but i am a not yet sure that this thing is going to work, as he hopes it will. and my objection will remain that any amendment that was not germane when filed but could be made germane by modification, as mine could, would not be permitted to be in this managers' package or passed by unanimous consent.. the presiding officer: the senator from arizona. mr. mccain: it sounds simplistic and the hour is late and we need to vote but the fact is there were 382 amendments that were submitted. there was hundreds of amendments that were waiting. and the fact is initially it was not the cornyn amendment was not agreed to. so it's a little more complicated than that. there were literally 400 or 500 amendments that were filed, and we had to at some point cut off the process. we will try to for next year's

bill to get a situation where it's far more inclusive and far more informative but when you're dealing with 500 bills, i know that each individual's bill is important, but there's no way you're going to be able to get through the authorization bill with that many amendments that are filed. and that's just a fact. and we doing the best we can to accommodate the senator from texas and the senator from oklahoma and every other senator that didn't get their amendment voted on. the presiding officer: the senator from michigan. mr. levin: i ask unanimous consent upon passage of s. 1867 the armed services committee be discharged from further consideration of h.r. 1540 and the senate proceed to its consideration. that all after the enacting clause be stricken and text of s. 1867 as amended and passed by the senate be inserted in lieu thereof and h. 1350 be passed, a motion to reconsider, that the senate insist on its

amendment and request a conference with the house on the disagreeing votes of the two houses and the chair be authorized to appoint conferees on the part of the senate with the armed services committee appointed as conferees, that no points of order considered waived and with no intervening action or debate. the presiding officer: is there objection? without objection, so ordered. mr. levin: i thank everybody and thank the chair. the presiding officer: the question is on passage of the bill as amended. is there a sufficient second? there appears to be. the clerk will call the roll. vote:

vote:

the presiding officer: are there any senators in the chamber who wish to vote or to change a vote? if not, on this vote, the yeas are 93, the nays are 7. the bill, as amended, is passed. mr. levin: mr. president? the presiding officer: the senator from michigan. mr. levin: i will be very, very brief for obvious reasons, but this is a golden moment for us. the proud tradition of the senate armed services committee has been maintained every year since 1961, continues with senate passage of the 50th consecutive national defense authorization bill. it always takes a huge amount of work to get a bill of this magnitude done. it could not have happened without the support of all the senators on the committee. i won't thank each and every one, the subcommittee chairs, the ranking members, our staff, the floor staff here which does extraordinary work, but the bi

bipartisanship of this committee dominates again and we hope that that plaifer will continue to dominate -- flavor will continue to dominate forever in the committee and we hope will permeate the senate. and the thanks will be specified in a statement that i would ask now -- i would ask now be inserted in the record. and to end my thanks -- the presiding officer: without objection. mr. levin: to end my thanks, i don't see senator mccain here. i think he to leave for a few minutes. he is here. let me just personally -- senator mccain i thought had to leave and i know he does. i put some thank yous here on behalf of the committee, senator mccain, and i just want to tell you how -- how tremendous it is to work with you and how this tradition of bipartisanship of our committee's been maintained and you are a very major part of the reason for that happening. and i want to thank you. mr. mccain: i thank the chairman. one of the -- one of the things

i look back on with great nostalgia and appreciation is the relationship that we have developed over many years, and i must say we've had spirited discussions from time to time but they've been educational, enlightening and entertaining, and i thank the senator for his leadership. mr. reid: mr. president? mr. president? the presiding officer: the majority leader. mr. reid: i ask the next two votes be 10 minutes in duration. the presiding officer: is there objection? without objection. mr. reid: and as the order -- the presiding officer: under the previous order -- mr. reid: may i -- as the order that's now before the senate indicates, i have the ability to designate who will be the speakers. we have two minutes on one and two minutes on the other. and those four minutes will be used by the senator from pennsylvania, the senior senator from pennsylvania, senator casey. the presiding officer: under the previous order, the armed services committee is discharged from further consideration of h.r. 1540.

all after the enacting clause is stricken and the text of s. 1867, as amended, is inserted in lieu thereof. the bill, as amended, is considered read a third time and passed, the motion to reconsider made and laid upon the table, the senate insists on its amendment and requests a conference on the disagreeing votes of the two houses. the chair appoints the following as conferees on the part of the senate. the clerk: senators levin, lieberman, reed of rhode island, akaka, nelson of nebraska, webb, mccaskill, udall, hagan, begich, manchin, shaheen, blumenthal, mccain, inhofe, chambliss, wicker, brown of massachusetts, portman, ayotte, collins, graham, cornyn and vitter. the presiding officer: under the previous order, there are two minutes equally divided prior to a vote on the motion to proceed to s. 1917.

mr. casey: mr. president? the presiding officer: the senator from pennsylvania. mr. casey: mr. president, could we have order of th order. the presiding officer: the senate will be in orderment mr. casey: mr. president, this middle class tax cut act is very simple. it does two things for employers and also helps employees. last year the senate came together on a bipartisan bill. we passed a tax bill that, among other things, reduced payroll taxes for employees. this legislation expands that. instead of just saying we're going to have a reduction of 2% of the payroll tax, it was going to be -- this legislation has it as a -- a cut in half. so you're cutting the payroll tax in half. that's take-home pay, 1,500 bucks in the pockets of the average working family in america. secondly, it allows us to provide a -- a cut as well, cutting in half the payroll tax for businesses. it's good public policy. it will create lots of jobs at a time when the american people are telling us with one voice they want us to do one thing

here -- create jobs or create the conditions for job creation so small businesses can hire and at the same time they want us to come together on a bipartisan way. i urge a "yes" vote. the presiding officer: the senator's time has expired. who yields time in opposition? a senator: mr. president? mr. president? the presiding officer: the senator from south dakota. mr. thune: mr. president, there are a lot of republicans here who agree with one of the basic principles in the democrat bill and that is that there's no reason why people ought to suffer even more than they already are from the president's failure to turn this jobs crisis around. what the republican haves proposed is an -- republicans have proposed is an alternative to this bill that ensures that no one sees a tax hike this year. the biggest difference is that the republican proposal ensures that no one's taxes get raised in a down economy. there's simply no reason that preventing a tax hike in this bad economy needs to be paid for by raising taxes on the very employers that we're counting on to help jolt this economy back to life, which is exactly what the democrats have put forward.

so the republican proposal would ensure that no one sees a tax increase next year. it avoids the gratuitous hit on job creators, and even better, our plan reduces the federal deficit by more than $111 billion. this is a dramatic expansion of this particular provision, mr. president, which we cannot afford when we already have a $15 trillion debt. there's a right way and a wrong way to do this. this is the wrong way in the democrat proposal. the republican proposal is the right way and i urge our colleagues to vote against this bill. the presiding officer: time has expired. is there a sufficient second? there appears to be. under the previous order -- under the previous order, 60 votes are required for adoption. the clerk will call the roll. vote:

vote:

the presiding officer: are there any senators in the chamber wishing to vote or change their vote? if not, on this vote, the yeas are 51, the nays are 49.

