by rating agencies who look the other way in rating securities for among other things. conflicts of interest but greed, greed, greed, greed. and not worried about tomorrow. or thinking real estate is going to continue to spiral vertical. well, it doesn't. a lot of things go up and kind of come down. they might not hit the bottom but they'll come down and we know it. we'll see it with stock, your own. you've seen it with assets that you loan money against. a lot of it does come back. but i think we basically know what went wrong. we had a lot of hearings. we've been working on it 15, 16 months now. the question is, do we agree basically on how to fix it, just for lack of a better term or to deal with it. i don't know that you can fix it. because you can't anticipate

every problem down the road in the financial sector because of the world the way we connect it into the world. but we can mitigate it as much as we can. and we can send a message hopefully that this is not the status quo. that if you failed you're going to be wound down. that's what i'm trying to do right now. i'm trying to tighten up some language in the dodd bill dealing with fdic and the fed's ability to extend money. you know what i worry about, think about the goldman sachs deal. goldman sachs proxied greatly from aig. you know that. they were made whole by the bailout of aig. creditors. so i think you have to deal with creditors and stockholders here. and you have to wind them up. i hope -- and that's my goal, that we can do this. we're not there yet. i hope we'll get there. i'm looking at it in that spirit. thank you. another question.

>> russell? >> senator, thank you for coming today. [inaudible] >> this is really important for not only for huge banks but for financial industries, for america and for the world. and my question for you is, if you can reach an agreement -- excuse me, thank you. if you can reach an agreement with chairman dodd, will there be more chances to amend? >> well, i would hope that any agreement that we reach that we hang together on the floor and create critical mass, you know, between democrats and republicans. we've done it before. remember the fair credit reporting bill? remember all that? senator sarbanes and i were in the committee. that's our goal. because if we just pass a bill in the senator and then you go

to the conference and you go to the conference in the house and you start all over again, what have we accomplished? probably not a lot, you know? he asked the question earlier. so that is always a peril there. my goal, and i'm going to state it again, and i've told senator dodd many times and vice versa. he said that we want to create a bipartisan overwhelming majority that will support this bill. that it will cover the basics -- the good stuff. it won't cover everything. everybody has got a little, you know, twist, a little iron here and there. and they want to do it. but we can't do everything in this bill. but if we deal with the three things i talked about, that would be monumental legislation. i said if we do, i pray we will. >> thank you, senator. >> thank you for letting me be here. have a good convention. [applause]

>> thank you again, senator. we appreciate your being here and taking time out of your schedule. powerful stuff. well, next on our agenda this morning -- i think you're going to see and hear some things that will be somewhat entertaining but extremely informative. charlie cook is the publisher of the cook political report and a political analyst for the "national journal" group and nbc news. his columns in "national journal" magazine, congress

daily and the national quarterly is must reading for anyone who wants to keep up with what's happening in washington, d.c. charlie cook has been called up with of the best political handicappers in the nation and the picasso of election analysis. the cook political report has been referred to as the bible of the political community. he's an insiders insider. i've heard that the only thing democrats and republicans in this town ever agree on is that charlie is the go-to authority on political trends and elections. dana milby a columnist for "washington post" once said the pharaoh had joseph, the greeks had the oracle at delphi and washington has charlie cook. please join me in welcoming charlie cook. [applause]

>> i do not know the two-step. [laughter] >> he's parking the car. [laughter] >> it's my first washington summit as chairman. this is good, isn't it? this is great. i don't sing very good either. we're going to have steven and karen do the one and two show here again. [laughter] >> yeah. we've got our two head chair people here. does anyone have any questions about any of this stuff that's flowing through right now that's been on their mind? we got a few minutes. yeah, larry? [inaudible] >> can you clarify on the

resolution authority -- [inaudible] >> yeah. i think -- you know, the senator kind of alluded to, you know, what the terms and conditions would be. and, you know, that's -- that's a suggestion that, you know, we're not going to -- we're not going to use a broad emergency authority for just one institution. but there was an interesting little by-play on dodd and shelby on the "meet the press" show yesterday. and they didn't get deeply into the weeds but one of the questions was, what is the -- there seemed to be an agreement between the two that congress would have to either approve or disapprove of whether the federal reserve could use its emergency authority to -- you know, as they did, you know, during the -- during the last crisis.

and there seems to be a question as to whether the congress would have to approve of that before the fed could act or at least be given the opportunity to disapprove. and my guess is -- and i'm just guessing here -- shelby was, now congress has to approve before the fed can step in. and again, my guess is dodd was probably saying, wait a minute. you know, how long does it take for us to get anything done around here. should we -- should we just give the congress a period of time to disapprove? and so that may be a disagreement between the two that mr. shelby didn't quite -- didn't quite get into. it's those kinds of questions, those procedural questions, that are going to be -- going to be up there. so, you know, that's -- that's a lot of them. but the good news is that charlie cook is checking his

blackberry to get the very latest information so that we're not getting stale, old information. we're going to get the latest that just came in on charlie's blackberry. charlie, if you're ready, please come up and join us. [applause] >> charlie, i already did your introduction. >> oh, wow! [applause] >> and it was great by the way. >> they all applauded. >> my mother appreciates it. >> actually you thought they were teasing about the latest information. hang on a second. that literally did just come through although you've been just listening to senator shelby. hang on a second here. why are we not working here. okay. yes.

abc "washington post" abc two-thirds of americans support stricter regulations the way the banks and financial institutions conduct their business. anyway, you knew that. thank you very much for having me. you know what a lot of you may not realize is that when i started my business, my cook political report, 26 years ago, it was with my $6,000 out of the senate retirement fund and a $10,000 loan from a small community bank in mississippi that my father-in-law -- [applause] >> my father-in-law cosigned it. i'm not sure -- who's here from mississippi? anybody? no, no. i'm not sure the bank of holidale, mississippi exists. they got paid off, i'll assure you that. that would be interesting to do a survey of american business and find out, okay, when you

first started where did you get your first money? and my guess is the folks in this room and your predecessors are responsible for a whole lot of those loans. but thank you very much for having me. you know, normally i tell a bunch of jokes at the front end and, you know, all like that but the problem is we've got so much to talk about this morning that would chew up too much of my time so let's just stipulate that i'm extremely funny. [laughter] >> and move on. but i don't want -- we got meat and potatoes here that i want to chew into. i want to start at 50,000 feet and work my way down. when you think about three numbers, 40, 12 and 14 and then think of circles, and you say what is this guy talking about? think about for a second, for 40 years from 1955 through 1994, democrats had control of the u.s. house of representatives. 40 years. and during that time you had a big chunk of the cold war.

you had the civil rights struggle. vietnam war. three tragic assassinations, you know, watergate. gosh, i have to count up how many recessions we have had in those 40 years. but to think about it a lot went on during that 40-year period of time and yet through the whole 40 years 20 consecutive elections democrats had a majority in the house of representatives. and you think of everything that went on in american society, everything that went on in our country 20 consecutive elections, democrats had the house. in 34 out of those 40 years democrats also had a majority in the senate. in 26 of those 40 years republicans had the white house. and so here you had this incredibly tumultuous period in america and yet our political process was really remarkably stable. then in 1994 you had -- it was

president clinton you remember the first midterm election and you had that newt gingrich-led republican tsunami tidal wave election that washed democrats out of their majorities for the -- in the house for the first time in 40 years and the senate as i said that democrats had had for 34 out of 40 years. and for the next 12 years republicans had control of the house. and for much of that time also controlled the senate. the president was actually evenly split during that period of time. then in 2006, you had another tidal wave election coming in. although this was a democratic tidal wave election that was washing republicans out. so in 2006, republicans lose their majorities in the house and the senate. so here we are in 2010, just four years after that last wave election. and we're looking at another wave. and the question is, do democrats -- democrats are almost certainly not going to lose their majority in the senate.

but the thing is they're either going to barely -- they're either going to lose the house or they're going to come really close to losing the house. i personally think that they're more likely to lose it than not. it's a close call and there are very talented people on the other side of the equation from me. everybody agrees that the house is in very, very real danger. now if you think about it, 40 years, 12 years maybe 4 years. it's like the circle is getting tighter and tighter, faster and faster. and i think what this is telling us is that voters are getting increasingly less patient, less tolerant with their elected officials and with their parties. think about the old burger king commercial, have it your way. well, right now voters want to have it their way and they want it their way now. and they're getting very itchy trigger fingers. and just as they turned

republicans out in congress and the republicans out of the presidency as well and they may be throwing the democrats out of the house of representatives this time. but, boy, it is i said it is an itchy trigger finger. and i say that because although the great former speaker, late speaker of the house, tip o'neill, used to say that all politics is local, and that's probably one of the most widely quoted lines in american politics, the charlie cook variation of that is that all politics is local except when it's not. now, it's deeply profound stuff here. [laughter] >> but the thing is from time to time, we have -- you know, most elections are local. and you look at the state senate or state representative district and you study the people, you know, in that place. you study the voting patterns in that place. you look at the candidates, the

campaigns, the issues. you know, who's got money, who isn't, that sort of thing. and you could pretty much figure out most cases who's likely to win a general election there, the kind of stovepipe. but occasionally we have these elections where all politics isn't local. you know, go tell a democrat during that 1994 gingrich tidal wave election that all politics is local. they'll think you're crazy. or republican in 2006. they'll think you're crazy. and so you have to just kind of be aware that from time to time we have these wave elections where there's like an invisible hand that's pushing the candidates of one party forward and pulling the candidates of the other party backward. and in those kinds of elections, independent voters generally swing overwhelming in one direction. undecided voters usually swing overwhelmingly in one direction. one side voter's is really motivated. another side's voters are lethargic. anyway, big things tend to

happen in these kinds of wave elections. and the other thing to remember is that these midterm elections -- they're not just sort of a preference between parties or in a lot of cases not even preferences between candidates. that people are not saying well, gee, i think i like republicans more than democrats this year. or i think i like democrats more than republicans. midterm elections are referendum on the party that's in power. now, sometimes if you have one party with the white house and one party in congress or congress is split, it gets kind of complicated and not quite as clean-cut. but when one party has the presidency, the house, the senate, oh, and a majority of the governorship, then in that circumstance there's only one place if anybody is unhappy with anything, there's only one party to blame. and so that's why this business -- and i'll talk about this in a few minutes.

well, they don't like either party or they're upset with incumbents of either parties. don't buy that. because it's generally -- it's a referendum on the party that's in power. and, you know, some first term midterm elections are worse than others but, boy, one common denominator with the exception of the election right after 9/11 the party holding the white house get hit in those first midterm elections. well, let's step back for a second and talk about the parties. and, you know, we tend to think of this as a two-party system but increasingly, it's almost like we've got three parties. now, gallup organizations they're doing interviews every single night. and then they lump them up by weeks and months and by quarters. and coming out with -- they've got a new designed website, lots of really good stuff. but when gallup asks the question, you know, generally speaking do you consider yourself a democrat, a

republican or an independent, and then they ask the independents and that's what -- they call it straight party identification. and then what they'll do is then ask the independents well, do you lean to the democratic side or do you lean to the republican side just to kind of get another cut on it? when you do that and you sort of push the leaners each way, for the first quarter of this year, democrats, 46%, republicans 45% and then there are 8% in the middle that are independents that don't lean either way. they are what we call pure independents. now, compared to the fourth quarter of 2008 when democrats won the presidency and picked up that second big wad of seats in the house of representatives and in the senate, democrats were nationally up by 11 points. in the fourth quarter of 2006, they were up by 14 points. so this majority was built in elections when democrats had

party identification advantages of 11 and 14% in what we call lean party identification. and now they have an advantage of only 1 point. wow, that's kind of a warning sign. if you don't push the leaners and just leave democrats, republicans and the big wad of independents there, it's 32% for democrats. 28% for republicans. and 39% for independents, the people that do do the swinging around a lot. and the thing is even -- you know, using that measurement at the time of the 2008 election, democrats were up by 7, and republicans were up by 6, and now they're up by only 4. so you can see there's been real erosion on that party identification situation. now, let's look at each of the parties. now, let's talk about the 32% of the american people, of the voters that are pure democrats. that aren't leaners. they don't just -- independents who lean democrat. they really are democrats.

