>> no. >> no, it certainly is not. let me go back to another question. the reserve in february of this year when you testified before the committee, the capitol reserves of $8 billion by the end of 2013. do you still expect that? >> again we will have a new actuarial coming out. it would have been mid december, mid november but given the shut down -- >> we are sitting at the end of october. ..

is there anybody in the right mind who believes that as an unforeseen circumstances with the current market is anyone who believes you would utilize the entire $48 billion in the coming fiscal year? >> not that i know of. >> not that i know of either. so you have $40 billion sitting in the bank, and because of some stupid federal law, you have been required to access taxpayer money. by the way, are you going with h.r. 1028, acted and unnecessary are opening 2013? >> you think it's a good idea? you don't have to say. >> it's complicated. >> i know you do.

that act which stops this stupid bark at get us off the treadmill. if you were in trouble i would be happy to jump on you. hound you pretty good. because $48 billion in the bank and you don't think you have to use it, and yet we are having another hearing today. i have a friend who just bought a $200,000 condo. it took $50,000 down. that's pretty good, right? they had to borrow $150,000. they have an auto loan, credit card, they owe about $175,000 have about $10,000 in the bank. all my god, they are one and safety $5000 of negative net worth. call the police. everybody i know has negative net worth except the few people on the other side apparently. [laughter] >> but they still get loans and things go on. there is no federal law that i

know of that would require my friends to make another borrowing simply to have money there in case -- you know if any federal law to require that? >> i do not. >> yet we have one for you. is there any other agency in the federal government or state government that you know of that has $48 billion sitting in the bank that they probably won't use that is required to access the treasury? >> i can't speak to other state agencies. >> i knew i was not feeling well when i got here. i'm feeling worse now. i just wonder. i'm looking forward to the next seven hearings we have on this exact same issue with the exact same answers, that we don't need to borrow this. why don't we just pass h.r. 1028, to stop stupid requirements of stupid borrowing that no one needs? but we won't do that because it's too simple and it avoids is having these hearings to pretend

to beat up on people who are doing their job exactly as required, and that don't need to access federal taxpayers. for the first time in my life i will actually give back the time i have been used, because i can't think of anything else that will add any light to this hearing. with that, mr. chairman, i yield back the remainder of my time. >> the gentleman yields back. the chair recognizes mr. luetkemeyer for five minutes. >> thank you, mr. chairman. over the opening remarks and some things have been said recently with regards to bail out, i really can't let fly the comments about this being simply an accounting entry. i just, this is not voodoo bookkeeping. the comments have been made and testament has been given up many times from both members of the side of the elder that there's a $1.7 billion transferred money that is not an accounting entry. that's a transfer of taxpayer

dollars to the tune of $1.7 billion. and you know, to paraphrase here, it looks like a bailout, by definition it's a bailout. it's a bailout. so what are we doing? we are paying losses and we capitalizing fha. what do we do in 2008 with all the banks and other financial institutions? we paid losses and we capitalized there against the their institutions. so for us to sit here and argue semantics over whether it's a bailout or an accounting entry is arrayed hearing and really denigrate our discussion today. let me move on. i'm kind of curious. you made a comment a while ago, and the discussion was had of that you make your decisions within fha base of economic conditions of how you adjust your creature unworthy make loans and do you make them to and that sort of stuff.

over the last several weeks, couple weeks we had some discouraging news with regard to the number of home housing starts, unemployment stabilize and where we're at with a number of new jobs being created is probably a little less than what it takes to maintain our folks with where they're at. at the beginning of the we'll have a to m., kumar and ruled that i think will be devastating because of the requirements that are in it. as a result i'm kind of curious what is fha doing to prepare itself for these things are come here? if ever downturn in the economy are you ready? have you got some ideas, plans that you put in place to protect the taxpayer dollars we don't go back and after another $1.7 billion next year? what's your concerns about the qrm row coming at the beginning of your -- beginning of the year with regard to mortgage lending. >> lunatic couple of a couple of comments.

personal we are not trying to do with semantics on this accounting transfer. >> i realize you're not that there's a lot of folks -- >> what i want to make clear is the difference between what fha is doing and what happened to private financial institutions who are making private gains and then the government had to come in to quote bail them out. that is very different than the fact that fha, every piece of revenue, every dollar that we arm goes back into the federal treasury -- >> where do you think the money from the private sector goes to? by definition, when you recapitalize a business or an institution that's exactly what we're doing right here. >> again, we are transferring dollars be you are arguing over semantics as well. >> so we have in reserves enough to pay our costs. all our money goes back to the treasury. i get paid the same amount of money, which isn't much, regardless of how much money we generate for the federal

government, and to the cbo chart if you add in 20 -- >> i'm running out of time. let me get to some other questions. we are arguing semantics. are you being prepared, are you looking at a possible downturn and what are you doing to prevent that and what's your thoughts on qm? >> again, i don't control what happens in the common. i really hope we don't have another downturn but we are -- >> man, you just testified you look from economic projections to make changes and adjust this to your program. i'm asking what are you doing? >> let me clarify. the economic projections are used to value the existing portfolio, okay? what we look at in terms of our undivided criteria is what do we need to do pricing wise, credit lives to ensure that we are pricing our risk appropriately, and taking the right wrist. we have done pashtun i've listed those out. we have done a number of measures over these past five years to protect ourselves going

forward. it shows in her new book of business. our current books of business are extremely profitable and very safe. >> okay. what's your opinion on qm after the first of the year? >> fha has its own qm world that is out for public comment. in fact, public comments are due on the 30th i believe. >> i see my time has expired. thank you, mr. chairman. >> time done. the chair now recognizes that gentlemen from georgia, mr. scott, for five minutes. >> mr. chairman, with all due respect to you, this isn't a hearing. this is a shame. and not only is it a shame, it's a shameful sham of deceit. first of all, trying to use the word bailout, and ladies and gentlemen, ms. and mr. america watching this, this is come from the other side. my friends on the republican side. just two weeks ago shutdown this

federal government. shut down the veterans memorial and they were high-fiving, congratulating one another, and then going out the next morning right down to that same veterans memorial and blaming the poor park rangers were shutting it down. these are the people who are bringing this shame and this shame that furloughed 800,000 jobs, shutting down the federal government. when they take just like we do, that solemn oath to uphold the federal government, to defend the federal government, to protect the federal government of the united states of america. and every act out here in this committee, no matter what it is, their sole purpose is to try to destroy this federal government. and no greater example than right here.

because, ms. galante, you and the fha have done a remarkable job, and under great difficulty. we went through the worst recession coming out almost to a depression of the '30s. but yet and still the amount of stability that you gave to the housing market, particularly for the lower income and middle income, and sustainability, deserves four stars or five stars, not this. but it's very important that we understand where this fiasco of criticism is coming from. there is no credibility on that side of the aisle when it comes to the financial stability of this country. when it was they who took this country to the brink of bringing

the entire world economy down. because they wouldn't allow us to raise the debt ceiling to pay the debts that we have. now, ms. galante, is it not true that we have in act that was passed in 1990, the federal credit reform act, that you are a bank, that you are required to have sufficient funds available to meet your obligations? much like the united states has, in order to remain strong, it requires you to have this over a 30 year period. is that not to? >> that's correct. over the life of the loan. >> over the life of the loans. so that if you were to close your door today, the law, and be out of business, the law would

require you to have this mandatory appropriation to be able to carry your duties out for 30 years. and the hurtful feeling to me is to see my friends on the other side use the american people with this fake language of bailout. when we have cross that bridge when we printed in the statute that no taxpayers money will ever again be used to bailout anything. this is required of you by law now, let me ask you this. is it not true that because of the interest rates that have arisen, because of the mortgage insurance premiums that have been increased, that it has reduced the fha's loan volume,

and those revenue that is used to offset future losses? and is that not why it's written into the law that this $1.7 billion is there to bring you in compliance with the law? >> that's correct. we have shrunk in volume significant, particularly at the end of this quarter. thank you. let me just say to my republican friends on the other side, let's get this out. let's move this country forward. >> the gentleman's time has expired. the chair now recognizes the gentleman from michigan, for five minutes. >> amen, alleluia. amen, hallelujah exit were just sitting and i've been told that i'm trying to destroy the federal government when, in fact, i'm trying to fix it, hold it accountable and make it more