under the previous order requiring 60 votes for the adoption of this motion to proceed, the motion is not agreed to. under the previous order, there are two minutes quollly divided prior to a vote on the motion to proceed to s. 1931. the senate will be in order. the senate will -- a senator: mr. president? mr. president? the presiding officer: the senator from nevada. mr. heller: thank you, mr. president. the senate today has an opportunity to put aside some of the partisan differences and come together to do something that will benefit all americans. the legislation i've proposed is a solution and i support solutions that republicans, democrats, and independents can all support. by supporting my legislation and opposing tax increases on

employers, congress can also preserve opportunity for job growth in the future. increasing taxes on small businesses will not help my state overcome the highest unemployment rate in the nation. by asking millionaires and billionaires to pay higher premiums for government health care, my proposal asks the richest americans to do more. just like my colleagues on the other side of the aisle ask that they should. lastly, this proposal is the only one that has a chance of passing the house of representatives and be signed into law. mr. president, i urge all my colleagues to support this piece of legislation and this evident to help americans already struggling to make ends meet. thank you, mr. president. a senator: mr. president. the presiding officer: the senator from pennsylvania. mr. casey: mr. president, the problem with this proposal and i hope we're reaching the point where we're come together in a bipartisan way. the problem, though, it doesn't help small business. what we should be doing is

cutting the payroll tax in half for employees and cutting it in half for employers so we can help small businesses. this bill doesn't do that. all it does is take the existing cut in the payroll tax and keep that in place. we like 25 part of it, but what we should do is expand the tax cut for workers and also have a separate cut in the payroll tax for employers so 160 million workers and lots and lots of businesses can get the benefit of this payroll tax cut, put money in people's pockets, grow the economy, create demand and move the economy moved. i urge a no vote on this. the presiding officer: the question is on the motion to proceed. a senator: request the yeas and nays. the presiding officer: is there a sufficient second? there appears to be.

under the previous order, 60 votes are required in order to adopt the motion to proceed. the clerk will call the roll. vote:

vote:

vote:

the presiding officer: are we in a quorum call? still in the vote yet? okay.

the presiding officer: are there any senators in the chamber wishing to vote or change their vote? if not, the yeas are 20, the nays are 78. the motion is not agreed to. mr. reid: mr. president? the presiding officer: the majority leader. mr. reid: ask now unanimous consent that we move to a period of morning business senators aplowed to speak for up to ten minutes each. officer without objection. mr. reid: i move to proceed to executive session to consider calendar number 43. i send a cloture motion at the desk. it is at the desk. the presiding officer: the clerk will report the cloture motion. the clerk: cloture motion: we, the undersigned senators, in accordance with the provisions of rule 22 of the standing rules of the senate, do hereby move to bring to a close debate on the nomination of caitlin joan halligan for united states district judge for the district

of columbia circuit signed by 17 senators -- mr. reid: i would ask that the reading of the names be waived. the presiding officer: without objection. mr. reid: i ask unanimous consent that on tuesday, december 6, at 11:00 a.m., the is not proceed to executive session to consider calendar number 43, there be an hour of debate equally divided prior to the cloture vote, and mandatory quorum under rule 22 be waived. officer without objection. mr. reid: i ask unanimous consent to resume legislative session. the presiding officer: without objection. a senator: mr. president? the presiding officer: the senator from kansas. mr. moran: mr. president, thank you. just a few moments ago we cast several votes in regard to the so-called payroll tax holiday. i opposed both the republican amendment and the democrat amendment. there were significant

differences between these two versions of this legislation, in part the differences -- at least included the way that the provisions were paid for. and while i may support the pay-fors, i objected to the way -- i'm sorry, i objected to what the pay-fors are paying for. i support freezing members' of congress's pay, the elimination of certain benefits to millionaires, and reducing the federal workforce. but wouldn't we be better using the proceeds of these reductions in spending to reduce the debt and deficit rather than a short-term change that reduces the revenues going to the social security and medicare trust fund? when are we going to admit that we are broke? i'm reminded of a plan approved by congress just several years ago where we borrowed money to give citizens a $600 rebate, all

in the name of a stimulus. we wanted to stimulate the economy, and in my view what we did was we stimulated little and increased the debt a lot. many of us have expressed support for the concepts contained in the bowles-simpson deficit-reduction plan. that legislation -- their recommendations -- are very important, and we've paid a lost ateption to them and expressed our desire to proceed in that way. many times we have said that. but the legislation that we just voted on uses many of their suggested reductions in spending, not for deficit reduction but for another stimulus plan. the bowles-simpson plan has been hijacked once again in the name of stimulating the economy. these proposals also undermine the foundation of social security. we are reducing the payments into the trust fund. we should leave the trust fund

alone and cut spending and use those savings to pay down our annual deficits and live within our means. once again we are putting off difficult decisions and leaving it up to our children and grandchildren to pay for our irresponsibility. finally, let me once again on this floor make the case for certainty in our tax code. congress is tinkering tonight with the tax code, creating greater uncertainty. in almost every conversation i have with a business owner they ask for certainty in the tax code, certainty in the regulatory environment, but instead tonight we are changing -- or attempting to change the tax code one more time for a short period of time, claiming some benefit for doing so. instead, we should focus on long-term tax policy and a tax code that is simpler and certain. certainty is something that will

create jobs. i expect there to be some criticism of the votes i just cast, and i can hear the campaign sound bites, but we have got to get beyond the next election and get to the next generation. i yield the floor.

a senator: mr. president? the presiding officer: the senator from or oregon. mr. merkley: mr. president, tonight i voted against final passage of the defense authorization bill. and i rise now to explain why i voted against it and the considerable concerns that i have about the vast expansion of the powers of detention of american citizens that were contained in that bill. now, these provisions related to the detention of american citizens, without the standard rights of the fifth and sixth amendment, have been an object of intense debate on the floor of the senate over the last several days. as a senator wh who's now been e three years, i can say unequivocally that this debate was extremely valuable.

folks came from both parties on both sides of this issue and shared their insights, both from their life experiences, from their scholarly knowledge of the law, and certainly from their philosophy. and i commend all who participated in that debate. i listened to a great deal of that debate on both sides. i thought that this is extraordinarily important. issues surrounding our bill of rights and the rights of american citizens, protection from the abuse of power. now, for some -- some came to this floor and said that essentially the detention provisions in this bill simply clarify existing law and will enhance our national security. and they did so with sincere hearts and sharp minds.

others came, equally sincere, equally learned, and argued the opposite side, that the detention provisions in this bill constitute a devastating circumvention of the fifth amendment right to due process and the sixth amendment right to a speedy trial by an impartial jury, as well as the sixth amendment trite confront the witnesses against him or her. maybe it's useful to take a look at what the fifth and sixth amendment actually say. one of the last closes of the fifth amendment -- one of the last clauses of the fifth amendment notes that no person shall be -- quote -- "deprived of life, liberty, or property without due process of law." i think we all grow up in this country absolutely believing in this fundamental value, that the

government cannot take from you your life, your liberty, or your property without the process of law. the sixth amendment notes that in prosecutions the accused shall enjoy the trite a speedy and -- the right to a speed chained public right -- and i emphasize "public drill trial" -- by an impartial jury of the state. and it goes on to note that the accused shall be able to confront the witnesses against him. and to have the assistance of counsel. so these basic issues of speedy and public trial and impartial jury, the assistance of counsel, and the ability to confront the

witnesses against you -- all of these contained in the sixth amendment, and all relevant to this debate over detention. so most of this conversation is about a section of the bill called section 1031 in subtitle "d," and it's referenced, "detainee matters." i'll read the title to give a sense of what this is all about. section 1031, "affirmation of authority of the armed forces of the united states to detain covered persons, pursuant to the authorization for use of military force." now, it uses this fancy word "covered persons," and it is what is referred to in everyday speech as enemy combatants. so section 1031 is about the ability of the armed forces to

detain enemy combatants. now the reason this is framed this way is that there is an historical exception under constitutional findings of the supreme court to amendment five and amendment six of the constitution. and that exception is if an individual is fighting on the side of the enemy against the united states, that they do not have the same rights because they are now an enemy combatant. i in time of war and they can be detained for the duration of that conflict. this was adjudicated in world war ii over individuals who assisted with sabotage in new york. and it was found that the standard rights, a speedy public trial, trial of a jury, right to counsel, do not apply

