>> we do our best he said. >> that means that they had done before the end of the year. let me ask you this as well. earlier this year introduce a shareholder protection act for several of my colleagues to disclose corporate spending in elections in the wake of what i believe is a misguided decision on citizens united. since then, my staff has been told by sec attorneys that the sec already has the authority to implement rules that would require corporations to disclose their political spending to shareholders. is that accurate? >> if command is accurate that the commission has the authority to require that disclosure if they decide to do so through rulemaking. i know that the citizens united cases certainly peaked in interest this topic. we have to rulemaking petitions pending at the commission right now asking us to consider providing requiring disclosure

about political spending. i also note this is an area where the market is moving in that direction as well. a recent report shows more than half of the s&p 100 is already providing this disclosure. also shareholder proposals are included under our rules and proxy statements for the shareholders vote on whether they want this, so this is certainly an area of great interest. staff is considering this as we think about the issue. >> well come i hope the sec believes this disclosure would be helpful for investors. in october 202010, they found that 77% of corporations to disclose the direct vendor put all expenditures. is that sent in the sec with? i can't speak i'm not. >> we are united on your recommendation? >> we haven't concluded what we

should recommend. i think we are reviewing petitions and considering the issue. >> many large companies, microsoft, wells fargo, have already taken steps to disclose their political expenditures and to me it illustrates the ease at which it can be done. and so i am hoping that the sec looks for that to be for shareholders across the board to reality. so i am looking forward to what your recommendations are. mr. cook, let ask you one question. what is the sec's timeframe for proposed rules like optional requirements for security bass slaps under title vii of the sub one? >> of those who refer to, which are the final rules in the subsidy proposal phase of rotc regulation are at the top of the list for otc deliberative works.

the goal is to get them done by the end of the year. whether he hit better than i am not sure, but that is probably the next item out of the commission on the otc derivatives. >> so, let's say for argument's sake do you reach at the end of the year. what is your overall implementation, scheduler proposed implementation rules for its final rules? >> well, we propose to do after we propose substantive rules is to issue two release is underway now so that we can get them out as quickly as possible. one is a release that discusses how our rules would apply internationally, so cross-border release of looking across each of the different substantive rulemaking, whether it's execution facility circular registration are clearing agencies and talk about how those rules apply in the cross-border context because it's a very important piece of

the implementation. the second would be to issue an implementation plan. both of these are for public comment they would lay the process in which we propose to lay out the new framework in a timely, efficient matter with the goal of sort of approaching this as a project management tasks, where if we are can be as thoughtful in how we roll it out, we look at two dmr quickly and efficiently. >> all right, mr. chairman. >> thank you, senator menendez. then they begin to the second round by asking again in the context of this recent litigation under judge breakoff with the fact two city core and this is not exclusive to one company, but typically you will reach a settlement in which the corporation neither admits nor denies. and it strikes a lot of people oddly why if you don't have any

culpability you are paying a million dollars. have you reconsidered whether or not that is at all perspective or what role of ways? that is one question. in the second question would be they typically also say that they will never do this again. and i am not using the precise language of the finding. and then you find -- and again, not troubling patterns of behavior emerge in the future maybe not exactly identical, but certainly within the same sort of context. and yet, there doesn't seem to be action in your division to take people up on their commitment and never do it again or anything like it again. are you rethinking what you can do in terms of the settlements on both of those points? >> senator, let me explain our approach in these areas.

first, the bottom line is we settle cases where we believe that the sanctions we can obtain, including the monetary sanctions in the business reforms, et cetera but we could legally obtain should the case go to trail taking into account the risk, strength of the evidence, law et cetera. in monetary sanctions, which is another matter that has been discussed, i make it clear that we do not obtain penalties in the amount of investor losses. we are limited by law to getting disclosure meant, which is the ill-gotten gains of the perpetrator and a penalty and generally equal to the amount of that gain. so if you have someone who earned $20 for defrauded investors of 100, we can get 100 representing a gain for the perpetrator -- excuse me, we can get 20 and another 20 in a penalty, but we cannot get 100 in most circumstances.

so to some degree there's a commentary about settlements that they don't seem to be significant enough in terms of financial sanctions. that reflects our view of the strength of the evidence in the case of the risks associated, the statutory restrictions on the amount on a weekend day. in addition to that, but the fact to know two dogmatic, note tonight, our goal is to get money in the hands of investors as of investors as soon as possible. if we were to demand admissions in every case and keep in mind it is admit nor deny which means companies cannot deny liability. they're not required to admit it, but they cannot deny liability as well. so under that provision if we were to insist because of the collateral when finances of those omissions with respect to private civil litigation and even criminal exposure,

companies will open themselves up to that kind of exposure. i don't have any particular sympathy. it is just a reality of the negotiation process that they will not settle cases and they will take more cases to trial. so we're left with a situation that if we can subtly case now for the amount of money and the range of sanctions that we believe reasonably approximate what we could if we are successful without the risks of a trioval and most importantly get money in the hands of investors today rather than tears from our three years from now for four years from now in the case goes to trial any of the market goes to repeal in most importantly we've added more resources to attack the next fraud because there is opportunity in everything we do. if we are prosecuting a casea, we are not prosecuting case be. and so, it is cold comfort to other victims of other fraud if we are putting all of our resources, taking a case to trial and one is not suddenly when their cases not being prosecuted if we are getting a

package of remedies that are stronger than a meaningful message. i would also say in our cases we issue a complete with very detailed allegations. the company pays a large amount of money. they agree to business reforms. they cannot deny liability. my view is while i certainly understand desire for people wanting someone to stand up and admit to wrongdoing, there's not a lot of history that the company is engaged in wrongdoing. they wouldn't be writing a check for $300 million in the face of these very pointed and specific allegations of what happened. so in balance, trying to serve many values, we adopt like the ftc, like the department of justice civil division, lake cftc and the national credit union at industry should settle the case for $300 million for mortgage related problems on a know it midgut diathesis supreme court has embraced it.

so while i understand the desire in the cases where i might like to see it as well as we do review our policy, the fact of the matter is we have to choose among some competing goals that we try to accomplish and that's where we come out. with respect to repeat offenders, this deals with the question of content and i think there's a misconception around our authority. in 2005 it agrees not to do it again by way of an injunction and a 2008 cells a securities product that violates the law, we are not -- we can only get civil contempt. for the content is only available if there's an ongoing front so we can go into court and say your honor, this company is engaged in combat now that violates their previous promise not to break the law again. you have to stop them from doing this right now. that only works at the common

good is ongoing. there is no ongoing fraud, nothing to order compliance with. and that is the vast majority of cases. there has to be content action. in addition commanded us to get from a judge is to stop doing what you're doing out. with authority over there's nothing to get. what most people want in this area is criminal contempt, which is punitive, which is sanctions were sent the violating the previous order. and only the department of justice department of justice has authority to do. we pay no means taken on the recidivism. what kind of business reforms may need to be adopted in other packages. so we rarely take into account part misconduct, but content is a poor vehicle to accomplish that. >> one quick follow-up question. i promise i will ask the other panelists when i return

questions, recently you have used language in the sarbanes-oxley legislation to call back gains that although he was not correctly charged with any type of violation, is that a practice that you were going to pursue a with more frequency going forward? >> yes, senator. section 304 the sarbanes-oxley allows us to sue and requires ceo or cfo to claw back certain incentive taste bonuses and equity awards as well as certain stock sale profits when the company that they work for it fails to comply with certain financial reporting requirements as a result of misconduct. we have used that to limit our cases to whether or not the tool is appropriate. it is a strong tool because

blakey say, these are standalone actions. the ceo or cfo doesn't have to be involved in the misconduct. if the company they work for does at the compensation can be clawed back. so we look at it closely. it is not without some issues obviously. ceos and cfos are differently position. some are completely absent t. and don't do their at all. i misconduct occurs. others may be very active, maybe been following best practices that may be misconduct occurs. so you need to be exercising a range of discretion in your cases, but it's a totally look up close and brought a number of actions in this area. >> senator merkley. >> thank you very much, mr. chair. i wanted to turn to mf global, which if i understand, mf global was for dealers was regulated by the cftc i believe is on the

future decide that the issue of client accounts is the question that their accounts in a proprietary trading or hedge fund style operation and violation of the sanctity of this individual accounts. it is very confusing to the public, certainly to s., but recognizing to sec to do things wrong on the broker-dealer siders are broker-dealers i deeply impacted if you will by which the future decide -- how is the cftc coordinate this type of conflict firm? >> senator, as you noted, the firm wasn't duly registered as both a broker-dealer and futures

commission merchant. but that means is those agencies and the self-regulatory organizations under them have oversight over the firm. in some respects, our oversight about certain activities with focus on securities and the cftc under the future is that dvds. we both have rules of wealth that would apply to the end of fable. capital rules to be subject to have to comply with both sets of rules. been jointly registered means you have to comply with the rules equitable to perpendicular angles applicable. as he noted the shortfall that has received a great deal of attention in the press and that's a significant concern is on the future side, the segregation of customer assets related to futures positions.

your question, does that affect broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in in any customer protection regime. we are continuing to work with the trustee as with the cftc to help identify exactly what is the position of the firm both on the security setting future side because one of the challenges here is the books and records of the firms appear to be challenging in terms of getting to the bottom of some of these questions. i think just having been in close contact with other regulators through the weekend when the firm was exploring strategic options, i think absent the shortfall been identified, there would've been a significant chance of a deal happening that would have transferred the customer

accounts out in the way it's meant to have been. so with broker-dealers fail, sometimes their course to make sure that happens. there is a credible and reliable way to protect customers. and that only works if the customer assets are available to transfer to a new firm. so in that sense, the shortfall obviously impacts the firm. >> does that happen on the broker-dealers site? >> on the customer in terms of customers who stocks are placed orders through the security broker-dealers site? either accounts transferred to some other firms? >> not yet. there many more future customers. so i think the trustee has transferred 17,000 futures accounts that have positions. there are more that he seeking to compensate they did not positions, but had collateral by

way of contrast on the security side, he has solicited interest in acquiring 450 securities accounts. so it is a much smaller number of effect to customers. the trustee has solicited interest from potential transferees of those accounts so that they and their property could move forward. >> so is it likely that the account holders on the broker-dealers site our whole and undamaged? >> i wouldn't want to provide any assurance that this time. i could tell you that with the firm self-reported as a shortfall in the future side. the firm's calculations on the security side with respect to their customers segregation requirements indicated that they were in compliance with the securities customers segregation rules. but as you can imagine, we are

not taking that at face value. we are currently working hard to try to verify exactly whose they are to provide assurance. >> i'm over my time now, so i'll just summarize this. the reason i push this point is try to understand whether there's insite care about complexities of regulate enough for that is both broker-dealer and the futures dealer, whether there needs to be stronger firewalls between the two halves of the business in order to ensure both the coherence of regulation and the security of one side of the firm from fraud on the other side. i will look forward to maybe 19 continuing the conversation with you about insights that can be derived. >> absolutely. >> thank you senator barkley. let me resume.

senator crapo indicated his interest in the formation of capital, particularly to small countries. could you let us know your latest efforts in terms those formation, particularly the small enterprises? >> absolutely. so a chairmanship euros request request, last spring we started an initiative to take a fresh look at our rules to see if there are steps we can take to reduce regulatory burdens that would help facilitate capital formation by smaller companies. ithaca be done consistent with investor protection. as i noted, if investors are confident they won't invest of destiny to actually help anyone raise capital. so in everything we do we try to balance the capital formation but the best admission. this staff has several work streams going rate now that are in the works. one is to do a study of whether

the 500 shareholder thresholds for reporting should be changed. in 1964 when congress did not adopt the 500 shareholder thresholds, they had passed the sec do in a row by study. so we are doing that again with help from craig's group. so that is one of the pieces. we are working on a concept release on the general citation issue in private offerings and we are looking at whether a various ways we can extend some of the benefits they give to larger companies in capital raising extended to smaller companies. easier access to shelf registration, things like that. we are hoped tremendously in this effort by jaramillo advisory committee on small emerging companies that had its kickoff meeting two weeks ago and they are already working on recommendations having considered the topics brought forward to them at the first meeting. tomorrow is the 30th of the

annual of government business for them on small business capital formation being held at the commission. i think every commissioners speaking out and attending it, so there's obviously great interest in the topic. >> ms. lewis, you have an increasingly challenging role to play. relevant legislation supplies publication of a rule for the fcc to consider market effects. but given the recent court rulings, it is hard to tell what consider means. in fact, there seems to be suggestion now and rhetoric that that is sorted to teach a course benefit analysis when every conceivable option, which goes far beyond the literal turn to consider. can you talk about your role in providing that kind of analysis? you alluded to it in your opening remarks, but also if you have a practical difficulty of getting cooperation and giving

you the data you need, which sorted sets up a catch-22, you can't do the analysis to promulgate a regulation unless either co-op duration, you don't get cooperation so now you're vulnerable for a challenge. can you comment? >> s., chairman. as you can imagine the recent ruling on the privacy access case provides significant challenges to the division sort of reassessing the way it conducts cost-benefit analysis. i think the d.c. circuit court took issues with the way cost-benefit analysis has been conduct. historically at the sec. there are lessons they think what they are really asking us is to take a look at the way you actually conducts cost-benefit analysis. they take away from a lot of the recent decisions in my opinion is we need to buy at a more wholesome discussion about the

various alternatives that are on the table of wholesome cost-benefit analysis around the proposed rule, but also run viable alternatives to the rule. part of that will be to provide a complete discussion, not only at the cost of benefits we are able to quantify, but the qualitative cost of benefits. that is really one of the roads in trying to analyze cost-benefit analysis is that so many of the benefits that are associated with the particular rules simply don't lend themselves to ready quantification. it's really not feasible in a lot of situations. i think the other take away from the privacy access decision his father is currently the typical part this is to involve the phd economist at the sec in very early stages of the rulemaking process, i think we need to formalize that process and bring them in at a more formal prescriptive way.