efficient. i've just been labeled someone who is holding a shame are taking part in a shame because i'm asking hard questions. what i'm curious is why this administration is assistant on a flimflam and snake oil sales? because that's exactly what we're hearing about. but we're going to get righteous indignation from a site he was you. i was new. i'm in my second term. i was new but a lot of this was awkward. but we're seeing from people who wrote the bill, not on a bipartisan fashion with one party who wrote the bill who no longer wanted to adhere to the language of the bill that the road and were now trying to blame me for coming in and trying to fix it. that gets a little frustrating. it'll frustrate i think to the american people ar who are watcg this, hopefully should be frustrated, too. my background is in real estate and development. as i'm looking at your chart on page two that you've noted a couple of times, my real estate career starts right about the

beginning of your chart. a little bit before. strikes me as i'm noticing a little bit of blue am a little bit of red, a little bit of blue for those of you who don't have the pleasure of seeing this on tv, it's positive and negative. it's also about market share. it's not about how much or how little. then it starts blowing up in 2000 you start seeing a massive downward slide. let's explore what happen. what happened is fha started to expand its the print, pretty dramatically, and especially starting in '03, until her return. i'm a student of history and i'm kind of reminded of europe during world war ii. we had allies versus the axis, okay? that was a righteous fight, but what happened? after the fighting we had east versus west. and at one point the west said we liberated holland. we liberated belgium. we liberated france but we liberated germany.

and the soviets also did that. but guess what? we left and a state. all right? what i want to know is when are the troops, soviet troops going to withdraw from the territories that you conquered? the massive amount of involvement that fha, which is intended for low and moderate income homeowners buying a home for the first time, when you're going to actually let that happen? because massive expansion of the footprint of fha concerns me. because we are now strangling what the private sector should be doing. and we're having the federal government come in, labor more requirements, have just additional requirements that are putting in place, and, frankly, putting in the federal taxpayer on the clock. and i want to fix it -- on the hook. i want to fix this and want to make sure that we are serving

those low income for some homebuyers. it's not about race. it's not about geography. i for that brought up by couple of my colleagues on the other side. when i got my realtors license they taught me people are not black, white, green, yellow, red. they taught me that their green. and what they mean by that is they can either afford it or they can't afford to do not black, not white, red, yellow, red. their green. can you afford it or not afford a? unfortunate my friends on the other side seem to believe that a whole lot, and i want to fix this. it seems to be that the worst this can is done on the path act as one of those things that i'd like to become if you would please on that, and 20 believe that you are actually serving the low income first home buyer which is the original intent of this program. >> a couple of things. first, i think that you are conflating the chart that looks at the economic value of these

books a business which includes part of the reason the blue charts in the late years are as high as they are is because we've increased premiums. we bring in a lot -- they are worth more because -- >> what has been your footprint? from 1990 to -- >> let's talk about -- >> just a second. [talking over each other] >> fha insured 1.13 million loans in 1999. i'm edie windsor in 2013? 1.29. spent time out, time out to you cannot get away with this because you have to look at the market share in percentage. market share in percentage. that was back in the day getting an fha loan was difficult and, frankly, it was tough to work with. not so much anymore. that is what we have to reverse. that is what we have to go back to. we need to put fha back in the box it was intended for not to have it expanded. my time has expired. >> our market share has dropped from its peak, 27% and its

continuing. >> the gentleman's time has expired. the chair now recognizes the children from texas, mr. green, or five minutes. >> thank you, mr. chairman. thank the witness for testifyi testifying. and sense of the indication is that we are talking about people who are not red, black or white, but they are green, i assume we're talking about me. i happened to be green. al green. [laughter] spent if the gentleman will yield -- >> of course i will yield. >> i wish it was more people like you that were green, not just in name but that could afford all this. >> well, thank you very much. i have been blessed.

i tell people all the time that i am better than i deserve to be. but lets talk about reality for just a moment. and i'd like to have you give some testimony today, since you are here, so let's talk about why fha finds itself in the position that it is in. fha is not april -- a for-profit business, is that fair? >> that's correct. >> fha was established more than 80 years ago. would you state what the purpose of fha was 80 years ago and what it is currently, please? if those two are the same, please make note of it. >> as you may know, fha was established immediately after the great depression, partly to get the economy back on its feet again, to get people working again, to get homes built and to

get people being able to live in those homes at a reasonably affordable prices. and it was not just for one classification of borrower. there's nothing about it that was only for low income, for example. >> as a matter of fact, when it was established, there was no contemplation that they would help any specific class. but probably when it was initially, the beneficiaries were rarely, well, not to a great extent, african-americans or latinos. is that a fair statement in the infancy of fha? >> not tapping statistics, i would say probably that's a fair statement. >> so fha was not established to help african-americans or latinos, but as time has evolved, fha has benefits. and after the great depression,

a good thing was it was a benefit to the this country have fha after the great recession? >> yes, absolutely. you have heard quoted before, the economist mark zandi has said that if fha had not been in the market, you know, during that worst recession, we would have had a worst economic crisis by property values dropping 25% more than they did, and therefore making the economic recession even worse. >> i, like my colleagues, of -- them of the opinion that fha has served a meaningful purpose. it is done what it was designed to do. and i think that we need to continue this effort with fha. so i'd like to ask you a question about in person servicing the fha seeks to help persons who are having some difficulty with their mortgages.

in person servicing is an option, and the information that i read on this, the intelligence seems to indicate, to note that you get great results if you can perfect in person servicing as opposed to doing it via way of e-mail or some other form of servicing. we have a piece of legislation that would allow firms, businesses to work with fha to perform in-person servicing to modify loans, to get engaged in short sales, to refinance. and my question to you is, is that something that we can talk to you about this in-person servicing so that maybe we can save even greater numbers of persons from having to go into for closure? >> i would be happy to have more conversation with you about that.

i do believe that high touch so to speak helping existing homeowners anyway that we can, if we can get them to we perform, if we can get them to stay in their homes that ultimately will help the fund as well as the homeowner. >> thank you. >> the gentleman's time has expired. the chair now recognizes the gentleman from south carolina, mr. mulvaney, for five minutes. >> thank you very much, mr. chairman. ms. galante, i was going to ask you about something other than the bailout here today. but then you said something it struck me and i have to come back and talk about. you were talking about how you get paid the same amount was not be do a good job or do a bad job, and that you don't make that much. how much do you make? >> 150,000. >> is that really not that much? we're sitting here talking about a national debt of $17 trillion, impact on or near family. is that how you feel about this job?

>> let me be clear. i was using that in context of private sector companies with private profits and private compensation plans that then came to the federal government. so as a relative -- >> unless we talk about the amount of money, the attitude -- i'm worried less about the amount of money. as about the attitude that you get a busy more than that you do a good job our lousy job. what kind of job security do you have? >> that was not -- >> what does it take to get you fired? >> i serve at the pleasure of the president. >> i'm sitting here, typing your like my colleague, i've been to three years. in the last year i've seen four people get killed in an embassy in libya, and nobody got fired. i've seen an irs turned on its own people and target people based upon their political beliefs and nobody has been fired. i've seen us spend half a billion dollars on a computer program that doesn't work, and

nobody has been fired. and then i see stories about somebody who is a phone operator making $26,000 a year this one wrong thing on the radio and immediately gets fired. i've got somebody tweedy inside one of the agencies who immediately gets fired, and that is want to know what the outrage is. i want to know what even treatment is but i want to know why someone can say i make the same if i did a good job our lousy job and i don't make that much, it's only $150,000 a year. we sit here with no outrage when ordinary americans get treated poorly by their own government. whether or not they're being history by an agency or they get fired. $26,000 a year and get fired for saying the wrong thing on the radio? is there no outrage for that type of reaction? people are afraid of the government. they are afraid of exactly what ms. galante said today which is where the faceless bureaucrat. she gestured to pick up a check. i want to know where the outrage

is. without i will go back and as my original question. -- with that i will go back and ask my original question. there's been a lot of talk and angie about using eminent domain to try and solve the mortgage crisis. several agencies most recently the fhfa has taken a very aggressive position on this position. they have said on balance after conducting review of law and markets and considering public input there's a rational basis that included the use of eminent domain by boat -- locality, presents a clear threat to the safe and sound operation of fannie mae, freddie mac and the federal home loan bank as provided in federal law which runs contrary to the goals set forth by cars to the operation of conservatorship by fhfa and present relationship to the responsibility for overseeing entities. why hasn't had an fha taken a similar position with you were asked in june by the senate if

you supported or what your thoughts are on eminent domain are seen and you said it was too early to know. it seems to me that's like waiting until somebody gets killed find out if murder is wrong or not. why aren't you doing the same thing that fhfa is doing and taking a definitive position on this stunning development on the west coast about using eminent domain in order to take people's houses? >> first of all, congressman, ma i want to start by saying i'm very proud of my federal service and i left my entire life across the country in california to come here and serve this government and this administration. and you have taken my comment entirely out of context. i was speeding fair enough. happens to me all the time. you want to answer the question are not? >> in response to your question, fha continues to monitor the situation. let me be clear -- >> they already doing it. why does fhfa not have to monitor and you? >> two points on this.