if you're an enemy combatant. instead, you're put into the framework of a war setting to be treated as a member of the opposing army. so this exception has historically been extremely narrow. you are on the battlefield or you are directly working as a member of the enemy force against the united states. it should be astronomically narrow. and -- extremely narrow. and it should be substantial hurdles for the state to be able to simply claim you're an enemy combatant and thereby strip you of your fifth and sixth amendment rights. but what we have in this bill in section 1031 is not this narrow set of provisions based on the

historical understanding of an enemy combatant. instead, we have a definition that says -- and i will read it to you -- "a person who was a part or substantially supported al qaeda, the taliban or associated forces engaged in hostilities against the u.s. or coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of enemy forces." on first reading it may sound like that individual directly involved in combat but listen to the words embedded in this. first of all, it says a part of, with no conception of what "a part of" means. did you write one sympathetic email in your life time? does that make you a part of? we have no standard here. substantially supported is understood the 0 to mean material support, but no

contingency for intent. if you donated money to a charity and that charity used it to support taliban activities somewhere in the world or some other group that had an association with taliban, you have substantially supported under this conversation. then it says the u.s. or its coalition partners. who are these coalition partners? what's the definition of that? now, a few weeks ago you might have noticed in the news that there's a lot of protests going on in bahrain. we have a military facility in bahrain. is be bahrain a coalition partnr since we utilize a partnership with them to supply our forces in the middle east? yes, probably so. because there's no definition of coalition partners. well, with individuals who are standing up for human rights and

got into a battle with police in a public square, they are engaged in a belligerent act against a coalition partner. so i hope you can start to see that the standard understanding that has been constitutionally established over time is completely taken apart in this simple paragraph. that should be of grave concern to all americans who care about our constitutional rights to a fair hearing. now, so what happens when the government suspect that you have done something? and i want to take you to a case in oregon. we had a case regarding an individual named brandon mayfield. now, brandon mayfield was born

in kansas. brandon mayfield got his law degree in topeka, kansas. brandon mayfield is an army veteran. brandon mayfield is married with three children, lives with family in topeka suburb. well, brandon mayfield is a muslim convert, and in 2004, f.b.i. agents raided his law office, his home, his family farm to collect evidence believing that he was a terror mastermind behind the madrid bombings. now, the reason why is an f.b.i. agent concluded that a partial fingerprint matched brandon mayfield's fingerprint. under this framework, the government now labels him an

enemy combatant. and what right does brandon mayfield have to contest this? well, basically no rights. the law provides only that there will be a hearing, that the rules of the hearing will be set by the executive branch, by the president, if you will, that the attorney will be assigned by the executive branch, that the rules of evidence will be determined by the executive branch, that this hearing will occur sometime, but when, we don't know. no right to a speedy trial. no commitment that it will be public. in other words, no protections from the force of the state whatsoever. completely opposite. so this gateway around the fifth

and sixth amendments is very loosely defined rather than tightly defined, and in the entire process by which an individual might try to say you're wrong, that wasn't me, i wasn't there, is extraordinarily without powers for the defend. -- the defendant. i find that outrageous. because once that hearing occurs, possibly in secret, without an attorney that the individual would like to employ, without rights to evidence, without an aindict to -- ability to confront the witnesses against him or her, without any of these rights that person can be locked away forever upped this law. no right to appeal, no right to contest, and therefore this

completely works against the principles we hold dear. because those principles were set up, the fifth amendment and sixth amendment were set up to defend us against the overreach of an executive branch. and yet we have stripped away tonight those protections. a lot of the conversation over the last few days has noted that there was an historical gate into which you did not have the fifth and sixth adam but -- amendment, but also recognized how narrow that was. and what we have done today changes that. i hope that this continues to receive substantial attention. i would have hoped that there

had been hearings about this phenomenal change in u.s. law adopted here tonight. because this sort of thing should not be done lightly. it should not be placed at the last second into a defense authorization bill without extensive consideration, extensive testimony by experts on all sides of this issue. there is another feature of this bill that i think deserves attention, and that is that it creates a presumption for certain types of crimes to be held in criminal courts, tried in criminal courts -- excuse me, tried in military tribunals rather than in civilian courts. many of my colleagues are much more familiar with this than i am but they have come to this floor and they have noted that

300 individuals who have been accused of terrorist-related crimes have been tried in civilian court and found guilty. versus six in military courts. they have noted that because the f.b.i. is immersed in the process of getting evidence out of individuals, they are masters at it, which helps to explain these 300 convictions versus the six in military courts. but the law tonight creates a presumption that you'll be tried in military court, under an argument that several of my colleagues have made that simply the military are better at it but not one shred of evidence brought that the military is better and lots of evidence about the sophisticated, experienced, systematic and successful efforts of the f.b.i. so colleagues, mr. president,

i would like to conclude by summarizing that all that we hold dear as americans in this constitution about our fair rights as citizens has been trampled on tonight, that this has happened twice before in this chamber and the supreme court has thrown it out twice before. i hope that they will find a case that this will put before the court again, because it is the responsibility of the court to keep taking us back to this document, this constitution, when we waiver -- waver from the course it lays out. it should not be a situation that the government can simply assert that the president, no matter what president it is, this president or any future

president, whether it be president bush, whether it be president obama, whether it be the next president of the united states or one five presidencies into the future should not be able to say you, joe american, i'm calling you an enemy combatant. i am locking you up. i'm assigning your defender, your court attorney, if you will. i'm deciding the rules of evidence. i'm deciding if it's going to be secret. and after i conclude that there is enough evidence because of a partial fingerprint, i'm locking you up forever and there's not a damn thing you can do about it. now, brandon mayfield was locked up, and he might have been locked up forever if this law had been in place. but the f.b.i. made a mistake. the f.b.i. completely botched

the fingerprint comparison. it was spain that brought it to our attention. spain kept saying america, you've got the wrong guy, america, you have the wrong fingerprint and it was spain that found the right match and was finally our own system said yes, we made a mistake and we're setting brandon mayfield free. but under what was done tonight, he may never have seen the light of day outside of his prison, and that is not right and it is not, absolutely not a contributor to the security of this country, to strip away fair rights and due process, to confront your accusers and make sure a just decision occurs. thank you, mr. president.

mr. president, i note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

the presiding officer: the senator from oregon. mr. merkley: i ask the quorum call be suspended. the presiding officer: without objection. mr. merkley: i ask unanimous consent the senate proceed to immediate consideration of h.r. 192 received from the house and is at the desk. the presidingú. the presiding officer: the clerk will report. the clerk: h.r. 2192, an act to exempt for an additional four-year period from the application of the means test presumption of abuse under chapter 7 qualifying members of

reserve components of the armed forces and members of the national guard who, after september 11, 2001, are called to active duty or to perform a homeland defense activity for not less than 90 days. the presiding officer: without objection, the senate will proceed to the measure. mr. merkley: mr. president, i ask unanimous consent the bill be read a third time and passed, the motion to reconsider be laid upon the table with no intervening action or debate, and any statements related to the bill be placed in the record at the appropriate place as if read. the presiding officer: without objection. mr. merkley: mr. president, i ask unanimous consent that on monday, december 5, 2011, at 4:30 p.m., the senate proceed to executive session to consider the following nominations:

calendar items 363, 3664, 365, 406 under the previous order. the presiding officer: without objection. mr. merkley: i ask unanimous consent that when the senate completes its business today, the senate adjourn until 2:00 p.m. on monday, december 5, 2011. that following the prayer and pledge, the journal of proceedings be approved to date, the morning hour be deemed expired, the time for the two leaders be reserved for their use later in the day, that following any leader remarks, the senate be in a period of morning business until 4:30 p.m. with senators permitted to speak therein for up to ten minutes each. and that following morning business, the senate proceed to executive session under the previous order. the presiding officer: without objection. mr. merkley: the next roll call vote will be monday at 5:30 p.m. on confirmation of one of the judicial nominations.