>> any comment about access to information from proprietary information that could be decisive in your analysis? >> yes, that is one of the challenges we face because to quantify benefits or costs associated with the rule, you have to avail yourselves today to. if data is not publicly available, many times the only way you can get it is to try to request the data through the comment. process for market participants. and so, when we proposed rules, we frequently well-designed questions that are designed to give us the data. if you have mentioned real problem with that process is frequently their ip incentives to provide the data on the price of market participants, so if you don't get the data it difficult to do the subsequent analysis. >> thank you very much. i want to begin with

ms. rominger in this question, but it looks like all of the panel to weigh in if appropriate. so much of what you do depends on having a feel for the marketplace real-time information data or intelligence and particularly with your supervision of funds, one of the issues today sweeping across the atlantic is the sovereign wealth funds and who is holding what et cetera. can you just comment in general terms about how uto with making sure you have access to the most relevant information in real time to make these judgments to supervising your case in the case of other investment advisors, broker-dealers et cetera. you can begin, ms. rominger. >> i will start by saying we are giving additional information has been very helpful to us. that is in the area of money market fund of regulation and

oversight. money market funds, as i mentioned in my opening comments, the structural fragility and that they accept the bull as a sign of september 2008. and the first round of money market funds required early in 2010, there is required to put in place for money market funds to disclose holdings information to the sec in the mud basis. and we have started receiving the information exactly year ago. so at the end of november 2010. so we now have mud at holdings for money market funds. i think an instance we have this data provided is very important information to the ways the sense i structured and implications with respect to systemic risk. it is a subject of much conversation amongst the sec and in other regulators who are involved in systemic risk work. so i think that is a good example of where it could be put

to good purpose. i think as i look at our responsibilities and think about where our greatest needs are, i think it is with respect to experts, technical experts, market experts, experts in analyzing complex financial strategies. i thank the chairman has identified that as an area of increasing focus and increasing resource needs for the need and that is certainly true in the investment management decision. >> in terms of access to data as i indicated in my opening remarks, one of the key challenges we face in monitoring the securities markets, the listed equity markets in particular is just the enormous volume of data that is they are the relatively significant job between our accessibility to analyze the data and an

inefficient way. so we are working on a number of initiatives to try to narrow that gap. it is the rulemaking process to make sure they will simply place or a structure in place to get that data to the regulators. that would be the consolidated audit trail, the large trigger reporting system, where we will have better access to data. but the second piece is really having resources internally to be able to make something of that data. so we work closely with colleagues in other divisions when it comes to the audit trail to make sure what we are designing is going to be useful for the examination program as well as their own market oversight program. but it requires both people and elegy to ultimately realize the promise of some of these data enhancement initiatives. another key when we work at is in the swaps market and we have

a a machine for reporting of all slots to data repositories. but that will present opportunities and challenges for us again in terms of having greater access to information. but knowing the people and technology to leverage that information be market regulators. >> i would just add, chairman reid, there's been a tremendous amount of improvement with the division over strategy and financial innovation to really help the d. think about taking it to thicken amounts of data and doing more sophisticated analytics around that data. >> that's been very helpful in offering to come with us on the program to make sure we are agile based on old data, that doing analytics analyses them about drugs or risk being agile and directing efforts there. it's also been helpful in the division of trading and markets to say that what is data we is

data we may be altogether because we are in the field every day. we think we need. for instance, exposure to europe, but we could not only can't data in raw form, but of critical dialogues with the firms. that would make sense and had us be able to make a significant response. >> mr. lewis, ms. cross. i would announce a wee focus resources on it recently is lucky not to largest companies on a real-time basis. so historically we would take them up on fear, look at their thing and get some comments and perhaps move on after they responded in what we have figured out is if we have our accountants and lawyers looking on most of what they say and do over the course of the year, we

are able to pick up trends and improve the disclosures across all areas of industry based on what we are saying with leading come to us and this is a great innovation that we hope to do more of it. that is worth picking up a company and giving up his comments. >> if i could just give an example of the cooperation of the efforts we have with carlos division and what we have done and taken the data initiatives in my division. and the idea is to build risk assessment tools that can be used to essentially score investment management companies as to certain classes of risks. so we are taking a layered approach and what we do as we begin by discussing what the needs are in the division but the key risks are and start it was fairly simple models that perform basic screening.

as we learn more about the risk in this space, we develop increasingly sophisticated analytic models. so we know from screening techniques to regression-based techniques in that order. >> and a comments? >> from enforcement perspective is slightly different. but we do everything that we can to get access to data and analyze it, but we are seriously behind the curve in our ability to do that. i mean, if you want -- if you want to conduct a fair and proper inciting trading investigation into sure you get all the parties who may be involved in an illicit scheme, you'd love to have ready access to trading data and derivatives data, debt data and overlay of chronology of market moving events and new deal to see patterns and trends. we are trying to do some of

that, but it is difficult. we need better tools not only in analytics, but to be able to upload information and manipulate data. it can take weeks and months to upload the massive amounts of information make it in their investigation without the proper tools to analyze it the way we played two. >> i have two final questions. senator berkley, do you have additional questions? let me analyze you now. >> thank you, mr. chairman. i want to continue this conversation on information, but really focus on derivatives. and certainly, we didn't have a very good understanding of the writing of derivatives or states. and i am not sure that we have a very good understanding of the currently and abroad. conversations with icebergs from our rating companies with the

response but we didn't understand who is writing, this holding, how they are set at regarding the credit default swaps being written on a host of european firms in sovereign debt. so i wanted to start by realizing this is a world where the credit default -- the suave producer decided with interest in foreign exchange swaps on the cftc site, on the fcc site. so you all have a piece of this picture. what do we know about european credit default swaps. and if we don't know enough, what needs to change clicks

>> senator can initiate conservative and then invite mr. lewis to comment a little bit. the primary entities that we regulate that would likely to take on direct exposures to this, at least in my world, are the broker-dealers. and it totally and through our impression is that is not significant exposure to capital rules that make it expensive to book a credit default swap in a broker-dealers. however, obviously those transactions can be booked at other entities that are also a general regulatory interest whether the banks are holding company for financial institutions. other regulators may have access to some of that information as well. but i think overall there is a gap in our knowledge of this and i think the solution that we are

working on and the cftc is as well as the development of a mandatory trade reporting machine pursuant to title seven of the dodd-frank at, which would require all soft transactions to be reported to a data repository and that would be available to regulators. there is a separate piece about that reporting to the marketplace, which is a transparency piece. in terms of credentials for stomach oversight of the markets and the risks -- >> let me hold you for just a secondary. on that repository, when do we expect to have it up and operating? >> we have our proposed rules for the data repository and is a earlier, we need to finish our proposal phase for title vii and begin adopting. so we likely see adopting a thoreau role sometime in 2012, but i am not exactly sure.

the order in which we adopted this is one of the things in which we want to get public comment. i will say that most parties we have spoken to has suggested the site to be one of the first things we do because it will enhance our information that we have this regulators about what is out there and may help inform our rulemaking in other areas. >> in the context of what is going on in europe, it seems that a critical element and one of the simpler elements that are to be able to be put in place. is there any parallel effort on the european or asian side? >> there are efforts to develop in other jurisdictions. some of this information is available today through the trade warehouse that is operated in the u.s. and mr. lewis' group has done work in analyzing some of that data. it is not complete and that is so we are trying to get to is a complete picture.

>> let me briefly tell you, senator, about some of the work my division has done in the credit default swap data. this has been provided by the data warehouse. one of the projects that we have worked on is to care to rise the position send exposures of the participants and one of the takeaways that we have going up through the data virtue not 2011 is that financial institutions have been unwinding their exposures to basically sovereign european debt, one of the issues that is critical if we want to consider and evaluate systemic risk is that we need to have a complete picture of all of the parties that transact in this space. to give you an example of why i

think this is important, one of the experiments he conducted in our group to see how important this issue might be if we look that positions by only considering u.s. financial institutions in u.s. counterparties. and then, but excluded u.s. affiliates in foreign domiciles. so, take an investment bank, new york investment bake, consider their u.k. affiliate. ignore the u.k. affiliate transactions and you get a picture of what the exposures are, what the positions look like a cross counterparties. chris exposures in that. and then, run the experiment again and including exposures by also including the trades that occur in the international or foreign affiliates. ..

>> i have actually had discussions with the office of financial research and alerted alert them to this issue and i believe that they are actually working on it. it is certainly a suggestion i have made that they should investigate. >> thank you. >> thank you senator merkley and let me just say that it would be even more responsive if the headache confirmed head of the

office of financial research and that is a message to the public. a final question and i think it is an important one to ask and it is in two parts. one is there has been criticism against the at sec about being too close to the institutions and the businesses that you regulate. related is the issue of a revolving door process and beginning with the comment on how you sort of deal with that in terms of making sure that does not affect your ability to effectively perform your duties on behalf of the public and then a related question and i asked this once and trepidation because if anybody asks my company i would shudder a little bit in terms of what they might

say that but you might also indicate just what you sense is the morale in your division because of those two related issues? >> sure. for senator reid we are very cognizant of the revolving door issues and have put in place a number of significant controls that really focus on that issue. we have an office that is reporting directly to the chairman and has a new head and is very focused on ensuring that there are effective policies and procedures. there are limitations on how people can interact with the sec once they leave the sec. they need to maintain a dialogue with the office of ethics so there is a lot of rules both civil and criminal that govern our conduct with regard to the open door. in addition to that we have our own conduct that adds additional

requirements. we want to make sure that examiners don't present that conflict of interest and there is additional controls that require supervisors to be dialoguing with individuals on their team involves and make sure there aren't any complex relationships. i would make an observation on the flipside which is that we have been able to bring in some terrific talent to the sec that makes us relevant and current with regard to complex structured products, derivatives, hedge funds because we are able to recruit people who have their finger on the pulse of industry practices. my observation in my own view has been that individuals that we brought in with industry expertise and experience against some of our most effective and aggressive examiners, because they understand the gains that can be played and they are focused on targeting our efforts exactly to those high-risk

points of product and making sure we we are identifying this issue so i think when it works well are dedicated an existing team at the sec coupled with incoming individuals from industry to bring new expertise and experience really strikes a terrific balance and makes us more effective in protecting investors come ensuring market integrity and staying in front of issues and being able to protect the markets. and investors. >> the second issue about morale, i think that is a terrific question and something that we are very focused on at the sec. chairman shapiro has fostered a very open up culture of teamwork and collaboration i think that is stronger than it has probably ever been at the sec. at the same time we have

incredible workload with dodd-frank and request for more resources to help us make that meet that workload and i think that tension can create some morale challenges that we need to be very cognizant of. there is a relationship between resources and morale and the ability to do the job well. at the same time we initiated throughout the agency human capital surveys to make sure we are keeping our finger on the pulse of morale, what are the root causes of morale concerns or issues and putting in place action plans every year that are monitored to follow-up on the morale issues. i think that is something we all need to make a priority as directors of the various divisions and offices. i known the national exam program people, culture and morale are the top priorities this year. >> thank you. mr. lewis please, any comments. >> with respect to the issue of morale or people coming in and

out? you are somewhat removed because of your analytical responsibilities but those two topics, comments you might have. >> if i do comment on the revolving door i would say it is a good thing for economist because they basically go back to the academic institutions when they revolve back out and actually if we can engage financial economists and becoming interested in regulation that creates a lot more opportunities to receive church being, independent research being conducted around rulemaking space so you can argue it's a positive for my division with respect to morale. i have been in the office since june but i would like to think that things are going pretty well. >> great. >> in the division of investment management, there are very few people in the division with the exception of myself who have calm from the asset management

industry. frankly i think we need additional people from the industry as it is grown much more complex over time. some of the challenges we are facing today are you know quite different than the challenges that the division faced five or 10 years ago and with that increasing complexity, we need people on board who understand how these instruments and how the strategies actually work in the real world. and so we absolutely must have the correct protections in place to make sure we have the appropriate distance as regulators but we do need that expertise. so with respect to morale, in my nine months at the sec i found that most of the people i work with are motivated to engage in public service because of their strong desire that they can make things better and that is what drives them and motivates them.