the first is that eminent domain is a local and state obligation or authority. and speed you'll be asked to guarantee, to ensure these loans. what is your position on that? >> we don't know that is the case, number one. number two, this is the second point i was going to make. fhfa and fannie and freddie are entirely different position than fha because they own some of these private-label type securities. fha only ensures for its own book of business. we didn't buy -- >> thank you, mr. chairman. >> the gentleman's time has expired. the chair now recognizes the gentleman from missouri, mr. cleaver, for five minutes. >> thank you, mr. chairman. [inaudible conversations] i can't recall the date, but like many of you we all probably studied or became familiar with this dawn to dusk discussion and

debate at the beginning of the 19th century between albert einstein and don hobart, and maybe i'm the only person in the room with this kind of stuff but they had a dawn to dusk debate on physics and one of the reporters who covered this discussion was -- wrote that they were talking past each other which is kind of either the beginning of that phrase, although i think it goes back to some kind of english theater, talking past each other and that's what's happening here. i was speaking to a group of people. ..

i met him back when i preached and many times that the st. louis community united methodist church which he attended, and i didn't agree with him. i would never, ever in this committee or anywhere else accuse him of coming to take his check and not caring about his job. i'm sorry that has been said. i apologize. i need all these notes of what i

thought or reasonably intelligent questions. i'm kind of hurt over the way that we have come to treat people here in s. con. res., so i apologize and i don't want to purchase a page. i yield back. >> the gentleman is yielding back. >> of the chair recognizes the gentleman from florida for five minutes. >> thank you mr. chairman. ms. galante, the intent of the fha is to help those -- i apologize. the intent of course was to make sure that we had affordable housing that those with low to moderate income could have access to the american dream of ownership of a home. to that extent, at the height i guess of the boom and of the market the fha had was about 2% and today it is 56-some percent

which leads one to question a lot things not only how and why it happened which we will have that debate for quite some time but specifically with regards to the future. do you have an opinion as to whether or not there is sufficient private capital, private capital in the market to return to the days when the fha only had 2% of the market in the mortgage? >> let me just say they had two or 3% of the market as you said in the ramp up to the bubble. our normal market share ranged over time from, you know, ten or 15% would be kind of the normal market share. we are actually at 12 or 13% today. the challenge to the private capital that you speak out is

the entire market has shrunk. >> but it's not because there isn't sufficient capital, is it because of the rates, trying to compete against a monopoly called the fha? >> this is really important. the fha is not competing with the entire market. pmi companies for example, their market share over the past couple of years has been coming back steadily, and their pricing is now -- its competitive for basically anybody over -- >> would you agree approximately 25% of the endorsements fha has are made up of loans that are considered high income far borrowers. that shouldn't be the function of the fha.

this should be to the market. at one point of a 16% and now 25% of the high income borrowers. that is an area that we should address isn't it? >> there are two areas. one is the global market and i appreciate the efforts on the act. that is going to take resetting the entire finance system will be on the fha so that private capital understands how to play. >> they were given the opportunity. >> that the fha in terms of its market share, we grant that in 2009 and we have dropped it we back down. >> the maximum mortgage loan volume of $29,000, that is usually considered for high income borrower, wouldn't it be? in my neighborhood in central florida it seems like it would be. >> that is only for high-cost areas and to be clear that

expires in january, 2014. these were congressional limits put in place and the fha has operated in those and they expire in january. >> my friends on the other side say this isn't a bailout is just an accounting function. regardless of what it is because it is policy doesn't mean it's good and it's a bad policy we now have to have the treasury issue a check for $1.7 billion to make up for a shortfall. do you think it would be in the best interest of not only the fha but quite frankly the treasury as well to have it repaid? >> over time, everything had the fha earns goes back to the federal government. >> with regards to capital standards the fha has the best capital standards if they even exist. why would in the private mortgage insurance companies be allowed to subject themselves to the same capital standards? would that not in and of itself

create a more viable market of the capitol? >> the fha exists as a government and is very different than private mortgage insurance. >> but to compete -- that is my issue. >> they play different roles. they are normally guaranteeing a top amount of mortgage insurance triet >> so you don't think they should have the same capital standards? >> they are regulated by state agencies. >> it's okay to say no. >> i'm just saying it's a different business. >> my time is expired. >> the chair now recognizes the gentleman from besso -- minnesota. >> ms. galante, this term has been thrown out a lot and i do not want to belabor it but when i think of a bailout i think about aig, general motors, these

are all companies privately-owned but for government assistance what may be not exist and probably in the collapse would have caused a lot of damage to the economy. i guess my question is is the fha in danger of an imminent collapse? >> no sir, again, it's part of the federal government. >> i've heard the term thrown around in terms of how much liquid cash assets you have and the number i heard was $48 billion. so to talk about the fha being in a bailout situation, then the historic precedent is city, general motors, aig, it's really misleading. would you agree with that? >> i agree with that. >> now another thing that happened that i just would like

to shed some light on is you were asked about fico scores and whether or not a person would be eligible for the services if they had a 550 fico score. i don't believe you were allowed to answer the question fairly. can you explain the total score card of the process just so people watching this can have an accurate idea of exactly how you make decisions? >> yes. thank you. so, we have a system where our lenders can look at and underwrite a borrower based on their fico score, based on their income, their projected income over time, based on their ability to make the down payment. all of that goes into an automated underwriting system. we also -- if they don't make it through that system, the lender can look at compensating factors

and determine the holistic nature of the borrower and whether they have the ability to adequately repay the loan. this is fully documented. unlike the question where we were talking about, quote on quote sob prime to work, no documentation, all of that, ed isn't what it's about. we ensure that the lenders are underwriting these borrowers. >> thanks for that elaboration. i would also just like to say that i think that you are a dedicated public servant. i know that you probably based on your expertise could be receiving way more money than you are now but what you do is a public service and what you are doing springs from your patriotism and commitment to the country so i want to see thank you for that and let you know that there are literally

thousands and thousands of people who work for the federal government to do it out of love and commitment and passion for the great nation. with that, i yield back. >> the gentleman yields back. with that i am checking to make sure -- it's going to be the gentleman from georgia mr. westmoreland for five minutes. >> thank you mr. chairman and thank you ma'am for coming today. the first question i want to ask is for informational purposes. it's not related to the fha. you are a presidential appointee; is that correct? >> that's correct. >> are you under the affordable care act? >> i don't think so. i don't know to tell you the truth. >> so you don't know if you would be covered under the affordable care act or not? >> i uncovered as a federal employees. i get my benefits through the

regular federal programs. >> okay to leave succumbing you would maintain the insurance that you had compared to the members of congress and staff. okay. thank you. >> i know that it stated above $1.7 billion was a part of the money that you had to have to the it was a mandatory appropriation of where you should be in case of another collapse or failure. why don't you have that money when there has been a requirement of 2% in the fha has failed to get that reserve even

though you have had permission through legislation to increase fees and other things to get it to 2% level? isn't it true that the reason that you are having to get the $1.7 billion is because the fha has refused to raise their feet to comply with the law? >> we raised them five times. we've changed our policy. we have reversed canceling mortgage insurance premiums after a certain period of time. we have made a number of changes including the that like the premium increases that directly increase our revenue to the fha. the challenge is those are on new loans moving forward and if you put the increase in the fees

too high on the new loans those will be profitable as you can see in the chart on page two they are extremely profitable and you can't go back and make up for the challenge of the loans that were done well before we got here in the midst of the recession. so the economic value of the books of business have continued to be a drag on the fha. >> do you think it is a problem the fha does insurance on homes up to $729,000 or whenever that amount is? do you think that is a problem rather than -- i don't know many first-time home buyers that go into that kind of house. so do you think that they've gotten a little bit all of where the original intent of that fha was out when it first started? >> we have stated publicly many times that we think the limits

ought to come down. as part of the countercyclical role the congress gave both fannie, freddie and the fha the ability to make high year loans during the height of the crisis. that higher loan limit expires january -- of 2014. >> what would that limit the? >> that would be for high-cost areas it is 625 but it would be a percentage in most of the country. >> let me just ask one -- i know that you were talking about -- do you think that in order for the fha to comply with the loan you need to have a reserve that 2 percent? >> i absolutely we do need to get there.