we expect the remaining three judges to be confirmed by consent. as a reminder, cloture was filed on the nomination of kaitlin joan halligan to be u.s. district judge for the district of columbia. that cloture vote will occur at 12:00 noon on tuesday. if there's no further business to come before the senate, i ask that it adjourn under the previous order. the presiding officer: the senate stands adjourned until senate stands adjourned until

the federal government has spent $170 billion to support fannie mae and freddie mac since 2008. next the head of fannie and freddie testified the house subcommittee hearing and discuss the oversight role of the federal housing financing agency. we will also a share from the acting director of the agency

edward demarco. texas congressman is the chairman. >> this hearing will come to order. we will have opening statements by each side and remind all members their entire written statement will be made a part of the record. also i ask unanimous consent that mr. garate and mr. miller be allowed to sit in with this committee. they are not a member but a member of the financial services committee as well. if there's no objection then so ordered. start with opening statements i will begin. this hearing is about i think three things. one is stopping any wasteful spending that might be going on in the enterprise because about three years ago and about $170 billion ago the american tax payers inherited the

opportunity to own two mortgage companies and they were not willing investors and so one of the things we want to make sure is that we were being good stewards of their money and their investment and more importantly, in the future of making sure down the road that we get a tax payers out of the mortgage business so they are not on the hook. the second thing is a part of that is what's going on within the enterprise to begin to shrink the footprint these enterprises have because as long as these enterprises along with the fha dominate the mortgage market is going to be extremely difficult to bring private capital back into the mortgage market. so in fact today the american tax payers basically dominate or on the hook for almost every mortgage that's our originated in this country. and quite honestly i think the american people find that an

area that they are not very interested in. i think the third thing, too, is what kind of things are going on corporate the within the entities that would begin to shrink that footprint so we do create the space but more importantly looking towards an exit strategy because long-term as has been indicated by both the administration and other members of congress that we don't think it's in the best interest for the american tax payers long term to be in this business. so i think we are going to hear testimony today from the ceo as well as their conservative about what is going on. there are some troubling things that have surfaced and we want to have an opportunity to discuss that and expenses some people feel are extravagant and some people feel at this time these entities are losing money and having the american taxpayers there ought to be a

very frugal attitude within the enterprise. also i think we are going to learn more about the relationship between the conservator and the entities and how that interaction is taking place in the coordination and more importantly what kind of plants and measures are in place that we began to ascertain if we are in fact making progress in this area so it's a very important hearing for the american taxpayers for the testimonies i appreciate your coming today. with that, i would now yield to the ranking member. >> thank you mr. chairman. i went thank the gentleman for being here and i want to be clear from my perspective i think the original mission of fannie and freddie are essentials. i cannot envision an american going forward without something to take that place either by the same name more different name

getting us in trouble will will don't see them as profit-making senses or something other than simply helping the middle class afford to get into home ownership. that's all they were meant to do. they did it successfully a long time and they lost their vision as far as i'm concerned basically bottomline they got greedy and they got sloppy and the oversight people got greedy and sloppy. my hope is that you are rectifying that but some of the things i've seen during this period have troubled me coming and for me my interest is yet the short-term of what is going on now but i don't want to give those people who never liked the concept of fannie and freddie. i don't want to give them ammunition in order to be able to kill the middle class going forward. so for me the transition is critically important which i've been pretty vocal one things that have happened and may be

vocal again today but i want to make it clear what my interests are. my interests are making sure that when we get out of this mess number-one we don't repeat it and number two we have something left standing in some categories that will be able to ensure the middle class will be able to continue to afford a home. with that, i yield back. ..

>> as you may know, i introduced legislation to cap the amount that the gses can get from the treasury. it's necessary the american taxpayers deserve assurance there's an end to the line of credit, but for the time being, of course, it's their money spent sponsoring these events and bying these. if there's justification for the expenses, i think the taxpayers are willing to pay for that. i suspect this could be business as usual, and unfortunatelily, after requiring a $250 bailout, business as usual is not acceptable anymore. i look forward to the testimony and getting a better understanding. with that, mr. chairman, i yield back. >> i thank the gentleman, and

now the gentleman from texas is recognized for a minute and a half. >> thank you, mr. chairman, and thank you for calling this very important hearing. despite the false narrative told by the majority party of the previous congress as the roots of the crisis, more and more americans are realizing how big of a role fannie and freddie played in the boom and bust we are trying to recover from. we are bailing them out to the tune of $270 billion and some project that could double. before 2008, americans were unaware of the incredible risk building up on the balance sheets of these two entities. after hearing about recent extravagant bonuses paid to executives, legal fees, and former executives put on the tab, it's become very clear to the american people that fannie

and freddie have played by a very different set of rules. to be sure of fha and acting director demarco are to be commended for their efforts including resisting administration pressure to further politicize the gses and doing all they can to limit taxpayer losses. if there's still room for improvement as a recent fha inspector general report highlighted that too much deference has been given to fannie and freddie decision making. we must recognize the gses function by reason of the american taxpayers and current compensation practices and reimburtments are inappropriate use of taxpayer money. i look forward to today's closely examing the oversight and listening to the witnesses on this very important matter. thank you. >> i thank the gentleman, and

now ms. waters is recognized. >> thank you very much, mr. chairman, for convening this hearing. i think it is important that this congress continues to conduct robust oversight of the gses and their conservator, the federal house and finance agency. i'm sure that mr. demarco's a little tired of coming before us at this point, but i appreciate him again joining us here today. the main focus of the hearing is administrative expenses at the gses, executive compensation and they were sponsors of a mortgage banker's association conference a few months ago, and it's important for congress to scrutinize in the course of the oversighter for the gses, but by focusing on these issues, we run the risk of playing got you and we have to focus on bigger issues, for example, what the

loan modifications are that are consistent with fa statutory mission to maximize assistance to homeowners in order to minimize foreclosures. you know that i talk to you quite a bit about principle write downs, and i consider just absolutely essential to getting a handle on stabilizing our housing market. not just because they could provide the most sustainable modifications to borrowers, but significant research suggests that they could actually, as again as i said, stabilize the wider economy providing better loan terms to taxpayers. i hope that we have a chance to discuss this again in more detail. also, i think that this committee should pay increased attention to buy back settlements entered into between gses and the banks and agent who sold the loans. we have to be sure the

enterprises get the best possible deal for the taxpayer and not leaving money on the table in order to maintain relationships. for the banks, it's one fa inspector general report recently suggested. i would also applaud mr. demarco for the nearly $# 00 billion -- $200 billion lawsuit against alleged organizations and those in the private label. i appreciate his rigor in trying to recoop losses born by the taxpayer and ultimately, i think pursuing these claims result in lower losses to the american plying, so i look forward to hearing particularly from mr. demarco today, and i thank you, mr. chairman, and i yield the balance of my time. >> i thank you, and now the gentleman from california -- texas -- i mean, california, mr. miller recognized. >> thank you very much.

