here today. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] fro>> tonight on c-span, a house hearing examines the treasury department program to include mortgage modification for homeowners facing foreclosure. the senate investigates body builders in steroids. later, our interview with national transportation safety board chairman. >> we will hear about the treasury department modification program. steve cohen chairs the

subcommittee on commercial and mr. deval.. . .

my home state of tennessee routinely ranked in the top states with the number of foreclosures. the extent of the foreclosure crisis is such that even some middle-class areas are effected. with unemployment at 10%, many responsible homeowners on find themselves on the brink of losing their homes. back in july, we are raising

concerns about the effectiveness of the program. that was in july. so far, the efforts appears not to be working. some of my colleagues and i suspect that the efforts have been exclusively focused on key encouraging lenders to redo mortgage terms. it might be the same thing as encouraging president karzai to root out corruption. encouraging th the program is still relatively new. i am troubled by continued reports from the media and suggesting that the program is simply in effective in stemming foreclosures. my constituents and feel it is ineffective because they're not getting help. this congress has acted earlier.

i helped with a be helping families save their homes act which would give authority to bankruptcy judges to modify mortgage terms including a reduction of the mortgage principal. also i sponsored an amendment to the regulatory reform legislation. it contains language that is substantially identical to the authority of hr1106. this provision has not been signed into law as it has not been passed by the senate.

i now give it over to the ranking member. >> thank you, mr. chairman. thank you for being here. i believe that by allowing mortgage cramdown in bankruptcy poses a major threat to the housing sector and the overall economy. it is completely unfair to future borrowers, it harms lenders and investors and it undermines the stability necessary for recovery. as we have seen, such a proposal does not meet the threshold to pass the senate. the uncertainty that this would create for mortgage originator is what the housing sector does

not need to be in the car the volatile housing market. allowing this would be a continuation of the heavy-handed interference that got us into this precarious predicament in the first place. as we know, the political housing establishment in the name of increasing home ownership significantly contributed to the crisis. this is accomplished through the intention a weakening of traditional mortgage lending standards. these weekend underwriting standards were encouraged by the community reinvestment act mandated by congress. as my friends on the left work so hard to coerced banks into changing their spending practices and even to making loans that were untenable, and now we see them suggesting that the banks should make the loans that failed because of the interference as free as they

possibly can. this is a recipe that cannot stand. allowing mortgage cramdown in bankruptcy would be an extension of the failed government interference in the housing sector. according to today's hearing, we are not here to discuss mortgage sector cramdown. although voluntary loan modification efforts have not been perfect, lenders and servicers are making an effort to keep people in their homes. there are over 650,000 trial modifications under the program and over 5 million as part of the alliance. lenders and services work every day to keep as many people in their homes as possible.

their efforts are stifled and complicated by how poorly underwritten mammy of these loans are penned jumped more portly, by an unemployment rate of that hovers at 10%. -- these loans are. -- their efforts are stifled and complicated by how poorly underwritten many of the loans are. more importantly, an unemployment rate hovers near 10%. i think the chairman and i yield back. >> now i recognize the next gentlemen in order which is the vice chair. would you like to make a statement? >> i will be very brief. my friend from arizona, the distinguished ranking member, he

referenced his understanding of how we are rife here in these very very dire realities in terms of the housing market. i could not disagree with him how more. i think that the facts are that if one examines mortgages issued pursuant to the community reinvestment act that it is surprisingly a performance in terms of foreclosures and troubled mortgages that i only wish was true of the entire mortgage industry. the foreclosure rate is minuscule compared to the mortgages that were issued by

the unregulated market. that is what the facts are. i think that that will be will be a commission that is independent and independent. we did not get here because of government, we got here because government did not do its job. that is how we got here. now we are cleaning up the mess. it is not about government over

regulating, they did not advocate it their responsibility to supervise. this is fairly. is not open to scam artists that actually are arrive in this position. it is interesting, you cannot do a cramdown but you cannot do it if it is a private home. i wonder how that happened. it would be interesting to go back and look at the legislative history to see how that was achieved. it is ok to do it for investment properties, second homes, cars, boats, for every asset but the home of someone lives with their

family in. i would just like to say that the consumer should be and treated fairly. that is what i can achieve. the voluntary programs don't seem to be working. if we continue to go to the root of a voluntary program, you will just extend the pain. the pain will be extended and you know what is going to happen. we are never going to get out of this housing slump.

we will see additional foreclosures. if that is what the minority party wants, that is what will happen. with that, i yield back. >> i represenwould like to intre chairman of the full committee. >> thank you, mr. chairman. we will not go into details as to one of your distant predecessors moved to texas. >> we cannot pull our homeowners out of the crisis. these are made more difficult by high unemployment which has not been reduced by the economic policies. in contrast to these modification efforts, today the house is considering an amendment that gives bankruptcy

judge's broad discretion to rewrite and cram down mortgages in bankruptcy. there is little relief to distressed borrowers. bankruptcy cramdown will lead to higher interest rates and less strenuous borrowing terms. unemployment has been a driving factor behind most foreclosures. it will do nothing for those most in need of employment. additionally, they cannot expect

to receive decisions from bankruptcy courts. this really transfers the cost of bad financial decisions to prospective home buyers will find it much harder to get a mortgage. these investors often include pension funds representing the retirement savings of millions of people. we should not pass the cost of irresponsible borrowing on culture and future retirees. we need to do everything we clan tooth stop the foreclosure crisis. we must not punish the successful and tax irresponsible and hold no one accountable.

i hope that there are positive suggestions for voluntary loan modification programs. suggestions that are not will not git out of our crisis until we have legislation that creates jobs and revitalize the housing market. >> >> it is ironic that the bankruptcy in history that made so many people and so much money based on these mortgage- backed securities that they both sold and purchased, they have

made a lot of money. there is a government bailout. when they got to the bailout, they got the money. they failed and refused to have it people help people on main street. it is ironic that the representatives in congress who care more about the bankrupting industry than doing what they

can. it is really an irony it would not support bankruptcy judges. they can do this on the primary residence with our target money. today will it explore the viability.

they are not being exercised in good faith. there is the mortgage modification and the extreme important. this is today's economy. currently our nation is the experiencing a major foreclosure crisis. many families are struggling to make ends meet. for homeowners who are struggling, losing your home can be devastating. there are many negative side effects.

foreclosure not only affects the family who owns the house but also that the neighborhood surrounding the house. this brought down the value of the surrounding houses creating places where criminals and criminal conduct can take place. this makes the neighborhood look as if no one cares about it. it is a psychological problem that ensues. people in the neighborhood where there is large foreclosure activity and it is not good for people and it is not good for america.

they don't want to take meaningful action to help the folks who are struggling on main street. this was intended to help homeowners modify their mortgage payments to make them more affordable and avoid foreclosure. it was designed to strengthen the housing market and stabilize the overall economy. it has been alleged that the this is a failure. the majority of homeowners have modified their mortgages and stayed in their homes. you have called a hearing on this particular issue.

i think the chairman once again. >> i will be brief. some people on more than the house is worth. -- owe more than the house is worth. the value is not as much as the debt.

there is an option to cram down. that can reaffirm the dead at the value of the property. there is always a better deal for the creditor because they would get more than the distress sale. they might be a situation where

they have to realize the loss that they did not have to do before they agree to a modification which affects negatively their earnings. the might be a situation where it affects their balance sheet where the modification gives them less and less land and authority. whether there are disadvantages in the accounting authority, there are disincentives from the system to agreeing to modifications. there is also the reason why we should not have cram down, whether or not a that would be an incentive to modification. i will be looking at those two issues, mr. chairman. thank you for holding the hearing. >> i would like to recognize distinguished chairman of the committee. there are those who are in need of help.

>> thank you, mr. chairman. i think you should remain chairman of the next congress as well. as he will testify, the subprime mortgage was what triggered the financial place that we find ourselves and not nationally but globally as well they have chalked up all of those mortgages, rebuttal of them and then set them out all over the country to all americans and all of the world. now, our judiciary committee and i think everyone here on the subcommittee supported a simple

solution since we have jurisdiction of bankruptcy. we passed it in the house, the senate as usual is not able to shut off the filibuster so the bill was withdrawn. i just left a press conference for the congressional black caucus, how do we create jobs.

there is an economic downturn, there is a lot of work to be done. i am proud of the chairmen. >> thank you for participating. your written statements we placed into the record. the lighting system starts into a green light. it means that you have a minute to go. you should be finished or in the process of being finished.