the president has an 86% job approval rating among these democrats. 86%. and generally speaking you could say that these democrats -- they love president obama. they may have misgivings about some of his policies, the troop surge in afghanistan, the lack of a public option on health care, offshore drilling, support for building nuclear power plants but basically they're loyal to the guy -- they love the guy. now, they love president obama but they kind of like the democratic congress. now, these are democrats. they are not real enthusiastic at all about their friendly neighborhood democrats but they are really, really loyal to president obama. then you go over to the republican side, the 28% that appear republicans. the president's approval rating is 12% among republicans. i'm not sure who the 12% are. i haven't seen many lately. i did see a decent number of republicans that actually voted for him in november, 2008. but a lot of them kind of fell by the wayside during the spring

and summer of last year. now, i don't want to say that these republicans hate president obama. let's just say they really, really, really, really, really intensely dislike him. [laughter] it's interesting that even when they agree with him on something like the issues i mentioned before the -- that there's an ulterior motive. i know there's something behind that. i know he can't possibly be right on this issue, you know? there's that assumption. but the thing about it is, even though they really, really, really, really intensely dislike president obama, they actually loathe the democratic congress. they're just loathe, despise, hate, pick your word. they really, really are not big fans of speaker pelosi.

majority leader harry reid, the democratic congress. boy, there is a huge -- an even greater intensity there. now, you kind of expect, okay, your team is going to love you. the other team is going to hate you. you kind of expect that. it's the independents to me that are the really interesting people. and when you sit behind the glass in a focus group or you look through the polling data and you try to understand these independents, they really are a different kettle of fish than the other two. and among that 39% that are the big lump -- a big group of independents including the leaders, president obama has a job approval rating of about 45%. you know, he had been above 50% until sort of the second half of the summer. and he started dropping down. now, among these independents, they like president obama personally, the polls show, and they think he's really bright. and they think that the symbolism of his presidency of

having an african-american president -- they really like that. but as i said, starting about the middle part of the summer, they began dropping sort of out of the approval column. and you started seeing them questioning, gosh, i thought he was a centrist. or i thought he saw the role of government in the same way i did. and while they still like him and respect him but they're beginning to think that he's not exactly who they thought he was or to put it differently, this wasn't the cruise they signed up for. and now whatever affection and respect that they do have for president obama does not extend to the democratic congress. they are really, really, really unhappy with the democratic congress. it's not quite loathing like republicans. but it's a pretty poetent feeling. -- potent feeling. that's the way i slice up the electorate. now, in my business, what --

there's two kinds of elections. there's sort of normal elections and then there's sort of abnormal elections when you have these waves. and what we look for sort of diagnostic indicators to tell us is this going to be a normal election or is this going to be a -- that other kind of election? and maybe it's sort of -- this is probably a tortured analogy, but it's kind of -- you put the parties through stress tests sort of. you have to figure out, you know, how strong are they? and i always like to think about that mid to late 1960s tv show "lost in space." and remember they had the robot that would say, danger robinson, danger, danger. what we're looking for are the danger signs, you know, in a midterm election that it might be this other kind of -- this wave kind of election. and the first one we typically look at is a question that do

you think the country is headed in the right direction or do you think it's off in the wrong track? dick worthland who was president reagan's pollster used to say that was the dow jones indicator of american politics. in the latest nbc "wall street journal" poll, only 33% of americans think the country is headed in the right direction. 59% say it's off on the wrong track. we start off with that, that just tell us that the natives are very restless. then you look at congressional approval. and i use the gallup numbers for the month of march. 23% of americans approve the job congress was doing. 72% disapprove. now, among democrats, 41% of democratic voters approve. only 20% of independents, 7% of republicans. so first of all, for democrats, for the democratic-controlled congress keep in mind they've got 59% of all the -- around 59,

60% of seats in congress are held by democrats. 41% of the people in their own party isn't happy with congress. but among the independents, the voters that are the real swing voters, which is where you get your mojo, only 20% -- 1 in 5 approve congress -- approve the job congress is doing. boy, that's another danger will robinson danger. then when gallup ask the question, do most members of congress deserve re-election and among registered voters only 28% say yes. 65% say no. that is a record low, lower than it was before the last two tidal wave elections in 1994 and 2006. and only 25% of independent voters think that most members of congress deserve re-election. and then but you always hear people say, well, people don't like congress but their like their congressman.

and we do hear that a lot. and so gallup asked the question, does the member of congress in your congressional district deserve re-election? and only 49% of voters said yes. and that was almost a record low. and the no, my local member of congress does not deserve re-election was 40%, which is a record high. and by 46 to 43 independent voters said no. that's another danger will robinson, danger, danger. when your opponent is starting off with 40% they don't even know who the heck it is, you know, 40% -- i don't care who you are. i'm voting for you. wow! that's kind of interesting. and independents by a 3-point margin going that way. and then finally you look -- or not finally. but then you think of the party favorable/unfavorable ratings. and the thing is you have to think about over the last

decade, republicans did a remarkable job of destroying their corporate brand. i mean, they did a fabulous job. in a year and a half democrats have basically replicated that feat. [laughter] >> and, you know, we saw the republican party's favorable ratings go, had been up in the mid-50s, dropped down in the 30s early last year. right now in a gallup poll, 41% of americans rate the democratic party favorably. 41% and 54% unfavorably. the republican party, 42% of americans rate the republican party favorably, 1 point higher. and 51% rate them unfavorably which is actually 3 points lower. to give you comparison in 2006, that wave election when democrats took control of congress, democrats had a

favorable 52, unfavorable 57. so they had an 11-point drop since then. and in 2008 of it 55 favorable, 35 unfavorable. you see that democratic party brand is now as badly damaged as the republican side but remember what we talked about earlier. this isn't even about preferences. it's a referendum party in power. and you look at the president's job approval ratings. and they're at 48, 49, which are not horrible. but they're basically on track with where president clinton's were at this point and we kind of remember what happened in 1994 and i talked about party identification which is a lagging indicator and they've gone on party identification. and then the final thing that we look at is what we call the generic congressional ballot test. and different pollsters ask it in different ways. if the election was held today would you vote for the democratic candidate or which

party would you rather see and control. now, a couple things about this question. most of the time when you see it, it's asked of just registered voters. all registered voters. well, if you think about it, all registered voters -- that means everybody that voted and a half presidential election and the people who were registered to vote who didn't happen to vote in the presidential election -- that poll question tests all those people. well, we also know that in midterm elections turnout tends to be a third lower than in presidential elections. and we know that even -- not knowing what kind of year it is, in midterm elections it's more senior citizens who are voting, fewer young people, fewer minorities. you kind of get the general idea. you say, well, who are democrats, who are the president the democrats are having problems with right now. older voters. who are they stronger among, younger voters. and stronger among minority voters and weaker with, white voters.

the point is these polls that we see among registered voters are inflating how democrats are doing. and so keeping that in mind in both the pollster.com and the realclearpolitics.com averages of all the national polls on the generic ballot test, republicans are ahead. in the gallup poll, republicans were ahead in the last two weeks. we don't have but we'll get later today the numbers for this past week but the week before, republicans were ahead by 3 and 4 points. in those two previous weeks but more importantly, when gallup asked the question, how enthusiastic are you about voting in the midterm election or about this midterm election and this was for the latest -- for the week ending april 18th, 45% of republican voters were enthusiastic. 45%. only 28% of democratic voters were enthusiastic. so 45 for republicans. 28 democrats.

27 independents. you could see that republicans are loaded for bear. nbc/wall street poll asked it a slightly different way. they asked on a scale of 1 to 10, how interested are you? and in the categories of very, very -- of very, very interested, 67% of republicans are very interested. 46% of democrats are very interested. so you sort of look at these diagnostic indicators and they tell you this is, you know, warning signs that something bad may be happening. -- to democrats. this is a bad -- you know, it's never a good time to have a bad election. boy, that's another profound one. [laughter] >> but there are worst times than others to have a bad election. and one of the worst times is an election that ends nasier. -- in a zero. that's the election where you elect the governors and state legislatures that draw the maps

for state legislatures and congressional districts in most states for the next decade. so the thing is if you're going to get hosed, you really don't want to get hosed in the election of the census year when they pick the people they're going to be drawing the maps. so that's one reason. but the second is democrats are going into this election really, really overexposed. they're sort of at a high watermark based in part on what happened in 2006/2008. basically democrats had back to back great elections in '06 and '08 that have left them at a point where they have no place to go but down. you know, think back to 2006. president bush's job approval rating was 38% going into that election. now, president obama's job approval rating right this moment is 48, 49, 50% which is not real sporty but imagine your party going into a midterm election when you're president

it's at 38%. the war in iraq was at its absolute low point going into the 2006 election. we had had a series of scandals, jack abramoff, tom delay, scooter libby, mark foley, the mood change out there was pervasive. the democratic voters were hypermotivated. the republican voters were lethargic. independent voters swung by an 18-point margin by democrats and boom, big midterm election. democrats pick up 30 seats in the house and control the house. 6 senate seats and control the senate. big old election pushes them way up. then you had the 2008 election. now, president obama -- excuse me, president bush's approval rates weren't in the 30 ratings. they were 26%. the war in iraq was getting better but oh, the economy had collapsed. the time for change movement was

just as pervasive. republican voters were still lethargic and not particularly energized by senator john mccain's candidacy. democratic voters were hypermotivated. and you had young voters and minority voters that were particularly worked up and energized and exercised. and they were voting for barack obama. and while they were there they were going to vote for anybody with a blue jersey on. and then independent voters swung by an 8-point margin in favor of president obama. and while they were there they were generally voting for democrats, too. and lo and behold democrats picked up another 21 house seats on top of the 8 -- the 30 they picked up before. they picked up 8 senate seats on top of the 6 before. and the end result, what we had focusing on the house is 53 democrats today that are sitting in seats that were held by republicans four years ago. they were '06, '08 in subsequent special elections.

we have 48 house democrats that are in districts that john mccain won. 47 are in districts that mccain and george w. bush want. and keep in mind the margin the democrats in the house have is 40. and so they just flat have a whole bunch of people that are in enemy territory. now, the senate is a little different because it's got that 6-year calendar. but there's still some weird exposure there. and let's face it, you know, democrats are very, very, very, very, very likely to lose the seat, the senate seat, that president obama had in illinois. the seat that vice president biden had in delaware. and the seat that ken salazar, who was senator -- democratic senator now secretary of interior, you know, that he had is basically a toss-up. you throw in some -- the tough environment, tough retirement by byron dorgan in north dakota and evan bayh in indiana and there's others and i'm combining the retirements you have an

unusually great level of broad exposure in the senate as well. and so you think of that exposure and it's like wow, this really is a bad time to have a bad election. and then you think of the economy. and, you know, with any recession, the party that's in power will have problems even if they inherited the recession. and if you have the worst economic downturn since the end of world war ii, that's even more problematic. but the thing about it is, it's worse than it should be for democrats because of the strategic decision, the calculation that president obama and the democratic leadership made to focus last year on health care more than economy and jobs, that's left democrats even more exposed than they would be in this kind of recession. remember 1992 when he was running for president, bill clinton said, if elected i'm going to focus on the economy like a laser beam.

and what a great metaphor. focus like a laser beam. now, you could have a great argument about whether a president, a congress, a federal government -- how much they can affect the course of the trajectory of the economy. and how much they could affect unemployment. but from the voters standpoint, they want you to give a college try. they want to focus. and i would argue that every month, every week, every day, every hour that washington seemed focus on health care -- and even for all those voters to think that health care is important, the polls were pretty, pretty clear their preference was, hey, that's fine. that's nice. we ought to do that sometime. but we would rather you focus on the economy and jobs. that's what people were looking for. and so that's why democrats are particularly exposed at this point.