thank you for allowing me tore a part of the hearing today. i think it's a very important hearing, and it's very timely, and i think we need to look at facts when we debate any issue that's of importance, especially for the financial sector of this country and the housing sector specifically, but before 2007, gses were consistently profitable. nobody wants to talk about that. fannie mae had not reported a full year loss since 1985 and fredz di mack never had a loss on default loans. now, much of the debate about people worried about taxpayer exposure, the finance system, that includes any government backstop or government guarantee. look at what the problem is today. when we let banks, money with first part of t.a.r.p., charged 5% interest and charge fannie and freddie 10% interest. much of the losses today pay that interest payment to the government today. if you look at the data on

mortgage default rates, it's very clear what went wrong. everybody messed up. 38.7% of loans are delinquent and 7-- 5.4% of jumbo loans are delinquent and 3% 5% of loans are delink went, and that's bad, but they are performing in the private sector regardless of how bad it is. to say to throw the baby out with the bath water and blame them for the losses is unreasonable. what did they do wrong, and how do we fix it? it's a huge problem, but to say we're not dealing with them at all is unrepublican. a large number of fore closed properties put pressure on the marketplace today. if we stop them from going to market today, you wouldn't have values plummeting like they are today. i introduced a bill last year

that others co-sponsored, aligning banks and gses to hold the properties, lease up to five years, and let them go slowly under the marketplace rather than forcing downward pressure like today so before we make any drastic moves or recommendations, see what went wrong, how do we fix it, and who is performing the best. is freddie and fannie made mistakes 1234 without a doubt, but they are outperforming everybody else. that has to be part of the debate. you can't say get rid of them. if you deal with the worst out there, make subprime loans illegal, because they are performing worse than freddie and fannie, but that's unreasonable. we have to ensure they take the market share of the economy and take the risks out there, and the goal is to get market share to the private sector, but let's not say the conduit for the

private market dollars should just be put aside without alternative. they need to go, but there has to be an alternative for them taking them back to the original goals and guidelines, but i look forward to the testimony today, and thank you, chairman, for allowing me the time. >> i thank the gentleman. i remind all members if you have a statement, you can insert that into the record. i welcome the witnesses now. mr. ed demarco, and is says in the script here, acting districter, but i'll take out the acts part, ed, because, you know, after three year, i think you're the director, and so federal housing finance agency, and mr. michael j. williams, president and ceo of fannie mae. gentleman, thank you for being here. i ask you to limit your opening remarks to five minutes, but as well as your full testimony will be made a part of the record.

mr. holderman. >> chairman, ranking member, and members of the subcommittee, thank you for inviting me to speak with you today. i'm ed, ceo of freddie mack, and i understand the importance of this hearing. living through the worse housing crisis since the great depression, i understand why this is so important. let me be clear. freddy mack is mindful of the taxpayer support we received, and we take very seriously our obligation to use this support prudently and efficiently. with this in mind, i will discuss with you how we're running the company under conservatorship. let me begin by saying that the freddie mack of today is a new company. we have a new management team. the management team running

freddie mack today is not the one we had pre-conservatorship. for example, i became ceo in august 2009, almost a year after freddie mack entered conservatorship, and 17 of the 18 executives have been changed during my tenure. we have a new emphasis on strong credit standards. we focus on safety and soundness and responsible lending purchasing higher quality loans with lower loan to value ratios and higher credit scores. we have a new approach to expenses. we take seriously our obligation to reduce spending responsibly wherever possible. we project that by the end of 2011, we will have reduced annual, general, and administrative spending by more than $150 million below 2009 levels. we have a new approach to the

retained portfolio. we reduced the size of the retained port portfolio by 25% which is beyond what is required of us. we have a new approach to executive salaries. we reduced overall compensation by 40% for the top 10% of the officers. we have an enhanced focus on assisting families in need, helping 575,000 families avoid foreclosure since 2009. finally, we have a new culture, one that emphasizes leadership and accountability. all of this has contributed to significantly improved results in our new book of business. our pre-conservatorship business generated the vast majority of expenses. in contrast, the book of business since 2009 generated income well above credit expenses. the improvement in quality is

dramatic. our serious delinquency rates for the 2006 and seven book of business is -- 2007 book of business is approximately 10%. in contrast, the serious delinquency rate of the new 2009 to 2011 book of business is about one-forty et of that on wore quarter of 1%. we achieved this while providing $1.1 trillion in mortgage liquidity financing homes and rental housing for more than 5.8 million american families since 2009. we also enabled over 4 million homeowners to refinance, saving them collectively about $10 million during the first year alone. clearly, we could not have achieved these results without help from fhfa, treasury, and

the taxpayer, but i want to make clear the ultimate beneficiary of that support are not private shareholders, but homeowners, representers, and the house -- renters, and the housing finance system. in all these ways, since conservatorship, we have new ways and a new company. 234 closing, a ceo of freddie mac, i believe strongly that one of the most important things we can do for the housing market is to clarify the future of the secondary mortgage market. that clarity is important to investors, lenders, and important to families who own or hope to own a home. that clarity also will help achieve our shared goal of attracting more capital to the mortgage markets. wast that clarity, it's increasingly difficult to maintain the stability of our company. this, in turn, will make it

increasingly difficult for our company to play its important role in maintaining the stability of the housing market. for all of these reasons, i hope that congress will resolve this important issue sooner rather than later. thank you again for this opportunity to speak with you today. >> you're recognized for five minutes. >> thank you, ranking member, and members of the subcommittee, thank you for having me. as requested, my written statement provides updates on a range of topics regarding fhfa's oversight on fannie and freddie. i'm pleased to discuss any of those issues with you. in the few minutes i have, though, i want to provide you with a general overview of how the conservatorships evolved over the past three years. fhfa placed fannie and freddie into conservatorship six weeks

after the agency itself was created, and before fhfa had any meaningful opportunity to build infrastructure would implement new authorities granted in the legislation that created fhfa. while conservatorship is meant to be short term, it's turned into a multiyear event. i'd like to recap it in the form of a multichapter story, a story we're still writing. importantly, however, the final chapter of the story has to be written by congress. chapter one was the establishment of the conservatorships themselves in september 2008 with the treasury support agreements, the board and executive management changes, and the effort to assure employees and market participants alike that the companies were open and operating so that america's housing finance system would continue to operate. from day one, fhfa made clear it was entrusting day-to-day operations to the new company management, but reserving for

itself key strategic critical business decisions. the next chapter began in early 2009 with the effort to establish a uniform, robust, loan modification program to assist troubled mortgages. the development. hamp -- the development of the hamp program and proprietary programs continued throughout the year. it's fundamental to fhfa's conservator mandates including mitigates losses on the enterprises book of business. the last half of 2009 and the first half of 2010 was dominated by the actual implementation of the programs. working through the backlog of delinquent mortgages trying to keep people with the capacity and the desire to stay in their homes the opportunity to do so. in the next chapter, attention turn in the second half the 2010 to emerging issues and mortgage

servicing and foreclosure processing. this year, fhfa made significant advancements in the cause of addressing issues by implementing service aloinment initiative by improving clarity, complexity, and mortgage standards in responding to the identified deficiencies. most recently, we announced major refinements to the home affordable refinance program or harp in an effort to reduce the credit risk on the enterprise's preconservatorship book of business by enhancing opportunity for underwater borrowers and seasoned loans to refinance at today's lower rates. unlike these chapters, each focused on working through the preconservatorship book of business, the next chapters will be forward looking. . i an tas pate to work on the

steps we've already done to improve the system. the steps are in the written statement, but there's more to come to actually implement these and other changes. in closing, i'd like to reiterate that the final chapter is for congress and the administration to write. the ultimate resolution of the conservatorships and the future legal framework for the country's housing finance system needs to be determined by lawmakers. mr. chairman, thank you, again, for this opportunity, and i look forward to responding to the committee's questions. >> i thank the gentleman, and now, mr. williams, you're recognized for five minutes. >> members of the committee, thank you for inviting me 20 speak about fhfa's oversight of fannie mae, the company's current condition, and our financial outlook. i understand why congress is interested in the issues, and i appreciate the importance of these issues to both congress and to our country. as ceo, i'm responsible for