456 @#$@432 ^ & >> mr. chairman, ranking member. good morning. i am an associate professor of law at georgetown. i served as special counsel to the oversight panel. the views i expressed today are my own. we are two days into a foreclosure crisis.

the picture is grim. mortgage foreclosure rates are at four and half times the historic rate. the cornerstone of federal efforts to mitigate the foreclosure crisis is the home of the station program which provides tax fair funded incentive payments to services, lenders, and homeowners to facilitate standardized loan modifications. this involves an initial trial modification. after it converts to a permanent status even though the permanent modification is a permanent modification. first, a trial modification must be commenced.

there has been around a million trial modification. there was an increase in the trials conducted suggesting that the enrollment in the program might have already peaked. trial modifications have adapted to promise status. nine months into this, there are 31,382 permit modifications. as of the end of october, less than 10% were converted by the end of the three month trial time.

this has improved in recent months but at a politically low- level. this will be quite limited and not enough to have a noticeable impact on the foreclosure crisis. conversion from trial to promise that this is not the only obstacle for the loan modification to be successful. it must also continue to perform. it is too early to talk about loan modifications but to the baseline prediction is that 40% will defaults in the first five years. that is optimistic. the closest the structural analogue to the loans are the exotic subprime months. and to be fair, the monthly payments on the loans are far more affordable. both of the mons the chair the below market introductory rates has stepped up over time. balloon payments -- stepped up

over the time. taken as a whole, the suggest rate will be exceedingly low. this will have a macro economic impact. treasury seems to be that this can be corrected through some regular fixes. i will submit that the program is fundamentally in capable of helping homeowners with foreclosure. homeowners cannot wait six

months to find out if treasury has finally gotten it right this time. the mortgage industry have had multiple lights at the apple to have the refinancing working. -- multiple lines available to have the refinancing working. there is a voluntary service for needed for request -- success. for a variety of reasons including skewed incentives, contractual restrictions, where orders services are unable or unwilling to perform sustainable modifications in sufficient volume. i would urge congress to explore possibilities that cannot rely on servicer modification. this program is not working. >> our second witness is miss swartz, the executive director of the hope now alliance. a coalition of counselors and

other mortgage market participants. >> good morning. i am the executive director of the hope now lines. i appreciate the opportunity to speak for you today to discuss the mitigation efforts on the lake. we are a nonprofit alliance working to reach an help as many homeowners as possible stay in their homes. many servicers are participating

in the program and the alliance is working with the administration in implementing and improving the program. this is an important tool. people are working for homeowners that cannot qualify. also members are continuing outreach for people who helps the shall meet at we have a new need -- we are working to assist homeowners who want to stay in their homes. first, i want to clarify that this is not a voluntary program the services are required to evaluate all loans for eligibility.

many have been reported a child on -- trial modifications. all these people are making lower payments. we have suggested that some improvements to make the process easier which i might highlight later in the testimony. this is not the only useful tool that services are using. in 2009, 2.6 million servicers presented foreclosures. the number is 5.8 million homeowners. there are a variety of programs.

we're looking to work out to give a more complete picture of what is going on and show the true number of homeowners being assisted and then avoid a foreclosure. since march, 2009, we have gone out to many different events. homeowners are given an opportunity to meet with a servicer. you can call our hotline 24 hours a day, 365 days a year. and there are six agencies and sixth nationwide servicers.

they can submit the applications. there is a better system. we are working with the servicers, attorneys and treasury in creating a solution for hamas and bankruptcy. i -- for homeowners in bankruptcy. there are ongoing issues and struggles for the program. we're working on many of these and i would like to highlight a few i have recommended to treasury. one is to streamline the documentation. the requirements should strike a balance of being less extensive. the document collection is often the cause of delays in turning try modifications to plummet.

we believe that treasury should eliminate the requirement for wage earners and allow them to use the most recent w-2. some services estimate an uptick of 20%-30% a permanent modifications. another is to revise the model, the net present value model should be updated. servicer data indicates that people who are successful in completing three month trial modifications have significantly better performance than those who do not. would these changes, we anticipate the improvement could include more borrowers and a better pick up on productivity. in conclusion, they are dedicated to providing solutions to those not eligible and reaching and assisting as many distressed homeowners as possible. services continue to increase efficiency and enhance execution

on loan modifications. i am willing to keep you all informed. thank you for the opportunity to testify. >> thank you. i appreciate your testimony. our next witness would be missed gallants. she is the former assistant general counsel -- >> outhird that she handles issues of securitization and structured finance. predatory lending, tree planting, consumer collection act and fair debt collection practices. she is the former counsel for

all when financial. they manage all mitigated mortgages and a former judge. >> thank you for inviting me to testify regarding my work. my testimony is based upon my work for these families and also my earlier work on the other side it in addition to my work for the servicer. i also worked at two foreclosure law firms. i really can't see this from both sides. i want to tell you with -- what this means for real people. -- i really can't see this from two sides. i work on main street.

-- i really see this from two sides. these are not people who gamble with on affordable mortgages. most part ordinary americans. due to circumstances beyond their control, they cannot get out. they are frightened, desperate, and losing hope. most of us do not realize that if anbar were becomes more than 60 days delinquent, the servicer rejects any subsequent mortgage payments unless at the same time that the bar workers default. they're still not allowed to resume making payments even if they want to and are able to. the result is that they become trapped in the foreclosure spiral. many would lead to resume making full or partial payments. when they come to me, they're terrified. they have tried to gain entry into the program, try to work

with their services, fell victim to loan modification scandals when they were desperate. mcnall became my clients when foreclosure was filed. -- they all became my clients when foreclosure was filed. i set out to try to find them leverage. this is difficult since our system of forced them none. generally, it is only when i backed the plan if it into a case that any sort of concession emerges. -- generally, it is only one eye back to the plaintiff in to i have filed 60 of these

motions. in only two of the cases, because i got a completed package and all others were contested. we're hearing have occurred, all but one granted my motion. not one of my clients who got into a trial modification received a permit modification even after exceeding a three month trial time, submitting all required documentation and making payments. i take issue with any claims that to the foreclosure crisis is improving. most troublesome is that the owners of many of these homes could and would have made payments. the program and to be purely voluntary programs exist but did not do enough or work fast enough to change the landscape significantly. the real problems are that the mortgage industry players lack the ability, the authority, and the wherewithal to really solve this mess. there is no time to create

something totally new and have it moved quickly enough. structural hurdles make it virtually impossible for the voluntary programs to work on any sort of meaningful scale quickly. what has not worked so far will not work in quantity. allowing bankruptcy judges to have a chance. i think there should be legislation to adopt mortgage modification. bankruptcy judges have extensive

experience dealing with problems. the processes rigorous, solutions are formulated in that the creditors are prioritized. because of the tangled web of interest. we need something more. if bankruptcy courts, this would be a fair solution that would provide mechanisms to save homes. it would be immediate. thank you very much for your time and attention. >> thank you, i appreciate your testimony.

our next testimony comes from [inaudible] he has been a friend of mine since 1982. we worked in the general assembly. is the council for a national law firm and an honorary kentucky colonel and tennessee. he is a fellow at the american college of bankruptcy. he is a highly respected individual. >> i am delighted to be here on

the national association of chapel 13 trusties. -- chapter 13 trusty's. chapter 13 is the mechanism and bankruptcy whereby debts are approximately payback. we are approximately a back 6000 a year. traditionally, chapter 13 has constituted a last resort of a bar or in which to save a home in which the mortgages in default. millions of families have saved their homes through chapter 13 and maintaining conservatives. it has been remarkably

successful from where i come from. they fell into default not even knowing what the requirements were. does chapter 13 from a model from 1979 provide the tools to be able to cure the problems that exist under these exotic mortgages? chapter 13 trusty's are disappointed that the senate did not agree with the house.

mortgages in the pull that are looked at it resulted in a loss of approximately $12,000 per mortgage. in foreclosures, the loss is $130,000. the model does not work. the legal barriers exist.

there is the entity for the possibility reward. this is not what we wanted. the system does not work. can we make it work better? i hope so. the trustees are certainly willing and participating now or we can make this work. bankruptcy, there are many of them try to save their home. they already have the incentive to try to save their home. bankruptcy creates a system whereby documentation can be provided. let's change the program to allow the bankruptcy

documentation. does this mean that because it did not work, doesn't make it better? no. we need to make it better. the trustees to encourage you to continue to look at how different the tools can make chapter 13 and better mechanism to cure defaults. we think that things can be improved. it does recognize that chapter 13 recognizes that values for mortgages that are being cured are different that are distressed values.

we recommend that if the process is stalled, does not work, results in silence, create a judicial review of the program. if the mortgage modification is not acceptable, at least we should look at the review of the judges. >> you have shown that you are knowledgeable about preserving the leak use of -- preserving the use of liquid assets. >> i recognize myself for five minutes for questioning.

tell me the things that you agree with in this progress? >> i think that we are frustrated that we cannot get this wrapped up in a bow and finish every month in a greater number. the truth is that there are many people pain on the mortgage. i have been on this for two

years. that is a good thing. working with two parties are a good thing. time is of the essence, that is a good thing. that said, what i agree with is that we should work on loans that are already in bankruptcy and figure out a way to help those people get modifications. that is something that i am working on with my colleagues in treasury. another issue is not one loan should go to foreclosure that has not been reviewed. let me assure you, the loans that failed, we will look at others and we do. >> i will interrupt you slightly. you have many other things that you go to that you want to talk about. >> they are not getting reviewed. i only see people when they have tried their hearts out and have not gotten reviewed, and have not gotten any answer.

while they are waiting for an answer, the processor shows up with a foreclosure complaint and then they come to me. >> these will be done under the modification. the rate of foreclosure will go down. there is a queue of people waiting. there are timely reviews. we have seen the numbers. that is the process that has been prescribed. that is the process within these organizations to do so. maybe it is the lack of communication that is half of this. >> the question on the cramdown, the other says that this will drop the market and raise credit rates and all of these things and make it more difficult for people to get mortgages.

>> are people getting financing for yachts and vacation homes? >> no, mr. chairman. the bill is only limited to existing mortgages anyway. it cannot possibly affect financing. >> they have done this over the plan and it has worked. it does not caused credit to disappear.