and then you sort of throw in the broader issue of climate agenda. and one thing is that we have seen a shift in attitudes over the last year or two. and in one poll question that gallup asked, do you think government is trying to do too many things better left to businesses, individuals in business. 57%. only 38% say government should do more to solve our country's problems. that's a 19-point spread. and that's the widest gap in a dozen years. and that gap -- and it's fairly different from where it was a year or two ago. and it's sort of the opposite direction from where a lot of democrats would kind of like that kind of issue agenda to be. and i think there's something broader that goes on. this is kind of touches into what you folks know about for a long time. and i know i'm trying to -- you know, it sounds like i'm trying to behave like a psychologist or

something. for many, many years people have been warned that government spending deficits -- that we had to get government spending deficits under control. that we had to rein in entitlement spending and our debt and our personal saving rates up. we were told if we don't get our fiscal house in order collectively and individually, that the sky is going to fall. then came september, 2008, when lehman brothers fell and the american people were terrified and they wondered if the skied fallen. now obviously what happened in september 2008 had nothing to do with federal budget deficits and the debt and all of that. but the fact is the american people did, in fact, get in the head with something. they had long been warned about the sky falling. and it really kind of sobered them up. and it got them to thinking

about all those warnings from all those people, all those years. and it kind of sensitized them to something. and then you had t.a.r.p. you had various bailouts and takeovers. you had the economic stimulus package. cap-and-trade. health care. and then health care reform. and all these alarm bells started going off. and particularly for republican voters but even by a pretty good degree by independent voters, not so much with democrats. now, the thing is with t.a.r.p. and, you know, this is something that you guys all know a lot about than i do. it may have been imperfect. and i'm sure if fed chairman ben bernanke and hank paulson had to do it all over again, they would have probably -- they may have made some changes here or there. but the fact is, we were about to go off a cliff. and -- i mean, we were looking at an economic apocalypse and it may have been imperfect and maybe it should have been done somewhat differently.

but it did stabilize the credit markets. and it did keep us from going into something that looked more like the great depression just a lot more complicated. but having said that -- and i say this as someone who thought that it was something that was necessary. that we really needed to do. in a million years you will never be able to convince the american people that t.a.r.p. was necessary or good. and it is real, real, real clear in the polling focus groups, that sort of thing, that they don't get t.a.r.p. they don't get the bailouts and the takeovers. they are really, really, really upset about it. and i think in some ways, some of our policymakers -- there may have been a reticence to sort of, you know, level with people about what the alternative to getting t.a.r.p. through. but no matter what -- whatever it is, the american people are really, really, really against it. they saw it as an unnecessary and dangerous expansion of government.

they saw the economic stimulus package as an extension of that. and i confess it was undisciplined and flawed. but in the minds of the voters it was totally discredited. and while most americans wouldn't know cap-and-trade from cap and gown, you know, enough of the ones that did know what it was didn't like it at all. and then you kind of segued into health care. and what you ended up was sort of like a series of explosions. in the voters minds that have just made an enormous, enormous impact. so what's the bottom line? democrats would have a net loss of 40 seats to turn the house over. although that number may change 'cause we've got two special elections for the house coming up in the next month. in pennsylvania and hawaii. the cook political report -- what we're projecting officially right now that republicans will be gaining at least 30, probably in the 30 to 40 range.

so in other words, a lot more than average. all the way up to the point that would be the tipping point of the house. now, that's the official line. personally, me personally, i think it's actually -- if the election were held today, it would be going higher than that. i think that just sort of -- when we do our race by race count, our internal model we have it at 30 seats. and my experience has been in sort of normal elections that model works great. but in wave elections, it understates it. it's the starting point not the midpoint. and i think -- i think if the election were held today it would be going north of that. it would be going over 40 seats, i think, if the election were held today. in the senate it's 59/41. republicans would need a net gain of 10 seats to get the senate back and vi-biden would break a tie.

i think that the sort of -- the worse case scenario for republicans -- best case scenario for democrats would be democrats pick up 4-5 and the best scenario for republicans worse for democrats would be 7 or 8. the 6 is kind of a midpoint. and i'm suggesting that i'm pretty sure the democrats are going to hold on to their majority in the senate. but the scary thing that democrats need to keep in mind is that the in the next two elections, 2012, 2014, that's when all those senate seats that they won in 2006, 2008 -- those fabulous years for democrats come up. and suddenly that's when -- whether they're 29 democratic -- i'm sorry, there are only 9 republican seats up -- yeah, here we go. in 2012, there are 24 democratic seats up. only 9 republican seats up.

in 2014, there are 20 democratic seats up. 13 republican seats. so in those combined years, there's 44 democratic seats up. only 22 republican seats. let me translate that for you. there's a republican senate in your future. it's probably just not in 2000. it's probably not in 2010. so to sort of look at this. could things change in the next six months? and could democrats avoid, you know, this near apocalyptic election? yeah. things could change over the next six months. they could. but that would be -- but change is the operative term. things would have to change. 'cause the trajectory is headed towards a bad place. now, if i wanted to be nasty i could say things could change in the next six months. i could be thin in the next six months. [laughter] .

>> but that would be tacky. [laughter] >> when you ask -- okay. what could change things? well, unemployment could change. if unemployment got a lot better it was 9.7% in january, 9.7 in february. 9.7 in march and we've got new numbers coming up in the next two weeks -- if unemployment got a lot better between now and then, sure, it could. but the thing is the economic forecasts, both the blue chip economic indicators forecast -- you know, for example, you know they're suggesting between now and the third, fourth quarter, you know, maybe it gets better by two-tenth, three-tenth of a percentage point, that's all. that doesn't bring the mission accomplished banner. it's got to get better. the economic advisor said their february forecast for the year was just sort of -- let's just

say 10%. and it's like wow. you can't accuse them of being overly optimistic. at least on unemployment this year. unemployment is not likely to be the lifeline between now and then. you know, that for every -- you know, it takes 100,000 net new jobs a month just to cover population growth. and then it probably takes another 100,000 or so net new jobs on top of that just to pick up the people that had been unemployed, that had given up looking for work and start trying to re-enter the labor force, start looking for jobs and coming in and then they get thrown back in the unemployment rate. so unemployment is not likely to happen. and then secondly well, could public attitudes towards health care reform change? between now and november? actually, this is where i probably should have said, yeah, it could. of course, i could be thin. actually, it would be more appropriate there. but the thing is, with health care, you know, yes, there are

some positive things that were in the bill that may be kicking in between now and november. yes, that's absolutely true. but i think that's going to be off-set by any business, any person that get a rate increase on their health insurance premiums between now and november. whether it has anything to do with health care reform or not, boom, it gets blamed on it. anybody that has a claim disallowed between now and november, it will get blamed on health care. i think those things will sort of cancel itself out. and so the final -- so i'm left with just two possibilities. one would be is there some kind of -- as they say a black swan event, you know, some kind of an outside the box, totally unanticipated event that could change things significantly? sure. it could. and that's always the case. but the other thing would be -- in the more realistic possibility, you know, if democrats are going to avoid this -- you know, a disastrous

midterm election, would the -- can republicans seize defeat from the jaws of victory? and there's sort of two different scenarios here. one is that -- i think in a lot of these -- given this current political climate, i think there are a lot of races around the country, senate races, house races, races for other things where if republicans nominated a placebo, they'd probably win. [laughter] >> but and i'm going to use a term that my wife has asked me not to use. but -- and this is a technical political science term. what if they nominate a whack job? where if you nominate a placebo. ...

>> a couple of last points. number one, i do think there is a liberal blogger that called me for democrats the prophet of doom. considering we were the first to predict that democrats would take the house back in 2006, then i'm comfortable being the worst to do the other way. but maybe i am the prophet of doom for them. but the thing about it is, it is a huge mistake to make any

assumptions about the 2012 presidential year, based on what happens in this midterm election. midterm elections are terrible predictors of what's going to happen in the next presidential election. republicans took some tough losses in 1982. and that midterm election president reagan's first term midterm election, they lost 26 seats in the house of representatives. if democrats have put a full team on the field, had recruited candidates, they did know they're going to have a good year until a few months before the election. if they had a full team on the field democrats probably would have picked up a lot more than 26. while there was no net change in the senate, there were like, i think for republican victories, senate victories that were by a grand total of about 50,000 votes nationwide. they came basically 50,000 votes of losing a majority in the u.s. senate. so 1982 was a very ugly year,

recession you remember. very ugly year for republicans. what happened two years later? president reagan is reelected with a 49 state landslide, winning every state in the union except his opponent, walter mondale's home state of minnesota and the district of columbia. so that midterm election was of no value. or the other one is look in 1994, president bill clinton's first term midterm election, the year the democrats lost their majorities in the house and senate. it doesn't get much uglier than that. what happened two years later? he when pretty company in 1996. just simply not predictive indicators. one historical fact, and i wouldn't over read this, and there are important qualifiers here, among the elected presidents, that means elected, not appointed, come in because someone died or something. elected presidents who, when they took office, they took over for the other party.

only one of them in the last century had lost reelection. and that was jimmy carter in 1980. elected incumbents who took over from the other party. now, i look at the 2012 at the republicans that may be running in 2012. and the people that are thinking about it, you know, people that are likely to run and the people that are sort of thinking about it, thinking about it, being mentioned. i see some really bright talented people and i see some reasonably bright, reasonably talented people. you know, i can see one that, let's face it, i wouldn't cheat off her in physics class. [laughter] >> but i don't see donald reagan. that's my point. and i'm not saying that means that present obama will get reelected. there's a lot of things they can negate. and how is the economy doing, what's unemployment like in 2012? keep in mind that the

president's council of economic advisers, they're projecting unemployment of over 8% in 2012. which is, well, that's pretty high. how are things going in afghanistan? right now because the surge in iraq work, the surge in afghanistan has been given the benefit of the doubt. liberals love president obama so they're giving him a year or so. for the troop surge in afghanistan to work, but after a year or so, that might not be, you know, that may run than and you may -- you hear that howard dean's of the world, russ feingold, some of the people far, far far left of the democratic party start to jump out of harness there. you have to harness on afghanistan. there will be all kinds of things that are going to get baked into the cake for 2012 that we don't know about you. but the thing about it is, just don't assume that because there's a bad midterm election

this time, don't deserve anything at all. but the biggest thing is how does president obama perform after this midterm election. i have a theory that presidents, presidents perform better, they become better presidents after they have had, and i'm going to use another technical political science term here, after they've had a midterm election face plant. flat down, face down, mud. and i would argue that president clinton was a better president in his last six years in office that he was his to. and i would argue, i think that george w. bush was a better president in his last two years after that 2006. remember, he didn't have a first term midterm election disaster face plant because 2002 election was immediately after 9/11. he had his in 2006, but if you

think about it, getting elected president of the united states, leader of the free world has got to be an incredibly intoxicating experience. and it's kind of hard i think for any of us to imagine how emboldening that must be. but eventually they face these disasters. and when that happens, i think the over, humble, i think the hubris is gone. they become more pragmatic, and become better president. and i think president obama is intellectually one of the brightest presidents we have ever had, but i also think he is one of the least experienced. and experience basically, when you talk about experience, what do you really mean? you really mean judgment. or what's the opposite of experts is inexperienced. what do you get with inexperience is sometimes faulty judgment. i think the president obama is going to come out of this

midterm election a lot wiser, and i think some of the decisions might be different than he may have made last summer. and a last year when he could have said, shifted course when it became clear that unemployment was on a different trajectory and the economy was sort of war stubborn than anticipated. and that's my hunch, but we will see. so what's going to happen? just looking very briefly at the republican side, then we'll open it up for questions, comments or accusations. almost certainly running, minnesota former massachusetts governor mitt romney, and minnesota governor tim polin t. you know, that's pretty much there there. shocked if they didn't run. and then people who really, really really would like to run, but are not certain to make it, i think former alaska governor sarah palin, i think former

house speaker newt gingrich. he desperately would like to run. i think gingrich, i knew newt gingrich is, he is aware, i think he is aware he is a very bright, bright guy with a lot of ideas. a lot of them are good ideas. real creative thinker. also think he knows that he carries sort of mayflower van line full of baggage 90 and. and, you know, here's a guy who is very, very self-aware. and he's going to make a judgment call whether to do it or not. and i would say rick will look at a very closely. and we are looking at some of the people that may run, and these are some of the most intriguing people. mitch daniels, the governor of indiana who i've known for a long time, real bright guy. and haley barbour, the governor of mississippi. those will be too fascinating people if they decide to run. at the end of the day my hunch is they won't, but they will look at. congressman ron paul will look

at it again. senator john thune of south dakota may look at it. mike huckabee may take a look at it but i don't think he goes, and then we are keeping an eye on rick perry, the governor of texas. it could be a very, very interesting field, lots of fun people and i hope i don't, sound like a know it all. the only thing that we're certain about is uncertainty. i mean, this is a scrutiny business, weird things happen, that this is sort of my best cut on what i think is happening, why it's happening and what to look for for the next couple of years. thank you very much. [applause] >> if you're a political junkie, you're in heavy right now -- heaven right now. finally, a michigan man showed up on time.