ensuring we fulfill our important mission and act as good stewards of the taxpayers' unprecedented investment in the company. let me begin by discussing how we work with fhfa to operate the company effectively in conservatorship. when fhfa replaced the ceo and the board of directors who then recruited a new management team. fhfa delegated responsibility to run the day-to-day operations with oversight from the board. in turn, fhfa had key responsibilities as conservatorship. as we manage the company and interest of the primary investor, the taxpayer, we've taken actions to strengthen fannie mae and limit losses on the legacy book of business. first, we are funding the market and building a strong new book of business. second, we are making strategic investments to minimize loss,

and third, we are substantially reducing our expenses. these are exactly the actions 245 will enable us to achieve the goals of conservatorship and protect the taxpayers' interest. as the leading provider of funding to the mortgage market, fannie mae's role has never been more important. we helped 6 million homeowners to refinance into a safer, lower cost mortgage. we have enabled 1.7 million homeowners to be able to purchase a home, and we have provided financing for nearly one million units of quality, affordable, rental housing. we are building a new book of business with a appropriately conservative underwriting standards to enable sustainable home ownership. the new book is now almost half of our overall book of business, and these are high quality loans that we currently expect to be profitable over the life of the loan. in addition to funding the

mortgage market, we are reducing credit losses. the substantial majority of the company's credit losses are attributable to single family loans purchased or guaranteed from 2005 through 2008. it is important to understand that we can want reverse -- cannot reverse past decisions with respect to the loans. we will, however, continue to manage them aggressively to limit taxpayer expoture, and we have -- expoture, and we have -- exposure, and we have immediate measurable process. we have stabilized neighborhoods and limited losses. we have made a decision to hire 1800 people in the dallas loss mitigation operation dedicating them to these activityings. as a result, we have helped nearly 1 million families to avoid foreclosure. when foreclosure is the only option, we help stabilize

communities by maintaining and improving the prosecute -- properties we acquire and selling them to new owners. we pay careful attention to expense control. our core administrative expenses that exclude loss mitigation, are down 16% this year. our personnel costs are down 14%, and we have eliminated positions at all levels of the company. these are examples of decisive actions we have taken to manage fannie mae responsibly in conservatorship. finally, let me address the company's financial outlook. according to fhfa's october 2011 report, we may have positive net income as early as 2013. this is before the payment of the dividends to the government. this is largely the results of actions we have taken to reduce credit losses while building the strong new book of business. however, our current annual

dividend obligation is $11.3 billion exceeding the company's annual net income for any year in its history. while we expect to return to operating profitability, we do not expect to earn profits in excess of our annul dividend obligation to the trash reimburtments. in closing, i'm confident we'll make sound decisions to protect the interests of the taxpayers and assist vug ling homeowners. we're reducing costs where appropriate and investing where necessary to achieve the goals of the conservatorship. thank you, and i look forward to your questions. >> i thank the gentleman. also would ask unanimous consent that without objection that we submit the written testimony from inspector general of fhfa. no objection, so ordered. the question period.

one of the things that i think mr. williams that you mentioned 1 that you've had a reduction in your payroll of expenses for 16%, did i hear you say that? >> yes, congressman, this year. >> is that overall, or is that one particular area that you've had reduction in 16 #%? >> we've reduced our core administrative expenses, which exclude credit loss mitigation activities by 16%, congressman. >> but i believe if you look at the numbers actually, the two enterprises, total payroll is up in both enterprises, but you say in one area you reduce them, but other areas you're increasing them; is that right? >> congressman, we made strategic investments in loss mitigation because that was in the best interest the taxpayer to reduce credit losses long term. >> i just want to be sure because one of the accounting we

use around here is if we decrease in one area and increase the other, we want to talk about the area we decrease, and not the area where we're increasing, but, you know, one of the things that i think is troubling to many of us is when we look at, for example, the budget here, and the fact that we would, i think, in congress, we expect under conservatorship, particularly the word "conserve" and looking at ways 20 minimize -- to minimize advances from the treasury because they are expensive, but the little things here that lead me to wonder what's going on in the bigger picture is i see we have in your budget, $5.1 million in meals and social activity for employees. you know, i think it just, for those things to show up in the budget, 2 would appear to me that enterprises are being tone deaf to what's going on, and

you're on the front line of understanding, you know, how a lot of families across this country are going through hard times, and we look at other activity, and some of the colleagues talk about that, but really what that, i believe, is symptom to me, and i'm -- hopefully it's only a symptom, that the entities really feel like that, you know, what's in order here is business as usual. now, i'm impressed, and i wouldn't expect anything other than the asset quality for your new origination to increase. it should. one of the things that concerns me is as we have this business as usual mentality that basically continues to crowd out, i think, the ability for the private sector to come in and quite honestly, one of the reasons that your numbers are getting better is because of the sheer volume of business because basically the enterprises are

getting the majority of the business. i believe that 23 you were getting more -- if you were getting more traditional levels of business, you know, the advances would have been much higher, so, mr. williams, what do you say to the american people that, yes, we are being stewards of your money, but the evidence in some cases points otherwise? >> congressman, we do believe we are being good stewards of the money. we consciously gone out and reduced expenses -- >> [inaudible] >> sure. we do believe we're good stewards of the money, consciously going after areas where we can reduce losses, reduce expense, and we can cut costs. we've taken the compensation level for executives down by 50%, reduced the number of senior officers by 30%, going through all areas of the company to reduce expenditures and do this 234 a timely -- in a timely fashion.

we believe it's important to invest in the loss mitigation areas to continue to help homeowners and reduce the long term credit losses. >> so does the -- do the enterprises have a conservator plan? in other words, you know, this is how we operate, these are things we'll do as in our loss mitigation area, this is the way we reduce our footprint, this is our overall strategy, and how do you -- how do you interface with mr. demarco in executing that plan? >> congressman, we interface with mr. demarco quite frequently. i can assure you of that. we meet regularly. we are aligned on the goals of the conservatorship, which is to stabilize the companies to ensure we provide the needed liquidity in the market that's needed at this critical time in the country and do everything we can to help homeowners and

reduce losses going forward. >> yep. you answered part of the question. the first part of the question is do you have an actual conservator plan that you're operating under so that we have specific goals and objectives of what you're trying to accomplish? >> we have a number of initiatives that we are working on -- >> no, initiatives. i want to know is there a plan? a written plan of what your mission and your goals and direction you're headed with with this enterprise. >> congressman, we have goals and objectives aligned with the conservatives. >> is there a written plan? >> a written plan? >> yes. it's a yes or no question. >> i cannot tell you there's a written plan. >> so there's no plan, no written plan. >> there's goals and objectives aligned with the conservator's plan. >> i i thank the gentleman, and