and i think you know morale is quite good because i think they get a sense that there is a great deal of positive change occurring in the agency right now. >> thank you. >> thank you. i think the markets in keeping up to speed with what the latest developments are is critical to our effective implementation and responsibilities and we do that for a variety of ways including the comment process in meetings with our participants but the ability to bring in folks who have been on the other side and have -- know where the issues lurk is really crucial. i echo comment of my colleagues about how it is obviously crucial to manage the ethical obligations associated with that but i think that can be done. and i think it is really enhanced and enriched our ability to try to get the rules right. in terms of morale, i would just add that i am, having come from

outside of government into government i am truly amazed by the dedication of the staff and their long hours that they put in on the tasks that we give them, the productivity or division is many multiples of what it has been in prior years. the same number of people, much more being asked of them and it is truly remarkable how far they're willing to go. to some extent this is why they are there. this is the great time to be working at the agencies in working on these key issues that i would echo the concerns mentioned already but how ultimately people do need to feel they have the resources to do their jobs respectively and it is tart -- hard to take the hill if you don't have the right equipment and manpower. >> i agree with everything that has been said about the revolving door, the fresh insights that come in from people who have recently been in industry to help us do our job better and we are extremely careful about the ethical

concerns. certainly we have mentioned recusal today. there is no shame in saying i can't work on something because i had a contact with it in my prior job and that regularly occurs and that is important. >> one of the concerns are the people coming in and the people going out. >> i think on the going out front i would say since i've done that, i think that the overall invest in public benefits because people have worked at the commission have an appreciation of what it is that we are trying to do and i think the sec alumni are especially careful practitioners. i think they go out and populate the security as far as people who want to do the right thing so i think actually it is a very positive development and i would hope it will continue. on the morale point, i would like to echo what robert said about the incredibly hard work

the staff is currently doing. i worry sometimes that we don't say enough about how much we appreciate them. we have to stop and take a deep breath and remember to do that a lot because they have all been sacrificing their personal lives to work through the dodd-frank and before that we were very busy in my division with lawmaking. it's two and a half year since i've been there. on the review program i'm amazed every day at how enthusiastic and fresh they remain when they pick up a company and they look at the filing and they search the internet to see what else the company saying and come up with good comments that improves disclosures. and i think you know i hope morale is good. it's hard to know with as many people as we have but i would say i know i appreciate how hard they are working. >> thank you. >> thank you mr. chairman. i agree with the sentiments expressed here. with respect to the expertise it is critically important.

it wasn't very long ago it all but everyone was criticizing the sec for lacking the expertise in order to deal with complex products and transactions and markets and we have done that. we have you know as good if not other set of ethical restrictions on the way out with respect to permit bans on involvement in matters that you participated in. once you leave, two-year ban on being involved in being involved a matter zero supervised. second of all, in my experience both in the department of justice and here particularly the sec, the ability of one person even if they were so inclined not to do anything other than follow a case on its merits and make a recommendation indecision and take investigative steps that were in the best interest of the case. it is virtually impossible to two. we worked on teams with great levels of review with also pull

people, farrell oversight. one person, it would be very difficult to one -- for one person to do that even if they were so inclined and i haven't met such a person. in addition that is not the way you would gain any respect within the division and within the commission. you are respected if you are hard-driving hard driving and thorough and professional and disciplined and intelligent man to do anything else hurts your reputation, hurts your ability in the outside world when and if you were to leave and lastly the people that leave the sec are really ambassadors for compliance and good practices. i mean they go to firms in the advice clients and they know the consequences of what can happen if they cross the line. we have to leverage those people so some ceo who may be inclined to take a shortcut will listen to their general counsel and compliance efforts and here's what can happen to you and here's what the sec might do if

you don't have to properly. i think it is a win-win all the way around. gao looked at our revolving door issues as part of dodd-frank and came away with a single recommendation that we should better document or ethics advice. i think all in all the arrangement is the right one for investigators. with respect to morale people work incredibly hard and are incredibly committed. the undifferentiated -- takes its toll quite honestly. people are not afraid of being told they can do things better. we restructure the entire enforcement division and people responded in the way that is in the best traditions of anybody in the public or private sector. don't shoot the messenger. look at what's the right thing to do and make changes that are necessary. that has occurred up and down throughout the division. what happened is eventually if the market turns and people don't have the resources they need, they will be more attracted to jobs on the outside and that would be a terrible i

think result for investor protection in our efforts because our employees are highly valued. experience. they want to be at the sec. they want to be public servants. can be difficult if you are at the machine at 11:00 at night photocopying your own trial exhibits. that's what happens. >> thank you all very much for all of your responses and testimonies in your dedicated public service and particularly your patience. thank you all. if my colleagues have their own written statements or additional questions, witnesses that they should be submitted no later than next wednesday november 23 and i would ask the panel to respond as quickly as possible and any written questions you may receive. all the written testimony that you submit will become part of the record and again i thank yo

the federal government has spent $170 billion to keep fannie and freddie solvent after the 2008 collapse in the housing market.

this house oversight committee hearing is three hours. >> we exist to secure two fundamental principles. americans have a right to know the money washington takes from them is well spent. second, americans deserve an efficient, effective government that works for them. our duty on the oversight government reform committee is to protect these rights. our solemn responsibility is to hold government accountable to taxpayers. taxpayers have right to know what they get from the government. we will work in partnership with citizen watchdogs to deliver the facts to bring general reform to the federal bureaucracy. this is our mission statement.

>> you guys are dry and $20 million bonuses after america went through the worst economic year it has gone through in decades and you guys caused the problem. i see reports of massive profits and a bonuses from the very firms who echo their continued existence to the american people. i did not run for office to help a bunch of fat cat bankers on wall street. even as they are relying on assistance from taxpayers or their company is doing badly it offends our fundamental values. >> payout these bonuses are the ones that have now paid back the money. these companies are in good enough shape to afford massive bonuses they aren't good enough shape to afford paying back every penny to taxpayers.

>> i recognize myself for an opening statement. in march of 2009 reports reveal after receiving $170 billion tax funder -- taxpayer funded bailout aig executives awarded 120 one billion dollars in bonuses to top executives. as we have just seen president obama called this obscene and shameful. he believed taxpayers should be paid back in full before millions of dollars of bonuses were paid out. freddie and fannie have become the arms of the government and receive $169 billion from the treasury department. to this day we still approximately $141 billion. despite this outstanding balance freddie and fannie executives receive $30 million, $35 million in compensation. of that $12,790,000,000 were bonuses awarded to the top ten executives. they have gone as far as to pay

someone $1.7 billion signing bonus. we understand that signing bonus could be partially because they left compensation elsewhere but we also understand there were plenty of talented people looking for jobs on wall street here today. the signing bonus was given with no correlation to performance but simply recruiting pool financed by the american taxpayers. these bonuses, freddie and fannie have asked for an additional $13 billion in handout from taxpayers. this is a third quarter loss of $10 billion so i think we all understand that we are not paying bonuses for profits. bonuses under current law to be tax-deductible must in excess of $1 million compensation must be

tied to performance. our committee has asked for and received scant documents about performance required. none of the documents received to date would have qualified when i was on the board of a public company or due diligence by the compensation committee. date assertions that can be met simply because you were there does not pass the test. we are here today to ask the simple question on behalf of the american taxpayers, who is footing the bill, for freddie and fannie? do you agree with president obama's sentiments that bonuses should not be paid to anyone until the american people are paid back in full? do you believe in the concept of pay for performance? do you believe your performance warrants this type of bonus? should you profit while the

taxpayers pay the bill? are there any measurable standards to even evaluate the performance within the documents we received or do you have other documents we have been denied pursuant to our request? are you any closer to unwinding freddie and fannie that you were three years ago? are these bonuses being awarded for the efforts to minimize losses to taxpayers or pay outs to -- i won't read the rest of that. are they paid outs for other reasons and if so whose agenda are they on? are they on the american taxpayers agenda or are they political agenda that you're using taxpayer dollars to achieve? let me make it clear. this committee believes 2008 law

requires you to minimize losses to the taxpayers'. business as usual of taking more money from the taxpayers or underwritten by the taxpayers fully and causing an agenda of getting more people into homes they cannot afford has not been authorized by congress. i now recognize the ranking member for his opening statement. >> thank you very much for calling today's hearing. thank you for agreeing to my request to invite mr. demarco. mr. demarco and i have been involved in high-level meetings for the last several months. several have been heated but others have been very constructive. i appreciate his willingness to appear before us and look forward to our continuing discussions. executive compensation is a worthwhile topic for this committee to address. in my opinion we should examine not only the compensation of

executives at fannie mae and freddie mac but also at wall street firms that put the short-term financial interests of the executives at long-term interest of shareholders and the public. in reviewing the conversation packages of fannie mae and freddie mac executives we will have tough questions for our witnesses about how they can claim credit and receive bonuses for achieving performance goals they had nothing to do with. such as increasing affordability in the housing market that has been takeing for several years. we will examine why fannie mae and freddie mac have done so little to fulfil the goal of assisting homeowners. in 2008 congress passed the merger -- the president signed october 3rd, 2008, state clearly

that among other -- shall implement a plan that seeks to maximize assistant zoning. we do not agree on much but we do agree that to date efforts to assist homeowners have been woefully inadequate. the home affordable modification program was supposed to help support a million homeowners modify their homes but to date it has helped 100,000. the home affordable refinance program was proposed to help five million borrowers refinance at lower rates. if you have 900,000 refinance to they. where we part ways is how we respond to this problem. the chairman and other republicans and republican presidential candidates believe we should stop assisting homeowners. abandoned efforts to address the housing crisis and allow millions of additional foreclosures so we can hit

bottom. hy come from a fundamentally different place. i believe we must redouble our efforts to better down and do the hard work. solutions to address the crisis effectively and comprehensively and efficiently. it is too easy to throw up our hands when individual homeowners who took loans they could not afford. those individuals are certainly out there but there are many more who did absolutely nothing wrong. they pay their mortgages faithfully every month and therein the water through no fault of their own. they owe more on their houses than they are worth and cannot sell their homes and cannot move to a new city for job. garrett limbo along with the entire economy. the foreclosure crisis does not affect will leave the individual

foreclose that reduces the value of homes in large taxes, tax revenues and municipalities resulting in the loss of jobs. it degrades multiple levels of commerce across the country and affects each and every one of us whether we want to admit it or not. addressing the housing crisis is key to our economic recovery as a nation. the chief economist at moody's analysts stated that housing is ground zero for the economy's problems, high unemployment and loss of jobs. as federal reserve chairman reed ben bernanke recently testified it will be impossible to resolve our economic situation with people losing their homes at the rate they are losing them. let me conclude by returning to the subject of today's hearing. in 2008 congress and the president passed a law directing fannie mae and freddie mac to

maximize assistance to homeowners. this has not happened. our believe we are mired in a culture of mediocrity and nobody should be receiving million dollar bonuses. i yield back. >> i thank the gentleman. all members will have five days to include their opening statements and additional extraneously marks. we now recognize our first panel of witnesses. mr. michael j. williams is president and chief executive officer of fannie mae. mr charles haldeman jr. is chief executive officer of freddie mac. mr. edward demarco is acting director of the federal housing finance agency. pursuant to the rules of the committee i asked you all to rise and take the oath. please raise your right hand. do you solemnly swear or affirm

the testimony you are about to give will be the truth, told truth and nothing but the truth? let the record indicate the witnesses answered in the affirmative. please be seated. i won't have the heaviest gavel in the world today but when the light comes on you go, yellow light try to summarize and don't let the red be on too long before you conclude. recognize mr. williams for five minutes. >> i appreciate the opportunity to speak with you today. >> i apologize. the bikes are very point specific. the closer you have it the better. >> i appreciate the opportunity to speak with you today about the important mark fannie mae is undertaking and compensation program that was put in place for this executive team.