>> how long do you think it will take to get to the point? >> we have an independent actuary look at that each year which is the most recent available. it was 2017. >> when, 17? >> 2017. so that's about three years from now to where you can get up to where you are just in compliance with the law. unfortunately most people that are not in compliance for the law have some type of penalty. but it seems like a government agency doesn't comply with oh-la-la there is no penalty. >> thank you. terse in response to the gentleman from south carolina, you were getting paid $20,000 less than we are. he's outraged that those in the administration fired often

enough for his beliefs so i would say you are doing a good job of circumstances. in the congress we shut down the u.s. government. none of us have been fired yet. if we are going to have a list of things in which washington has failed the american people, i don't think the fha is on that list but i know congress is. on ms. maloney's question of high-cost areas as you point out if we don't act. we are going to see a job and this is a great country it varies from one to another. there are a lot of areas for $297,000 to buy the biggest home

in town. i would like for the record these loans between 625 to 729 hazara understand they perform well and they have a low rate of default and they are not considered to be a weak part of your book of business. is that correct? >> it's a very small amount that are up to the higher loan limits the district in carolyn maloney's district and while it's hard to calculate you are making money on this 2% as i understand is that correct? >> as far as i know today, yes. >> so we can increase government

costs and cause a spectacular decline in home values in high-cost areas by allowing the current limit to expire. i would hope if congress wants to bring its approval rating above its current levels that we would instead authorized you to continue your program for high-cost areas. as to reverse mortgages, you indicated that it's not a significant strain on the fha more specifically the mutual mortgage insurance fund. if vhce m program which is basically reverse mortgages was not part of that mmif fund, would you still need the infusion of cash that you need? >> the reverse mortgage program

as you could see on the chart on page eight in my written testimony it clearly demonstrates that but for that program we would have a positive capital. >> so you are saying that has been a problem? >> again, legacy mortgage has made changes with the help of congress, but the legacy mortgages again the got hit hard by the recession as well. >> you expect to lose money in those programs in the future or not? >> we have made changes. >> one element for the gentleman of south carolina as strange as that may seem, and that is the eminent domain initio, we now

have unlike most countries of the world maun recourse issues if you want you can walk away from it. you still owe one of the money on the mortgage and now there are those that say we want to go even further than that so if you buy a home and the price goes up in value you keep all the profit of course and it goes down in value, you keep the home and just tell the lender to write down the mortgage through a process called eminent domain. if that becomes the norm, what does that do to fannie, freddie solvency if we create a system in which in most towns in america if you don't like your mortgage principal amount you go through the process that is written down. the eminent domain is a local tools that can be used by localities. we are happy to issue

informational guidance as it becomes necessary amount eminem domain. >> of the chair recognizes the gentleman from north carolina for five minutes. >> thank you mr. chair being with us today and for coming to california and for your sincere efforts. the impact of the dodd-frank del and its oversight of the financial institutions if we don't reach certain standards they could put them out of business. do you feel the accountability in your role obviously the

capitol standards haven't been met, that you are able to function and nobody is going to put you out of business. the tax payers are here. you stated last month that may be $1.68 billion we heard in 2009 that the fha was stable and sound and secure from the future. so this creates a lot of the concern with american people. it keeps mounting a part of the government that has accrued an enormous amount of debt. the foreign budget writer and paul ryan said the same thing that the steam is out of control and that will collapse like greece. they have said it in many ways. so i would hope that you would share that concern and

accountability back to the american people. i think as you spoke to us and appeared before the committee in february, you said then that you tested the financial health of the fha and that right after that the next day the government accountability office the high risk due to the greater of all morality to fraud, waste, abuse and mismanagement are the need for transformation. how do you respond to that? do you understand the impact that you are having whacks and then you would be considered a high-risk agency to the taxpayer >> i take mauney responsibility extremely seriously in terms of running the fha.

we have worked incredibly hard to keep the market going to keep access to credit and rebuild the reserves and the fund and we have listed those actions and continue to work hard every single day to make this as strong a fund as possible and as strong an agency as possible. i read the high risk report. we have regular conversations with the gao. >> would you admit that these are very strong words the availability due to fraud, waste, abuse and mismanagement or the need for transformation? that is about as strong as you can get. >> there is the need for business transformation activities come i.t. transformation activities that

quote in the high risk report acknowledges that we are improving our condition by increasing the fee is an underwriting changes. so part of the reasons was put on the high risk is that the housing finance system without further reform of the entire system makes all of us at risk. >> it's imperative that the use every tool at their disposal to address the budget shortfall and protect the taxpayer. do you believe that the agency has used every tool at its disposal to address the budget shortfall? >> if not i guess i would have to raise the question whether the fha is failing to manage its portfolio which places the tax payer at a greater expense. >> i believe we have used every tool in our disposal, and we

have made prudent and appropriate policy changes letter that's increasing in premiums or the other changes i talked about today. we also have to do that in a way that does not do further damage to the economy. >> would you agree that if you're in the business? >> malae do not. >> the chair now recognizes the gentleman from connecticut for five minutes. >> thank you mr. chairman and ms. galante thank you for being with us today. i've been doing this about five years, sitting on this committee and i don't think i've ever been quite as embarrassed as i am today by the tone and the substance of the hearing or by the way that you've been personally treated. you've been subjected to the entire repertoire of benghazi

and your personal insurance and i think i heard you called a faceless bureaucrat. that kind of language and tone is beneath the dignity of this institution and earns us our single-digit approval ratings and it is violating any standard of gentlemanly this with anybody sitting back here should presume to aspire to. i used to work and affordable housing so i'm familiar with your work prior to taking this job you took this job in december 2012 at the request of the president of the united states, did you not? so 2012, four years after the meltdown you came in -- you might say that you came in at one of the most difficult times in the nation's housing and economic history because the president of the united states asked you to leave the good work that you're doing in california and you chose to do this. >> i want to just for the record -- i started in multifamily in 2009 and i began acting in mid

2011 in this position and confirmed in 2012. >> and in the past you advised the cities of richmond, philadelphia, santa barbara and you're also a real-estate broker said you could be doing other things that you are doing here now. >> yes. >> let's talk about the people of fha because i want to transition to that which fascinates the other side without in any way minimizing of the reform that we might ask the fha to undertake. i do want to poll on this thread of accountability did i don't know the people at fha the way that you do but i heard the chairman and others ask personal accountability. has anybody been fired? why has nobody been demoted? ms. galante, how's the troubled of fha in your opinion is it in any way related to the individual malfeasance to the unwitting performance on the part of any of the people that work at the fha?

.. we say taxes, spend this, it requires a certain amount of our in which you may not be able to parse of congress will tell the president of the united states to violate some law. is it fair to say that under the structure, the congressional imposed strictures and regulations of fha that fh itself has performed as well as it could have under the circumstances? >> i believe it done everything to perform as well as we can't.