-- [inaudible] >> thank you, mr. chairman. mr. haldeman, you've been doing this for awhile, and you come here with a fair amount of experience. ten years from now when this is, whatever we do, we do, and when this is done, do you envision this country having some entity that plays the role that fannie and/or freddie play currently in the mortgage industry? >> ranking member, if i -- you're introductory comment, i've done this for awhile. you didn't mean freddie mac -- >> i mean, you're familiar with the industry. >> i've be here since august of 2009, but it is -- i talked to our employees a great deal about the future because you could imagine they have a lot of uncertainty in security, anxiety about the future, and what i say is i can't imagine our country

without a secondary mortgage market. could you imagine us going back to the time when the originator holds the mortgage for 30 years? # i certainly can't. i think we will not go back to those times and we'll have the secondary mortgage market, and when i say to employees is that we have threnes, we have ex-- talent, expertise, infrastructure, technology, relationship, and i think the country should find a way to use that in the secondary mortgage market. >> mr. demarco, do you agree with that, crystal ball, ten years from now? >> yes. clearly a country with an $11 trillion single family mortgage market is going to need plumbing that allows local lenders that are making mortgages in an average size of $200,000, but that aggregated up across this country to $10 trillion or $11

trillion, and it needs the plumbing or infrastructure to connect global capital markets to get that size and capacity down to local lenders. >> thank you. mr. williams, do you agree or disagree with that? >> yes, congressman, i agree. >> the reason i ask is because in the final analysis, a day-to-day activities of what you do, you know, we'll talk about that today, but when everything's said and done like i said in the opening statement, i'm interested in making sure that the next generation of middle income people can afford to buy a home in reasonable ways, reasonable people wanting to buy a reasonable home. i will tell you that some of the activity that's happened doesn't help that, and it's not about the specifics of what you have done with then agency, but you understand you are no longer operating in private companies. you're now operating in the public world. i'd like to ask you, mr. haldeman, do you know the total salaries and bonuses paid

to your highest employee this year? not a name, just a number. >> highest paid, the top five -- >> just one. who made the most money at freddie mac. >> yes, it was me. >> other than you. [laughter] >> yes, i know the -- >> how much? >> other than me, it was approximately somewhere between $3 million and $3.5 million. >> mr. williams, do you know other than you? >> yes, congressman. >> how much would that be? >> $2.8-$3 million range. >> do you understand after what fannie and freddie were through, before your watch, not laying this on you, but do you understand the outrage the american people feel looking at an agency that has got us to the brink of difficulties, beyond the brink really, and has got a lot of taxpayer funding, and it

is awfully hard, for me, impossible to understand why an individual working for an entity such as yours, not a private company, for it to have to make that kind of money? i'm not against people making money. god bless them, but go into the private market. it's almost impossible for us to understand. i had to vote for a bill the other day to limit these kinds of things because honestly, i'm outraged, and not about the individual. i don't want names, don't want to blame anybody, but in this situation, that activity, that kind of activity, $5 million on meals and entertainment, and i think that is a reasonable business expense and you should be able to serve food at your meetings, that's fine by me, but it's joust ray gas to me when i turn around and defend the purposes of the agencies every day, and i'll continue to do so, and you didn't do anything worse than anybody else, your

predecessors did it, and we now have to dig you out of it. it's an obligation to society, but i guess what i'm saying in order for people like me to be able to help meet that vision, not help you or your current employees, though i'm not against anybody, that's not my goal. my goal is for the next generation to have someone like you doing what you tried to do now, and you're making it tougher. >> congressman -- >> and i'm simply -- ged. >> i totally get the outrage. i get the outrage about executive compensation in total. i get the outrage about compensation at freddie mac in particular. i understand exactly what you're saying, and i struggle with it all the time, too. let me tell you about the dilemma, and maybe you can help me reserve the dilemma. when i -- i came here in august of 2009, and there was not aing d there was not a ceo, operating officer, or cfo.

the right thing to do was to keep the machinery together, keep it operating, functioning well, to not have mistakes and have it go down the drain, and there's many, many functions that have to be formed at freddie mac that require very specialized operations. we have to have investment people who can run a $700 billion port qoal owe, if you make a mistake that's one tenth of 1%, that's $700 million. it's very complex, and i felt we had to pay that compensation that troubles me and you in order to get people so we wouldn't have those mistakes. >> i appreciate it. that's a fair and reasonable explanation, but if you were to make that decision, it would have helped and it would help going forward for you to present to us and the general public, not just your thinking, but

backing up to determine so i can then say, like it or not, that's what a person in this position makes across the world. there's plenty of companies that can do that, or they do. opposed to picking on a number and mad at a number, i can say then it's in the ballpark, everybody in that position make that money, and it's defensible. at the moment, it's nothing more than a number of in an agency that caused this country a lot of trouble, and i just, for me, the most important thing out of this hearing is that you walk away knowing that you live in a fish bowl now, and you have to act as if it's a fish bowl if you want the end weave all -- we've all discussed. >> thank you. the chairman of the full committee is recognized. >> thank you, mr. chairman. i believe you have the toughest job in washington, and i realize

that the reasons for that are -- have been beyond your control, and really to a certain extent beyond the control of mr. haldeman of you and mr. williams. you work for the two gses that were recipients of the largest bailout in the history of the country, and i would maybe -- maybe aig's close. i don't -- and there is outrage at the failure of fannie and freddie and 5 lot of the activity -- a lot of the activity that went on. gretchen morrison's book outlines many of the problems, and i also recognize that as i

saw in the case of the new aig president and the general motors president, they took a lot of slings and arrows for what their predecessors did, and so i do have sympathy for you. i think we all have to realize, though, that the world's changed, and ebb manies of congress are really -- and members of congress are realizing that on many occasions and altering our behavior, and i think that it's a good positive thing because we have to restore the confidence of the american people, and my legislation, i believe, does that now, and does it have a negative of making it more difficult to hire capable people? it probably does.

i do say this. i think anyone considering a top management or executive position at either one of the firms would have to think, do i want all the baggage that comes with that? because they are going to be forever on your resumé, fannie and freddie, people don't pay attention to the facts or issues or any of that. i had a discussion with mr. demarco yesterday where he pointed out to me that many people are not taking these jobs because they're concerned about liability issues. why take a job for 200,000 if you might have exposure to a $5 million worth of legal expenses or lawsuits or even criticisms

which damages your reputation and i have told them that i think that this congress ought to work with him, so i apologize to you and for the employees that are there at fannie and freddie that in many cases, you are -- you're being sack official lambs of those who came before you, but as far as compensation, i think we're going to have to change our ways. i think we're just not going to be able as highlighted in today's paper, we're not going to be able to go to chicago and spend two-thirds of a million dollars at a reception even if it benefits the business. i thought one of the most unfair criticisms was when we criticized the president of ford and general motors from flying here in that corporate jets.

you know, i -- and wanted to know why they didn't ride, get in their cars and drive here from detroit, michigan. the next time they drove here from detroit, michigan. now, that's going too far. i thought that was ridiculous, and i still do. i will promise you, but i will say this and close with this. some of the salaries are for people, and they are good people, they've been there, but they were there before, and they are still there, and at a certain point, i think a decision just had to be made, do they want to stay on for these new -- whether they pass the legislation, doo they want to stay on for that? i hope we get good public servants, but we'll work with

you on the liability issues and other issues because those do need to be addressed, and i, for instance, would not take a job for $200,000 that had a legal exposure of millions of dollars, particularly with the grief that would come with working at your company's right now for things that went on long before you agreed to come in and try to fix things, so i -- i would hope that all members of the committee will not -- you know, their outrage needs to be taken out on the failure of this congress years ago, not to be beefing up regulation, and it's up to this congress if we want to limit salaries to do so, and that's why i filed this legislation. it's not up to you to refuse salaries for your -- and offers, so thank you very much. >> thank you, mr. chairman.