fannie mae has a dedicated team of talented professionals working to carry out critical work in the finance market. we have immense responsibility. the complexity of the challenges we confront each day requires deep experience and seasoned leaders. it is different from the team that remic company prior. we're working to fix the company and achieve the goals of conservatorship. employees are committed to fannie may's mission to provide funding to the market, help struggling homeowners and reduce losses on loans originated prior to 2009. fannie mae is the largest source of funding for the u.s. housing market. since january of 2009 with support of the federal government the company has provided $2 trillion of funding to the market. the funding has enabled six million to refinance into safer, will work cost mortgages. we helped 1.7 million homeowners

purchase a home and provided financing for 1 million units of quality affordable rental housing. fannie mae has also acquired new loans with appropriately conservative underwriting standards to promote sustainable home ownership. the mortgages purchased for guarantees in 2009 have strong credit quality and are performing well. the new loans account for 50% of the loans owned or guaranteed by fannie mae. these will be a valuable asset we expect will reduce taxpayer loans. everyday fannie mae employees work to mitigate losses on the company's 2005-2008 business. this book is affected by continued weakness in the housing and mortgage markets which remain under pressure from high-level of unemployment and prolonged decline in home prices. for distressed homeowners retention solutions keep

families in their homes. we expect this to reduce fannie may's credit loss over the long term. since 2009 fannie mae employees have helped 1 million homeowners avoid foreclosure for modification and other work out solutions. unfortunately for closures are not always of portable. when foreclosure is the only option we stabilize communities by properly maintaining and improving properties we acquire and selling them to new voters giving preference to families who will live in them. our employees believe in our mission and we are proud of the work we're doing to serve the housing market. however there is great uncertainty for this company and its employees. as we know there will be gmc reform but we don't know when or what form it will take. this uncertainty makes it very difficult to attract and retain employees with highly specialized skills. this is particularly true as

other financial institutions can offer long term career opportunities and in many cases substantially more compensation. a tricia accompany this year is double our historical experience. if we are to continue to provide stability and are rising finance -- housing finance system needs to protect the company we must retain every qualified executives and employees. psc e o i am responsible for ensuring we effectively manage the resources we have achieved. to, and fish -- to accomplish this we have employed talented professionals. these employees effectively manage eighteen billion loans. in 2009, 8 this a work with our leadership and the treasury department to develop a compensation program for the company. under this structure compensation has been reduced from 3 conservatorship level.

target total compensation for executive management is down 50% or more from levels prior to conservatorship and we have reduced senior managers by 30%. in closing i am proud of our team and their dedication to our important work. our ability to attract and retain top talent remains a critical priority as we continue to strengthen our business and deliver value to american taxpayers. thank you and i look forward to your questions. >> mr haldeman. >> chairman issa, ranking member cummings and members of this committee, thank you for inviting me to appear today. i am haldeman and i am ceo of freddie mac. i joined freddie mac in august of 2009. almost a year after the company was placed into conservatorship by the federal housing finance agency.

i welcome the opportunity to be here today to address your questions and concerns about compensation for our executive team. let me begin by saying i understand why this hearing is necessary. i understand why the american people are outraged about executive compensation in general. i understand totally why congress and the american people are outraged about executive compensation at companies that have received federal support including fannie and freddie. we have 9% unemployment in our country and there are millions of families at risk of losing their homes. i understand the outrage. how then do a reconcile the compensation system at freddie mac given the suffering that so many families a living with?

let me see if i can explain the dilemma i face. my number one objective taking the job in the summer of 2009 was to keep the company functioning. i concluded that there would be more families hurt and pain would last longer if there was a breakdown at freddie mac. my focus was on keeping the machinery functioning well in order to do two things. first, provide liquidity to the housing market and second, help to implement programs that would keep more of our struggling families in their homes. with this guiding philosophy it seemed to me that gradual change would be preferable to radical change in the operations of the company. so here is the strategy we follow with regard to

compensation and overall corporate expenses. first we eliminated some senior executive positions. for example we no longer have a chief operating officer which was the second-highest paid position in our company. second, we consolidated some senior executives positions which allow us to reduce the number of senior executives. we consolidated the credit and enterprise risc functions of the company. third, when a senior executive leaves the company we try hard in every instance to bring in a new executive at a lower compensation than their predecessors. as result of 15 highest-paid people at our company today receive the same compensation as the top 15 received a decade ago. another way to look at the

reduction in executive compensation is a reduction from peak levels. the compensation of our senior team is down 40% from peak levels creek conservatorship. while we have sought to achieve major reductions in executive compensation without disrupting the functions of the company we have put a big emphasis on bringing down the overall expenses at our company. our overall general and administrative spending in the past year is down more than $120 million as compared to our spending level of 2009. let me summarize. i understand the reason for this hearing. i understand the outrage. we have significantly reduced executive compensation and overall spending at freddie mac. we tried to do it in a way that

does not risk disrupting the functioning of the company. my belief is disrupting the functioning of the company would put those families who are suffering at even greater risk of deeper and more prolonged difficulty. thank you again for this opportunity to testify. i look forward to addressing your questions. thank you. >> mr. demarco. >> chairman issa, ranking member cummings and members of the committee. please to be here to discuss the federal housing finance agency's oversight. executive compensation structure for fannie mae and freddie mac or the enterprise as i will refer to them. my written statement explains how the enterprise's executive compensation program supports statutory mandates of the enterprises and conservatorship, howard was developed and howard was structured. in a few minutes i would like to

focus on two matters. first, fannie mae, fory have been in conservatorship more than three years. draws from the treasury exceed $180 billion reflecting losses from mortgages originator during the the year leading up to conservatorship. minimizing those losses as much as possible while maximizing assistance to homeowners is a key focus of the enterprises. since conservatorship the enterprises have completed 1 million foreclosures including 1 million permanent home modifications. while in conservatorship we are also seeking to ensure the country continues to have a reliable supply of mortgage finance. the enterprises have guaranteed three of four performing mortgages in conservatorship while we await congressional

action on the future of housing finance, fhfa has initiated projects to prepare for the future system of housing finance. include standards for mortgage servicing, reconsideration of mortgage servicing compensation and establishing loan level disclosures for mortgage-backed securities. second recognize there's a great deal of concern today with executive compensation at the enterprises. i would like to make three observations here. first, the executives most responsible for the poor business decisions that led the enterprises into conservatorship and lead to taxpayer losses are long gone from the company. second, the best way to address concerns of executive compensation is action by congress to restructure the nation's housing finance system and dissolve the

conservatorship. conservatorship is not designed to be a multi-year holding's stake. third, as conservative are in need to ensure enterprises that people with the skills needed to manage five trillion dollars worth of mortgage assets in $1 trillion of annual new business the american taxpayers support. others may believe this sort of talent is easily and quickly hired but compensation far below that of competing private firms but i do not. bottom line this is a question of judgment. judgment exercised by balancing the need to limit compensation as much as possible while insuring continuous operations of the enterprises in support of america's housing finance system. it has been fhfa's judgment that taxpayers who are providing financial support to the enterprises and their guarantees on $5 trillion of mortgages

would not be better off if we provoke a rapid conover of senior management by cutting compensation. such pay cuts would increase the risk of higher losses in the future. executive compensation was already reduced by 40% on average when the compensation program was put into place. continued employment at enterprise risks career uncertainty. by working get fannie mae or freddie mac the work is under a higher degree of scrutiny and criticism that exists in other private firms. executives who spent a career developing their reputations risk tarnished the reputation and highly charged environment in which these companies operate today. this is true regardless how well they perform their duties or how great financial sacrifice they may have made by forsaking other private-sector opportunities in order to assist the country's housing finance system. there has been intense criticism

launched to corporate executives not employed by the companies when the bad loans leading the majority of today's losses -- people who arrived after conservatorship to make things better. i am trying to encourage these people to mitigate losses and keep the current infrastructure of the country's housing finance system operating. to repeat myself on one point the only way to finally resolve this question is for congress to act to end the conservatorship and chart a new course for the housing finance system. thank you again for this opportunity and i look forward to responding to the committee's questions. >> i ask unanimous consent the salaries of the united states government officials of various officials going from the president of the united states and vice president down to yourself, mr haldeman and mr. demarco be admitted in the

record. additionally i ask unanimous consent the article of yesterday in bloomberg news week entitled uncle sam is a reluctant landlord of foreclosed homes into the record. without objection so ordered. last and definitely not least i ask the committee report be placed in the record. without objection so ordered. i recognize myself for first-round of questioning. mr. williams, you are a career employee. you came up through the ranks. what did you make in 2002 if you recall? >> what did i make in 2002? i don't know off the top of my head. >> more than five years ago, what you made? >> again, off the top of my head i don't know. >> what would your starting pay

when you came? >> probably around $115,000. >> you think -- >> i would imagine around $150,000 when i joined the company 20 years ago. >> 20 years ago you came to an organization that $15,000. 1 $50,000. so they paid you more than they paid congressman at that time and that hasn't changed. >> i would assume so. >> but less than the president. he was still making $200,000 back then. let's go through the numbers. u remember $115,000 when you started. when did you first make over 1 million dollars? i had the luxury of making $1 million. i exactly remember the year and may never $1 million. what year did you first have compensation including bonus

that put you over $1 million. >> i am not sure what your that was. >> money is not that important to you. >> money is important to all of us who are here today. >> but you're a career government agency employee. >> i have been an employee at fannie mae for 20 years serving a vast array of roles beginning in technology all the way through to chief operating officer. >> i won't beaded dead horse but you cannot of $115,000 to an organization backed by the government that had a scale. did you ever have an expectation that you were going to make not just seven figures that several of them, you make $9 million every two years. >> i think we all hope to aspire to advance in our careers and advance our compensation as we do. >> but you made $9.3 million the last two years while the president made a hundred thousand dollars.

do you think that is okay? >> i have been brought in and asked to take on this role as ceo silicon put in place a management team that can help achieve the goals of conservatorship would stabilize the company, provide liquidity to the market and -- >> you are still losing money. you take $90 billion that you're getting $9 million a year. let me go to mr haldeman. bloomberg and other organizations were concerned when you came on board because you don't come with a background like mr. williams. you are not qualified to run the organization if one were to look at your resume. that was a concern but you came out of the private sector. what did you make last year you were in put them? >> i don't recall. >> did you make more the $1 million? >> yes. >> with your compensation tied to performance? >> yes it was.

>> was a tied tightly to performance in which you could look at the yield of accounts or the profits of reorganization in order to determine what your bonus would be? >> it was tied to the performance of the funds and performance of the company and i had equity participation as well. >> equity participation assume the stock goes up. >> it doesn't always. it happened during my tenure. >> your options were worthless if your stock went up or went down. >> that would be correct. >> has your stock gone up? >> in my tenure it has not. >> i want to make sure $7.8 million over the last two years is based on a company that is not worth more today. just for the record if i were to look at the next profits for fannie mae from 2003 to 2010 i

would find that profits are $11 billion loss. at freddie mac are would find a $72 billion net loss over the same period of nearly a decade. including the time before you came in in which the books were being affected plea cooked by taking advanced debt that was going to go bad but they were paper profits of $5 million but over that period of time, on an organization that lost $14 billion in 2010 is going to lose equally or more this year. that is the organization you are running, $4 million a year. is that right? >> we have lost money due to loans that were put on the books during the period 2005-2000 -- >> my time is expired. one last thing. mr. demarco, from what i can tell your salary is all you get. >> yes. all i get is my salary. >> you do stay for that menial

amount of money for some unknown reason even though you could make money elsewhere. >> i am still here. >> thank you. recognize the ranking member. >> mr. demarco. i must tell you, mr haldeman and mr. williams you're from a different world than what i come from. if i made $1 million on. or know when i made it. that is for sure. mr. demarco. i want to go to performance. as i listened to mr. williams and mr. haldeman i don't remember hearing the word performance. i may have heard it but i don't remember hearing it. you sit in your testimony part of the conversation is based on performance. but with all due respect their performance at yours has been severely deficient especially in assisting home owners. in 2008 congress and the president directly addressed homeowners in need. congress passed emergency

economic stabilization act and the president signed it on october 3rd, 2008. that state clearly that fhfa, freddie mac and fannie mae shall implement a plan that seeks to maximize assistance to homeowners. in your testimony today you confirm this is one of your three gold. >> i did. >> i have seen no plan to do this. what i have seen is an agency that basically has to be dragged to do its work by congress. let's look at performance. the home affordable modification program was supposed to help three, four million homeowners modify their loans. so far it has held fewer than 800,000. is that true? >> that is correct. it is not correct reflection of loan modification activity at fannie mae and freddie mac. >> with regard to the home affordable finance program that