>> the program does help people. we should try to help anyone who is in foreclosure. this program is helping some people but it will not ever produce the volume that we need to keep up with foreclosures. >> how many people are in this to 4%? >> we don't know the answer because they are all in the process. this is under the grace period. this measurement is difficult to assess. >> in response to the question, we have a hearing on monday with the domestic policy committee.

six under 50,000 are in some kind of preliminary trial phase. today, the numbers that i thought were 1711 at that families, they have had their loans modified. >> 765,000. >> 650,000 are in the trial phase. >> i have had the number from the treasury report. there are some permanent modifications. you have to have full documentation to get permanent. there are many people current on the payments but not documented. >> i.t. try to get people to

apply for this because despite the participation agreements, many servicers will not even allow i have people who have made their three months payments and they're still not getting permanent modifications. i'm talking about people who cannot get in the door. it is not that i am not trying. when i try, i get a resistance. . .

had performed as, that one would have expected them normally to do so, none of this would have happened. all of the derifftiffs would have been fine. i'm not suggesting it was a perfect system, but i'm saying that the problem, the thing that caused this problem was that bad loans were made and certainly the c.r.a. put a great deal of pressure on banks to make bad loans and banks due to their own fault or due to the pressure that was in the system kind of did away with

the three main legs that hold up loans. and one of those is income, one of those is credit history, and of course one of those is the collateral, how much money they put into the loan in the first lays. and when you take those first three things out that allowed that to happen, that's what catalyzed this problem. and we should be, as a congress, looking very hard on ways to prevent that again and at least to face that squarely. i don't really think it's a partisan issue. unfortunately, it has become that. i don't know what else we can do with that. ms. schwartz i have been very obviously impressed with your testimony. we note that will 680,000 trial modifications under hamp. what does it take to turn from a trial modification to a permanent modification and what are the main impediments to make those conversions? >> i can name a few.

because there are taxpayer dollars involved with these modifications, what you have seen in the past is less rigorous dotting of the i and crossing the t before granting a permanent modification. it would be performance on pay history that gets them there, some documentation like a hardship, pay stub, etc. this is more prescriptive. in fact if you need a w-2 and tax returns and a 4506 p and a hardship letter and the other documentation, if it's going back and forth with servicers, counselors, and the borrower 10 times on the same mortgage, it's very difficult to be efficient and effective. with any government program, you're at risk of making a mistake and no one wants to make a mistake if they put them into a mod. a lot of process and friction in the system is these are taxpayer dollars. that's the biggest difference is documentation, streamlining and trying to contact the

borrower that don't return calls and 120 days later you start getting into the process. there is all kinds of issues. >> is there any way to eliminate some of these impediments without putting the program in the same kind of challenges that got us here? >> we do think -- we have some recommendations and to the government that we think there are ways to improve it. i don't know that you're going to get what everyone wants and expects with a program like this. again, the unemployment is one of the biggest drivers. lack of income means you cannot modify a loan. >> that was my next question. how is unemployment affecting mortgage modification efforts, and isn't it or is it the single greatest impediment to these modifications? >> i think it's one of the biggest ones in that we're all in such a changing landscape that was true 120 days before when you start the trial modification, a loss of income of one spouse, maybe overtime being cut changes the dynamics. when the income documentation gets documented, it's different

than what it was 90 days ago. this changing landscape, it's difficult to keep the process in place. it's a threat to i think all of the good work going on on all parties whether it's counselors, lawyers, and servicers. the changing landscape is clearly the issue. >> mr. chairman, i guess with that i will just suggest that one thing we should be able to get together on both sides of this aisle here is recognize the importance of jobs and productivity and solving these problems. it is the only way home. it's astonishing how a lot of the economists can talk in big words, but to fundamentally, the economy is about productivity and that's measured in large part by jobs. i hope that we can get together and face that. i don't know if either side has the answer to how to fix it, we should agree that's a huge, huge issue and i yield back. >> thank you, sir. i now would like to recognize mr. delahunt.

mr. conyers? >> you don't pass. you pass everything with honors. you are recognized, mr. conyers. >> you can't chair two subcommittees at the same time. let's see what we're talking about here. i -- this is a funny kind of hearing. we have two witnesses that say everything is going along well as about as it can and two that are clearly dissatisfied. now, my gator tells me -- invest gator tells me that the whole coalition is made up of community counselors, bankers, and mortgage company officials, true?

>> and investors and freddie mac and all of the nonprofit hud approved counseling agencies, that's correct. >> how many bankers? >> well, we have about 34 different servicing institutions, many of the top banks are members of hope now. >> they're the ones that created the problem. >> tharet once, sir, that need to get you out of it. >> oh, because they got us into it. >> they're the ones in charge of executing modification and helping borrowers through lost mitigation and to help get out of it. >> how many are there? >> pardon me? >> how many bankers are there? >> i don't know the breakout. let me think, maybe it's 18 out of 33 or something. i have to relook at that. >> look at it and we may want to put it in the record. >> sure.

>> what about mortgage company people? >> so all of these institutions -- >> all of them are, most of them are. >> we have the resources of people that work with us on all of the committees and help go to the outreach events and send teams of people to meet with borrowers. they're all walks of life within these companies. >> how many? >> thousands probably working to help -- i don't understand the question perhaps, i apologize. >> that's all right. that's a great acronym, hope, reverend jesse jackson, keep hope alive and how many people have you helped? >> this year alone, the records on 40 million loans which is the majority of the market share indicates that 2.6 million people have had either modifications or repayment plans in addition to the

700,000 government trial plans, 3.4 million people while 700,000 went to actual foreclosure sale, four times higher. >> what am i missing in this question, counsel? what's the basis for saying -- you're saying millions were saved? how you can identify who was prevented from foreclosure and the numbers you reveal are staggering and raises some questions. >> well, those are actually records we get on the data of people that are in repayment plans or actual modification which is a structural change in the contract and we have the government actual modification

trials and then foreclosure sales are records. so we know how many go to actual sale. there are a lot of people in-between. there are millions of people who need help and we know that. so i'm acknowledging that when i'm trying to share you is data that is very strong data. >> professor, help me out here. >> sure, mr. chairman. first it's important to distinguish between the private modifications counted by hope now and the private modifications and repayment plans that are included in ms. schwartz' statistics and hamp modifications. there are as ms. schwartz notes, there are several million repayment plans and private modifications. there are a couple important things to note about them. first, we don't know what the terms of any of those are, and the terms actually meamplet a repayment plan can be a very helpful thing or it can be a

useless thing depending on its terms. looking at an absolute number doesn't really tell us that much. secondly, there is some element of double counting in the repayment plans and modifications because often a borrower gets in and a repayment plan and fails in the repayment plan and then gets a modification and maybe fails in that modification and gets another modification and we don't know how long, how the string of events goes. but just looking at the cumulative numbers from hope now compared with foreclosures is not the most meaningful comparison. certainly hope now and its members are trying to do various mitigation actions. how effective those are is another question entirely. >> well, you know, this isn't working out so well, mrs. schwartz. what's the problem here? i mean, what's the difference between what i ask you and what

professor levitin responds? does he understand this program clearly? >> we have talked several times and i think what's important here, sir, is a know, you're right in that if 30% or 40% go back into default and you try another modification, for instance, maybe the hamp modification, you know, that's another bite at the apple before you go to foreclosure. and what i would say with my numbers that are accurate is we count every foreclosure. so they would flow through our pipelines and show you what happened and clearly millions of people are not in the final stage of foreclosure every the effort, that's clear. two out of three don't go to foreclosure and that's historic in the years through these efforts. it used to be one out of two go to foreclosure. more works needs to be done, i totally agree. but every loan should be

reviewed for a workout alternative. that is the prescriptive agreement for what hamp is. after they have been exhausted, they go to foreclosure sale. i would like to think that is exactly what is happening, but i don't know every answer on this. >> you say the mortgage bankers and the mortgage people are the ones that can help us get out of. who is it that helped us get into it? >> i think there are a lot of parties to all of these transactions. we all know that. >> but i'm talking about these two groups. >> we have counselors -- >> don't you want to blame the subprime mortgage thing as triggering this off? >> those have stabilized, we're in the two to three times higher on primary mortgages. >> i'm talking about what started it. you shake your head. that means yes? >> yes, i think that started in

the product of subprime. it's negated to a different issue. negative equity is another issue that hasn't been discussed. that's another haunting issue as well as unemployment. the nature of making a modification has changed. >> but the bankers and the mortgage people are the ones that gave out the subprime mortgages? >> i'm working with the loan servicers, sir, whose job -- >> i'm not talking about that one guy. i'm talking about the industry people. these are the guys that got us into this. now, almost most people recognize and acknowledge that. this is a couple of years old now. so why are we back and forth and modifying all of this? i'm going to have, ms. schwartz, some additional questions for you to submit for the record because of the five minutes and the chairman has

been generous, we need to go into this a little deeper and i thank the gentleman. >> i thank the chairman and the full committee. we have a series of votes. let me inquire of the panel. i think this is an important hearing. it's my understanding that we're looking at probably a 45-minute recess. if your you're willing to come back, i don't want to encroach on your time, but i think this is an important hearing. it might only be one or two of us that might come back, but i think hearing from you at this point with the kind of questions that are being posed by chairman of the full committee, mr. conyers, is important. if it's a significant inconvenience individuals,

obviouslyly, the chairman would not be in any way offended if you didn't return, but it would be great to hear from you because i think you all have so much to contribute. can i have a show of hands if there is a genuine willingness to return around quarter of 2:00? then that's what we'll do. >> mr. chairman. >> yes, mr. scott. >> i just have a couple of questions that i would like to ask before we go. >> of course. >> and what we'll do, we'll end up and give the remaining time as much as he needs to mr. scott. he won't return, but i promise i will and i know the chairman of the committee, mr. cohen, he will be here because he, too, is a kentucky colonel. with that i'll yield to the gentleman. >> i wanted to ask mr.

hildebrand in the normal bankruptcy, if you have a yacht , and it's upside down and you owe more than the value of the yacht, what happens? >> the implication in the question is can bankruptcy judges, can a bankruptcy plan structure and recognize the economic reality that you mentioned in your opening remarks that the collateral is the extent of the secured claim, whether it's a yacht or a piece of business equipment or whether it's an airplane for united airlines or whether it's the plans for general motors. braptsi judges are entrusted with the ability to make these valuations and determine them for everything except the home mortgage. >> on the yacht, you could reaffirm the debt, but you would only have to reaffirm the debt up to the value of the yacht, is that right? >> if i could distinguish reaffirmation would contain a

voluntary consent on both sides. on a chapter 11, 12 or 13 plan, it is the value that you provide. as long as the court determines that the value is fair and that it's a fair market value for that, whatever the collateral is, that's the extent of your secured claim that you must pay. >> now, if the debtor wants to reaffirm, does he need permission from the creditor? >> for a reaffirmation in a chapter 7, yes. >> what about in a 13? >> in a 13, no, that would be part of the plan process. >> in a 13, the debtor can say i want to reaffirm and the debt he has to reaffirm is the value of the yacht at that time? >> the plan he proposes is whatever the value of the yacht is and he can pay -- >> that's probably a better deal for the creditor because it's not a distress sale minus expenses? >> as we got the amendments from 2005 that recognizes that the value we're giving this is not distressed value, wholesale value, auction value, it is retail value.