>> so that leaves the question of why are you here asking for a $1.7 billion as the other side puts it, bailout? let me read you that last line of the memo on this hearing. just to be clear, this bailout is required because the mmif is that 16.3, negative $16.3 billion in value, right? >> yes. >> the last line of the memo reads the mmif negative 16.3 billion economic value represents a decrease of 17.49 billion from its valued at the end of fiscal year 2011. here's the part i want to emphasize. which resulted from further declines and national home prices, more loans having elevated to fall potential and uncertain economic conditions. this is the republican memo saying you're sitting here today because of the decline in national home prices and uncertain economic conditions.

is that there was republicans are saying in their own memo? do you agree with that? >> yes. as i've been saying, the valley of the fund is greatly affected by economic conditions. >> do you think congress has done all they could in the last three years or so -- i know this is beyond our purview but you think we've done all we can in terms of fiscal policy to promote growth in the country? >> rather than answering that question i would say i think there is more that congress could do for fha in terms of giving us some additional authority that would help us do our jobs better spent fair enough. i yield back. >> the gentleman's time has expired. the chair now recognizes the gentleman from indiana, mr. stutzman, or five minutes. >> thank you, mr. chairman. and thank you for being here today and for your testimony. i want to follow-up on the comment you just made about what can congress do for fha.

we are obviously very concerned about the numbers, the direction. i know that back in 2009 you had mentioned that you would like, the outlook for fha was a concern of yours, but the numbers today i think as we look at them do draw much more, deserve more scrutiny and questions to be asked. you mentioned that if congress would give fha flexibility. i commended exact terms that she used, do you think fha would be better served from being outside of trenton as a stand-alone agency rather than under hud, and under its purview? >> i don't think, i think there are tools that fha needs.

i don't think that those tools relate to whether we're inside or outside of hud. there's no reason unordered from my view in order to access those tools why we need to be outside of hud. we are closely aligned with hud and its mission and there's a reason why that would need to change in order to give us the kinds of tools that i talked about, including better of 40 to go after lenders and terminate lenders when they are not doing the right thing and following our rules to being able to make emergency decisions without going through the full rulemaking process. those are tools that could be given to us as examples, you know, that would be very, very useful. >> could you describe that relationship a little more and once hud's involvement on your day-to-day operations and how they influenced decisions that

fha? >> the secretary of hud, fha as the commissioner a report to the secretary of hud. so it is part of hud. we have separate accounting for the federal housing administration. but our staffs are all, follow the same rules that are part of -- >> would they be a problem -- if they were separated, what would change? >> i think it depends on what people would impose or change, specifically, right? there's not just you're either in or you're out. you would have to say what else would you be talking about. >> does hud -- i guess i'm trying to find out, is hud influenced fha in certain decision-making, or if you are stand-alone and you could use

some tools, some flexibility with other tools, how would that be? how would that change things are what make things work better? >> again, the main thing about being inside hud is the we report up to the hud secretary. secretary. >> what does that -- what does that matter? does that change the way that you handle your decision-making? does it -- i guess if, if fha were a stand-alone with tools, which we serve the housing industry better and would reserve the taxpayer better? >> i would just say i think within hud and working with the hud secretary, there's a reason to change that. we could have some of these tools that would help us, you know, as the fund and as an agency be an even better job. but i do see any reason why it

would be necessary to do that outside of hud. >> thank you, mr. chairman. i yield back. >> would yield back? in the seconds remaining, and as i find respect to gentlemen, i wanted to respond to something that he said. and that is the accusation that republicans were encouraging a violation of the law with respect to the debt ceiling. the debt ceiling is the law of the land until it is changed. and many of us believe that the specter of the fault on sovereign debt should never happen to it is unthinkable, and that is what house republicans have passed the full faith and credit act to make sure that this never happens. i don't recall having any democrats support that, to take that nuclear option off the table. i hope perhaps one day they will support it. primetime. the chair now recognizes the

gentleman from illinois, mr. foster, for five minutes. >> thank you, mr. chairman. ms. galante, i want to represent the comments. i have profound respect for you and have one of the talented people who choose to spend a fraction of her life in service to the people of the united states. it makes a big difference whether the housing operation in this country is well-run or not. we are having a hearing about a $1.7 billion capital shortfall. in the financial collapse at the end of the bush administration, families in america lost $16 trillion of household net worth, two-thirds of which was the drop in the value of the house of the collapse of the housing bubble. that's a factor 10,000 or so however many hearings you think is worth having on the subject now we should having 10,000 times more hearings on the incompetent management of our economy that led to the $16 trillion drop in household net worth. and we've heard also about your

$150,000 a year salary. that's 10,000 times smaller than the subject of the hearing today. and so the difference that you make, whether you do your job well or not, is much larger than your direct compensation to i would also remind members on both sides of the aisle that during the last republican default crisis, family net worth dropped by $2.4 trillion but that was the drop the last time we went up to the cliff. anyway, could you please hold up your page to grab again, please. i've a couple of questions on that. so that you have those color. now the red come some are red and some are blue. does that indicate the political party that was in charge when those mortgages were indicated? >> actually, that's not what it's supposed to indicate, no. >> so it's an accident that the party which can only thought of as the blue party was responsible for the blue ends of the bar graph.

interesting. so is it fair to say, to think of the $2,002,000,000,000 shortfall we're talking about the difference between the $41 billion deficit that you're facing because mortgages originated under republican appointed regulation, and the roughly 37 billion that have been recovered since democrats have taken back control? is that a fair statement of the difference? >> it is absolutely true that the legacy books that are causing us the substantial problems are from the 2006 to early 2009 -- >> so there's also talk about accountability. if you look at the fact that the party that was responsible for running of all the red bar graphs, ones removed from power. i think there is accountability and the fact that you're a presidential appointee is a reflection of that accountability. now, i want to change subjects a little bit towards what rules

could have been in place that might've prevented the disaster of the 2001-2009 but there's the suggestion has been made. there some research papers on what are effectively countercyclical capital requirements. are you familiar with this general line of research? >> a little bit, yes. >> said the id would be that as the protection of taxpayers against investing into a housing bubble -- bubble effectively, you would have some effort to estimate market conditions. and when you identify that you are investing into a bubble that you would hold more capital, hold more loss reserves, or, and/or tightened the credit box or some domination of both of these, effectively asking the homeowner to hold more capital reserves against this. i was wondering, first off, with his rule -- had this will been place would have mitigated your financial difficulties to the? >> i think the challenge with

that is you could actually be worsening the crisis by making it more difficult, you know, to increase down payment requirements on individuals, for example. in a crisis as opposed -- >> visa requirements that would've tightened the credit box during the bubble years. for example, looking at the recent appreciation housing values as one of the metrics for tightening the credit box. >> so when times are quote unquote good -- >> what we're trying but automatic -- >> i thought you're talking about the reverse. >> so it's the countercyclical principle on the upswing that was an american enterprise institute conference on the subject this summer, which represented a number of good ideas. i was just warning if that was under serious consideration, or if you might be willing to endorse him very and at this. this. >> i would certainly have to look into that more. >> thank you again for your service.

i yield back. >> the gentleman's time has expired. the jarecki doesn't the jump in from california, mr. royce, for five minutes. >> yes, i'd like to go back to an issue that i think mr. sherman from california raise with you and mr. mulvaney to try to get your position and actually nailed down on richland california proposed use of eminent domain to seize performing mortgages. a number of times over the last year i've send letters and i know mr. miller and mr. campbell, my colleagues in the senate as well, have tried to get the administration to definitively come out and state your position on the proposed use of eminent domain to seize mortgages. and my question is if you would make that statement?

>> yes. i appreciate you asking the question again because i think the former times i've gotten asked if it's the end of the questioning as opposed to the beginning which makes it a little hard to give a full answer, but what i've been trying to say is that we do believe that eminent domain authority in general is a local and state authority, and needs -- can i finish this? they need to be able to make their decisions and this needs to be played out over time in terms of what impact, if any, it will ultimately have on blending. >> hold on, hold on. the question that you need to answer them if you think it through, is will the fha insurance fund be counted on or not? do we have a position with the fha insurance fund cannot be

counted on by the investment fund mortgage resolution partners in richland or elsewhere to help ensure refinance mortgages that were seized through eminent domain? this is a question that pertains to your decision. >> and what i was getting to is that when we see how this plays out and we don't know exactly what fha would be asked to do in any particular given situation under the usage of eminent domain. when we see that, if we need to issue additional guidance, fha will do so, but we don't even know exactly what these various programs will look like at any given time. >> no, we know exactly the programs look like. you know exactly. this isn't a hypothetical. we know what the plan is. mrp has made the presentation in

california. they have made it in nevada. yes, there could be legal challenges and enable may not be successful but why do we need to allow a process to reach that point? you can solve a lot of confusion by stating whether or not the fha will be available to refinance any mortgages seized under mrp spinet the main plan. that's the question. -- mrp is eminent domain plan. >> we did not believe we understand the exact contours. are different proposals in different communities, and those proposals could be applied differently. >> all right. fhfa has made a very strong statement for a reason. they stated that they would restrict or seize business activities within the jurisdiction of any local authority or any state importing eminent domain to restructure

mortgage loan contracts. the question is what fha won't do the same? >> so, -- spent why would you say without a doubt that fha will not be used to refinance these seize the mortgages? >> so again, to be clear we have made our statement which is we will look at and see how these programs point out, whether or if there is necessity for us to issue any -- >> fha refinance up on the screen there is clearly part of the program. that's what's in circulation. and getting back to an earlier point, because some of us were concerned about overleveraged as we get back to the issue of the implosion of the economy brought on by overleveraged, one of those issues was the role that

congress played. and yes, the role that was played by this committee and on the senate side and allowing the overleveraging, 100 to one by fannie mae and freddie mac. and when legislation was brought by me and others to the floor to try to allow the radio toward committee to control it, it was supposed by that side of the aisle. so there's a little bit of revisionist history going on. >> the gentleman's time has expired. the chair now recognizes the gentlelady from ohio, ms. beatty, for five minutes. >> thank you, mr. chairman. thank you, ranking member. and begin to our witness. thank you for coming. before i have a few questions, let me just start by saying i think we have become all too comfortable with loudly interrupting and talking over our witnesses.