[laughter] >> no offense, chart. he will be in the hallway if you do have any questions. he has offered to answer those for you. we are honored to have with us this morning michael barr, the treasury assistant secretary for financial institutions. assistant secretary barr is responsible for developing and coordinating treasury's policies on legislative and regulatory issues that affect financial institutions. the "national journal" says that its michael barr's job to help reconstruct humpty dumpty and prevent any future falls. sounds like an enormous task to me, and i'm sure it is in good hands. we previously -- he presented served in several high positions in treasury, white house, state department during the clinton administration. he has taught at the university of michigan law school, serve as a senior fellow at the center

for american progress, and at the brookings institution, assistant secretary barr was a rhodes scholar and a supreme court clerk. he has researched and written about a wide range of issues of financial regulation, and recently co-edited two books. it is my honor to introduce assistant secretary michael barr. [applause] >> i didn't realize -- i would have worn my michigan tie this morning. [laughter] >> makes my wife a little uncomfortable so she wouldn't let me put it on. thank you all very much for having me here today. thank you for that kind introduction. we're at a critical juncture in the course of financial reform, and that's what i'd like to talk to you about this morn. just over a year ago when president obama took office, the financial system, as you all know too well, was teetering on the edge. a fading financial system threaten to drag the economy into the depths of another great

depression. decisive action state off the worst. and yet the cost of every american of this financial crisis has been devastating, nonetheless. many have seen the house value drop precipitously, their savings threaten, jobs eliminated or reduced, their small businesses lose financing. the administration is pursuing a broad range of initiatives to help american families recover. they are encouraging signs that recovery is beginning to take hold. the administration's strong steps to restore confidence in the financial system helped delay the growth. the recovery act signed into law by president obama has helped businesses keep the doors open and workers to keep their jobs. but at this juncture we need comprehensive financial reform to rebuild our economy on a more stable foundation. the crisis reminded is painfully, painfully how much the larger economic depends on a

well functioning banking and financial system. our system itself was unstable. so unreliable it could collapse, seemingly overnight. it was inefficient, funneling trillions of dollars into a housing bubble instead of into productive investments that would grow the economy over the long-term. it was unfair. activity banks lost market share to less responsible competitors using risky tactics that hurt responsible families and small businesses. reform is about security for families and their savings. it's about laying the foundation for investments, small business and entrepreneurs. it's about creating a level playing field for responsible financial service providers. it's about promoting the growth we need to create jobs. we're at a critical time in our efforts to pass financial reform, we have a chance to enact the strongest most important financial reforms since those that followed the great depression.

we need to get the job done so that our country can focus all of its full attention on healing the damage that has been inflicted and rebuilding a sustainable economy for the future. i want to talk today about five reasons that we need reform and we need to get it done now. secretary geithner has repeatedly laid out his clear-cut case for reform. the five reasons why we need reform. the first reason, is that failures in our system were devastating. in the last two years, more than 8 million people's have lost their jobs. too many small businesses have closed in your communities, and others are struggling to find the credit they need to maintain operations and hire. american families have lost trillions of dollars in savings in home-equity. the damage, particularly to the middle-class, has been greater than in any financial crisis in generation. many factors contributed to this crisis, including unrealistic expectations about rising home

prices and widespread failures in corporate risk management. we will debate other causes for years to come, but there can be no dispute that the crisis was also the result of failures and government oversight due in large part by financial regulatory system, fell open to arbitrage, that it prevented a fast interest rates to the bottom in standards. has community banks know firsthand, we can fragmented regulation and enforcement has been a recipe for a vicious cycle. financial service providers were able to shop for the weakest regulation and the most compliant regulator. explosive growth in less regulated sectors about risk and leveraged to build up come even as it applied pressure on traditional banks loosened their standards. the regulators did not keep the standards from falling. by the time the acted to provide basic standards for the underwriting of subprime mortgages, the subprime mortgage implosion was nearly over. the country was already heading

towards the worst financial crisis in generation with a regular system that did not provide sufficient buffers and tools to minimize the damage from failing firms. these were the tragic end failures that should never, ever be repeated. the second reason we need reform is that the crisis has proven that market discipline alone is not enough. we all agree that market discipline is necessary and beneficial. but this experience has demonstrated that market discipline cannot effectively compensate for weak oversight. or regulatory gaps. at its peak, the shadow banking system, companies that engage in the business of banking but are not regulated as a bank, finance roughly a trillion in assets. the shadow system grew almost as large as the traditional banking system. it operate with little, if any, regulation on the assumption that market discipline was sufficient. but the market did not effectively discipline companies for the shadow banking system.

they committed massive risk and pressure traditional banks to engage in many of the same unsustainable practices. when investors finally lost confidence, the resulting run on both the shadow and the traditional banking system put the entire economy in jeopardy. we cannot rely on the same failed strategy in the same field regulatory system going forward. did the stable and efficient, markets need common sense. we need to bring derivatives trading out of the dark. we need to reform our securitization markets and credit rating agencies. we need to be sure that large interconnected financial firms are subject to comprehensive capital and supervision standards, whatever their corporate form. the third reason we need reform now is to generate innovation, sufficiency and economic growth. one of the great strengths of the american financial system has been the way it has channeled savings to finance future innovation. but in the run up to the crisis, that same system invested

trillions of dollars in a housing bubble while under investing in innovation, infrastructure, new technologies, and entrepreneurs. the business community cannot afford to lead the debate to the protectors of wall street. we cannot let the weakness of the current regulatory systems remain, less our economic recovery be erected on a crumbling foundation. now, the fourth reason that we need reform is that we are more quotable that ever for future crises. the obama administration when it took office acting quickly to break the back of the financial panic, we open market for equity capital and debt. we succeeded thus far at a much lower cost than almost anyone expected. if congress adopts the president financial crisis responsibility fee, we will succeed at zero cost to the american taxpayer. that we are still living, we're still living with the same flawed financial system that brought us to this point.

and without reform, the very part of the crisis response makes future crises more likely. without reform the expectation that some firms are too big to fail will survive. and risk will build up again in parts of the financial system where regulatory authority is lacking. we've got to close these loopholes so no major firm is gave serious oversight. we must have comprehensive reform of our financial markets, including derivatives transactions and securitization of mortgages. we must consolidate federal consumer protection into a truly accountable, truly independent body with a resources to maintain standards in every corner of the market. and we must end of the corroding perception of too big to fail. [applause] >> the final reason we need reform today is that the label increase uncertainty and it will undermine growth.

even with improving markets, many banks reportedly are lending less in part because of the uncertainty over the path of reform. delay hinders economic growth by prolonging uncertainty. delay hurt committed banks and their customers. the american families and businesses that are still struggling to rebuild what has been lost. everyone needs a stable and predictable financial system. wonder all financial services providers are held to the same minimum federal standards, and to conjugate on the hard work of recovery. we cannot afford any further delay. now, upwards of reform are seeking to delay or we can and are not speaking to the real interest of community banks or small businesses or american families. opponents of reform are sticking to protect vested interest that have benefited from the flaws in the regulatory system and want to perpetuate those flaws. the senate bill under consideration offers significant benefit to community banks.

the bill contains strong measures to put an end to the perception that some firms are too big to fail. this perception has given the largest firms and unfair funding advantage over smaller banks. the bill would explicitly mandate that a fading financial firm, a big firm like the firms that failed in its last crisis, would be sold off, broken apart and liquidated. culpable management would be replaced. predators would be allowed to suffer their losses and shareholders would be wiped out. by requiring assessment on the largest firms in the financial industry to recoup any expenditure, the bill makes absolutely clear that large financial firms, not taxpayers, not community banks, would bear any cost associated with the resolution of a failed large financial firm. [applause] >> now, anyone who argues the senate bill perpetuates taxpayer bailouts just hasn't read the

bill. the bill would level the playing field for traditional banks by applying the same minimum standards to unbreakable and financial firms in the shadow banking system that compete with you. today, more than 15 times as many federal dollars, for example, are spent on consumer protection oversight of banks as on non-bank financial service providers. the senate bill's bureau of consumer financial protection would have a mandate to address that imbalance and ensure high standards across the marketplace. community banks would continue to follow the same federal consumer laws they follow today, but with assurances that their competitors would be held to the same high standards. consolidating consumer protection into a single accountable body will prevent the largest banks from shopping for the weakest protection standards. consolidation means government could act much faster to address emerging issues. months rather than years of to federal agencies to have common sense of the rules on subprime

mortgages. consolidation means that a single federal agency can and should be held accountable for examining and enforcing federal laws against the financial service providers that pose the most risk to consumers and fair competition. very large banks, companies in the mortgage business and other non-bank financial service companies. in the coming days and weeks, we are pressing to finish the job of financial reform. the urgency of reform is increasing, not decreasing as the crisis recedes. it has now been two and a half years since the crisis started. it has been 10 months as president obama first let out a proposal for reform. it has been four months since the house passed a major reform bill. now the senate is preparing to act. as the president said last week, wall street reform is an essential part of the foundation for economic growth. as we seek to provide this economy, it is incumbent on us again to rebuild it, stronger than before. we welcome the significant

contribution that community banks can make to commonsense reform and to recovery of the broader american economy. thank you been much. [applause] . .

>> you could see live coverage

here on c-span2. the house also meets today to consider bills naming post offices, legislation in the house beginst 2:00aste on c-span. >> tonight a discussion on fcc policy with one of the newest members of the commission mignon clyburn talking about the what the comcast decision means for net neutrality on the communicators on c-span2. >> meet the grand prize winners of c-span's studentcam video documentary competition tomorrow morning at 9:15 eastern and see all the >> while the u.s. senate continues a start on new banking legislation, the effective on the government's programming created to help homeowners facing foreclosure. the house financial services committee heard from the heads

of home mortgage banks jp morgan chase, bank of america,in >> the hearing will come to order. i apologize for starting late. the ongoing question of how do we deal with the foreclosure crisis is before us. and i should be clear, our major motivation here is the problem of mortgage foreclosure is a damage to the economy. this is a fundamental problem that we've got. and it is a consensus that one of the obstacles to the fullest recovery that is possible is the overhang in the housing area. we have no magic wands to wave or buttons to push.

there are a series of efforts -- one of the thanks became clear to us as we talked about it is the question of the interrelationship of first mortgages and second mortgages. and we have been talking to investors who own first mortgages to services. the institutions here have a significant number of second mortgages that they own. and we would like to find out what can be done to help resolve this crisis with regard to second mortgages. and in particular we would be interested to know what people plan to do with them and if there is obstacles to doing something, how can we either be helpful or maybe persuade people to do more. and i will now preserve the balance of my time and recognize the gentleman from alabama. >> thank you, mr. chairman. i thank you for holding this important hearing on the issue of modifying mortgages on properties. having multiple debt obligations

or second liens. i'd also like to thank our witnesses for being here today. we look forward to hearing from your testimony. preventing avoidable foreclosures is a serious issue for homeowners that has a great impact on our economy and on the communities in which those homes are located. the leading credit research provider estimates the four institutions testifying before the committee today hold $423 billion in home equity loans including 151 billion in loans to borrowers who are either under water or close to it. further research shows that at least 51% of first liens also have a second or subsequent lien. this presents real problems for homeowners with multiple liens on their property. as well as for bank balance sheets and securitization markets. it also impacts our prospects for housing market recovery as the chairman mentioned.

mr. chairman, many of the well intentioned foreclosure mitigation programs have already failed to accomplish their mission. and many believe that this latest attempt by the administration to, quote, fix the home program will little do for home mortgages. it has created uncertainty in the market and encouraged homeowners and creditors to wait for the next best offer rather than take actions related to distressed mortgages. additionally many americans continue to be concerned about the inherent moral hazards of these foreclosure mitigation programs. it is fair to provide taxpayer -- is it fair to provide taxpayer funds to overextended homeowners who have fallen behind on their mortgages while homeowners who have been struggling to stay current and meet their commitments receive no help. i think not.

it also, i think, ignores the problem that many homeowners do not even have a mortgage or second liens. and most do not have second lien. it's inherently unfair to guarantee and participate in programs to help others. critics of the programs mocks the hard work and foresight of those who have made larger down payments or took out smaller mortgages to buy more affordable homes and now struggle to make their monthly payments. now these responsible homeowners are forced as taxpayers to foot the bill for rescuing their less prudent neighbors. and once again the administration intends to use t.a.r.p. funds to pay for these newly announced initiatives designed to pressure banks to modify troubling loans. intervention and bailouts must end. it's particularly troubling to

me that banks are being told to forgive principal when many of them have said they would rather reduce the interest rates. when the government gets into that detail in trying to force banks or coerce them into forgiving principal i think that's a slippery slope. instead of new programs and new bailouts, congress should focus on job creation policies as the best way to help homeowners make their payments. prevent more foreclosures and get our economy back on track. that includes reducing our debt. which will keep interest rates low. the market needs to find its own footing free of government intervention and manipulation so we can revive our economy and get on with the full housing market recovery. and i know it won't be easy. i thank again the witness for being here. i yield back the balance of my time.