>> now, the reason that, -- the reason that a person would reaffirm at a higher rate on a home is essentially not because a creditor would get any more in liquidation, they would get less. he is over a barrel if he doesn't reaffirm, he is homeless, is that right? >> to the extent that a borrower agrees to pay more than the economic dictates, the answer would be yes. >> to take advantage of a debtor in that case, is that fair? >> i'm not sure i'm the one to answer what is fair and not fair. >> making him reaffirm to higher economic value than the creditor would be entitled to  in liquidation because if he doesn't reaffirm, he is over a barrel, either he are affirms at the higher rate or he is homeless? >> traditionally bankruptcy law is created to be fair to the most people involved. in the context of putting one

creditor entity or any entity having more clout, if you will, more ability to hold somebody over a barrel, that works to the detriment, not simply of the borrower or the debtor, but all of the other creditors in the case. >> i think you hear you saying that's not fair which i would agree with. mr. chairman, i would ask all of the witnesses, because we don't have time for a coherent answer on accounting incentives and disincentives whether the generally accepted accounting practices give a disincentive to modifications or incentives to modifications? i understand there may be some realization problems that may affect the balance sheet and earnings that would give people a disincentive to modify. and if any of the witnesses can comment on that briefly or in writing, i would appreciate it. >> mr. scott, i do not speak as

an expert on accounting principals, but i can say this, accounting principals are a disincentive for doing modifications that involve principal writedowns. when you write down principal, that immediately appears, that has a loss realization event on a balance sheet where as if you lower interest rates that, does does not affect how the loan appears on a balance sheet, even if they would have -- >> all of that is artificial because the fact that you modified doesn't put you in any better position because you lose even more if you let the thing go into foreclosure. >> that's correct. >> i have been notified -- does the gentleman yield back? i have been notified by staff, that rather than 40 minutes, it's closer to an hour and 15. now you know, i'm sure that some of us are more than willing to come back around 2:15, if that presents a problem and you can't make it, that's fine. i just think your testimony is

that important. i'll show up and we'll have a conversation. and if anyone here is significantly inconvenienced or has anything else to do like christmas shopping or whatever, we understand. we don't want to impose, but i think maybe mr. cobel, myself, and the claim will return. let's see each other 2:15, 2:20. there is a great cafeteria here and we're in recess. >> thank you.

>> you have established the fact that you have patience and can endure, which means that you would make fine members of congress, particularly in the senate. the house waiting for the senate to do something. i think we're going to be joined shortly by the chair of the sub committee, mr. cohen, but let me proceed. let me pose a hypothesis. i see clear problems in terms of utilizing voluntary modifications. i think it's been articulated by at least three of our panelists and clearly, any particular program no matter

how well intentioned would have to be revamped, take into account all of the what i believe to be obviously impediments to success. that requires a sustained effort and much consultation among the parties. i read something recently in the media about how the treasury department was going to shame those banks who were not or did not appear to be cooperating in terms of helping to resolve this problem.

i just don't think that works. it's just not bankers. i don't want to particularly castigate anyone. it's just that there are different view points, different obligations. banks, other corporations have a primary obligation to shareholders. there is obviously self-interest. self-interest is not limited to lenders. it's not limited to politicians. it's not limited to professors or c.e.o.'s of nonprofits. it's what human nature is all about. but there needs to be a balance. now in terms of the voluntary programs, does this make sense?

if there were -- this is the hypothesis. if there were authority conferred on the bankruptcy courts to reduce principal, would in your individual judgments, would we find a more -- would we find lenders moving more quickly to voluntary programs? and since you're shaking your head, ms. blanton, let me begin with -- ms. golant, would it provide leverage? >> when a get a police officer and the bank in a foreclosure case that for the first time gets the borrower leverage, we

get somewhere. right now in that very limited context, borrowers have no leverage. yes, the possibility of a judicial modification or of a chapter 13 would certainly provide leverage. >> that's what my instinct tells me. programs like hamp and i appreciate the fact that there is substantially counseling going on through these programs. i think that's a positive. but i don't think it gets us to the point where we're dealing with the issue. i think what we're doing by going the voluntary route is delaying the end. we're delaying the pain and suffering and possibly and potentially exacerbating into a

full-scale crisis that at some point in time could really do permanent and serious damage to not just real estate, but to our overall economy. mr. hildebrand. >> mr. chairman, i administer about 600 new chapter 13 cases every month. and in each one of those cases, there are issues that deal with the valuation of collateral or the interest rate that is an appropriate interest rate, how much debtors have to pay back and what we have seen is that only one or two or three maybe a month have actually litigated because in the back stop or the brac backdrop of the fact that there is a judicial remember addition a judicial response, negotiations take place. as i said in my original testimony, bankruptcy creates a platform on which there is a negotiation, where parties can act in their own economic self-trfment i totally agree

with your hypothetical and that is accurate that whether it is a modification of the principal amount or whether it is a judicial back stop to the hamp program, where if hamp is silent or there is no response or the hamp is somehow mysteriously denied, there is some judicial response to review it to see exactly what is going on. and in that context, which is not the same as the 1106 response, it is something different, which is should there be a judicial back stop which is the purview of this committee. and it would be appropriate. >> the two of you agreed that it would make ms. schwartz' program significantly more effective. >> yes. >> no question. >> and that we would see data that in a relatively short period of time would reflect that. >> there is no question that if

a modification was requested and there is silence, and there is a backstop to that whether it's a judicial review, then there will be a heavy incentive to participate in the hope program or the hamp program by the servicers and by the investors. they will exercise that right and it will facilitate a resolution to the process. >> and in addition, mr. chairman, at this point with the voluntary programs, there is no two-way dialogue. there is no balance of power. so whatever -- and that's why when these voluntary -- modifications are proposed, many times borrowers will accept them even though they know they can't pay them because it's better than nothing in their view and there is no opportunity to negotiate at all. so it's take it or leave it. they say, well, we better take it otherwise we'll lose our house. if there was a way to discuss

and to have recourse to a judicial process if need be, it would make a huge difference. >> well, ms. schwartz, you're next. >> my pleasure. >> and we have plenty of time. >> let me first -- i'm sorry. >> so this is going to be much more of a conversation than is usually the case in a formal congressional hearing because of the fact that i now have the gavel and i chair the europe committee on foreign affairs and i describe it as the committee with no rules because i think it's much more important to be able to engage in a dialogue and fully flesh out these issues and see where there is agreement and see where there is consensus. i think it's clear you know where i'm coming from, but that does not in any way mean that i

don't appreciate the value of voluntary programs, particularly counseling aspects and, if you will, think of it in this way. oftentimes courts will refer matters for mediation and those mediators oftentimes have demonstrate strabble demomsthable effect because it keeps court calendars and it doesn't diminish the significance. it creates a different role for voluntary modification programs. mrs. schwartz. >> the way i think about it and i have spent time with foreclosure attorneys, bankruptcy attorneys, the nonprofit counselors, the

bankers, the servicers, i feel like i have spent a lot of time on this. i do need to reiterate, first, there is a requirement for banks that have signed up with the united states treasury and have loans that are owned by fannie mae and freddie mac, it's a requirement as their job as servicers go to hamp, if it does not comply and they can still be positive n.n.t.p. value -- >> that means what? >> present value, a foreclosure is preferred or a modification or workout and we heard today that modifications are far better for investors than our foreclosures, certainly in this market. and so what whether they're redefaulting or not because of unemployment and other burdensome issues in the economy, those are requirements of the contracts they have in place with many parties in the united states government.