was supposed to hold between four million and five million borrowers refinance at lower rates. beamer than 900,000 have been refinanced. is that right? >> there have been 900,000 heart rates to date. as you note, from the changes we made to the program recently we are expecting an uptick in that. >> of course we are but we're talking about what we have done to date. these gentlemen are making this money now all, so i'm looking at performance now. it was not until president obama made an address to congress that you started to revamp this program in a serious way. let's look at -- >> just for the record i directed both companies to work with fhfa on a for re-examination of the home

program several weeks before the president's address. the work was underway. >> you could have started a lot earlier, could you not? >> we did try it last winter and we made some changes and i regret -- i don't regret anything. i would say we redouble our efforts in august and i am pleased with the results. >> you may not have regrets but i have regrets for the people who are being put out of their houses and need help and would like the goals that were stated to be manifested. that i do have regret about and i understand your lack of regrets. i am so sorry you have no regrets because i wish you could face some of the people who are out of their homes. >> that take my word out of context. i did not say that with regard to american homeowners. myself and everyone at fhfa and the gentleman to my right have been working very hard to

provide assistance to american homeowners and with regard to the quotation from statute you cited it is quite right. isolated myself frequently the full quotation includes we were to take maximizing assistance to homeowners in consideration of the net present value to taxpayers and that makes what we are doing in terms of providing relief to homeowners consistent with our mandate as conservative to preserve assets and property of the company and thereby minimize further losses to the taxpayer. >> the mandate is you shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage servicers of the underlying mortgages and considering net present value to the taxpayer to take advantage for homeowners the program -- is that not correct? >> i think you raise an excellent point and it is one of the key accomplishments we had this summer with the servicing

alignment initiative fhfa. organizing for the hafts -- freddie mae and freddie mac's the servicers would know how to effectively, efficiently and timely response to troubled borrowers and we learned from the difficulties of the last few years we put in place an identical set of servicing requirements fannie and freddie have for mortgage servicers so the moment the bar were goes the lynwood and servicers have clear instructions and positive incentive to make the early and robust contact to bar worse to find out what their difficulty is. we are chasing tremendous emphasis on immediate contact with the bar were to find an appropriate solution to their difficulty because what we have learned is the faster we do that the greater the likelihood of success and i believe our efforts in this way have been very much consistent with fulfilling the mandate you quite

rightly sight. >> i ask unanimous consent. mr. demarco, i have said this to you before and as i listen to your defense and i do consider defense and rightfully so, i said to you and i beg you do not mistake comma for period. we get caught up in what we achieved and fell to see that we can do better. that is what troubles me. that trouble many members of congress. i sit the with all sincerity. not trying to hurt your feelings that i've got to tell you i am talking about people who are in pain big-time. do not mistake comma for a period. >> i appreciate that. i benefited from our discussions the last couple months and remain committed to making sure

fannie mae and freddie mac in conservatorship are doing robust and opprobrium things to help american homeowners the trouble in their mortgages and we will continue in that effort and i'm taking under consideration all the things you told me and i do believe we share a deep concern for the number of american households that are troubled and we share a desire to provide appropriate assistance and we will continue to try to improve our efforts. >> thank you for your indulgence. >> i ask unanimous consent with the entirety of the act, h r 3221 be placed in the record and particularly cite powers of the conservatorship, the agency may take such action as may be necessary to regulate energy in a sound and solvent condition and appropriately to carry out of the business of the regulated

entity and preserve and conserve the assets and properties of the regulated entity. that is what the gentleman is referring to. we recognize the gentleman from michigan, mr. waters. >> thanks for your use of words. i couldn't have said that myself. this is the duty we have to do. mr demarco, the $12,790,000 in bonus pay for ten executives we are discussing today, bonuses you approved was for providing a, quote, liquidity, stability and affordability to the housing market when baker's, lenders and financial institutions would agree with that and want that to continue.

in light of that, what benchmarks are fannie and freddie meeting that would allow such bonuses to kick in especially in light of taxpayer losses of $170 billion. >> this is detailed in the annual security filing the two companies but reported in my written statement. these losses taxpayers are absorbing is result of business decisions made pre conservatorship and mortgages originator it pre conservatorship and one focal point for executive compensation for the executives of fannie and freddie are their efforts to minimize losses. they can't undo mortgages that are made but what they can do is take aggressive action to mitigate those losses through loan modifications and other foreclosure prevention

activities. report monthly to the house financial services committee and senate banking committee on the efforts that have been undertaken to that end and the array of things they are assessed and go to efforts to minimize losses and undertake homeowner assistance and be sure there's ongoing liquidity in the market and be working on things such as service improvements i had talked about in my exchange with mr. cummings. >> in light of what mr. cummings mentioned, likewise in my state of michigan, you state in your opposition you stated your opposition yesterday to putting these executives on par with the federal pay scale. a position you continue to suggest today in comments a legislative proposal passed out of the house financial services to just that. was a do you oppose that?

why do you oppose that and do you believe federal agencies cannot perform their duties because they don't offer wall street's highest-paid checks? >> i oppose it because i believe immediately putting all the employees at fannie and freddie on a different pace scale is going to result in taxpayer loss with and freddie going up, not down. the chairman read the excerpts from the legislation regarding conservatorship and an important aspect is i am preserving the assets of a business entity and these remain business entities and they remain regulated entities. they're not government agencies. if the congress of the united states wants to take action to make some government agencies, make the government employees--that is a different story and legal structure than

the one that i am being held responsible for overseeing today. what i am being responsible for overseeing today the way the law works today fannie mae and freddie mac are not government employees or government agencies. they remain private corporations undertaking trillions of dollars of business participating in the marketplace. they're subject not just to fhfa regulation but continue to be subject to other laws and regulations that apply -- >> i understand all of that. our citizens don't. we are in tough times. sometimes difficult decisions have to be made. if there is public service like you indicated and you want to provide a service and two gentlemen next to you indicated the same thing. in october you announced you would be stepping down from your position. >> that is correct.

>> did compensation play any role in this decision? >> it did not. >> mr. williams. use stated you would leave it to the fhfa to determine what your appropriate compensation would be. if mr. demarco changed course and decided it could be curtailed would you be fine with that? >> i would evaluate my personal options but leave the decision of the board and director demarco. >> i thank the gentleman. i ask unanimous consent to enter into the record a study, 2011 compensation done by the association of corporate consul's southern california chapter for 2011 and would note in public companies the compensation was approximately $400,000 for general counsel. the general telephone freddie

mac receive $2.9 million and fannie mae received $2.6 million more than four times the compensation the southern california chapter of general counsel -- >> if i may i think this is pretty important because of the theme of your hearing regarding protecting the american taxpayer. with regard to the legal departments of fannie mae and freddie mac i would like to point out to the committee that fannie mae and freddie mac with fhfa taking the lead on this as conservative has filed lawsuits against the biggest financial institutions in the country and the world to recover losses that we believe are the legal responsibility of others. this is part of our activity to protect the american taxpayer and carry out conservatorship responsibility but i will say that for us to be able to successfully execute on complex litigation regarding complex financial transactions i need to

have qualified and experienced counsel to be working with us so i believe this is an investment that is part of protecting the american taxpayer. these are the sorts of things that if we fundamentally and immediately change the rules of the game with respect to how we perceive fannie and freddie we may gain in terms of compensation but i would like the committee to know from my perspective on the belief we risk of the things that could harm the american taxpayer. i know that the congressman's that is -- >> i don't have any time. i don't want to cut you off and i know there will be further dialogue. i will seek time to have this dialogue we recognize the gentleman from ohio, mr. kucinich. >> thanks for holding this hearing. one thing that is interesting about these hearings is

occasionally you get some insight into how people think in a broader sense about those who are supposed to serve. i have to serve the witnesses mr haldeman was the only one who seemed to understand the concerns the american people have about decisions that face this committee today. i want to thank you for that. also want to say that in listening to the testimony, my concern is there may not be enough sympathy for people who are losing their homes. and if there is a gap with tremendous pay being given to people at the top and we don't see enough sympathy for people who are losing their homes that may mean you just don't get it. your too far removed. mr. demarco, on november 1st your general tells for wrote a

letter to ranking member cummings disclosing fannie mae and freddie mac had $150 million in penalties against banks for not foreclosing on homeowner staff enough. according to your general counsel's letter mortgage servicers were charged daily fees by fannie mae and freddie mac if they failed to process for closures within the set deadline. here's what your general tells laroche, quote, the top ten servicers account for the bulk of these do. the total amount for all servicers after approving appeals and corrections is approximately $150 million for 2010. this is the inning with all the abuses going on with robotssigning and filing a false court documents fannie and freddie were charged massive fees against 8 that failed to expedite for closures. mr. demarco. were you aware of these penalties? >> i am aware and i can explain. these penalties are a result of the failure of mortgage servicers to perform under

they're servicing contract with fannie mae and freddie mac and away better drive it up costs to the american taxpayer. the servicers are under contractual obligation to fannie and freddie to mitigate losses in did my exchange with mr. cummings that went into detail in efforts undertaken to assure servicers are reaching out to troubled borrowers. >> wait a minute. the point you are missing is there was an inspector general finding that fhfa, quote, directed fannie mae to impose compensatory fees against the servicers for violated foreclosure timeline limits. is that true and did you actually direct fannie or freddie to impose those penalties in 2010? >> it is true because driving up the cost of the american taxpayer. >> you are aware of the abuse going on but failed to address the untimely manager -- manner. >> these two different issues.

the compensatory fees that had been assessed had been done so with recognition and allowance for delays in processing due to assisting our worst try to find a foreclosure alternative or because of foreclosure delays driven by things external to the servicers control. >> this report concluded, quote, there were multiple indicators of foreclosure risk abuse risk prior to 2010 that could have led fhfa to identify and act earlier on the issue including quebec consumer complaint alleging improper foreclosures, contemporaneous media reports about foreclosure abuses and fannie may's law firm and court filings for such abuses. mr. demarco, you are aware of these abuses why would you order hundreds of millions of dollars of penalties to speed up the process even further? why would you do that? >> i would like to separate the

abuses and the corrections undertaken with regard to them with servicers not performing adequately in foreclosing on properties that have gone multiple years without payment because this is driving up the cost to the taxpayer. we are foreclosing on properties that have had payments for two or three years or more and all this time the american taxpayers funding those mortgages and it is also damaging local communities and housing markets to have these properties sitting there with no action taken against them. i believe -- >> with all due respect to you, the report talked-about supporting personnel overloaded with volume of foreclosures, documentation problems, members of the committee you have a situation where they're focusing on accelerating foreclosures and hurting our constituents.

we have -- [talking over each other] >> gentleman's time is expired. mr. walsh of illinois is recognized for five minute. >> thank you for being with us today. a couple quick points and an overall question. we talked in trillions, millions and billions. $15 trillion in debt, fannie and freddie have been subsidized to the tune of $170 billion the last three years. executive compensation. big numbers, they jump out quickly. two smaller numbers jumped out at me. fannie and freddie paid outside compensation consultants $650,000 in 2008 and $560,000 in 2009 to determine their own pay

structure. we paid outside consultants that much money to determine the pace structure. does this sound right? does that sound excessive? >> we hired the company and board of directors to higher compensation to the benefit of compensation programs. >> a little closer. >> the board of directors hired compensation consultants to work with them to develop the compensation program at the request of fhfa and they work in partnership with fhfa to develop that compensation. >> $650,000 in one year to help you determine your pay structure. mr haldeman, does that sound excess of. >> sounds like a lot of money but there are compensation consultants required for the board in addition to the

company's compensation consultant. i think that number would include four consultants if i get it right. we're pointing out for both that would be four in total but i agree it is a lot of money. >> one other quick point on your testimony. you said the 15 highest executives today are paid roughly the same as the top five decade ago. i don't know that that is something to rave about. james johnson 9198 -- franklin raines, we remember that name. he earned more than $90 million from 98-03. daniel mud owed $12 million in 2005. are don't know that it furthers our topic to compare what we're doing today with what executive made 15 years ago. mr haldeman, i appreciate the

tone you took. that you understand the outrage that congress feels in theory and in practice we reflect the outrage that is out there. many members of congress came here because this country -- republican and democrat most of whom left higher-paying positions to come here and serve this country because this country is broke. i am not unusual. there are other members like myself who came here and turned down my help -- health benefits or pension benefits because we all got to do something pretty quickly or we are going to be in a heap of trouble and future generations will be in a lot of trouble. i appreciate that you understand

the outrage that are you telling me that departments in government, we are fundamentally not able to find people who need to do what they need to do with fannie and freddie for less than the amount of money in base pay and bonuses we are paying folks? and if so you understand how a lot of people might find that hard to believe? >> i think all of us appreciate the service of the entire congress and realized a personal sacrifice to take on those roles and recommend acting director demarco for the public service he has given the country and there are many examples of people who have done that. the dilemma i face maybe i can bring the numbers down a little bit in size. one of the important functions

we perform at freddie mac is managing investment portfolio. when i took over my job in august of 2009 that investment portfolio was $900 billion. we brought it down continuously. it is about $680 billion in size. there are people managing that portfolio. what i worry about is they make and 1% mistake that cost the taxpayer $6.8 billion. ..