>> the gentleman from north carolina is recognized for 3 minutes. >> thank you, mr. chairman. the four banks represented today service about two-thirds of all distressed home mortgage loans. the same four banks own between 400 and $500 billion in second mortgages. secured by the same distressed assets. the value of which would be directly affected by decision to modify the first mortgage or to foreclose or to extend and pretend. it is hard to understand why servicing a first mortgage on behalf of investors while holding a second lien on the same property is not an irreconcilable conflict of interest between servicers and investors. why is this not a breach of fiduciary which is fraud under the common law. it makes no sense as the testimony here today will tell us that second mortgages are performing better than first mortgages. that makes no sense for the homeowner. are servicer telling homeowners to pay the second mortgage before they pay the first. and if they can only pay one.

congress and the industry investors should begin by asking whether there is any plausible reasons to continuing to commit servicers to own debt by home the secure of mortgage they service. hearing none so far i've introduced with mr. ellison legislation to prohibit one bank, one entity from doing both. thank you, mr. chairman. >> the gentleman from texas. 3 minutes. >> thank you, mr. chairman. today we will examine the fifth or sixth iteration of the same failed foreclosure mitigation plan. offered by the obama administration and congress. it is a policy that still throws mud on the wall to see what sticks. it's very expensive mud. it belongs to someone else and by the way none of it is sticking. we have one of the highest default rates. the h.a.m.p. and h.a.r.p.

programs have a stated goal of 3 to 4 million. most studies show that at least 50% of those who have their mortgages modified will again redefault. besides being a highly ineffective program it is an unfair program. it is yet another chapter in america, the bailout nation as co-authored by the president and by speaker pelosi. it takes $50 billion from taxpayer or borrows the money from the chinese to bail out banks that made bad loans. and to bail out many who bought more home than they could afford. speculated in residential real estate or used their home equity as an atm. we must remember that 94% of americans own their home outright. they rent or they're current on their mortgage and they are being asked to bail out the other 6%. it's a policy that says to the

citizens who work hard, who live within their means who save for a rainy day, you are a sucker. when you're struggling to pay your own mortgage, you shouldn't be forced to pay your neighbor's as well. the program is unfair to taxpayers according to congressional office, general accountability office. they say h.a.m.p. from -- who will absorb losses curiously the word "taxpayer" is never mentioned. finally, the program hurts our economy. it fails to recognize that the only effective foreclosure mitigation plan is a good job with a steady paycheck and a bright future. unfortunately, under the policies of this administration, and of this congress, over 7 million of these jobs have now been lost. by creating an unpredictable artificial market investment

capital remains on the sidelines thus h.a.m.p. is hampering economic recovery. in a sea of debt i think we can better use the 50 billion to put forth a plan to pay down the debt and put the nation on the road to fiscal sanity. that would create jobs and thus have effective foreclosure mitigation for the nation. i yield back the balance of my time. >> i will yield myself 30 seconds and then yield for his final statement. i would just say when the gentleman from texas talked about the bailout partnership between the president and nancy pelosi, i gather he was chronicling a george bush/nancy pelosi cooperative arrangement since every single bailout as it's described now began, of course, at the request of president bush. although they are being continued by president obama. >> would the president yield -- >> the gentleman was preparing his response without listening to what he was going to say.

i'll repeat it and give myself another 15 seconds. every single bailout in america that's undergoing down which begun at the request of and a unilateral decision of president bush. what we then have with president obama continuing those bailouts. that's what i was saying. >> mr. chairman, could i have 30 seconds? >> mr. chairman, i think the american people at this time -- they're really not interested in whether it was president bush, whether it was president obama or whether it was democrats, whether it was republicans, whether it was the congress. whether it was the administration, even whether it was wall street. i think their main concern is where do we go from here? and so i think we ought to focus -- >> i would yield myself -- i would have been more impressed with that if the gentleman had said it after the gentleman from texas blamed the president, meaning president obama and speaker pelosi. yes, i agree. i did not -- until the gentleman from texas said this president i assume it's president obama and speaker pelosi. so i appreciate the gentleman's comments.

it came a little bit too late. the gentleman's time has expired. the gentleman from texas. >> mr. chairman, having been here, mr. chairman, when the request was made for a toxic assets program to be implemented and seeing the capital program being implemented, i do have some degree of institutional knowledge in terms of what actually occurred. and my hope is that we can get behind the finger-pointing. but my sincerest thought is we will not. hence, the truth has to be told. and it is only by telling the truth that we will make it clear to future generations what exactly occurred. two points. one, we do have to concern ourselves with what we call moral hazard. what we also to have concern ourselves with is the immoral hazard.

the moral hazard has to do with the possibility of persons taking advantage of a program specifically designed to help persons in times of need. the immoral hazard has to do with doing nothing after having seen millions, more than 6, go into foreclosure do nothing and watch millions more go into foreclosure. that's an immoral hazard. we have a great challenge before us. if we do nothing, the impact on the economy can be devastating. if we do nothing, the moral hazard will be secondary to the immoral hazard of having done nothing at a time when we are called upon to do much. i think we have to simply understand that we are here for a purpose. we are here to make sure that moral hazards are avoided.

and to make sure that we don't engage in the immoral hazard of doing nothing. i would yield back the balance of my time. >> we will begin with the statements and we begin here with the president of the bank of america home loans. >> thank you, chairman frank, ranking member baucus and members of the committee thank you for the opportunity to discuss bank of america's loan modification performance. providing solutions to distressed borrowers remains a critical focus and in the past two years we've helped more than 560,000 customers with the permanent modification including 33,000 under the home affordable modification program. modification efforts have been successful in helping many customers stay in their homes. but there's a limit to what the current programs can accomplish. today, i'd like to discuss the number of customers that we believe we can still assist with h.a.m.p. as well focus on the whole of principal reduction and second liens.

in our total portfolio 14 million loans, bank of america has 1.4 million first mortgage customers who are more than 60 days delinquency. -- delinquent. of that number, 621,000 customers are eligible for a mortgage modification through h.a.m.p. now we arrive at that number by subtracting customers for whom h.a.m.p. was not intended. this includes both with nonowner occupied or vacant homes, the unemployed, and customers with a debt to income ratio less than 31%. for those customers who fall outside of the scope of h.a.m.p., bank of america continues to offer proprietary monetary solutions. to date we've made h.a.m.p. trial offers to 391,000 customers. however, despite aggressive outreach including face-to-face visits to customers homes we have not experienced the kind of response rate we anticipated. in addition, a significant

number of customers in the trial modification period are not completing the requirements to maintain permanent modifications. now, we continue to look at ways to evolve the programs, to achieve higher customer acceptance rates. efforts on principal reductions and second liens are example of those. bank of america is supportive of principal reduction for customers who are experiencing hardship and have extremely high loan-to-value ratios. we recently announced enhancements to our own proprietary homeownership program with an earned principal forgiveness approach which strikes we believe the necessary balance between customer and investor interests. we understand that there are questions about the impact of second liens, bless you, on loan modifications and the use of principal reductions. second liens need to be a part of the modification process.

however, we believe broad scale extinguishment is not the solution because the majority of seconds do have value. out of 2.2 million second loans in bank of america's held foreign investment portfolio, only 91,000 are delinquent and also behind a delinquent first and not supported by any equity. now, important to note that in our first mortgage held for investment portfolio, we have already been modifying first including principal reduction regardless of whether or not there's a second loan behind it. -- lien behind it. we've modified many second lien loans and written down a significant number of second let me loans as well. -- second lien loans as well. there's many to be done when the first lien is held by the investor and we believe a solution is contained within the treasury's second lien program known as 2mp. with 2mp the older of the second

lean is required to forebear a similar percentage as the first lien holder. we would advocate working on a similar industry-wide process that would require the second lien holder to take a principaled balance reduction proportionate to the first lean holder. bank of america's is a proud participant in 2mp and on april warm-upst became the first mainly loan servicer to begin mailing trial modification offers to home equity customers under the program. now, despite these considerable efforts, not everyone will be able to afford to stay in their homes. given the depth of the nation's recession, a considerable number of customers will need to move from homeownership to rental and other housing solutions. bank of america is committed to passionately and responsibly helping our customers make this transition. we recently launched the treasury's home affordable foreclosure alternatives program

on april 5th and have implemented our own expanded short sale program to help customers avoid the stigma of foreclosure and reduce the damage done to their credit. for those not interested in the short sale process as an alternative, we're stepping up efforts to provide incremental cash, incremental funding excuse me for our cash for keys program. we will tip to partner with public policy officials, community groups and most importantly our customers to provide a dignified transition where required. at bank of america we're working to balance the needs of customers, investors, shareholders and the communities we serve. we take very seriously our role in helping customers as well as restoring confidence in the u.s. housing market. we appreciate the leadership of this committee and we'll continue to work with you to develop solutions on these critical issues. thank you.

>> i explained we had four banks here to bring a high ranking official and if they wish to bring someone for technical backup, we're well aware of the importance. [inaudible] >> mic? >> oh. i'm just explaining that we're going to be calling on every other witness because we have high ranking executives and they are accompanied by other executives who have the kind of knowledge that will be helpful together in answering the questions. the next witness is the chief executive officer of citi mortgage. >> chairman franks ranking member baucus. i'm sanjiv das ceo of citi mortgage.

joining me is steve hemperly and i'm honored to be given the chance today to describe our efforts. as citi's ceo, we owe a debt of gratitude to the american taxpayer. and we believe it is our responsibility to help american families in financial distress. and in particular to help families stay in their homes. we are committed to modifying loans for borrowers facing hardship while providing new loans to help americans in this difficult time. i joined citi in july, 2008. and in my role as ahead of citimortgage i managed the efforts to help families have their dream of buying a home and making their homes affordable. citimortgage has a long history of helping homeowners. just last year we originated mortgages to approximately

336,000 homeowners totaling $18.5 billion. also last year we helped 230,000 borrowers refinance their primary mortgages. and in the midst of this housing crisis, we have put considerable resources towards helping our customers who are facing financial challenges remain in their homing. -- homes. we describe our lending and foreclosure prevention efforts in detail in a quarterly report that we release publicly and post on our website. citi has worked closely with the u.s. treasury in develops and executing making the home affordable programs. since 2007 we have helped more than 825,000 families in their efforts to avoid foreclosure. we now have over 1400 new employees dedicated to supporting our foreclosure prevention efforts and have trained more than 4,000 employees to assist borrowers. our focus has paid off.

we are ranked at the not the top the top. and we were able to help and their efforts to avoid foreclosures by a ratio 15 to 1. our goal is to work with our customers to find the most affordable solutions. and to assist those who are in need. at citi we have addressed affordibility with programs which go beyond high temperature. -- h.a.m.p. we believe they are timely and most importantly effective. our programs address core issues which borrowers face such as unemployment, imminent risk of default and the need for alternatives to foreclosure for those not able to afford owning a home. we have used and continue to use principal reduction as a solution. two days we have been able to address the needs of our

borrowers on a case-by-case basis tailoring for a family's unique needs. we do not believe there is a one size fits all approach to affordibility. the proof of this is in our low default rate which continue to rank significantly lower than industry averages. we caution that applying principal reductions on a broad scale could raise issues of fairness among consumers. we have also signed up for the treasury second loan program. we expect these changes to result in more principal reductions going forward and we will continue to be thoughtful in how we implement these programs. just as h.a.m.p. is not the only solution for all consumers we believe principal reduction is not the only solution for those who are experiencing financial hardship.