the reason i say that is when i hear voluntary it makes me kind of crazy because the agreements for people to look through loans are to work on an n.p.v. test before and after to decide if they go to foreclosure. >> we're going to save you for clean up. >> he'll clean up. we're cleaning up, too. >> let me interrupt and just, you know, i hear what you're saying and i'm sure that's true, but how many individuals who find themselves in foreclosure proceedings are aware of that contract? it's like when you talk about the credit card contract, there is nobody in this room that's ever read their credit card contract. i mean, i think we're asking too much of people and who, you know, what agency is policing

the monitoring the contract? >> well, it's also the communication with the homeowner. so an honest conflict is there are state laws that govern the foreclosure process. remember, i earlier said, 2/3 of the people that start that process have not gone to foreclosure and they get worked out. it's cumbersome that people are working on modifications and going down the route of foreclosure. that happens a lot because the state laws govern timelines, etc., on foreclosure versus the workout. some of the workouts do not pass the testing and the rigorous testing that goes on, but i might also add many people make 30 or 40 attempts to reach the homeowner, door knockers and don't have any communication, sometimes until after the foreclosure process. again, those are pretty good facts on the grounds of what attempts have been made, but we should do better at measuring that to understand where the

breakdown is for the borrowers to call. >> i'm not going to dispute that. i guess my position is we don't have time. >> i know. >> i don't think that the american public is aware nor members of congress are aware that given the data that i see in terms of the increasing numbers of foreclosures that time is of the essence here. if we continue to drag this out and attempt to perfect all of the pieces of the programs that, again, i'm sure are worthy, we're going to find ourselves in a real serious severe crisis because we don't have anybody -- we get together like this and we have a conversation and, you know, and chairman cohen and i are going

to be on a plane going back to our respective districts. you'll be going back to your offices and everybody here will feel that it's been a good discussion, but we need action now. and i get very frustrated because i understand the banks have their role, but in the end, it's self-defeating, i think, for the lenders as well because god for bid they have a -- forbid they have a total collapse in the real estate market. we're going to be back to where we are in november 2008. there are no more bailouts coming from this congress. that ain't going to happen. it's just not going to happen. and, again, i'm thinking of the authority to reduce principal as a mechanism to that's when you have everybody's feet to

the fire, you have the servicer out there and it's somebody else's problem and it's the lender and the investor and how do you find where the mortgage is because it's been securitized and it's off in some never neverland anywhere and you're making calls and the robo call comes and you're afraid it's a creditor and you don't pick up the phone, these are very real human responses. unless you get -- and these trustees are good. we have a good bankruptcy system in this country, and i just say, mr. hildebrand and his colleagues are not out to punish people including all of the stakeholders as he said in part of his statement, you know, we want to be fair. we understand that bankruptcy is incorporated into the constitution by the founders to give people a chance, but at the same time, there is a

balance to insure that the investor and the lender be treated fairly and equitably as well. i think we have gone down a road that could very well bring us back even to a more dangerous and risky situation than what we were looking at better than a year ago. and here we are today and i really wanted to come back and i appreciate the four of you in indulging me because i want to get it on the record because god forbid, but if i'm correct and my instincts are accurate, i want to be able to refer to this record and say i told you so. i told you so. and all i hear is the c.r.a. and fannie mae and freddie mac

and all of this and it's government that is the problem. it might be a -- it's not -- i'm not suggesting that government is the answer, but a bankruptcy court system that has evolved from our constitution has proven to be a very effective instrument of helping people and at the same time being fair and equitable. that's my concern. i want your program to work. i really do. i think you need a little bit of a hammer hanging out there. go ahead. >> two things. i just want to be very clear. hope now doesn't really go on or off for what legislation should pass. with all the rules and the tools that are in the arsenal, to today hamp is a dominant part of what we do. if it fails hample, we do other mods etc.

my personal background is a capital market background for the first 15 to 18 years of my career. i would share today we have a broken market still in a mortgage security market and the trading market and the government is unfortunately for all of us investing in those. what i do now is i don't know what a bankruptcy on a first lien mortgage would mean to the markets, but our markets aren't even acting yet in a functional way. there are no global investors and even in the united states, there is the government buying our assets. so i don't know what bankruptcy would do. i just don't have enough data to know. i worry about that. >> here is my guess. and i have listened to a lot of experts and you know what i've discovered? >> no. >> everybody is guessing, ok. there really aren't any experts. >> i worry that that could be an issue. >> i think the major concern i have is timeliness, ok.

and i don't see leverage to create the dynamic necessary to revolve the problem. that is -- i'm not an advocate to go go into a situation with guns placing and tear down -- tear the markets down. i think you're correct. i don't see right now a rational market. and until it hits bottom and that's i think why people are hesitant because they don't think it's hit bottom. i think i agree with my republican colleagues, it isn't about subprime now, it's about unemployment. but, there is this chicken and egg argument, too. if you go underwater, then you know, you lose your house and

people are holding back in terms of expenditures. you create more joblessness. you create this vicious cycle and i don't know. and again, i'm not saying it's a panacea to cram down authority. it's not even a tool. i would like to think that the voluntary modification programs would work if you just had that sitting over on the side. >> it would help. >> professor levitin. am i making any sense to you? >> perfect sense. >> you must agree with me then? >> of course. this is do you -- should we approach this with a stick or a carrot or both? treasury's approach has been to offer a carrot. taxpayer-funded incentives paid to servicers, lenders and in some cases to homeowners to

encourage hamp modifications. a carrot is a good way of encouraging behavior. when it's combined with a stick, it's likely to be much more effective. take the carrot and if you don't, out comes the stick and bankruptcy will be the stick. there are a few things that ms. schwartz said that i want to comment on, not so much to disagree with her but just to expand on her comments. ms. schwartz rightly noted that servicers who sign up for hamp, it is largely voluntary whether they sign for hamp, they are then under a contractual obligation, they have a contract with fannie mae that as treasury's agent that they will operate under the terms of the program. it's worth noting what's the penalty for a servicer that fails to do this the only thing that is in that participation agreement is regular contractual rights that if trizzri thinks the servicer isn't complying with the contract, isn't giving a proper review to borrowers to

borrowers' cases, the treasury's only real remedy is to take the servicer to court and sue them. that is unlikely and what will the damages be to treasury? the servicer might be saving the treasury money. >> is that right? >> i haven't read the legal terms. the banks take seriously the contracts of the united states. >> i'm sure they do and don't want that on their record. i would know if i'm a banker and i want to keep my balance sheet looking well and be able to hold those assets so that when i have to report to stock holders, you know, and i know how the bureaucracy moves and how often i'm going to get sued, i might take the risk of not disregarding my contractual

obligations, but not really giving it my all either if it didn't suit my self-interests. again, i like to put these things in terms that i can understand. and the government doesn't have enough lawyers to bring those kind of suits. go ahead, professor. >> i want to be clear that i'm not alleging any actual bad faith. >> i understand, nor am i. >> but this is a program with very limited oversight and that's just the nature if you're trying to modify tens of thousands of loans, that there is limited, without tremendous staffing, you can't do serious oversight and in that space where you don't have a lot of oversight and where servicers may have incentives not to do the modifications, it wouldn't be surprising if we saw servicers dragging their feet. the treasury is making incentive payments to servicers, it's far from clear

whether the incentive payments are enough to make this -- >> that's my point, too. you know, i look at the numbers, it's $1,000 and i'm servicer, let's say i'm the guy in dwaufment i don't mean the servicer or the corporate entity. if i'm the guy on the phone and how is he getting paid? is it commission? >> probably. >> what is my piece of the thousand? is it a straight salary? again, and maybe i'm wrong, but i just think of human nature. and when weigh talk about how we got here, i remember talking to mortgage brokers and i say why the subprime? the answer was very simple. well, the subprime because, you know, the salesman that was out there pitching the mortgage, because i saw these numbers, i presume you wouldn't have any

great disagreement, but 70% of those that took a subprime loan could have qualified for the traditional 30-year fixed rate which they might have been able to sustain. i said how did that happen? i'm naive, i don't really know. well, because they got $13,000 commission for pushing the subprime rather than the $3,000 that they would have got for the traditional. and then you get lucy goosey with the underwriting standards and you get -- it was the wild west. that's why i take offense when i hear it's the community reinvestment act that did this. that's baloneyy. that has no data at all to support it. it just doesn't. but we hear it because we want it to be that way because government is bad. government had nothing to do with that. it's human nature. and you have government to kind

of keep our demons from, you know, from surfacing and hurt the community at large. that's my sense of government. i mean, i'm a free market guy. i'm a capitalist. you're not recognized yet because mr. levitin had his hand raised. >> i'll glad ceed to mr. cohen. >> power is machiavelli a long time ago said power is taken, not given. chairman delahunt. >> this has been a good discussion. the problem is the house just voted down, the provision as amendment to the wall street bill we had, the senate has never passed it. and the problem is, you know, you're right about government and the problems and there wasn't regulation and all of these things.

if we can't get 218 votes, we passed in the house. if the senate doesn't pass it and we need something to help people. that's reality. that's the same thing as the public option. if there aren't the votes for public option in the senate, the house as good as we can be and florence nightengale wants to be, we have to do something else. we have to do with the senate. we need a unicamer legislation and it would be in this camera it's a mess. what would you recommend we go about this? >> i would like to pose to the four of you, ok, because the chairman is correct. i was disappointed in the vote -- >> you rallied. >> i'm sorry? >> you rallied and came back to chair the committee. >> but i came back. i'm very disappointed. i think it says something about our system, our political

system and how there are powerful interests that oftentimes i believe don't really understand their own interests in the long term. they see it in very -- in a very short window. got to keep those balance sheets there. we don't want to do this and i understand that -- and i'm not being critical of their self-interests because that's their obligation. at the same time in terms of their long-term benefit, it would be ideal to clean up this mess before the mess continues to exacerbate and brings down those big banks one more time because i don't know how the chairman feels, but i know that the bailout time is over.

if they want the market to function in a way where there is no government support intervention, regulation, they will discover it. if there is another september of 2008, it will be a debacle because there is no political will in the united states congress that i can discern on either side of the aisle for any continued support. if it gets bad again, let's be clear, those that kill that legislation today, kill that amendment ready ones that are going to be responsible and let them face the american people and say, well, we thought it was in the long-term best interests of the market. there is really no data anywhere that indicates that

interest rates would rise. that's about a lone -- baloney. that's just the short term view. i would like to think that it's our responsibility here in the congress to take a long-term view and try to understand what the best interest of our free market economy is so that we have at the end of the day a functioning -- functional capitalistic system. but my question is -- how do we give ms. schwartz the leverage if we can't get the bill through so the voluntary modification programs work without going through all of the bureaucratic gyrations that we no longer have time for? maybe we should lock the four of you in a room someplace and tell you to come up with answers and come back so that

we can satisfy those powerful interests on wall street so we can save wall street from itself and save the american economy. professor. >> there are some steps that could be taken to improve the hamp program. i think a few of those would be greater transparency, both on the overall, the macro level of the program, the data the treasury has been releases has not been particularly granular. it makes it hard for any kind of real outside analysis, but also on the borrower's side that the treasury has not released publicly the details of its net present value calculation. that if i'm a borrower and looking to get a hamp modification, i should be able to have -- go to a website, plug in my data and see the net present value calculation and how it weighs out. there is a fear that if that is made public, that would allow for the system to be gamed.