>> coming from our many previous discussions. but first i want to share with you some comments. neil barofsky, who's the former inspector general for the t.a.r.p. program, i quote him. there needs to be a recognition that many people will never pay the underwater mortgages, they've lost a meaningful chance of obtaining the recovery. as soon as this reality is recognized and addressed, the sooner the recovery can take home. an aggressive principal reduction program is necessary. alan binder said most economists see principal reductions as central to prevebting foreclosures. ben bernanke, restore some equity for the homeowner, it may be a more effective means of preventing foreclosure. mark zandi, the housing market poses a serious threat to the economic expansion. one of the best odds of ending

the housing crash quickly and definitively would have substantial write-downs. now, when congress passed the emergency economic stabilization act in 2008, we directed fhfa, freddie and franny to im-- fannie to implement a plan. it does talk about taking, having the mortgage services, encouraging services to take advantage of programs to minimize foreclosures. there's nothing in the law that i see, that anybody else advises that prevents you from approving a program that reduces principal in the tact payers' interest. the average return this year is 55% of unpaid principal balance, so you're going to lose 45% of for foreclosed property. why not reduce the principal and keep the borrower in his or her home? >> we have been through the

analytics of the underwater borrowishes at fannie and freddie and looked at the foreclosure alternative programs that are available, mr. tierney, and we have concluded that the use of the principal within the context of a loan modification is not going to be the least cost approach for the or taxpayer to allow this homeowner an opportunity to stay in their home. we are using aggressively loan modification activities that include principal forbearance which will zero out the interest rate charged on the underwater portion of the mortgage without forgiving the debt of the mortgage. and this is all designed to get the borrower into an affordable monthly payment so that they can continue in their home, and that has been the basic calculus that has guided this decision. as i've said before, i do not believe i've been appropriated taxpayer funds for the purpose of providing this more general sport to the housing market --

support to the housing market. we're supposed to undertake our loss mitigation activities with regard to the cost to the taxpayer. >> but you have been empower today reduce the maximization of the taxpayers' assets, and the if it's less costly, i would think you'd be breaking that task. you just come up with a different idea, and maybe you would share with us your calculations so we could run it by some of these other people who see it quite differently than you do. several of the banks are already doing principal reductions right now. you have a program where the servicer reduces the home to 95% of the fair value. as long as the homeowner remains current. when the home is sold or refinanced, the borrower's required to share that. shared appreciation

modifications help homeowners avoid foreclosure and restore equity providing a significant benefit. they're not doing that to be nice, you know that. it's in their financial self-interest, and i still don't think you've made a compelling argument why it's not in fannie mae and freddie mac and the taxpayer's best interests to do that. bankover america, wells fargo, they've reduced an average of $51,000 off the balances of about 73,000 borrowers in 2009 and 2010. is everybody else wrong, mr. marco, and fhfa is right in this? >> i believe, congressman, i believe that the decisions that we've made with regard to principal forgiveness are consistent with our statutory mandate. i do believe we are taking all due effort to provide assistance to homeowners, and i do not believe i've been authorized to use taxpayer money for a general program of principal forgiveness. >> mr. chairman, just be

unanimous concept for 30 more seconds. mr. dimarco, i'd like you to do two things for the committee, if you would. >> okay. >> first, i read the law, you don't have the authority to do that, so if you would share that with the committee and me. secondly, submit whatever analysis you have done that shows why it's worse for the american taxpayer, if you'd provide that analysis, i'd appreciate it. would you do that for us? >> we can provide information as you suggested. >> gentleman's time has expired. gentleman from texas. >> thank you, mr. chairman. gentlemen, mr. williams, mr. haldeman, i'd like to start my questions with you. a lot of your, a lot of you -- first off, i want to commend you for being here. if i were taking a salary like you guys were in these times, i'd be reluctant to face the

people. i admire you for taking the heat on this. let me ask you a question. you compare your salaries in justifying them to those made in private sector companies. in those private sector companies, very off the compensation package is based on very specific, designed results in the performance of the company, and you are -- but you, basically, serve at the pleasure of the shareholders through the board of directors. and freddie and fannie, you guys basically are serving the taxpayers. we've invested a whole lot of money in your company and really this committee is about the only, and congress, is about the total level of oversight we have. and what i've heard from people back home is a pretty consistent, wow, you know, why are you taking this much money, performing so poorly and come back? i've heard you say, well, it

would be doing worse if we weren't doing what we do. so let me ask you this, would y'all invest in freddie and fannie? would you put your money in that and expect to see a return and expect to see it level out? i guess we'll start with mr. williams. >> congressman, first of all, as we've all, to your comments, the losses that we have been incurl are due to the loans that were booked prior to 2009. secondly, the management team that we have brought in is a new management team to deal with the challenges that we are facing and the specific issues that we've been asked to serve as conservator; stabilize the company to provide the necessarily quiddity to the market, help distressed homeowners wherever we can. >> i understand. but you start inside this company 20 years ago at, i think you testified earlier, well over

$100,000. so, i mean, you've been there through this. where were you kicking and screaming finish again, tell me if you were. i don't know, hey, we're about to get in a lot of trouble? >> congressman, i'm happy to discuss my role prior to conservatorship. so in the years leading up to conservatorship i served as chief operating officer of the company, i was responsible for managing our regulatory agreements that were put in place and making sure we achieved all the objectives under that. i was responsible for leading the company's efforts to restate our financial statements and get current with the sec's filings which we did all that, and i led the company's, i led -- oversaw the company's areas such as technology, human resources as well as our -- >> but from an executive level didn't you have to see some of this coming? >> congressman n hindsight i'm sure we all wish that we could have made different decisions

back in that time. >> all right. let me just ask one more question. i think it'd be fair to say that there are a lot of people who take to be -- jobs for less money than they would normally. take the president. doesn't pay all that well. the supreme court doesn't pay nearly what a good lawyer can make in the private sector, and certainly our teachers who are underpaid throughout this country take jobs for reasons, reasons beyond compensation. and you look at the private sector, and vikram pandit of citigroup says he's not going to take any compensation until the company turns a profit. don't you think we could get qualified people to do your jobs and the jobs of those other senior executives without having to pay million of dollars? >> congressman, i'm happy to address that question because, first of all, as i noted this is a new teamment we've reduced

executive compensation by 50%, we've reduced the number of senior executives by 30%. but i can tell you are these jobs competitive? yes in the course of three months i lost five senior vice presidents out of the company to financial services and other companies where i can assure you they were making more money and had better career prospects as a result. these are challenging jobs in challenging circumstances, and we need to pay and reward the people who are doing the jobs. >> i see that my time is about to expire, and i apologize for not getting to you, mr. haldeman. >> thank you. >> mr. davis of illinois is recognized for five minutes. >> thank you very much, mr. chairman. mr. dimarco, let me ask, when you announced these compensation packages in 2009, you issued a press release explaining that these million dollar salaries were necessary to, and i quote,

to attract and retain the talent needed, end of the quote, for fannie may and freddie mac to perform their roles n. a recent letter to congress you wrote that you were also concerned about a rapid turnover of management and staff replaced with people lacking the institutional, technical, operation aal and rac -- missing management knowledge necessary and more than $2 trillion in financial obligations. let me ask, what kind of analysis did you do prior to making these conclusions? did you survey the current staff that was present? and do you have some kind of document that you could share with us that would demonstrate the potential effects of lower salaries on the work force, on the agencies and, ultimately, on the homeowners who had mortgages

to pay? >> congressman, with regard to the announcements of the pay structure that were, took place in 2009 the background for that was developed over the course of time by my predecessor, and then when i became acting director, um, i assumed completion of that work. it was done in consultation with other government agencies, it was done in consultation with, um, pay consultants. it was done in a lot of consultation with the special master for compensation at the treasury department to assess what was the market like for compensation in troubled, large and complex financial institutions and what was the right structure and balance to weigh between the need to have competent, skilled professionals running these complex financial institutions against market

conditions at the time, um, and the market opportunities that they had. that was all part of the determinations that went into the announcement in '09. >> let me -- >> since then -- >> let me just ask you because my time is going to expire. earlier this year the inspector general for the federal housing finance agency issued a report evaluating your oversight of executive compensation at fannie mae and freddy mac. the ig report stated that, and i'm quoting again, that you never seriously considered, end of quote, comparing compensation at fannie and freddie to compensation at other housing agencies. is that true? >> we did not consider the fha commissioner or the head of ginny may to be market comparables to private companies that operated with all the liabilities and responsibilities of around private company -- of a private company. and we're certainly, being

government employees, are well aware of the compensation that those executives have. >> so you're saying that you did not make a comparative analysis of other house agencies that might have some of for same responsibility -- some of the same responsibility although certainly not as much and certainly not of exactly the same type? >> that's right. i'm saying that we did not find that to be, to be a comparable to two private companies who were operating in the marketplace with all the legal responsibilities and liabilities of private, complex financial institutions. >> do you think that the federal housing administration, ginny may and other agencies who seemingly were doing much better did not take into consideration the same factors and the same market and the overall

conditions of the economic climate? >> if i can -- i'm not sure i followed the question, but certainly, um, you know, government employees have completely different set of benefits and, frankly, personal liabilities or lack thereof when it comes to their engagement. and i do believe and i have a great deal of respect for people who come into political positions in government. they take a huge cut in compensation for the opportunity to be direct players in assisting the country and in guiding policy making in the country. these are, these are temporary positions that they fill before going back out into the private sector, and i do believe that the leadership of a company that's got $2 trillion worth of obligations needs to have -- >> bottom line, you think that the salaries are necessary and we couldn't do it any other way? >> i believe that what we have in place, sir, is what is the best to minimize the losses to the taxpayer in terms of the overall situation that we have

as long as fannie and freddie are in conservatorship, and it's why i said in my written statement, oral remarks i really wish we could have the administration and the congress of the united states get together and come up with legislation that will bring these conservatorships to an end and to build an appropriate housing finance system. >> thank you very much, mr. chairman. i yield back. >> i thank my colleague. mr. burton for five minutes. >> first of all, let me just say that the problem started in 1994 when you loosened up -- and you with respect here, none of you were here -- when we loosened up the underwriting standards to give loans to people who cannot afford to make the payments. it's crazy. i was an underwriter for that system for a long time, and i know how it works. you just don't do it. and it's not rocket science. the minute you give a loan to somebody who doesn't have the capability to make the payments,

then you've created a mess that is inevitably going to end in disaster. and that's what you inherited. now you, mr. williams, were there for 20 years. i don't know how you didn't see part of this, but nevertheless, the problem was pretty apart to somebody that -- apparent to somebody that has any idea how finances work. let me just ask a couple of questions. you had an outside entity make a region on compensation -- recommendation on compensation, and then you, mr. dimarco, made a recommendation to the board, and that was pretty much approved s that the way it works? >> i had responsibility for the final decision. >> so you made the decision on compensation. >> ultimately. this work was well underway before i became acting director, but ultimately -- >> i know. but you were the one. well, we've talked a little bit about this before. for legal counsel for public companies, and i heard what you said about the expertise of these guys.

the 2010 salary for public companies was averaging about $266,000 and with a bonus, it was about 104,000. so it was around 400,000. for a private company the salary was 204,000 and the bonus was around 100,000. now, under freddie mac robert boss trum, the general counsel, got $2.9 million in 2010 and timothy -- [inaudible] the general come, got $2.6 million in total compensation in 2010. i don't -- i understand that they had expertise, and i understand they had to have a good staff in order to make sure that the litigation was processed and pursue inside a very rapid way. but that just seems very excessive to me. and, mr. williams and mr. haldeman, i'm sure, are competent in many ways. i don't have the time nor the inclination to go into their qualifications. but when you look at the salaries and you realize the

problems that the country faces, it's just excessive. i don't think anybody that looks at this would disagree with that. and i'm very disappointed. and you talk about being very cognizant of the taxpayers' money. i'm very disappointed that this kind of pay is being given with the bonuses and everything when it's far in excess of the private sector in most cases. and you inherited a lot of the problem. don't misunderstand, i understand that. and the underwriting was terrible before. and i don't know how in the world we're going to get out of this quagmire, but the fact of the matter is, it is excessive, and i think it needs to be corrected. we have to have competent people, we have to make sure we have competent people that can do the job. but i think that when you start giving these salaries out to these people, you have to be absolutely sure you're not being excess i. and -- excessive.