while we have made progress, i fully appreciate there is more work to be done. we are staunch supporters of treasury's programs to help consumers because we believe that action among all banks will prove to be more powerful and ultimately more effective than individual bank actions. in addressing consumer financial hardship. let me conclude by restating our unwavering commitment to helping american families during these challenging times. all of us at citi remain focused on achieving affordibility in a responsible manner while helping families stay in their homes. thank you, mr. chairman. and ranking member baucus, for the opportunity to speak before you and the members of the committee. i'll be happy to answer any questions you have. >> next we have david loman who's thehief etive office at jp morgan chase home lending. >> chairman frank, ranking member baucus and members of the

committee, thank you for the opportunity to appear before you today. my name is david loman. i'm and the chief executive officer of the home lending businesses of jp morgan chase. i'm joined today by my colleague molly sheehan. jp morgan chase shares your commitment. at chase we are keeping them in their homes by making their home payments affordable. to date we have helped prevent over 965,000 foreclosures through h.a.m.p., our own proprietary modification programs and other programs. in addition we have refinanced nearly $16 billion of loans under h.a.r.p. h.a.m.p. modification performance has been strong helping homeowners achieve affordable mortgage payments. at chase we are now completing more than 10,000 permanent modifications per month. and on average homeowners are receiving a monthly payment

reduction of $548 through their h.a.m.p. modification. that represents on average a payment reduction of 29%. in addition, we are adopting and implementing the home affordable foreclosure alternative program and the second lien modification program to help more borrowers. we actively use temporary forbearance agreements for unemployed borrowers similar to the program being contemplated by the administration. you have asked us to focus our testimony on second liens and principal forgiveness and i would like to make some points on these efforts. we have given these issues a great deal of thought and my written testimony contains the results of our extensive analysis. there have been many questions about the role of second liens in the process of helping borrowers. we estimate that 70% of the first liens in our servicing portfolio are unencumbered by a junior lien. 95% of our second lien borrowers continue to pay as agreed.

even among loans that are under water, 95% continue to pay as agreed. more than 90% of the customers with loan to values greater than 125% continue to pay as agreed. in our experience second liens are not an impediment modification. our h.a.m.p. modification completion rate is virtually the same whether or not we are aware of the existence of a second lien. it's important to distinguish between payment priority and lien priority. in almost all scenarios second lien holders have rights equal to a first lien holder with respect to a borrower's cash flow. the same is true with respect to secured or unsecured debt such as credit cards or car loan generally consumers can decide how they want to manage their monthly payments. it's only at liquidation or property disposition that the first lien investors have priority. we routinely modify our second

lien whether or not we own the first mortgage. we have offered almost 54,000 second lien modifications over the last 14 months. 12,000 of which have been made permanent. approximately 45% of these were on loans where we did not service the first lien. on the topic of principal reduction, there are certainly individual cases or even segments of borrowers were principal reduction may be appropriate. last year we began testing reduction programs for high risk borrowers to see if it could be effective. once we see the results of these tests we will be able to evaluate the effectiveness of a broader principal reduction program. but we're concerned about large scale broad-based principal reduction programs for both first and second lien mortgage loans and particularly for current borrowers with an ability to repay their obligation. our first concern is that such programs could be harmful to

consumers, investors and future mortgage market conditions. and should not be undertaken without first attempting other solutions including more targeted modification efforts. broad-based principal reduction could result in decreased access to credit and higher cost for consumers because lenders will price for principal forgiveness revoke. there's a principal of cast a principal reduction program could have an industry wide cost of $700 billion to $900 billion by our estimates. the cost of fannie mae, freddie mac and fha alone would be in the neighborhood of $150 billion. in addition, let me emphasize that we have contractual obligations to investors including fannie mae and freddie that generally do not permit principal reductions. responsible lenders and major servicers are offering programs

that incorporate principal reduction features for borrowers who most need that type of assistance based on the characteristics of the particular portfolio of loans. we believe these types of targeted solutions are more appropriate. thank you for your attention. and i'd be happy to answer any questions you may have. >> next mike hyde president of the wells fargo mortgage. >> i'm mike hyde, copresident of wells fargo home mortgage and i'm here with kevin moss executive vice president of the wells fargo home equity group. i'd like to begin by stating what we wells fargo believe is an overaveragirching issue. the needs and interest of homeowners in financial distress must be balanced with those who have remained current in their mortgage payments. while much focus deservedly directed to consumers behind on payments we cannot lose sight of the 91% mortgage customers are

current on loans and 3% of our home equity customers with two or more payments past due as of the end of 2009. with that perspective in mind let me address the assistance programs already underway and the programs announced in concept on march 26th. first, for years we offered a short-term relief option that since january 2009 who have helped customers who have experienced unemployment or underemployment. it appears that treasury's new temporary assistance program is consistent with our own. if that proves to be true when the details are released, we could put this enhancement into practice in a matter of weeks. second, more than a year ago, we began using principal forgiveness as an element of our wells fargo loan modification program for certain portfolio assets. in 2009, we completed more than 50,000 such modifications with a total reduction principal of more than $2.6 billion. granting immediate and permanent principal forgiveness not an earnout over time.

on average, customers received a 15% principal reduction amounting to more than $50,000 and when combined with rate reductions and term extensions dropped their monthly payments by 25%. principal forgiveness is not an across-the-board solution. not every homeowner with a loan balance that exceeds the value of their home falls behind on their payments. they are doing to stay current in their payment obligations and protecting their credit standing. for this reason principal forgiveness needs to be used in a very careful and focused manner. through experience we have found that it's best used to assist customers in areas with price declines where there's little prospect for full recovery of home values. further, they have suffered financial hardships but continue to have sufficient incomes to afford a lower modified home payment and want to remain in the home. in 2009, the redefault rates on these loans were less than half the rate for similar loans in our economy.

in 2010 we expect to use principal forgiveness on the same basic tenants. -- at the timets. -- tenets. on any accounting issues we plan to implement the h.a.m.p. enhancements for first and second liens modifications as rapidly as possible. with respect to h.a.m.p. in general, from the very beginning we have said it's only part of the story when it comes to helping homeowners. since the beginning of 2009, we have initiated or completed more than half a million mortgage modifications, three-quarters of which were done outside of the h.a.m.p. program. wells fargo is doing three modification as a standing practice before we move a home to foreclosure sale we ensure all other options are exhausted. with respect to hud's new fha re finance program also announced in concept on march 26th, implementation will require significant work. as one of the two largest fha lenders we intend to offer these

refinance opportunities and plan to closely follow the guidelines set by first lien investors including fannie mae and freddie mac. in our home equity portfolio we stand committed to ensuring second liens do not prevent such refinances from occurring. in closing, our efforts to assist customers today are very different than they were a year ago. for instance, we have assigned one person to manage the loan modification so by june a customer will know he or she is dealing with from start to finish. we've hired 10,000 home preservation staff for a total of 17,400. we've expanded 27 home preservation centers to provide face-to-face help and we've instituted a five-day credit decision turn-around for customers who provide all of the required documents. wells fargo will work on balance issues to considers all the needs of our customers and our investors and our country. thank you very much. and i look forward to your questions. >> mr. chairman prior to the

five minutes each and i want to say this and i want to compliment you. i'm not sure we had an intentional thing we had this hearing at 12:00 and 10:00 you know the testimony usually comes in at night or late afternoon as it did yesterday. we were able, many of us were able to read the testimony this morning prior to the hearing. which was a great help. i think that it makes for a better hearing. >> i appreciate that. i don't know if we want to set the precedent of members having to read the testimony. but -- [laughter] >> i was able -- that's clearly something intentional. we were able to do it in part. look, we have a lot of requests for hearing. we have a hard time accommodating them all. they put a lot of strain on the people who work for us. what i did today was -- we're not voting till 6:30. that's one reason we were able to do this at noon we're not going to be interrupted. i should let members know, you

know, i feel terribly guilty very busy people private sector, public sector, profit, nonprofit when they sit for an hour while we commemorate some baseball game over on the floor of the house. so i was able to move it to that time, which i agree is a better time. and we'll work together as we have done maybe to pick some other days when members are coming and we start a little early. but that was made possible on the fact we didn't have any votes. let me just begin with some agreement that, yeah, not everybody who's in default is going to get help or should be helped. there are people who made mistakes. and misjudgments. and i have long felt that we were pushing too many people in the homeownership and not doing much for rental housing. that was no favor to anybody. i also believe when you're talking about people who had a loan and then took another home equity loan and enjoyed the fruits of that, those are not

great objects of sympathy where people cashed out their ability. on the other hand there are some categories of people who i very much want to help. let me talk to individually, do you differentiate on unemployed? i think that's something we should do. which is yeah, you can talk about people who were either because they were persuaded to or they made misjudgments or some combination of fault that's one thing but there are people who are unemployed and you can't pay your mortgage out of unemployment. those are people who seem to me no one should be arguing would be -- i don't think it's moral hazard. i don't think anybody is going to get on board so they can get a mortgage reduction. let me go down the list. do you differentiate at all based on whether or not people have been unemployed through no fault of their own? >> yes, we do. under the new treasury guidelines as well there's a standard of three to six months forbearance of payments. >> three months -- i wish i could say that unemployment was so transitory that three months made a difference.

i'm disappointed in the obama administration here. i think that is insufficient. do you agree beyond that in your own judgments? do you take that into account? >> well, each one is really a very customized solution so it depends on the state of delinquency at the time that the request was initiated and that sort of thing. so occasionally we do. but usually it's within that time frame. and also there are -- >> i understand what you said. but i don't see any reason for being -- not being very sympathetic to people unemployed. >> chairman frank, i think you raise a very important point. the unemployed group of people are essentially the ones who are getting hit by a double whammy here not only with house prices coming down but also losing their jobs. we had the perspective of a year's advantage because we launched an unemployment assist last march so we learned a few more things prior to the administration's new program. what we learned, sir, was that

three months -- between three months and six months to the point that you made earlier, we didn't -- we didn't want a program to be so long that it would change people's employment-seeking behaviors. and what we learned it actually doesn't -- >> i find it hard somebody is just not going to try to get back to work. >> and that was our experience as well. we found people looked for work. many of them found work. but more importantly, many of them found an alternative solution in terms of h.a.m.p. with us. and so i would strongly recommend that -- >> mr. lowman. >> chairman frank, as i mentioned in my testimony, we had a program that, you know, provided forbearance to unemployed borrowers. it's been a part of our practices for a while. and we obviously embrace new changes in the h.a.m.p. program that provide the same. >> mr. heid? >> yes, we've done this for years.

and i think in addition to what's been said, the key is to make sure that the customer has the desire to remain in the home. >> and i would think the question of fairness to people paying their mortgages and the question of moral hazard seem to substantially recede when you talk about people unemployed and i believe with regard to public money we give money to people unemployed. we do other things. i would hope we would be forthcoming about that. let me ask quickly, if the holder of the first mortgage is ready to do some principal reduction and you hold the second mortgage separately from that, are you prepared to do a proportional reduction? let me start with mr. heid? >> yes. especially under the 2mp program which has been mentioned earlier. that would be required -- the other thing i'd say in the 50,000 principal forgiveness modifications that we did as a first lien holder we did not

condition that -- >> but not everybody is not as nice as you are, maybe. you would accept the proportion on the second if there was going to be a reduction on the first? >> yes. >> mr. lowman. >> as part of the 2mp program we would consider the same. >> actually, we're using the fdic program prior to the 2mp programs obviously with the 2mp programs we will. when we modified the first we automatically modified the second. >> i know bank of america is doing that. my time is expiring. i would ask you all in writing to let me know of any circumstances in which there was a reduction that was going to be made in the first but you would not accept the proportional reduction in the second. i would like to know if there are any category of cases where obviously on both it's not much of an issue. where you own the second and don't own the first are there cases of categories where you

would resist a proportionate reduction because i'd be honest if there were i'd be trouble by that. the gentleman from alabama. >> mr. chairman, i'll say this to the panelists, what we're talking about is forgiveness or what we're talking about is a benefit or -- really a modification of the contract. and i think it's important for all of us to know that any time you create a benefit or an entitlement and whatever you call it, you create a need. mr. henserling often says if you build it, they will come. and that's one of my concerns here. mr. lowman said 95% of borrowers are currents. -- current. so my first concern is the social cost. are people going to say it's not fair to me? somewhere down the line i have

to pay for this. so that would be one of my concerns. equal treatment. is it going to create more -- really late payments and things of that nature? the second is the cost of mortgages going forward are going to be greater. it's impossible to start modifying contracts without that showing up. in subsequent contracts because people are going to protect themselves from the risk that wasn't there before. and a lot of this -- i actually -- jp morgan chase's testimony, ms. sheehan and mr. lowman was very good. and i think it was a thoughtful analysis. there is going to be a cost to everyone else in this. the third one -- and this is something that we ought to all be concerned about. i think the greatest cost is going to fall on those with less

than perfect credit in the future. because it's going to raise the -- what their down payment -- some of that may be good but some of it may be -- make it very hard for them. it's going to increase cost to those with less than perfect credit going forward. because sooner or later, they're going to have to shoulder the benefit. and these are people that probably would not have defaulted. so my question are going to kind of concern those things. first, mr. lowman, you talked about an industry wide cost of 700 to $900 billion. and that's a large cost. and how will the industry work through -- work through it its under water borrowers in the near term or maybe a better question, will this cost necessarily be incurred or passed on to other borrowers in the future? i mean, how will it be made up?