>> recognize ms. waters from california for five minutes. >> thank you very much. mr. demarco, i mentioned i wanted to talk about principle write downs, and i want to talk about the pilot program that was in the papers today, but i got to get to something else first. in august, fannie mae paid $500 million to bank of america to purchase the servicing rights to more than 400,000 mortgages in its portfolio. according to your staff, fannie allowed the purchasing of the servicing of the mortgages to another presumably better servicer to broaden outcomes and minimize losses to fannie going forward. i understand they had a contract, and it would be more expensive to sue them for poor performance, but i'm not happy that fannie had to purchase the servicing back from a company that was doing such a poor job. my question is this. does bank of america continue to get servicing business from

fannie and freddie, and if so, were would the gses give business to a company whose servicing is so problematic that fannie had to buy back loans in order to properly service them? >> i'm not happy about it either, congresswoman, but it was respect offul of the contracts in place. it was a prudent market transaction made, and it did get to exactly what you said. it was designed to both minimize or reduce potential losses to fannie and freddy, and improve barrowing outcomes by getting these high risk mortgages in the hands of the servicer that had better demonstrated capacity to work with these kinds of difficult situations to get the borrower into a better outcome, and so it met our mandate of trying to minimize foreclosures and maximize assistance to borrowers and reflect losses and

it met the arrangements at the time, and we're looking at those contract terms on a going forward basis. >> are they still getting business from you? >> they are a major originator of mortgages and seller of the mortgages to fannie and freddie, so yes. >> well, there's some contradiction in that, isn't there? >> there is difficulties here. >> so why do you continue to give them business? >> they are a significant originator, and -- >> i -- >> we are dealing with the problems of the mortgage servicing part through business -- the business terms that exist today with regard to servicing contracting. >> what the heck is he saying? i'm concerned about the servicing business. as a matter of fact, i mean, we're beginning to focus, and i've been focused for a long time on services there at the crux of this problem that we have. i mean, not just with you, but with everybody. i want to know why they are

still doing the servicing. just because they're the originators? >> well, as something they own, they have those servicing rights, and those servicing rights have been transferred, and there's been a tremendous amount of work done by both companies to go into bank of america, work with bank of america on enhancing the way they go about doing this servicing, and we, an important initiative that we have, the servicing aloinment is to get -- alignment to get greater clarity, not just the bank of america, but all servicers, the steps they need to follow when a borrower goes delinquent. this is not just a single institution problem, but an industry problem. >> i agree, but i spent some time getting permission from some of my constituents to work with them on getting loan modifications, and it just so happens bank of america was the

servicer and i sent hours on the telephone. i can't tell you what i went through, eni understand -- and i understand that. >> yes. >> the pilot programs, you told me you got the ideas back, going to did out to bed, but you're not -- i like the idea of the financing part of this, but i hope you're not going to be financing speculators to come in and get big blocks of properties, are you? >> we're focused on doing this in a way that targeted individual geographic markets and want to make this as competitive as possible so that local investors can also be meaningful participants. that's important to us as conservator because i think the more competitive we can make transactions, the greater value we'll realize for taxpayers and creating an environment in which local equity apartments and people with low -- local market knowledge, that

helps give a greater probability that we'll have folks really dedicated to seeing good outcomes in the local communities, and it also gets the local community knowledge into the game. that's all part of what we're trying to build into our reviews of these. >> thank you very much. we want to work very closely with you to understand the program to articulate it in our community that is have been so devastated by the foreclosures, and people want to participate. we'll work with your people. >> thank you very much. >> thank you. i yield back the balance of my time. >> the chairman of the committee, mr. fitzpatrick. >> thank you, mr. chairman. we appreciate the efforts of the enterprises made so far to reduce expenditures. hopefully we can agree there's still more to be done. the chairman, mr. bachus, mentioned earlier in his remarks, referring to the "new york times" article or column, might have been in today's paper

entitled "fannie and freddie: still the socialites." it related to an industry conference held in october in chicago. the conference was two days long, but the tab was he hefty at $700 million at the two-day conference including $74,000 in dinners alone. freddie mac spent $50,000 on two dinners, and fannie mae spent $25,000 on two dinners. given the extraordinary taxpayer's support already received, about $170 billion, how do you justify these expenses to my con constituents or to the taxpayers of the united states generally? >> maybe i'll start, and congressman, say that i think we

have to begin by saying you're right, we can do a better job, but let me talk about top line spending for i get to the line item. it's where the chairman started. i came to the company in august of 2009, and one of the things that i started to talk about right away was we needed to consistently bring down the spending of the company year after year after year, and that's what we have done at the top line. 23 you take our total -- if you take our total spending to run freddie mac in 2009 and compare it to now, we reduced the top line of spending by $150 million a year. that's almost 10%, and that's

not one subset, mr. chairman, or a line item, but total spending of the company, and we brought it down in 2010, and we are bringing it down in 2011, and we'll do the same thing in 2012. that's how i've managed the company at the top. within that, we have division budgets, and i monitor those, but there is some ability of managers below me to make decisions on spending, and i don't think we did a good as job as we should on the mba program. do i think it's a legitimate business exeans -- expense and that we excellent a lot of people there? absolutely. it's 5 very efficient way to interact with and educate servicers. there's literally seller servicer in that one location in chicago, and it's the most efficient way i know of to educate them about our credit policy and what we expect on the

servicing side. >> sir, do you understand the outrage of taxpayers when they read that in the newspaper? >> yep. >> understanding it's one thing to attend, but another thing to sponsor a conference. >> i understand that part. >> with the taxpayers' dollars. >> we did not do it perfectsly, and we've got to -- perfectly. since i've been there each year, we attended the mortgage bankers so, and we brunt the spending -- brought the spending down year by year. we have to do it faster, and there were things done that we're going to take care of next year. >> appreciate it. mr. williams, begin that fannie mae's in conservatorship, do you have discretion how to spend those dollars, the dollars i'm referring to on the conference, and were the dollars budgets 1234 >> congressman, i appreciate your concern as well as the committee's on these topics. we have taken this seriously. in fact, we have since conservatorship reduced sponsorships and attendance in the conferences by over 50%.

why we felt this was a good business decision is this was a conference that was going to be attended by over 3,000 industry participants. it give us the opportunity to hold over 2 # 00 meetings with industry players that would allow us to address the important issues facing not only the industry, but are also important to the conservatorship, the servicing alignment, the roll out of harp, increasing guarantees, and other strategic issues, so i understand -- >> could fannie mae have held the meetings and accomplished those meetings without spending $74,000 on dinner two two days, without going to chicago and held the meetings 1234 >> congressman, we held many meetings. the dinners were a part of it giving us an opportunity to meet with players. we'll do a better job, but we felt this was -- >> mr. demarco, do you believe spending $74,000 as talked about

here, does that advance the interest of the conservatorship? >> mr. fitzpatrick, attendance at the conference certainly did. certain individual expenditures probably could have been done away with and still meet the essential business proposition of meeting with the entire industry in conducting a tremendous amount of business and business education at one place, so attendance and being actively participant was meeting the goal. i don't want to say every individual expense was necessary. no, sir. >> thank you. >> i thank the gentleman, and mr. miller's recognized. >> thank you, mr. chairman. mr. demarco, we discussed on many occasions fannie and freddies or fhfa's policy of not reducing principle in mortgages, and we guided you to two studies, one by the fed and

another byamhues securities, and foreclosures resulted in a 50% loss of principle, that reductions in principles of 10%-40% to get an underwater homeowner back to even, usually resulted in better performing and better performing loans, and i provided you those studies. they concluded that it makes good economic sense for the creditor to reduce principle, to get an underwater homeowner back above water, and you have said that your profit analysis reached a different con-- conclusion. why have you not made that analysis public? >> i think i'll be making more public on this point,

mr. miller, in response to continued inquiries from you and others, but if i could address these two studies that you raised, the first, the amhurst study, when i first read it, i started to get a concern, well, wait a minute, maybe there's something going on here. as i went through t i realized what was meant by principle forgiveness there was not just writing off principle, but principle forebearance. >> that's not true. the article says specifically that for principle reduction is -- this is a quote from the study, "it's reasonable to think the success rate on principle forgiveness is better than forebearance." it does appear that the study does specifically address