and i'm sure you're doing the job to the best of your ability, but i hope you'll try harder. and if you have recommendations on what congress can do to help deal with this problem, i'd sure like to see it. i'd like to see fannie mae and freddie mac be done away with and go back to the private market where sound business principles were applied. instead of trying to help everybody out, especially those who can't afford them, you just dig a bigger and bigger hole, and that's why this country's in the mess it is right now. and, mr. chairman, i yield back. >> from former chairman to former chairman, mr. towns is recognized for five minutes. >> thank you very much, mr. chairman. let me begin by saying that i want you to help me be able to determine in terms of how you arrive at these bonuses. you know, i know that, um, in this education if you are able to lower the dropout rate,

teachers are able to improve the reading scores, have great retention in terms of students graduating on time or stay anything school and then based on that, then the teacher gets a bonus. and, um, which i think that makes sense. they have done something outstanding. now they are rewarded. tell me how you arrive at the bonuses, mr. demarco. >> so fhfa in consultation with the boards of directors of each company developed corporate score cardz for each company outlining an array of areas regarding performance of minimizing losses to the tax todayier, remediating optional and risk management weaknesses at the company and insuring that the businesses operated effectively and efficiently. so there was an array of items that were put into the corporate

scorecard. these are then reviewed, scored by management at the end of the year, reviewed by internal audit at the companies, then reviewed by the board of directors and, finally, by my staff in terms of assessing the performance. and that becomes a key input into the determination of these bonuses. the structure for the employees' compensation, the executive compensation, it has, um, the following components. we set a target compensation for each executive that is aligned to be at or below the median of a comparable position in a comparable firm. and from that target compensation, a third of it is set aside to be paid in the form of a target incentive opportunity or what you all would refer to as a bonus. and that gets paid out over a two-year period after the performance year. then the rest is salary, a portion of it is paid during the course of the year. the majority of it is held off as deferred salary to be paid

the following year, and that's tone for retention -- done for retention purposes. and furthermore, to incentivize performance there, a portion of that deferred salary is itself tied to the corporate performance allowing for a reduction in the actual amount of deferred salary that is paid if performance doesn't measure up. as is detailed in my written statement, in each of the years we've done these assessments, we have not awarded full amounts for either the deferred salary or for the target incentive opportunities. we've awarded less than the targeted amounts. >> let me just say that, you know, i notice my good friend and colleague, congressman burton, indicated, in fact, in terms of what happened in 1994. but i think there's one thing that we are not considering, is the fact that in many families one person has lost his or her job, and that has created a lot of problems a along the way. and when i walk the streets in

my district and i listen to the people that are losing their homes, you know, and then you look at these salaries and one would say, wait a minute, why don't we take these salaries and save a whole block, you know? and this is what you're hearing from people back in the district that i represent in brooklyn, new york. so, you know, do you hear people talking about excessive salaries? >> i do. i get, i get correspondence on this as well. i certainly hear from members of congress and so forth, and all i can say, congressman, is i believe that we're trying to strike a difficult balance between insuring that these multitrillion dollar companies have the appropriate expertise running them and that we are keeping these salaries as low as possible to make -- while insuring that we've got capable people and that the people are there from the ceos on down are focused on helping homeowners. we are very committed to trying

to help troubled homeowners and to provide alternatives to them when they get into trouble. >> but if we're not successful, i'm not sure -- let me just one quick one before my time has expired. the ig report concluded that your agency failed to act on foreclosure abuse issues until the middle of 2010. even though there were multiple indicators prior to that time which would have led you to act earlier. are you familiar with this report? >> i am. >> let me ask you about one other foreclosure firm, the law firm of steven j. balms in new york. over the past week, both freddie mac and fannie mae instructed servicers not to refer any new foreclosure cases to the firm. why did freddie and fannie just now drop this law firm? why did it take so long? i just want to find out from -- as to why, yes, please.

why did it take so long, mr. williams? yeah. >> congressman, we are constantly looking at our law firms, and we find when they're not performing or in this case i concur with your concern about their behavior, we take action as quickly as possible. it's also important for us to prudently move the cases so that we don't incur additional losses to the taxpayer. >> that should be considered in your evaluation as well in terms of whether this person gets that extra compensation. thank you. >> i thank the former chairman. recognize mr. kelly. >> thank you, mr. chairman. i would yield back my time to the chair. >> thank you. i certainly appreciate the gentleman yielding. now, mr. de marco, i know you're familiar with the office of inspector general. but mr. williams, because of your service in government, mr. demarco, i know you're very familiar with that process. mr. williams, mr. haldeman, are

you both aware that federal igs have the right to request information and assistance from their regulated entities? >> yes, i am. >> i'm aware as well. >> yes. now, it was brought to the committee's attention that employees at the enterprises have resisted document requests made by the fhfa office of inspector general arguing instead these requests must go through the fhfa. were you aware of this, mr. williams? >> congressman, we are fully cooperating with the ig on all matters in coordinating with fhfa. >> it was my understanding that we were cooperating with any request from the ig and coordinating it with, um, our counterparts at fhfa. >> okay. well, you both met full compliance of all requests of information from the office of inspector general? mr. williams? >> congressman, we work with the ig cooperatively -- >> will you commit, it's a

question. and i understand you want to give a different answer, but will you commit to providing the documents and information the office of inspector general requests of your entity? >> we have been, congressman. and we'll continue to do so. >> you will continue to do so. >> uh-huh. >> is that correct? >> that's correct. >> thank you. mr. haldeman? >> yes. the only caveat i'd add is that we do coordinate that activity with our regulator, fhfa. >> okay. so the, so to be clear, to you, mr. demarco, so the oversight, the office of inspector general, who is to oversee you, they must request from you in order to request from the entities that you're regulating in order to get information? >> the ig's responsibility is to oversee the which i and efficiency and effectiveness of fhfa, and we -- and that is done to get the effect of some of

fhfa's activities, they will request information from the regulator. i believe we've worked out a very efficient process for dealing with that, and i believe both companies have been responsive to the ig. but the ig's oversight is of fhfa, and -- >> right. but in order the get that information, for instance, the t.a.r.p. oversight office of inspector general requests information of the banks that got money. and they don't have to go to the treasury in order to ask for that. >> right. >> so -- >> it's noting being, i don't believe -- >> would you let the office of inspector general directly request fannie and freddie the documents and information that they need? >> pursuant to audits and evaluations being undertaken by the ig, certainly. >> okay thank you. and with that, i'd like to yield the balance of the time back to

dr. day jar lay. >> thank you, mr. chairman. and thank you all for appearing before us today. the title of our hearing today, as you well know, is paper performance, should fannie and freddie executives be receiving millions in bonuses, so just with the little time we have, i'll go to each of you and let you answer that question directly. mr. williams. >> yes, congress match. should we be paying for performance? yes, we should. and are we being evaluated on the performance of the executives? yes, we are. and we've been given some very complex challenges to deal with in this market. >> okay mr. haldeman? >> yes, we should be paid based on performance. the difficulty is that in contrast to my years in the private sector and where all the companies were profitable and it was easy, easier to identify

performance and tie it to profitability, much more difficult to taipei to performance in the kind of situation we have at freddie mac where there are so many embedded losses that we are dealing with that continue to throw, come through the financial statements. >> okay. and, again, the title pay for performance, should fannie and freddie executives be receiving millions in bonuses? mr. demarco, let's address the bonuses. >> i believe they should be compensated at a market rate that allows fhfa's conservator to insure we can attract and retain suitable executives to run these companies. >> thank you. i'll have more questions, i'll yield back. >> gentleman's time has expired mr. clay for five minutes. >> thank you, mr. chairman. mr. chairman, the witnesses have testified that part of their compensation is based on how fannie and freddie perform, but

i have serious questions about some of their so-called achievements. let me give you an example. fannie mae's 10k filing states that credit. [applause] s were actually -- credit losses were actually low or than expected in 2010. that sounds like good news. however, the reason for these lower credit losses is that many services were caught up in the robo-signing scandal and were forced to halt their foreclosures during the fourth quarter of 2010. mr. demarco, how can you take credit for fewer losses if they resulted from the robo-signing scandal? and that's not a basis for bonus, is it? >> i don't thinkman, the -- congressman, the performance over the last year that was better than fhfa had project inside a published report in october 2010 is reflective only

in part by delays in foreclosure. it, in fact, reflects that we have had better performance of underwater mortgages than had been projected. we've had a before better perfoe of loan modifications and other alternatives than had been projected. so, in fact, i think it's reflective of the fact that the steps that have been taken at these companies are actually bearing fruit and resulted in performance that was better than was modeled and publicly reported in projections by fhfa last year. >> okay. let me give you another example. part of the executive compensation was based on this factor, whether fannie mae was able to issue at least 37.5% of all new mortgage-backed security issuances. according to fannie mae, they exceeded this goal the. however, as the ig pointed out the main purchaser was the government. in a report issued earlier this

year, the ig said this: it seems unlikely that frank -- fannie mae could have commanded such a large share of the market without the federal reserve's purchase of its mbs. mr. demarco, you can't really take credit for meeting this goal if it was due to deliberate support from the federal reserve, can you? is. >> these were not coordinated actions, congressman. the federal reserve's purchase of mortgage-backed securities was designed to effect mortgage interest rates and rates in the marketplace. um, these are, these are separate things. >> okay. let me ask you about another example. one of the measures for determining performance bonus for freddie and fannie executives was whether they provided more affordability to the housing market. they claim they met this goal

arguing that affordability ha improved -- has improved dramatically. well, do you know why? because housing prices have tanked. mr. demarco, are you seriously paying million dollar bonuses for achievements in this area? >> that particular element, sir s reflective of the company's responsibility for meeting some various affordable housing goals and not -- without regard to the fact that they're in conservatorship, they remain subject to these kinds of responsibilities, and that's what they were become looked at, to make sure that in conservatorship they weren't stepping back from certain parts of the market, including those that are generally referred to as the affordable housing sector in the marketplace. i was trying to make sure they stayed active in purchasing mortgages in all parts of the marketplace. >> okay. so that was the benchmark, affordability. and, but are you actually

awarding bonuses because housing pricing are continuing to plummet? >> no, sir. >> okay. what's the benchmark then? is. >> benchmark is the housing goals that are in lace and that we report on to the congress. >> you know, i'm mystified as to why these so-called achievements should entitle executives to million dollar bonuses. and they either had nothing to do with the actions of fannie and freddie, or they appear to reward a continuing downward spiral in our housing market. i can't figure out which one it is. can you help me? >> congressman, i appreciate how difficult this is. um, clearly we are all frustrated by the conditions in the country's housing market and its economy. we are trying as conservator of fannie and freddie to insure that those companies remain active in the marketplace so that the company has a

functioning secondary mortgage market, to make sure that they are taking all appropriate action to assist borrowers in troubled mortgages and that the $5 trillion worth of mortgages that the american taxpayer is now supporting are being overseen and managed by competent professionals that can, um, prudently manage the risk of such an enormous portfolio. um, as i've said at the outset is and in my written statement, it is not our goal to be keeping this going, and i really would welcome working with the congressover the united states to get on with the hard work of housing finance reform so we can bring the conservatorships themselves to an end which would end this compensation issue and the much larger exposure to the taxpayer. >> gentleman's time has expired. i would encourage you to always work with the president on housing reform. the gentleman from tennessee is recognized for five minutes. >> thank you, mr. chairman. mr. williams, ceo of fannie mae, correct? >> correct.