>> well, i think the cost obviously is great for everybody that holds loans, right? every type of investor with their banks or private investors or what have you. to the extent we were required to, you know, forgive those loans, it certainly would be a hazard and a risk that they would, you know, have to bear in the future. and as a result we would -- we would either do one of two things. we would increase the down payment requirements to protect ourselves from that in the future. or raise the prices or both. so i think the cost of homeownership in the future would be greatly increased as a result. >> does the other three institutions agree with that analysis? >> yes. >> yes, i would agree if there were wholesale reductions but that's the total amount and i

view that as hypothetical because of constraints that exist that i believe would stand in the way of ever reaching that number of making 100% of the borrowers whole. >> i'd agree with that. i would say that the only other issue that i agree with, barbara, that it is, in fact, hypothetical but i would expect it to increase. i think in trying to solve for low redefaults you want to actually increase the number of defaults if we do things like this. the cost would be higher. >> the risks are described are very well and they need to be taken into account. >> thank you. yeah i also would like to hear from the regulators. i don't know that bank regulators would want lenders to take such risk -- some of the risk that may be associated with this type of program. it certainly will have an impact on the financial -- the financials of the company. let me ask all of you this in conclusion. the rollout of this 2mp program

will not be effective until september of this year. but under this program a servicer cannot execute a foreclosure until all available modification options have been tried. and i know the chairman has asked y'all to write a letter basically saying that you'll agree to that. does this -- does this cause particularly with the september 10th rollout, does this basically really operate almost like a six-month mortgage foreclosure moratorium? >> i'll take that one. the 2mp operates as a modification of the second deed of trust after the first. -- the first mortgage has been modified into a permanent modification. so the foreclosure event has passed. as long as that first mortgage modification continues to perform. and then it's just a difference in timing between the modification of the first and

the second. >> do you think that this will be sort of viewed as a mortgage foreclosure moratorium? >> i don't think so, no. >> how about the other institutions? >> i think the piece that is getting lost in some of these broad sweeping delays on foreclosures the fact that there are a number of vacant properties that are also getting swept up in that. communities are being harmed by the fact that there's a vacant property sitting there. can't move the process forward. and i don't believe that was the intent. but that's one of the casualties of the process that's now unfold. >> so it does have a tendency to slow the foreclosures? >> yes. >> would the gentleman yield. i just want to make clear, i wasn't -- mine was contingent. i want to know if the first is modified would they modified the second. that doesn't impose a requirement to modify the first? just where -- they can do that in and out of the 2mp program there's nothing stopping them. >> it would still be voluntary on everyone's part; is that

correct? >> well, i understand it unless we change the law, yeah, it's voluntary. i voted for bankruptcy. but it didn't win. >> you know, we have a tendency to all of a sudden say you made a commitment to do something and, you know, i didn't know whether these letters would -- you know, when you say assurances, you know, i don't know what that means going forward. >> the gentleman from pennsylvania. >> thank you, mr. chairman. i'm sitting here asking myself a question of why are we here today? it seems y'all are very happy with what's happening in 64% of the market that you control. and i haven't heard anybody make a suggestion that you have a plan or you're able to put a plan together better than what's presently being implemented. is that a correct hearing of what your testimony is? >> sir, i would disagree with that. and the kinds of recommendations

are to embrace the programs that have just recently been announced. and launched 2mp we started mail our first trial modifications into that program april 1st. the home foreclosure short sale program just went into effect april 5th. there is new performance that will indicate whether, in fact, there is further impact that can have and finally the principal reduction and things like the fha refinance that's been recommended won't go in effect in the fall. so i think there is certainly more that needs to be done. i think in our testimony what -- >> well, i'll ask the question if i may. i'm limited in my time. do we have to do the extra work here in the congress or is the private sector able to come up to the solutions to this? it seems to me the four institutions at that table can't get together and conspire but if you came up with good ideas and implemented them, it wouldn't require the congress to take

action. >> i would say that's already occurring. each of us stated the loan modifications that are happening outside of the various government programs so i would say the private sector is already stepping forward. >> very good. now the only question in listening to the testimony, it doesn't seem that the numbers are very high with what's being done as of this present time. there are a hell of a lot more potential foreclosures out there that may be caused or come about because we haven't arranged things. is that a correct impression on my part? or do you think you're at the absolute optimum level to do and what you're doing is going to satisfy market? because i want to make just the observation, you know, we've talked about -- certainly we want to help homeowners stay in their homes if they want to. but let's not miss the fact that we're trying to get the economy stimulated. and if we can get homes being sold again and financed again, we can change the recession to a recovery. and we can be on your way to some good ties.

but i'm getting the impression from the testimony of the witnesses thus far and everything is hunky dory and we don't really have to do anything. and i'm wonder why the chairman got me back so early for the hearing. >> would the gentleman would yield because i sometimes find having called a hearing things get hunkier and doorier between the time that the hearing is called and the time that we hear the testimony. [laughter] >> good observation, mr. chairman. i heard one part is that does disturb me. mr. miller in his introduction talked about the internal conflict the servicer and a lien position and, quite frankly, maybe you are marvelous in your approach in the private sector that that conflict never arises but i have a hard time believing that. and i'm wondering do you see a need for us to address the issue of separating and taking away that conflict of interest that either you can be an owner of a

lien or you can be a servicer of a mortgage but you can't be both? can i just have your expressions on that? >> i do not feel that that is required when you look at our portfolio first mortgages about 30% of them have a second lien behind them. about half of those is us. half of that is another investor and i think i heard another competitor say a similar statistic. but as i mentioned in my oral testimony and my written testimony, that we are doing modifications. but the issue is that a holder, an investor, would not want to make a principaled reduction that could benefit the cash flow of the borrower if that borrower turned around and used that cash flow to pay a second. and that's why our recommendation in the testimony is to further advance 2mp from principaled forbearance on a shared percentage on the first

to the second to principal forgiveness against the first and the second and the similar percentage would help resolve that. >> i would add to that. we all have requirements on us to service the first mortgage appropriately. so i think that topic and that issue is getting lost in the mix. i would not -- i do not believe it's appropriate to legislate this matter. and i think the customer choice is really the missing piece in terms of where the cash is being sent. it's not because there's a shifting of cash between first and second in the portfolios or anything of the sort. >> do you really think the customer really has anything to do who is servicing the mortgage? >> no i'm saying the customer is choosing which bills to pay. >> oh, on paying the bills. but not under the advice from the servicer or not with any coercion or any thought process? >> that's my belief. >> i would attest to that. i would say the modification on the first mortgage which happens to be the single biggest debt

for most consumers has been the one that we have led with as opposed to what the investors might want in this case. but i think what we've really tried to solve for here is solving the greatest source of distress for people. and to help keep them in their own homes. the issue in separating the two is that as we know there's about $440 billion that are in second mortgages and there wouldn't be enough liquidity if we didn't have the same services, servicing the first and the second. i think we have a second amount of liquidity in capacity that really what we need to look at but there is no conflict. >> the gentleman from texas. the gentleman from illinois, i'm sorry. the gentleman from noise. -- noise. -- illinois. i go back. that's the list that i got. >> thank you.

>> so when i listen to your testimony as you went down the line here i heard you talk about -- some of you participated in the h.a.m.p. program and then others have done things in the house and i think you used the word proprietary. what i also heard was the h.a.m.p. program has not been overwhelmingly received or effective up to this point. so i guess the question just to kind of go down the row there is, you know, why isn't the h.a.m.p. program working? and are your proprietary solutions better than the h.a.m.p. program? >> it very much depends on the circumstances of the borrowers. i think the advantages of the h.a.m.p. program and what it's done for the industry in establishing standards that enable us to apply programs across the portfolio has been a real advantage. ... 52% of our

illegible portfolio on an active h.a.m.p. trial. compared to 29% for the rest of the industry. so it really depends on how you adopt it. i'll give you an example. 33% of all the portfolio loans have been h.a.m.p. by city compared to a 4.5% share loan. in our experience in booking rates are actually pretty good. we have been constantly contacting our customers to make sure that they understood what they were signing up for and the documents needed to come in. i will say with respect to owner occupied that's our number one priority. we need to keep people in their homes and i think h.a.m.p.'s focus was good. i think it get an unfair share of publicity -- negative publicity on that but i think --

i actually applaud the treasury for having come up with a program. >> mr. lowman? >> we believe h.a.m.p. is a good program. i think one thing that we just need to remind ourselves of -- we put a program in lightning speed from the time it was announced to the time we implemented it, it took a lot of systemses -- systems, processes for thousands of people. we had a lot of learning along the way. and i think we've continued to shape the future of h.a.m.p. i think the new requirements that were just announced that require the documentation of the borrower's situation, you know, prior to the commencement of the trial will prove to be, you know, really effective. >> mr. heid? >> i wanted to add to that i think what the discussion around h.a.m.p. has also done is

encouraged consumers to reach out and make contact for their servicer for assistance. i think that's a very positive development in addition to the standardization. if anything is getting lost in the discussion, i think the piece that's getting lost is the fact that the industry is doing a substantially greater number of loan modifications and outreach efforts. and providing assistance in ways that go well beyond the h.a.m.p. program itself. >> i think that was part of my point. my final point, my time is going to run out -- here's the whole scenario. one, i don't know that the government needs to be sending the signal out there when politicians get up and say no one should lose their home. and so that raises an expectation level, well, gosh all i need to call my lender i heard the president say no one should lose their home. when that customer calls you and he and his neighbor bought the house at the same time, paid the same amount and that neighbor started saving some money. put some money behind and now their neighbor is leveraged up

their house, bought a boat. charged up a bunch of stuff. put a second loan on their home and now they're going to get a participation from a reduction in equity -- created equity by either a federal program or your lending and the guy next door is out of a job as well. but he's using his savings to make his payment. and again, we're going down this road where we keep having the government pick winners and losers. and unfortunately the people that are making their mortgage payment are going to be the losers. and there's something wrong with a system that supports that. >> the gentleman from kansas. >> thank you, mr. chairman. i understand some are concerned about the moral hazard of reducing principal on the mortgage but it also seems to be unfair to be blaming millions of homeowners for a bubble it didn't create. ...

>> ms. desoer? >> yes, we do believe income verification is part of the whole documentation process. as you know, most of the production being done in the market today is with the gses our fha which of those requirements as well but we also do if our own portfolio. >> we do the same. verify income and continue to do that for all new originations.