and while that may sometimes be the way it appears that we operate, i think today we took it a little too far. faceless government worker, questioning your outlook service. so let me use the words that i was always taught, very powerful words, and that's i'm sorry but i join my colleagues senator cleaver and mr. himes for extending their apologies. because sometimes i think we forget when we talk about challenging your commitment to public service and putting that in question today. i find it very ironic that some of my same colleagues who question your integrity are the same people who for load some 800,000 federal employees that caused the government -- for load. and certainly reduced job growth of some 120,000 jobs because of

our shutdown. now, how does that tie in today? i think when we look at the housing market, and we look at growth and a look at the economy and w with the get jobs, there'a direct language. but my memo said today that we were going to talk about and ask you questions that we could share and learn more about the recent fha an announcement about the mmif. so something i read at, i'd like you to answer for me if this is factual and truth. because been hearing i think we have an obligation to the people are here and to america to speak the facts and the truth, and then look at how we dissect that to come to some end result. so what i had before me, it says that the federal credit reform act of 1990, or the fcra,

required at the end of each fiscal year at as part of the closing annual financial statement, every credit agency, including the fha, must have sufficient reserves to cover all anticipated loss. for fha this requirement means that the amendment fi must have sufficient reserves that would cover the amount to meet all expected claims over the next 30 years. if fha closed its doors to more and had no new business to offset those claims, such an appropriation is not a bailout. would you agree to that statement? >> i agree. >> thank you. so, we have heard, said loudly, that this would be a bailout. so thank you for clarifying that. i guess my next set of questions would be, would you say that

there has been an economic shock this year by the fiscal cliff, or sequestration, or the government shutdown, or the threaten to the debt default? would you say that impacted the fund's performance in any way? >> so, to be clear, the shutdown caused economic arm in general, according to economists. i can also tell you that in that very short period of time while fha kept its doors open and continued to ensure mortgages, we did see a substantial drop in our application volume during that period of time, as did other partners or other agencies, given the lack of confidence in homebuying, for example, during that period of time. >> lastly, let me just make a comment because we have so many

comments that have attacked what we have done. i think also the american people like to hear good or positive news, especially when we're talking about housing and putting a roof over their head. so let me just say i'm from the great state of ohio, and in my district to the american recovery and reinvestment act in 2009, through your operation we were able to provide housing credit assistance. and that tax credit assistance and the tax credit change was way to offset declining investors interest in housing tax credits. and that was done by some my democratic colleagues, and i wanted to thank your office for working with us on that. >> thank you. >> thank you. i yield back. >> the chair never denies the gentleman from wisconsin, mr. duffy, for five minutes. >> thank you, mr. chairman. i want to be clear at the outset that fha has been very helpful.

a lot of my constituents first-time homebuyers, low income small homebuyers to achieve the american dream. of homeownership. it has been an incredibly helpful for then and i don't want to underestimate how important the program has been for people who live in central and northern wisconsin. it's been a very helpful program. i think he picked up a little bit of concern on our side of the aisle, and i think our frustration here is that whenever we have testimony from we continue to bring up concerns about the capital reserve ratio. it has been met. we're concerned about bailouts and it seems that every time we get testimony from the agency we are told that its sunshine and roses and tulips and unicorns, everything is great. and w look at the numbers and sy that's not true.

we think it's far worse than you were telling us. and it's always no, no, no. it's all fine. and lo and behold, we were right. our concern was well warranted because we now know that we are going to have almost $1.7 billion go from treasury to fha. and i know that you said is not a bailout. first of all, you would agree its actual money but this isn't accounted we've actually had $1.7 billion go from treasury to fha, that's correct, right? >> it all stays in treasury accounts, but yes. >> it's been moved to fha, right? >> to our accountant treasury, yes. >> the transfer has been made. >> correct. >> right. and these are real dollars, yes? >> yes. >> okay. i just want to be clear on the bailout fund.

if this isn't a bailout, what do you consider a bailout? >> so, congressman, let me say two things because i do think this whole conversation about bailout-novell is really beyond the point and i want to go to -- bailout-no bailout, to your earlier statement about we've said it's roses and then it's not. what we've been saying all along is that we have independent actuary and we have independent budget rate estimates that is made by the budget process. and as a result of changes in condition and changes in portfolio, those numbers change. we've always been honest about that. and, in fact, the conversation were having had today, yeah, we had this conversation with the president's budget came out and said that we're looking at $943 million shortfall.

i really just want to get this on the record because the only difference between then and today is that our evolving was a little bit less in the last quarter than we had anticipated as part of the president's budget. i admit that. circumstances changed and that's because the additional -- >> but this underscores the point of the testimony that we always get. it's a bailout. it looks like a bailout. it walks -- it quacks. it's a bailout. just call it a bailout. let me ask you this. what are the terms of repayment of the $1.7 billion? >> this is exactly what is not a bailout because again, this is all within the government -- >> i have a minute left. what are the terms of the repayment of taxpayer money, $1.7 billion -- >> the terms are every nickel we ever earn goes back to the federal government. >> now know. are the terms of repayment?

know. you don't have to repay it, do you? is a bailout. he might say the mighty someone in the future won't make a little bit the money and we will turn it over, but there is no requirement that you pay the $1.7 billion back to the american taxpayer. not at all. and so i think the transparency and honesty -- stopped splicing words. this is a bailout. call it what it is. you don't have to repay to the taxpayer. >> we have, you know, prepaid on this. we pay every year on an ongoing -- >> i only have 15 seconds left in the past act we had a pilot program but is that something you would consider at fha, a risk-sharing pilot program? >> i would just say i think it's worthy of looking at risk-sharing. how it's structured, counterparty risk. there's a lot of challenges in risk-sharing but we sorted are willing to look at the parameters. >> i yield back. >> the gentleman's time has expired.

and to notify our patient witness, we anticipate two more members to question. the chair now recognizes the gentleman from washington, mr. peck, for five minutes. >> thank you, mr. chairman. ms. galante, thank you very much for your presence here today. thanks for the fha for i believe 40 years ago this very month enabling me to buy my first home. thank you as well for your kind comments about both my roll and that of congressman fitzpatrick's and the earlier effort to reform the reverse mortgage market but indeed i would like to flip that around a bit and take this opportunity to express my gratitude to congressman fitzpatrick for his exceptional advocacy, and for the members of the industry, reverse mortgage industry who really stepped up to be a constructive part of this year and to you personally as well. i don't, i don't happen to think your reputation is -- as a

public servant needs a whole lot of defense because, frankly, i think for itself. in my sprint working with you on the reverse mortgage act is any indication, is beyond reproach and exceptional, and i thank you for. i thank you as well for the speedy way in which the agency moved to implement the reverse mortgage reform act. i think it helps a lot and speaks volumes about the fha. i think sometimes here we, to coin a for, complex of five things beyond what any. let me see if i can reduce this to its basic elements. do i understand correctly, ms. galante, that in the table on page eight as congressman sherman was getting at, we could say that the accounting transfer was triggered and are required almost entirely as a result of the performance in the hecum

program? >> that's correct. >> and isn't also true that the accounting transfer of $1.7 billion was calculated based on data prior to the enactment of the reverse mortgage reform stabilization act, and its implication? >> that's a little more difficult because i would just say that the 1.7, there's an element of the receipts that are a little bit less as i was saying to an earlier question. >> and when will an actuarial projection be predicated on a full recognition of the implementation of the reverse mortgage stabilization reform act? i'm getting the title all screwed up there but i think you know what i'm referring to.