>> do you all -- everybody feel that's a thoughtful suggestion? ms. schwartz, you're the minority witness here. >> i think more improvements can be done to the tests and i believe there is going to be a transparent test put out in the new year. more can be done there. i can't speak whether it's consumer facing and there is a double check that no one did anything wrong. >> how do we give you -- let me start with you, ms. schwartz, how do we give you real clout? >> i don't know. >> i'll make a suggestion. >> ok. >> that treasury needs a club to go with the carrot. if bankruptcy isn't to be that club, then some sort of very concrete monetary penalty to be imposed on servicers for violations of the terms of the

hamp servicer participation agreement. >> can they really enforce it? do they have the compliance team that can enforce it? >> even as it currently stands, mr. chairman, there are borrowers do not have the ability as the intended third-party beneficiaries of this contracts to come into court. they would be willing to and enforce it for treasury. but as several times it's been attempted, in fact, there is a new class action that has just been filed in the last few weeks where that's exactly what borrowers are trying to do. but the courts don't understand why borrowers can stand in the shoes of treasury, so so far that has not been available. without some sort of balance of power, there is just no way to get the wheels turning. that's what's missing is enforceability, accountability, and -- >> leverage. >> leverage. >> ms. schwartz, let me ask

you, what do you think about the cram down issue? >> i'm not going to say -- >> you're not going to venture an opinion? >> i have empathy for all sides. as you know, i work around the clock and -- >> i didn't say that i really respect and appreciate what you're doing. >> the uncertainty is concerning for someone with my background and i see a broken market and i worry that keeps it broken for longer. i think our job is a couple of things. why aren't we figuring out a product to help the unemployed that can be 30% or 40% of the problem so that it's in front of the hamp mod. we have kind of program to slow down the required payments and get back into partial payments to get into a hamp mod to get back on their feet when reemployed. let's talk about no borrower goes to foreclosure without

review for hamp mods. >> they do. >> i hear you, but i don't know the me tricks, it's hard to respond to all of that. i see the metrics of the people getting work out, some in process and those who didn't go into foreclosure because they're in process of review. i'm sure you're right. let's get into more detail and facts and proper controls into place so that doesn't happen. >> i agree with you. but i don't think we have the time. >> go in a room and figure that out. >> i mean that respectfully. >> and i just think that we need that -- i don't want to use the word stick. i want that option available to leverage so that the kind of suggestions or recommendations that you make because i know how slow the decision-making process is whether it's here in the u.s. congress or in any agency or bureaucracy and there

is interagency review and all of that other stuff that we're going to find ourselves next september looking like it's 2008 rather than 2010. that's my fear. >> mr. chairman, there is a vast gulf between where mortgages cannot be modified at all except for curing a default and maintaining payments and the proposal that just got defeated which is to allow cramdowns and restructuring to allow some kind of modification that may not involve evaluation of mortgage, fees and cost and interest adjustments and things that are within the hamp model that could be done that are not cramming down the mortgage, if that's not a political option. so those options need to be, i would suggest, should be addressed, should be discussed which is why the suggestion of having a backstop, a judicial backstop to a hamp program that

may not be working fast enough. >> who would administer the judicial backstop? >> the bankruptcy. >> could the bankruptcy courts do that? what do you think of that ms. schwartz? >> i don't feel i'm expert enough to have an opinion. >> everybody has an opinion now, come on. . has not even heard -- where do i go to say they are not doing what they say they are going to do? so that this chance -- so this

family has a shot to stay in this house. there is not anywhere to go. >> that is a concern. >> i totally agree with that. i have some plans for treasury and fannie mae and freddie mac. >> you are as good as it gets. how about helping us in coming up with a concept or a mechanism to do that back option, and let's not create a new bureaucracy. some sort of additional authority to the trustees are whatever. i am really concerned about this. i am going to turn the gavel back to the real chair of the commercial and administrative law subcommittee, mr. steve cohen of tennessee.

>> i thank the distinguished gentleman from massachusetts for that discussion that he led and for the time he spent and for his many good words and years of service to the bay state as well as the united states. i'm sure is he is disappointed as i was in the vote today. there were several votes that i was disappointed and. sarbanes-oxley was not fully implemented. and the cramdown position, loan modifications were not pass, but we passed a bill. you do not get everything. i appreciate you all being here. if you can bring something to us to consider, it looks like -- although you can put these provisions on other bills. that is the only time you can get good bills into law.

the system has the methods to this map that. i thank you for your time today. without objection, members have 5 legislative days to submit additional questions. they will be made part of the record. without record -- without objection, the record will remain open for five additional days for additional material. i thank everyone for their time and patience. i wish everyone a happy hanukkah, a merry christmas, and any other holiday you may hold the near and dear. this session is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

>> tonight on c-span, a senate hearing on the use of steroids. then an interview with ntsb chairman. >> tomorrow, "washington journal" will start a half an hour earlier with coverage of the senate's final vote on the health care bill. we will have announcements and later we will talk to jerry -- gary cheek of the wounded warriors program for disabled veteran.

"washington journal" begins at 6:30 a.m. eastern tomorrow on c- span. >> now all us senate hearing on body building supplements including steroids. arlen specter of pennsylvania chairs the judiciary subcommittee on crime and drugs. this is an hour and a half. >> we will now proceed with this hearing on body building supplements and the possibility

of their containing steroids or steroid-like substances. the federal laws which govern the subject are complex. if the substance is a drug within the meaning of the food and drug act, is subject to pre clearance by the fda, and a failure to comply with federal law may result in criminal penalties. if the item comes within the control substances act, as one of the titles defining steroids, there may be a criminal violation again. the legislation provides that substances produced before 1994, which are body building, are not subject to the rules of the food and drug administration.

but experience has shown that there are many of these body building supplements which are sold over the counter which may contain a steroids or steroid- like substances, which may cause very severe damage to the liver or the kidneys. we find that our society, which is very much addicted to sports and very much addicted to excel in sports, and athletes are very anxious to build up their bodies to be able to excel, or at least to do better. this is an attitude which goes from the professionals like mark mcgwire, who received disciplinary action as a result of having steroids in his body, to jesse ramirez -- j.c.

ramiro because he had steroid like substances in his body. that was the judgment of some. the question arises as to whether there needs to be changed in federal law. the consequences can be very serious for using steroids, as identified by the food it meant -- by the food and drug administration in serious terms as follows -- anabolic steroids may is cause serious long-term adverse health consequences in men and women. these include shrink ends -- shrinkage of the testes and

mellon for metal -- infertility, breast enlargement and males, short stature in children, and adverse effects on blood lipid levels, and increased risk of heart attack and stroke. the consequences of liver failure and kidney disorder have already been identified. on one of the morning television shows, a young man appeared to say in anticipation of this hearing, there was television coverage, that he had used a steroid-like substance and become very ill. he went to a doctor and was told that it had not secured medical aid by two days, he might well have been dead at that point. there is a collateral issue which a subcommittee will take a look at, and a federal court

decision which prohibited the national football league from taking disciplinary action against athletes under the anti- dumping provisions. -- anti doping provisions. they said that it was a matter of minnesota law and that the individuals cited could defend themselves under a minnesota statute. well, it is an item which most likely can be handled by federal supremacy, if the congress decides to act to eliminate any ambiguity that federal live will control the standing. minnesota law could supersede -- control the standing, if the

minnesota law could supersede the federal court. this is a multimillion dollar industry on dietary substance, $24 billion a year, and body building supplements, projected yield in the range of $2.5 billion a year. there are substantial property rights involved, but there are also very substantial health risks involved. in this legislation, the food and drug administration under controlled substances has tough penalties. and we may need to take a look at what we're going to do here with the exemption which allows these body building steroids to be sold without pre clearance under 1994 legislation. and now i am pleased to yield to my distinguished colleague, senior senator from utah,

senator hatch. >> it is nice to be with you, as always. we are very close friends. i appreciate being here at this hearing. it should be of high priority to enforce the laws currently on the books. national football players or a major league baseball player may walk into a health food store and purchase a product off the shelf that contains steroids. to days, such purchases are illegal, plain and simple. any company that sells such products that is in violation of law, those products should be taken off the shelves immediately. this is an important issue and it is equally important that this hearing clear up the misinformation about what follows are, how they are being enforced, and who is responsible for overseeing bell lost to make

anabolic steroids illegal. it is my hope that we can use this hearing is an opportunity to educate american consumers, especially teams and athletes, about the dangers of steroids and to assure them that laws do exist to protect them from these dangerous product. as members of the subcommittee know, we have worked hard to ensure that the government has adequate authority to take products containing anabolic steroids off the market. many of us had been concerned as we begin to see the use of anabolic steroids increase in professional and amateur athletics. that was the primary reason for the enactment of the 1990 steroid control act, which banned steroid use in the united states. senator biden and night for the co-sponsors of that bill. what was successful in deterring potential steroid abuse, a new products were developed to circumvent the reach of federal law enforcement. and while not technically

anabolic steroids, the steroid precursors act in a similarly dangerous manner once inside the human body. we've updated the law and pass the anabolic steroid control act of 2004. mr. chairman, i recall you being supportive of this legislation. i personally appreciate it. this is not controversial legislation. it passed the senate unanimously, and the house of representatives passed it by a vote of 408-3. the laws that gave the dea the authority to schedule new precursors easily without this difficult process of proving that the product builds muscle