>> yes, sir. >> we began requiring full documentation in late 2008. so we have no programs that don't require it. we fully support it. >> we publish are responsible lending principles on our website back in 2004. i believe very strongly in ability to repay and fully support documented cases. >> thank you. in an article in a american banker lastly, bank of america's spokesman said we support the idea of a consumer protection entity consistent with the pretzels of federal preemption and believe in a new regulation should focus on activities that would appoint evenly to all rather be focused on particular industries, inc. will. i show be which is why i support an independent cfpa and work with others on our coverage return us to a pretty 2004

preemption standard. balancing the need for state-supported enforcing consumer protection laws in a fair uniform standard that provides included across the country. represented melissa tinkler by that standard is for the full house approved the bill. to confirm your spokesman's statement, ms. desoer, doesn't be of a support the house passed and senate banking average consumer protection provisions coupled with the pre-2004 federal preemption statement and won't stronger consumer protections help mitigate against a future wave of foreclosures and tamp down housing bubble's? >> i agree with the statement that our spokesperson made from bank of america about the support, and i do believe that a level playing field of relation in the consumer space would help avoid problems in the future, yes. >> okay. any other comments? >> congressman, we feel the same way as the citi. we also feel it's very important for us as an institution as every institution should do, to

take our responsibility very carefully which has been laid out by our ceo, mr. pandit as anaconda choke responsible finance theme within the compa company. >> thank you, sir spirit our chairman has also spoken extensively on the need for regulatory reform. so we would support comprehensive reform, obviously also reiterated the details. >> we believe national access to national product is critical. the best way to achieve that is to national standards and relative to the regulation, i think the key needs to be regulations apply to the unregulated industries. >> finally, one ongoing concern is some homeowners may not be aware of foreclosure mitigation opportunities either offered voluntary by financial institutions or through government programs like h.a.m.p. i think maybe some of you have spoken to this before, but for the four banks represent her,

what steps has your bank taken, to make people aware of this opportunity? any of you, please. >> we have creative ways to establish that contact, using local community nonprofit organizations where someone might be more familiar and feel more comfortable in responding to someone participating in housing events across the country. we participate in over 250 last year as a way to attract consumers and borrowers to a place where we have representation to support those, telephone contact, e-mail contact, texting contact. we're trying to be as great as we possibly can. thank you. i see my time has expired. >> the gentleman from illinois. >> thank you, mr. chairman. i got really two questions. first of all i would like to know, you know, we are hearing

about the regulars coming in and saying to the banks that you have to write down certain loans because they will not be good in a year or two. and i wonder how this affects, or if you are hearing from regulators about the potential write-downs associated with the second lien program. is their concern, to your bank, about how this will affect your balance sheet in the near-term? anybody like to answer that? >> i can take that. i think the concept of writing down or extinguishing second mortgages needs to be re-examined, and i believe it has been. i would say that what we do a modification we should look at the potential loss of income.

i think that we may be going too far to the extreme in saying that the second mortgages are worth nothing but, in fact, all of us across this table by large i think they're performing really well. the reason they're performing really well is because borrowers tend to look at them as an important source of cash flow and tend not to think about them as an terms of how much collateral they have over the equity in their home. they are almost behave like an unsecured line of credit and i think that need to be taken into account. >> do you think that will affect your availability, credit for consumers been? will this have any effect? >> know. i think the way to structure, right now we are lending prudently to print customers. but i think that taking it too far to the extreme could have the potential of limiting the number of second mortgages available to consumers. >> anybody else?

>> i would just simply add the totality of all the programs and all the changes that are happening, and yet to happen, i think all that will certainly be factored into credit decisions in the future. >> than just another question. with the fha refinance program and tends to write down the total debt obligation, the primary mortgages and the second liens to 115% of the current value. do you have any concerns about the appraisal of these properties, how are they going to determine what the current value is? it seems like this is kind of an unknown right now, particularly if they use comps. will this require, you know, and up-to-date appraisal? what's going to happen with that? >> this would be under a standard fha financing that

exist today that requires an fha appraisal to do an updated appraisal. and the industry is, we did $378 billion of new origination on mortgages laughter, all of which had an appraisal associated with them. so we are finding a way to what is a difficult period of time to establish comps and that sort of thing but it is happening day in and day out and that would be required under the fha refinance as will. >> is there kind of a percentage of lowering, what was the original, the appraisal on the house's? >> no, it would be whatever the independent appraiser thought they upraised either of that home is today. >> anybody else? >> the details of that refinancing programs haven't been provided. the concepts have but to the extent the ultimate program details follow the standard fha program as it now exists, there's an established mechanism

for getting property values using designated appraisers and that type of thing. i would anticipate that being a problem as long as the ultimate role out of the new fha refinance program follows as closely as it can to the standard requirements of fha today. >> thank you. i yield back. >> the gentleman. >> thank you, mr. chairman. i know the idea of taking a role that a reduction on principle and the second to any production for the site was supposed to sound generous but first lien holders and secondly dollars don't have an equal playing. the way the law is supposed to work is that first mortgage holders get paid everything between second, where second mortgage loans can do anything. second mortgage will lose everything before first mortgage holders lose anything. so suggesting that a service or a green to a pro rata reduction in principle to the second they

hold, that they own, to go with a reduction in principle, they agree to on behalf of investors, strikes me as evidence of a conflict of interest, not an absence of a conflict of interest. in mr. lowman's testimony, he said that the pulling and servicing agreements for private label securitization of mortgages as well as fannie and freddie, to a large extent, would require a change in the agreement to make it legal to modify, to reduce principle. and it was a very difficult to a great to get to that kind of amendment. it took agreement basically by everybody and everybody's interest in different branches or different, there've been a lot of proposals and how to get to that kind of legal problem. and i have thought that there had to be something in voluntary to do it, whether it was purchasing, having the

government purchase mortgage interest through eminent domain and then modifying ourselves, which is similar to what the homeowners loan corporation did during the great depression. or modification in bankruptcy. citigroup came, supported that. two years ago, which i appreciated. bank of america went to the brink but never quite got there. what is your current position, ms. desoer? >> thank you. our current position is as we have gone through the lessons that we have learned with modifications and other programs, there probably is some segment of borrowers for whom that would be an appropriate alternative. so that is our position at this point in time to. >> you would support that in some circumstances to? in some circumstances, yes. >> the gentleman will yield? the law would have to be modified to allow the circumstance. we should be clear that we can't change the bankruptcy law case-by-case.

>> it would support a legislative change of the bankruptcy law to allow and how bankruptcy. >> yes and i believe there's a segment of borrowers from that is the appropriate alternative and subject to them having gone through qualification for mr. chairman, is something like that and failed, that there is a segment of borrowers for whom that might be an alternative. >> i think there's also the a much, maybe customers are getting assistance in terms of this program. so you have to ask yourself whether changing bankruptcy law is really the best way and the fastest way to achieve assistant for homeowners. i think there are other alternatives. >> we are trying other alternatives now and have been for three years, and without much to show for it. the stress test of a year ago as soon that second mortgages held by the 19 banks were worth 85 cents on the dollar. other analysts have said that 40 to 60% loss is a more realistic

number. how are you valuing your second mortgage portfolios now? and was the stress test and accurate estimation at the time and shouldn't be a a second stress test? >> i can take that. the evaluation, or the value of the particular asset is based on the expected losses in that book and it is stressed under his situation to see what the expected losses might be in a stressful situation. and we value weight based on what our models tell us the expected losses would be. the market is valuing. there's a disconnect in the sense the value is on the basis of the equity that is in people's own. we believe that there is a disconnect between the market and what there i is in a book. and as things happen from time

to time, the market to disconnect from what is on the books. as we saw in the case of nonperforming loans last year. nonperforming loans were at one in and we had valued them at another in, and they converge towards the end of year to a point where it was very similar to what was on our books to. >> a 15% loss off are for second mortgages you think is an accurate valuation? >> yes. >> okay. my time has expired, mr. chairman,. >> the gentleman from texas. >> thank you, mr. chairman. i have no doubt that is in this economy there is a lot of pain and misery that has taken place throughout. still curious though why we are examining a program that seemingly will bail out banks and make bad loans, people may have purchased more home than they could afford. yet, someone who invested 100,000 or so other 401(k) decrease by $100,000, there is

no plan for them. somebody who decided to rent their primary residence, invest money perhaps in a real estate investment trust, 100,000 lost there. there is no program for them. so again, i question the fairness of this particular approach that again, noting that 95% of americans own their mortgages. be that as it may, i know, i believe i heard the chairman singh and others who said they want to persuade you to modify mortgages. i know in that regard there's a number of carrots and sticks floating around here, particularly one care is adding sha ensure these mortgages so that the taxpayer takes the risk instead of you. surely we are all a were, soon we make offered a capital remark is reform bill that has a lot to

do with your bottled wine. there are sticks around there as well. but i want to talk a little bit about continue on with this particular metaphor about the organic carrots that are already out there. i please insert on the congressional oversight panel for the t.a.r.p. program, and in testimony that we received before that panel, october, november i believe it was, a number of different academics and people familiar with market said typically the average foreclosure could cost you anywhere in the neighborhood of 60 to $80,000. is there anybody on the panel who wishes to disagree with that assessment? are those good numbers, is that a ballpark range? i see at least some headshaking in the affirmative. does anybody care to shake -- >> we have very good recorders,

but head shakes don't make their way into the transcript. >> mr. chairman, for the benefit i will note that this particular number at least obscures some affirmative head shakes. i guess that begs the question again, you have a built-in incentive to modify a number of these. i'm not sure how much more taxpayer incentive you ought to have, much less need. clearly, there's a large concentration, i suppose, among your banks of second liens. i assume there is a fear of an impairment of your regulatory capital, but i also question why, is there a legal event or a practical impairment from the homeowner, the first lien holder contracting with the second lien older in order for writing down some principle for them to receive a contractual equity participation in any potential upside appreciation of the fair market value of the residential

collateral? i think the gentleman from pennsylvania noted, arthur a number of market solutions? is there a legal or practical impairment of their that this member ought to be aware of? in a buddy who cares to panel the question? >> i think your point is very good one. in that there is significant incentives already that exist for all of us to do what's right for our customers. >> thank you. recently there was an article in "the wall street journal," i will quote from, gets to the moral hazard question. treasury department officials have worried if some borrowers get their principal reduce, even borrowers who aren't behind will stop paying and less they the same break, unquote. for argument sake, let's assume "the wall street journal" got it right. we can't touched about the moral hazard question. i don't think i've heard to address it specifically. does anybody care to comment on

this particular article? >> congressman, the only thing i would say there is while that is quite likely, a lot depends on how a principal reduction over a particular form of modification affect. i will give you an example. you could have principal reduction and principle that is taken straight off or you have a principal reduction where it is taken off over three to four -- >> but if it's not done properly you can provide incentives to people. >> it can absolutely flee to that. however, as we mentioned earlier there was some form of appreciation, that perhaps that could be mitigated to some extent but there is no doubt that it could lead to some issues. >> i see my time has expired. thank you. >> id. we may have a second run. i have a couple. i was going to ask. piccolo more time.

the gentleman from texas. >> thank you, mr. chairman. mr. chairman, i would like to ask all the witnesses a question, and the question is, was it appropriate and necessary for the government to intercede with the $700 billion bailout? if you don't think so, or you think we should have done nothing, would you just simply raise your hand? i'm going to take it from the absence of hands that there is a belief among the witnesses that there was a need for a bailout. that's a terminology that we are using nowadays, so i will be consistent so we can communicate. mr. reid, i believe it is, sir. you indicated that there is enough incentive to come i believe he said, to do the right thing for your customers. maybe it's not read.

hide, excuse me. mr. heid, is there enough incentive for you to do the right thing for the economy? >> i guess the way i think of it is if we do right with our customers we are doing what's right for the economy. >> and if you find that it is not necessary to make modifications that you have customers that go into foreclosure and that impacts the economy in an adverse way, have you done the right thing? >> i think the fact that we've done substantial number of loan modifications, the backward done a substantial number of principal forgiveness loan modifications i think says we're doing everything we possibly can to stabilize -- >> what percentage would you consider substantial? >> in the course of, and should it get away. about 2% of the overall portfolio on an annual basis is what ultimately works its way through foreclosure.

>> have you reached the 2% plateau? >> been pretty consistent between somewhere on an annual basis. >> 2% of those in foreclosure? >> 2% of the entire foreclosure of americans have homes tends to go through the foreclosure process. >> i understand, but what percentage of your homes that are in foreclosure have you modified? >> a couple of ways to enter that. if you look at the hand speed i would like, no disrespect, and times of the essence, i would like you to get a percentage if you would. of the many ways. >> i don't have a specific answer to your specific question. >> i think most of examining these numbers have concluded that we have not significantly impacted the number of homes in foreclosure. do you agree with this contention? >> no. >> do you think of significantly

impacted passionate if you have it would seem to make you would be prepared to talk to us about how you have performed this significant feat. >> let me answer it this way. i certainly there is no question more needs to be done. when i -- >> more? more needs to be done? you say as though if we do something else we will make a great difference. a lot more appears to me should be done, he does we are facing a lot more foreclosures. what are we going to do about this? let me just excuse myself from you for just a moment, if i may, please. no disrespect but i do have to go to bank of america. let me compliment you on this principal reduction program. i think that when businesses do well, we have to acknowledge it. and you should be complemented. >> there will be no demonstrations. >> tell us briefly why you see principal reduction, as