>> just to be clear, the next time you'll see numbers like this is when the president does the re-estimate. that will probably be -- the dates shift a little bit again part because of the government shutdown but i would expect those to be available in february or so of next year. >> and to what degree will that reflect any experience for implementation of -- >> it will reflect the projections of what the future experience will be, yes. >> so do i also understand correctly that when you all make money, you transfer back to the treasury? is that correct? >> that's correct. >> have you done that in the years leading up to the great recession? >> yes. >> can you give me some kind of a range of estimates about how much money? >> i don't have that. i mean can we keep it all in the capital reserve. a capital reserve went well above the 2% up to i think 8% in

earlier years. >> it does not literally get transferred to -- >> again, they are all sitting at treasure. all these accounts are at treasury. >> just to summarize, and please do correct me if i'm oversimplifying, the requirement for the accounting transfer was triggered in large part by the experience in home equity conversion mortgage program, a problem you identified sought legislation from this congress, which responded with your able assistance, in which he immediately implemented, and projections about how fha's balance sheet will be affected by all of that are not going to be made available until sometime in the winter or spring, reflecting the corrections to the single program that was tracking you down. do i have that all correct? >> yes, you do. >> i think that about says it

all. thank you again for your service. with that, mr. chair, i yield back the bows of my time. >> the chair now breggin is the gentleman from ohio for five minutes. >> ms. galante, i appreciate her willingness to be here today and appreciate what you do on behalf of the federal government at fha. what i want to look at is how fha might be able to improve its performance so that any additional infusion of capital taxpayer capital what you want to call it a bailout or accounting transfer, doesn't matter what you call that, i want to try to be out how we can improve your performance to avoid any future. you said during her testimony that you got fha had taken every reasonable action to improve its risk management. i want to look at a few areas. you talked about are the own real estate that you owned. are you for me with the gao report from june of 2013? >> yes, i am. we future practices and on page -- the page number is not here.

in one of the highlights here it said that if you have dealt with your dispositions on timelines the same way as the government-sponsored enterprises, both fannie and freddie, that you would've been able to save as much as $600 billion a year in your costs such as taxes, homeowner association fees, maintenance fees and others, and would increase their proceeds by up to $400 million. it's taken you about a year, taken in about 200 days to dispose of their reo real estate. tell you what you done with that to improve your performance going forward. i'm not here to blame you. i want to see how we're going to fix it. >> yes. so just to be clear, we changed how we do government contracting for those who take responsibilities because have you seen results from that that? >> me just give you one example.

we now do and rtl alternate transition -- not requiring the property to come all the way back and enabling -- >> can ask consider just one example, have you seen your average length of this position shortened in any significant way? or do we not know yet speak with so again, in this contains the total -- >> i'm looking for how it moves your average. >> again, our recoveries have improved by more than 10% on power, by these new recovery strategy that we've been going to, both transfer and alternatives to reo is positioned spent i guess i just ask you to continue to monitor that. i'd like you to look up at the slide of their that shows your capital ratio that if continues

to worsen you did talk about premiums and something you have done. let's move to the next slide really quickly. the next slide. so there were some things that you could have done to change your premiums, both are up front premiums and annual premiums. and let's go to one more slight. look at what's happened interest rates over time. we are at, still with an uptick over the last few months, pretty historically low interest rates. you have the ability if you want to go back once lied to increase your annual fees by another 25 basis points, which would be a rounding error on the amount that interest rates have come down over the last years. why he chose not to go ahead and max that out and require less tax to infusion, whether you call it a bailout or you call it something else? >> so, we have spent enormous amount of time balancing, bringing the fund back as quick as possible with ensuring

continued access to credit. and you know, by the way, just when you take a look at what happened when we made our latest increases in june, and not just bring increases but our policy changes, you saw a huge amount, i mean, our application volume dropped off by 50% -- >> my time is limited. let's go back to that again. how much intereste interest rate come down and if we're talking a rounding errors for the 25 basis points, and it could have helped to significantly add to ask you to look at that again and this is i think the fifth time you come to testify before the committee in my thre in my three and to become active so i'm going to ask you again, what fha has not instituted risk based pricing yet. it had the authority since 2010. >> so, again, i believe i've said this before that fha believes that the way we do pricing and the way we do risk based underwriting but not risk

based pricing, and we did it because we think that is in the best interest of the bombers and access to credit. and again, we are always -- >> i would argue you should both. thank you for your time. >> the gentleman's time has expired. there are no other members in the queue so i would like to thank ms. galante again far testimony in patients today. without objection all members will have five legislative days within which to submit additional written questions to the witness, to the chair which will be forwarded to the witness. ms. galante, i would ask that you please respond as public as you're able to without objection all members will have five legislative days within which to sit extremist material to the chair for inclusion in the record. this hearing stands adjourned. [inaudible conversations]

[inaudible conversations] >> earlier today a former fbi director of international operations talked about rise of organized crime and difficulty in curtailing it, particularly marijuana trafficking. here are some of his comments to the american bar association national security law forum.

again, this happened earlier today. >> you know, the has already committed that organized crime, particularly in latin american countries has been able to make billions trafficking marijuana and other contraband, other drugs and other contraband materials. i don't know really how successful we would be and i would agree about the success that might or might not happen from legalizing marijuana. the example i would use is that when alcohol was legal in the united states you did not have look oh so no stroke involved in any great way. they did gambling, prostitution. their normal knuckle dragging racketeering things but they were not large-scale threats that they became. when prohibition goes into effect it's a bonanza. they make billions. it creates the al capone's and the lucky luciano knows and the rest of the gains in the united states getting involved in the importation or production of

illegal alcohol and the speakeasies and the networks that distribute to consumer. when prohibition is eliminate it, too late to eliminate them. have now become a powerful national organization. they have now dominated the four largest labor unions in the u.s. and industries affected by those unions. they have now corrupted public officials, police and regulators, and all the way through washington. so the elimination of prohibition didn't eliminate the mafia growth that had been allowed and created, able to flourish was been entrenched. and now they could move to other things, other aspects to make money. and it was too late to take them out within. and it's taken, you know, 75 years of cornea to effort and sustained attack to reduce them now. and we have been successful in reducing them. an example i would give is if

you watched godfather, it is a very accurate depiction of power and control in the u.s. in the '40s, '50s and '60s. as a result of the rico statute, wiretapping authority and sustained attack, it went from godfather to the sopranos, sopranos argued over vacant lots in newark, new jersey. that reduction of the power and it was from 26 national families down to a handful was significant, but it took 75 years to do it. really the elimination of prohibition didn't weaken them. it was the continuing attack later. >> those remarks and earlier today from the former fbi director of international operations. the entire program including panels on national security law and cybersecurity is available online at our website. go to c-span.org.

>> what's the most important issue congress should consider in 2014? that's a question for middle and high school students in c-span studentcam's video competition to make a five to seven minute documentary that shows varying points of view and includes c-span video for your chance to win the grand prize of $5000. this year we've doubled the number of winners and total prizes. in trees must be in by january 20, 2014. need more information? go to studentcam.org. >> yesterday, the senate homeland security committee continued its series of hearings into the september shooting at the washington navy yard. law makers questioned officials from the defense department office of personnel management about security plans procedures. 13 people including defense department contractor aaron alexis died during the shooting which took place at the navy yard in september. mr. alexis had a history of mental instability which did not stop him from gaining security clearance.