mass. it eliminated -- and identified androstendione as a controlled substance, clearing up any confusion. senator harkin of iowa and i have spent considerable time urging the the government to ban andro as it is called. this places significant controls on its use, including substantial criminal penalties. let me take this opportunity to raise one issue that will be considered within the context of this hearing. when the 2004 law was considered on the floor, senator biden, kennedy, durban, and i had a colloquy about how the 88, all hormone precursor, would be treated under the anabolic steroid control act. as we recognize, it was not the

intent of congress to in the use of substances that are not abused. the 2004 law deliberately did not schedule dhea, and therefore legitimate users continued to have access to it if it is correctly market. but the 2004 law allows the dea, should it find that the product is being abused by athletes, but youngsters, or by teenagers, to schedule it is a controlled substance -- it as a controlled substance. but add that in fact the dea need not find that dhea meets each of the eight factors before it can be scheduled. if the dea can titters that

dhea has no dependents liability, the dea may schedule it if the agency concludes after consideration of the facts and relative importance of other factors such as the actual or relative potential for abuse, the history and current pattern of abuse, or the scope, duration, and significance of abuse, that it should be scheduled. it would be clear so that i asked that the administration provide written understanding of that, and and and and the spreader brought a letter to me stating that each of the eight factors is not a mandatory prerequisite to scheduling. mr. chairman, i ask unanimous consent that that letter be submitted for the record. >> without objection. >> if i could take a few more minutes, because this is a subject important to me and my home state of utah, world leader

in the manufacture of dietary supplements. while they help committee has jurisdiction over this bipartisan law that senator harkin and i've read, it is an important case of supplement regulatory structure. dshea insures that consumers will continue to have access to safe supplements and information about their use. it passed the senate not once but twice by unanimous consent. the law established as a statutory framework for fda said that these vitamins, minerals, herbal process, amino acids, and other dietary supplements are generally recognized as foods. the law grandfathered substances on the market at the time of enactment. the results in being that these products had eight abundant

history of long in safe use. products that might be harmful could be removed from the market. as a double safeguard, we gave the fda and the imminent hazard a party so that the agency can immediately remove from the market a product that is -- it suspects to be unsafe, no questions after we also included a provision to require manufacturers to submit to the fda 75 days prior to marketing said the affirmation about any new ingredients not previously marketed. a key principle of the law is that supplements are not subject to premarket approval, says the cost and time alone required to see a profit through the fda approval process would sound the death knell for this industry. most products cannot be patented, and there's no incentive for a manufacturer to put his products to this onerous process when many other manufacturers could benefit from

the research and investments. another key provision authorized good manufacturing practices for supplement so that fda inspectors can make certain the products are being manufactured in compliance with all the safeguards of the law. we required that all ingredients be listed on the label and that any claims must be made truthful and not misleading. the reason i outline these provisions is to illustrate that we took great pains to design a regulatory framework that will assure supplements are manufactured and marketed with consumer safety at the top priority. we provided the fda with an arsenal of new tools to enforce the law. some they had used, others not. and since that time, the industry has grown. by some estimates, it is a $20 billion industry today, while critics of the industry had viewed this as a negative development, repeatedly stating that the industry is unregulated, that is simply the wrong statement. all of these requirements are to

be administered by the regulatory agency in the fda. and while the great majority of products are used safely, there have been progress with some -- problems with some products. somberly to manufacturing, some to labeling, and i do not see this as a failure in the law. supplements are regulated under the law. let me be clear. we all recognize there are bad actors in the supplement industry. these individuals should be subject to swift punishment by the fda and the federal trade commission for their products should be removed from the product -- from the marketplace immediately. unfortunately, it is no secret that the fda is a woefully underfunded agency. the agency will be the first would make that its oversight of the dietary supplement industry is hampered by a lack of resources. for several years i've worked with senator harkin to rectify that shortcoming five requesting that the appropriations

committee provide the fda with more resources so that it can do a better job regulating the industry. senator kohl, senator bennett, and senator cochran had been very helpful in this regard. one other regulatory authorities should be mentioned before conclude. the problem with the drug ephedra is an illustration. we work together with senators harkin, in sin, and the chairman to pass a law in 2006 which mandated a system of adverse event reports to the fda regarding all series of events which are associated with the use of these products. i also want to mention that that government accountability office issued a report on the regulation of dietary supplements at the end of january.

the reported that my opinion -- we in congress will continue to bite gao's regulations on how to improve the regulation of this industry. one of the important points the report raises is the lack of fda resources to enforce laws already on the books. i will continue to work with my colleagues in congress and the fda to provide more resources to the fda for dietary supplement oversight. and before i conclude, i want to stress an extremely important point -- since enactment of dshea, almost every commissioner is on record stating that the agency has enough enforcement authority to regulate dietary supplements. and the current commissioner, in a recent speech, mentioned that "reports have noted that there

has been a steep decline in the fda's enforcement activities." some serious violations have gone unaddressed for far too long produce include violations including product quality, adulteration, and false branding. misleading advertising. furthermore, in providing an example of the fda stepping up its enforcement activities, dr. ann burke cited enforcement actions against people selling over the county -- over-the- counter body building substances that include steroids. she said, these are unproven and unapproved drugs, not dietary supplements. in other words, they are considered adulterated and misbranded under the food and drug cosmetic act. simply put, under current law these products are not allowed

to be marketed. i appreciate the chairman's willingness to listen to my long statement that as you know this subject is near and dear to my heart. i want to welcome our witnesses and thank you for taking the time out of your busy schedules to join us and i look forward to discussing this important issue with them. >> will the witnesses please rise? raise your right hand. to each of you solemnly swear to tell the truth, the whole truth, and nothing but the truth before the subcommittee? will now proceed to our first witness. mr. michael levy, director of the office of compliance for the center of drugs evaluation and research at the food and drug administration.

since 2000, he has been associate chief counsel at one of the branches of fda, and before that, it was an assistant district attorney and the philadelphia da's office. graduated from duke, a bachelor's degree, amherst. comum laude degree. u.s. had excellent training. >> thank you. >> you have the same name as a former assistant district attorney. >> i do, yes. >> is your father? >> know, and we are not related. >> i hired him as an assistant d.a. in 1971. he is now the distinguished united states attorney for the

eastern district of pennsylvania. thank you for joining us, mr. levy. there is a five-minute limitation. which is the standard rule in the subcommittee's. >> mr. chairman, and members of the committee, i am michael levy, director of the division of new drugs and labeling compliance in the office of compliance of the fda's center for drug evaluation and research. >> pull the machine a little closer. >> ok. with me today is a doctor, a director of the division of dietary supplement programs in the fda center for drug evaluation and applied. he will respond to questions about products marketed as dietary supplements and the regulation on the food, drug,

and cosmetic act. at this point out one to take the opportunity to thank senator hatch for his longstanding leadership on dietary supplement issues. and specifically, the 2004 anabolic steroid control act and at first event reporting for dietary supplements. >> thank you so much. >> and thank you to the subcommittee for the opportunity to discuss fda's perspective on the position on products marketed as dietary supplements. fda is very concerned with products containing the synthetic steroid ingredients that are marketed as dietary supplements. bodybuilding pockets marketed as dietary supplements are commonly found to contain these types of steroids. there is no requirement for the manufacturer of a dietary supplement to provide fda with evidence of the product's effectiveness or safety prior to marketing unless the product contains a substance that was

marketed as a dietary in agreement before 1994 and that has not been a part of the food supply, which a lot supplies as a new dietary ingredient. in addition to the agency's concern that many of these products have not been critically study demonstrated to be safe, the products are also in sold with misleading labeling and their frequently manufactured without quality controls. by labeling steroid products as dietary supplements, unscrupulous firms can introduce into the marketplace products that contain grievance that may pose a risk to health. -- ingredients that may pose a risk to help. in july 2009, fda issued a public health advisory warning consumers to stop using any body building products that are represented to contain steroids or steroid-like substances. the public health advisory was issued in response to a clusters of serious adverse event report

submitted associated with several products containing synthetic steroids and marketed as dietary supplements. there was serious liver injury, stroke, kidney failure, and pulmonary embolism. although the body building products containing the synthetic steroids were marketed as dietary supplements, they were not dietary supplements. the or unapproved and misbranded drugs that had not been reviewed by fda for safety and effectiveness. fda it executed a criminal search warrant regarding the illegal manufacture of these products. fda also last week as a kid a criminal search warrant at the premises of bodybuilding.col -- executed a criminal search warrant at the premises of body building.com in the past five years, fda has sent 28 warning levels to firms that were illegally marketing

products marketed as dietary supplements but containing steroids. our civil and criminal enforcement offices are reviewing additional data that are marketed for body building and that claim to contain steroids or steroid-like substances. despite these actions, fda enforcement in this area is challenging group because fda generally does not receive informational these products prior to marketing, we generally cannot identify the products before they enter the marketplace. then fda must undertake a painstaking analytical process that often involves laboratory testing to show that they are by a lot of -- violative. we're also unable to effectively prevent the importation of many

violations because of the sheer number of imports. these challenges make it very difficult to stop the sale of these dangerous products. fda will continue its efforts to identify and remove illegal steroid products from the marketplace. fda is committed to doing everything we can to protect the american public, not only for regulation and enforcement, but through education, our reach, and in collaboration with entities outside fda-approved fda looks forward to working with congress on this important health issue and i would be happy to answer any questions. >> thank you, mr. liddy. our next witness is mr. joseph rannazzisi, deputy assistant to administrator for the drug enforcement agency, the coordinate's major drug investigations. he serves as liaison to the pharmaceutical industry.