>> okay. do you think that fannie mae is a success, the enterprise is succeeding, doing well? >> congressman, we've been given some very challenging goals, as i've articulated. we've needed to stabilize the company, to provide critical support to the marketplace as we've provided our liquidity and funding for both single-family and multi-family while helping to reduce long-term credit losses -- >> is it meeting your expectations as ceo? >> i think the team has done an extraordinary job under very difficult circumstances, sir. >> and, mr. haldeman, as far as freddie mac, you're the ceo. do you think it's a success, are you proud of the company, do you feel good about where you're going? >> i would divide the company into two parts, and this is in part a reference to an earlier question of whether i would invest this freddie mac.

and that's a relevant issue because i've been an investment person for most of my life, and if i could divide freddie mac into two parts, i would definitely invest in the company from 2009 on. i'm incredibly proud of the work of our employees from 2009 on. we have a very, very high quality book. our people are entirely commit today making sure we participate in responsible lending. >> that's the answer i would hope to hear, that you both value your companies and you have high expectations for them. since entering conservatorship, fannie mae and freddie mac, or the enterprises, have taken $169 billion from the treasury and still owe taxpayers $141 billion, so it's now the most expensive bailout of the 2008 financial crisis which sets you on a different level than private sector companies who, if they're profitable, that's good. if they get big bonuses, that's fine. the taxpayers aren't paying for

those, they're not as concerned. right now the taxpayers are paying for these, and they are very concerned. that's why we're having this hearing. mr. demarco, getting back to the beginning of the meeting when chairman issa was talking about salaries, according to reports mr. williams and mr. haldeman made about $4.7 million and $5.1 million respectively last year, and i think mr. williams' base salary was 900,000 and mr. haldeman was similar to that. so, obviously, big bonuses involved to reach that 3.7 and 5 pmentd 1 million. and as was mentioned several times, president obama makes 400,000 during the span, we as members of congress make 174,000, and i think you made about 240,000. do you think that the work of mr. williams and mr. haldeman warrants eight times as much pay as the president of the united states? >> um, as an economist, sir, i

believe that the -- what is perceived as the total compensation value and benefit of various positions goes beyond just the salary that's there. so i don't i don't find it fruio measure the compensation of the president of the united states with -- >> how about members of congress? right now the disapproval rating for congress is pretty high, and even though i think all of our colleagues here feel we work very hard, i think people feel we get paid too much, and our deficit is 14.3 trillion and rising. i think that if congress felt that they should get a bonus because we're doing a good job, we'd all be voted out of office and should be. clearly, the deficit continues, and you all owe the taxpayers 141 billion. so when taxpayers are seeing millions of dollars in bonuses going to the executives, i understand their outrage. and, mr. haldeman, you said you understood that too. so, mr. demarco, as the

conservator or fannie and freddie, you're nominally the boss of both of them. do you think their work is ten times harder or ten times more complex than yours? and maybe that the members of congress? so is their salary difference justified? >> i don't think anyone's going to agree, including me, that anyone's working ten times harder than i am right now, congressman. [laughter] >> okay. well, are they justified then? i mean, should they be getting -- >> i believe given the framework that was put in place, they have justified because the framework was designed in consultation with the special master of treasury looking at large financial institutions that operate as private companies, not as government agencies to develop a compensation structure and amounts. i believe that what we struck here was an appropriate balance cognizant of what the marketplace looks like. >> again. bonuses should be based on performance and, you know, clearly, i think it's dubious

that the performance is there to warrant millions of dollars of bonuses with that type of debt to the american taxpayers. i understand why they're upset, i'm upset. but i do thank you all for appearing. >> thank you. >> ms. maloney from new york is recognized for five minutes. >> thank you. and i'd like to continue on this line and ask about the bizarre situation with bonuses. when things are going well for a company, bonuses are awarded for positive performance. but when things are going poorly, we hear the argument today that bonuses are necessary for recruitment and retention. in other words, it always seems like a good time for an executive bonus. and when you announced, mr. demarco, these new compensation packages in 2009, you issued a press release defending the high salaries even though fannie and fredty were going into conservatorship after

major losses. and they have continued to lose money. they've been bailed out to the tune of $169 billion in taxpayers' money, and i'm told that fannie's asked for an additional 7.8 billion and freddie for an additional $6 billion, and the compensation plan that i looked at -- i agree with my friend on the other side of the aisle -- but the compensation plan here that i've looked at in both fannie and freddie and i'd like to put it in in the record, it consists of approximately six million for each executive. and i'd like to place that in the record. and your basic argument that you've given to both sides of the aisle today is it is necessary to attract and retain talent. so my question is, is there ever a wrong time to award like rah ty -- lucrative bonuses, mr.

demarco? >> there are, congresswoman, and we have. when these companies were placed into conservatorship, all bonuses were eliminated at the company. we had a number of senior executives leave the company. there were no severance or golden parachute payments made to them. the folks that were moat responsible for the companies ending up in conservatorship left without anything taken. the collapse of their stock price did much to reduce the value of compensation they'd earned prior. the difficulty that we have at fhfa as conservator of fannie and freddie is the country still needs a functioning secondary insurance market. i've got two gses that needed government intervention to function in the marketplace. we replaced the leadership of those companies that led to the conservatorship, but now i've got to be able to attract people in to run multitrillion dollar companies knowing that there's going to be this flow of losses from business decisions they had

nothing to do with. >> but let me say that a lot of your comments today sound very much like aig's. and i'd like to place aig's statement and the defense of their bonuses in the record. in their statement they said that they had asked their employees who received retention payments or bonuses or stocks or any type of pay in any form of $100,000 or more to return at least half of those payments. and i'd like to put aig's statement in the record too. and my question, mr. demarco, would you at least do as much as aig did? will you ask executives at fannie and freddie to return half of their retention payments? their retention bonuses? their retention payments? >> i will not, congresswoman. i believe that would be a breach of faith with the agreement that

i have struck with the mows of these two -- with the employees of these two companies. and i believe that trying to take such action at this point would be detrimental to the taxpayers' interest. i know how difficult this is and how frustrating it is. but i believe that to take such actions would not help the american taxpayer at this point. and it would not help the housing market. >> earlier you spoke rather movingly about public service, about people who take a job to give back to the community, to help their country. and fannie and freddie are no longer answering to shareholders. they're answering to taxpayers. they're not only answering to taxpayers for their salary and the bonuses which i believe they don't deserve, but they are answering to the taxpayer for the continued bailout that continues for these two entities. so you're in a very different structure now. and i would you should look

for -- i would say you should look for employees who want to give back to their country with their talent. and, in fact, yesterday as the chairman knows we had a bill passed out of financial services that will treat aig like every other government agency. and be on the pay scale of every other government agency and will not include bonuses. so congress is acting to move in a way that is more appropriate for an agency that comets to be bailed out -- continues to be bailed out, is no longer answering to shareholders, but answering to the american taxpayer. and the american taxpayer, 14 million of them, are without jobs and struggling. it's hard for them to understand how executives get $6 million in pay for a failing entity. surely there are talented people that can handle these jobs and do it in a way and a pay scale

appropriate with government agencies. i yield back. my time has expired. >> yeah. >> i have a lot more to say, but my time has expired. [laughter] >> i thank my colleague. mr. demarco, i just want to take a moment. we're approaching the noon hour. we have a few more members who want to ask questions, but i just want to take a moment of personal privilege and say thank you for serving as a human shield this morning. i know it's been tough, but we certainly thank you for your service. with that, the subcommittee chairman, mr. goudy, is recognized for five minutes. >> thank you, mr. chairman. mr. haldeman, why did the enterprise enter a conservatorship? >> the enterprise entered a conservatorship in september, 2008, because of the severe economic stress our company was under. and in the words of secretary

paulsen, felt a timeout was necessary. >> well, do you agree with mr. demarco? in his testimony he said it was a series of poor business decisions that led to the conservatorship. do you agree or disagree with that? >> um, in my tenure at freddie mac, i've tried very hard to -- >> i'm not asking about that. i'm asking about decisions that led up to the entering of a conservatorship. it's a very simple question. were there poor business digs that led to that? -- decisions that led to that? the answer's, obviously, yes. i mean, we can have this exercise as long as you want to have it, but the answer has to be, yes. right? or else there wouldn't have been a conservatorship. >> it's difficult for me to say that because i don't want to second guess my predecessors. >> well, we are paying you a handsome salary because you're supposed to be an expert in the field, and you not going -- you're not going to second guess your predecessors? >> it's because it's very difficult to say what one would have done at that point in time

given those circumstances and pressures that they were under. >> so you can't think of a single poor business decision that was made prior to 2008? >> um, i can talk about some decisions that were made that i hope i would do differently, but i'd prefer not to characterize them as poor business decisions. >> well, mr. demarco, it's your language. poor business decisions. what specifically did you mean by "poor business decisions" by his predecessors? he's, obviously, reluctant to go into that. hopefully, you will not be as reluctant. >> mr. goudy, both fannie may and freddie mac reduced their underwriting standards, allowed much greater risk in terms of the mortgages they purchased, they reduced the guarantee fees, the insurance that they were charging for this, and they made investments in private label mortgage-backed securities that while at the time were all rated by private credit rating agencies as aaa-rated securities, clearly we have seen

that there was substantial risk in those, in those instruments. and so these are business decisions made by the executives of those companies at the time -- >> during what time period? >> this is largely occur anything the period from 2005 to the first half of 2008. >> who is dan knell -- daniel mud? >> he was the ceo of fannie mae. >> what was his compensation? >> i don't know. >> how about richard -- [inaudible] >> he was the ceo of freddie mac. >> during what time period? >> i'm not sure, but it ended at the time of conservatorship. >> exactly. 2003 to 2008. now, what was his total compensation -- >> again, i'm sorry, sir, i don't know that. >> would you disagree with me if i told you it was more than $38 million? >> i could believe that. >> all right. so, surely you can understand the frustration of taxpayers who are paying bonuses while the bus is driven through the gates of

hell, and then you want us to pay bonuses while the people change the tires. >> i can certainly understand the frustration, and be, you know, this committee doesn't know me very well, but i've been a career civil servant my entire life, and most of that career service has been in policy positions in which i have try today advise policymakers including numerous congresses of the risks to the taxpayer in the fannie may and freddie mac model. it gives me no satisfaction to be sitting here seeing the devastation of the american taxpayer that's resulted when i spent the better part of my career trying to warn policymakers of the risks that were inherent and the structure that was in place preconservatorship, and it's why i would like to end this hearing with the same plea that i began at the beginning, i would like for fhf is ready to work with the congress and a m.d. manager -- administration to build a more robust -- >> well, i want to ask you about

that. who was james johnson? >> james job johnson was the ceo of fannie may back in the '90s. >> and what was his total compensation back in that time period? >> >> it was substantial. >> $100 million. now, he had a good working relationship with congress, right? >> yes, he did. >> okay. now, franklin raines, what was his total compensation? is. >> i don't know, sir. >> would you disagree that it was more than $90 million? so sitting here simply saying we need a better working relationship with congress, one could argue that's what got us into this abyss. >> i'm sorry. i don't recall saying having a better work relationship -- >> i've heard you mention the word congress a half dozen times, and, mr. chairman, if i could have 30 more seconds. the graveyard is full of people who are waiting on federal judgeships that never came. and i've heard the argument time and time again that we have to raise compensation levels for federal judgements so we can attract the right kind of

people. and yet every time there's an opening there are 100 folks that are dying for it. they'll take a tremendous cut in pay. i find it bitterly iron take the total compensation for the united states supreme court justices is less than either of these two men made. thank you, mr. chairman. >> mr. connolly for five minutes. >> thank you, mr. chairman. um, and thank you to our witnesses for being here today. um, i know you would like to do nothing better than be here today before this committee. mr. d emarco, if i understood your testimony, you make the argument that putting aside histrionics, putting aside public opinion, even putting aside the opinion here in the congress the problem, the challenge you face is that a substantial number of the mortgages of the united states

are tied up in these two organizations, and you've got to find competent, highly qualified, skilled managers willing to manage freddie mac and fannie mae and, therefore, you have to give a nod towards sort of what the marketplace offers in terms of skilled managerial leadership and, thus, the compensation we're looking at. >> that's correct, congressman. >> would you agree, though, that given the fact that these gses, given the fact that the taxpayer has invested very heavily now directly this trying -- in trying to straighten the ship for both freddie and fannie, that france parent si rules -- transparency rules might be a little different for these two organizations compare today a private commercial entity on wall street? is. >> i think there can be allowance for greater transparency, yes, sir. >> well, allowance for as a

public servant, as a fellow public servant, what, in your view, where is that line? i mean -- probably that line is different than a purely private entity on wall street. so what do we as policymakers here on the hill and what, more importantly, does the public have a right to expect by way of transparency and compensation packages and policies? >> well, i believe that these companies are continuing to operate as private companies, as sec registrants, and the public's certainly entitled to know, to have the same disclosures of compensation of the executives as it is of other firms. and that is done. furthermore, we have detailed, fhfa has detailed the executive compensation program and structure that's in place for these companies. but we go beyond that with respect to disclosure, and we provide numerous reports to congress on the conservatorship operations both in terms of detailing the sources of the losses that have led to these

taxpayer draws and detailing the activities that are underway at both companies to assist homeowners. >> mr. demarco, you're familiar with the inspector general report that was actually critical with the compensation system. and i quote: fhfa has neither developed written procedures to evaluate the enterprise's recommended compensation level -- referring to fannie and freddie -- >> right. >> each year, nor required agency staff to verify and test the means by which the enterprise calculate their recommended compensation levels. do you disagree with that finding? >> i'm familiar with the finding, and i can explain it. yes, sir i'm familiar with it, and we've agreed to take their recommended remediation that the ig had in its report. >> so you're going to have written procedures. >> we will have written procedures. >> when might we see such written procedures? >> i've assured the inspector general we will have those in place by the