>> good morning, everyone. the hearing will come to order. welcome one and all. on monday, september 16, a nationaptiongedy unfolded at the cable ard in washington d.c. a very troubled individual took 12 lives in a senseless act of violence. the circumstances that led to this tragedy are multi-dimensional. many of the issues raised by this tragedy, such as thetanceso adequacy of our gun laws and the quality of mental health care, many iues rathe purview of this committee. but as we have learned more of about aaron alexis, a number of my colleagues and i have been asking each other why such a thi troubled, unstable individual aa possessed a security clearance from the u.s. government. why was he originally granted aw security clearance when he did not d isclose his arrest recordwhy waa on hills application? clearance why did the investigator responsible for looking into

that arrest write up that alexid had retaliated by deflatinggato someone's tires, instead of disclosing that alexis had shoth the tires? retaliated by deflating someone's tires instead of disclosing that alexis had shot those tires? we also wonder how such violence could have taken place in the navy yard which is more secure than just about any workplace in our country. the navy yard is not the only reason members of congress are questioning the quality of the background checks. the edward snoweden case raises many of the -- snowden case raises many of the questions. and so does the wiki leaks. just yesterday we learned that the department of justice has joined a lawsuit against a company called united states investigations services, commonly known as usis. this is a company that formed about 45% of the background investigations that are contracted out by the office of personnel management.

according to this lawsuit, usis engaged in a practice that company insiders referred to as dumping. some refer to as flushing. under this alleged scam they would send investigations back to the office of personnel management even though they had not gone through the full review process. through this dumping, usis maximized its profits. many national security experts have long argued the security clearance process is antiquated and in need of modernization. given recent events i think we have to ask whether the system is fundamentally flawed. we should also be mindful for many years both congress and the federal agencies were concerned about the backlog of security clearance applications, which grew larger after 9/11. we need to make sure that investigators do not feel pressured to sacrifice quality for speed. many have heard me say that almost everything i do i know i

can do better. same is true i think for all of us, and most of our federal programs. it is in that spirit we convene today's hearing. our primary purpose is to learn what we are doing right in the security process, while also learning how we can improve it. we have many questions to ask. here's some of quem. are we looking at the right risk factors in attempting to identify people who should not be trusted with a clearance or who should do serious harm for our government and our country? what important information do background checks miss in the current system which relies heavily on self-reporting by the individuals applying for our clearance? once a clearance is granted, what events should trigger a re-examination of an individual's suitability to retain that clearance? what problems are created by the heavy reliance by the office of personnel management on

contractors to perform the background checks? what are the advantages of that reliance? what is the relationship between background checks for security clearances and background checks for other types of privileges? such as access to governmental facilities? we also need to ask what impacts sequestration and years of strained budgets have had on the clearance process. under the current system, periodic reinvestigations of investigation holding clearances are supposed to be done every five years for people with top secret clearances, and every 10 years for people with secret clearances. however, because of funding shortfalls, employees sometimes continue to work in positions that have access to classified information even if the initial period of clearance has lapsed. for example, this summer for 10 weeks the department of defense has been in periodic reviews of some contractor employees due to funding shortfalls.

i'd like to hear from our witnesses today about how often suspensions like that are happening across the federal government. i'd also like to hear about what agencies are doing to manage risks to our security clearances -- when clearances are not re-examined on schedule through the periodic review process. today we have been joined by officials from four agencies responsible for the policies and procedures used to determine who is eligible to obtain security clearance and access to government facilities and computers. they are the office of management and budget. the office of personnel management. the office of the director of national intelligence. and the department of defense. we want these officials to talk with us this morning about the critical security related policies and procedures and also the coordinated reviews of these processes now under way throughout the government in the aftermath of the navy yard tragedy and other resent incidents. we also will hear from an exsert at the government accountability

office, affectionately known as go gorks which has produced a wide body of work on the security clearance process, welcome. this hearing goes on the ongoing good work of our subcommittees which held a hearing on security clearances just this past june under the able leadership of senators tester, mccaskill, and johnson. that hearing exposed the urgent need for additional resources for the inspector general at the office of personnel management to enable the -- that i.g. to conduct important oversight of background investigations. in july, our committee approved a portion of a bill sponsored by senator tester and co-sponsored by dr. coburn, senator mccaskill, senator portman, begich, johnson, nellson, and senator bachus, to allow the inspector general to tap into

o.p.m.'s revolving fund to perform the much needed oversight. we commend our colleagues for their good work. legislation passed the senate earlier this month. my hope is it will be signed into law by the president soon. in closing, i want to say that the vast majority of individuals who hold security clearances are honorable and trustworthy people. many of them felt called into service after 9/11 to help protect our country, and they deserve our thanks. having said that, though, we still must have a system that does a better job of rooting out those with in fairous purposes and those who have become deeply troubled and unstable. that system must identify those with behavior signals and when that system must identify those whose behavior signals are unacceptable risk to be trusted with classified information or access to sensitive federal facilities. i hope that our hearing today will help point us to a number of sensible solutions that taken

together will truly improve our national security. finally, i think it's important to note that our committee continues to look at our aspects of the navy yard tragedy, including the physical security of federal buildings, as well as preparedness, emergency response, and communication issues. so with that much work to do to learn as much as we can from this tragedy. and try to prevent similar one from occurring in the future. let me welcome back dr. coburn and say i look forward to his opening comments. then we'll turn to our witnesses. welcome. >> thank you, chairman carper. welcome to our witnesses. first, let me extend our deepest condolences to the families, co-workers, families, and friends to those lost on september 16. to me this isn't a political issue, this is an issue of ulls failing to do our job in a proper way when it comes to security clearances. today g.a.o. is releasing a report.

it just shows some 8,400 people receive security clearances, while they had tax debts, which is a vulnerability, got security clearances. and the vast majority of those were top secret security clearances. so our process is obviously broken, not complete, and not adequate. until this year, o.p.m. did not even have the means to debarring persons or falsified background checks, worse o.p.m. irges g. recommended 22 individuals, have received no answer on 14 cases and informed the other eight will not be debarred. something is very wrong. it's unlikely a stricter clearance process would have prevented a deranged individual from committing murder. but this event should be a katjacy -- catalyst for congress

to ways they grant access to sensitive material. two problems, one, there is way too much stuff that's classified that doesn't need to be classified. and number two, there's way too many security clearances approved. so if you markeredly increase the -- markedly increase the people that doesn't need to be classified, you have to increase the number of people. we need to address both problems. i look forward to going through the comments today with our panel witnesses and get closer to the real answers. chairman carper, i thank you again for holding this hearing. appreciate the work of senator tester. >> i thank you, doctor. i asked senator tester, before we return to witnesses, to make comments as well. >> i would like to thank -- thank you, chairman carper. i want to thank dr. coburn for his leadership on this issue as well. it was four months ago when we had a hearing after the snowden leaks, stephen lewis and brenda

were part of that panel. i want to thank you for being here today as well as the last time. in my opening remarks, given the fiscal security stakes involved we ought to get it right, and there was no margin for error. the fact was as we knew then as we know today, we need to make immediate reform of the process, there needs to be more transparency, there needs to be more oversight. the outcome of that hearing was a bill that the chairman talked about, introduced by myself, as well as portman, mccaskill, johnson, and coburn. it a provision of that legislation known as the square act subsequently passed the senate. when the senate signed it into law it will bring better oversight to the background investigations conducted by o.p.m. and its contractors. but there are two other provisions that are also very, very important. that we need to get across the finish line that dealt with the issues that senator coburn talked about with the number of

security clearances given and, quite frankly, another issue that deals with what we do when we have a company that screws up and screws up with some regularity is too important. we saw that with the attacks on september 16 when 12 good men and women left for home as they did most every other monday morning within a couple hours, no warning, no motive. they were killed by man with a history of mental illness, a pattern of violent behavior, and criminal record. a man who was cleared by our government through a contractor as someone who should have access to this nation's most secure facilities and sensitive information. look, there are real life consequences for failures within our government. and we need answers, we need solution, we need action because, quite frankly, the men and women who rely on that action deserve no less.

i would just say, thank you, mr. chairman, for having this hearing. it would seem to me that it is critically important that we act as efficiently and as thoughtfully as possible to get this problem solved because it is obviously a problem and a big one. >> thank you. thanks for your leadership and your good work and that of senator portman and others who joined you. i'll turn to our panel and introduce each of our distinguished witnesses. first witness is the honorable joseph jordan, administrator of the office of federal procurement policy at the office of management and budget. who do you report to? >> i report to beth coburn, the newly confirmed deputy director. >> i want to thank dr. coburn and others. senator johnson and others, john cornyn was very helpful in trying to expedite. we got through it almost in

record time. >> we appreciate it. >> sylvia has a top flight leadership team there. expect a balanced budget in two years. our first witness is joe jordan, welcome from o.b.m. he was confirmed as administrator for federal procurement policy in may of 2012. he's responsible for developing and implementing government contracting policies and is the senior leader and advisor to the o.b.m. director. he will speak on the role and security clearance process. thank you for your testimony and service. next witness is elaine kaplan, the acting director of the office of personnel management. a position she has held since april of 2013. she's been confirmed for a new job, is that true? you want to tell us what it is? >> yes. i have been confirmed to be a judge on the united states court of federal claims. >> did any of us vote for you? >> some of you did.