he has a bachelor's degree in pharmacy from butler university, a lot degree from detroit college and michigan state. are registered pharmacist and a member of the michigan bar. thank you for coming in today, and a floor source for 5 minutes. >> thank you, sir. chairman specter, senator hatch, distinguished members of the panel, on behalf of the 9400 men and women of the drug enforcement administration, i want to thank you for the opportunity to provide testimony concerning body building products, steroids, and enforcement barriers. to understand the abuse, we must guard by discussing testosterone. it is a hormone produced in the body. is this -- it is a schedule iii drug.

it is used by many to perfect body appearance, increase physical performance, and gain muscle size and mass. over time, scientists developed and synthesized derivatives that were structurally similar to testosterone and prohormones, such as andro, a steroid that when ingested metabolizes into testosterone. androstendione was sold over the internet and nutrition stores as a dietary supplement until 2004. not all designer steroids and testosterone boosters on the market today are sold as dietary supplements. in 1990, congress passed the anabolic steroids control act which placed 27 anabolic steroids into schedule iii, pursuant to a 2004 ad. they placed an additional 36 steroids and over-the-counter prohormone dietary supplements into schedule iii, including

androstendione and its derivatives. the drug enforcement administration has no authority to enforce provisions of dshea, i can investigate manufactured in the dietary supplement market. congress refined the definition of the road -- the original 1990 law to allow dea to administratively classify additional steroids as anabolic steroids. using this provision, we identified substances marketed as anabolic products in the dietary supplement market and then conducts a scientific review and analysis of the substance to determine if it is related to testosterone, and if that meets the criteria to be scheduled as a anabolic steroid.

-- as saying schedule iii anabolic steroid. this is a lengthy process and there is no method under the current statute to expedite the scheduling process. dea is in the final stages of the scheduling process for boldione, and other substances. three substances sold and marketed as anabolic steroids in the dietary supplement market. we are aware of 58 supplements that are part of the late kaine one more -- one more of these substances. it was published in 8 -- 2008. we anticipate the final role in the next several months. these products would be the first substances scheduled under the 2004 act. as you can see, the overall time

period to perform the scheduling action can take as long as two years to complete. in the time it takes to schedule a news steroid, several others can take its place in the market. they can substitute and altered the structure of test run and then market them as dietary supplements. often these new formulations have never been clinically tested, and the potential adverse reactions in humans are simply unknown. we've also identified substances that contain anabolic steroids. the company's manufacturing, bottling, and marketing them do not go for a controlled substance regulations. this manufacturers -- this violates various provisions of the controlled substance act. we will continue to identify substances that are similar to tester on -- testosterone and

classified them as controlled substances. we will continue to investigate people who are selling them, and pursued the appropriate avenues. wheat that the subcommittee for the opportunity to discuss the issue and welcome any questions you may have. >> thank you very much. our next witness is mr. travis tygart, ceo of the u.s. anti- dumping agency. prior to joint -- and tight doping agency -- and tieti dop ing agency. he got his law degree from southern methodist. we appreciate your being here, mr. tygart, and a sportier testimony. five minutes. >> thank you, mr. chairman.

my name is trevor tygart, and the chief executive officer. on behalf of the millions of participants who demand fair, clean, and say sport that we represent, i appreciate the opportunity to be here to discuss this important issues. this is unrecognized -- we are greatly concerned about the ease with which products containing steroids can be purchased. we are equally concerned that some athletes have tested positive for banned drugs because the products they were using were either contaminated or intentionally spike by manufacturing. as they made their leap into the american consciousness in 2003, one of the designer steroids found was made all. they come from clandestine laboratories to mainstream marketing. since its discovery, he quickly

rose from an unknown substance to the signature ingredients in nutritional products readily available in retail supplements stores and over the internet. it is just one example of the designer steroids that is marketed as an otherwise legitimate supplement to an unsuspecting public. it is estimated at 10%, $2.8 billion, comes from performance enhancing products. there are hundreds of thousands of products that contain one or more of these 20 designer steroids. it is all too easy for the junior high or college athlete to walk into a local health food store, or log on to the internet, and see the labels and the bright bold claims of illegal in all natural, and things as we all believe that because these supplements are readily available, they must be safe and effective. what he does not know is that all it takes is a supplement maker needs is a credit card to import raw materials from china,

the ability to pour powder into of bottle, and a printer to create a level. they can create a new steroid products and have it on the store shelves with than a matter of weeks, make unsubstantiated claims, and make millions of >> of profit before the fda has the ability to take action. we have one such athlete with us today. i had not known him long, but it does not take long to realize he and others like him are so bring examples of how unscrupulous profiteers are trading the help of our children for the pursuit of quick cash. he was fortunate to have some god-given athletic ability and the work card debt earned thanatos assistance to play baseball at a small college. he decided a look for red legal nutritional product to help his workout. he did his due diligence and checked on the prohibited drug

laws. he found a product not on that list. according to court papers, it was at protesting -- even invoked the name of congress that because congress had not added it to the controlled substance act, it was 100% legal. he started feeling ill and the pain drove into the emergency room. if he had waited another day, he might not be alive today. he had suffered acute liver failure. his pursuit of the american dream was compromised by what he reasonably believed to be a safe and legal product. i want to thank him for being here today and let me share historic free today his health is better but he is fourth to be constantly vigilant for the symptoms. he now works with children at and mentoring city, trying to help other kids stay away from drugs and off the treats. -- off the streets. his only mistake was in assuming

that things readily available or say. he had no way of knowing that a 15 year-old scheduling scheme has been hijacked by unscrupulous manufacturers. he had no way of knowing that these companies are exploiting the lack of premarket regulation to sell magic pills while using the reputation the cloak themselves with the appearance of safety and propriety. mr. chairman, we applaud this committee for holding this hearing. now's the time to fix this problem. while the recent fda rates are an important step to protect consumers, but current law severely restricts the fda in its ability to stop, much less slowdown, the designer steroids gold rush. premarket and post market changes are required to give everyone a truly healthy choice. the legitimate dietary supplement companies, truly concerned about the health and

safety of our consumers, have nothing to fear by proposals that we will be discussed in my written testimony. we're committed to being part of the solution and we will be announcing an effort, supported by the national football league, major league baseball, the national basketball association, and the united states olympic committee, and many other entities equally concerned about this topic. we look forward to working with all groups that have a sincere interest in preventing these dangerous products from so easily getting into the hands of our young children. i would finally thank this committee for its time in its interest in this important public health issue, and for inviting me to share our experience about the reality of the market. >> thank you very much, mr. tygart. we now turn to mr. daniel fabricant, ceo of the natural

products association, a trade association representing the natural products industry. mr. fabricant has a bachelor's degree in chemistry from the university of north carolina, ph.d. from the university of illinois in chicago. thank you for coming in, mr. fabricant. your testimony is next. >> thank you, mr. chairman. thank you for the opportunity to be here today. we represent the interests of suppliers, and distributors. i am also a former college athlete and cited as a sports nutrition expert, so i have a peak -- a deep personal understanding of this issue. we welcome this hearing because we share your concern about illegal steroids -- selling products containing illegal substances is already a crime.

we were the first to call for throwing the book that in the opening party. anyone caught selling steroids should be prosecuted to the full extent of the law, and the natural products industry has worked for years to pass those laws. this is the best way to stop the criminals. the barriers to enforcement are simple. money, manpower, and well. we fully support strong rules to ensure what is on the label is what is in the bottle. the criminals who sell steroids illegally do not agree we fought for stronger drug enforcement agency ability, especially the passage of the anabolic steroid control act of 2004. it made it easier for them to schedule a anabolic chemicals. we've worked hard for good manufacturing practice regulations, serious adverse effect reporting, and not a pick -- a notification systems as well as other important provisions of the federal food drug and cosmetic act.

we also strongly support the fdc] \ -- ftc enforcement activities. we are not surprised that criminals ignore current legal requirements to notify the government of their intent to sell illegal substances 3 we urge you to get tough on the criminals. that is why our industry has fought repeatedly for the congress and the administration to provide the drug enforcement agency, the fda, the ftc, and other government agencies the resources they need to enforce their laws. for many years those resources were slashed. but congress has provided a significant infusion of funding which has led to a noticeable increase in activity. like the enforcement activity last week. we welcome this increased government enforcement and support efforts to boost resources further. the criminal soustelle -- who illegally sell steroids do not.

there are other investment morses but could be used. -- there are other investment measures -- enforcement measures that could be used. to our knowledge, dea has only proposed listing three additional compounds under the anabolic steroid control act of 2004 in the past five years. it makes it far too easy for criminals to stay one step ahead of the law. i'll also say for anyone to be aware of any product that sounds like an illinois -- illegal steroids. if that is posing like one, the chances are it very well might be. 81 seeking to buy these illegal products is doing such a great risk to themselves. it is our best interest to continue to earn the public's trust and anything we can do to separate the legal, safe, help

the supplemental industry from the illegal world it is worthwhile. when any athlete suggests an off-the-shelf dietary supplement was the cause for a banned substance being found in their bodies, our industry asks them to name the supplement, name the manufacturer, and name the store where they bought it. we ask the same questions of donald fehr, who essentially blamed the entire steroid scandal in major league baseball on legal dietary supplements. mr. chairman, we are glad that you're holding this hearing. we support efforts to stop the sale of illegal steroids. we strongly support some resources for government agencies to enforce the law. we stand ready to work with the committee and other agencies to help identify and remove criminal activity, the root cause of this tragedy. and i look for to your questions. >> thank you, mr. fabricant. our final witness is mr. richard kingham, concentrating on

product liability, representing many major pharmaceutical manufacturers. is a graduate of george washington university, law degree from the university of virginia. thank you very much for coming in, mr. kingham. before george. -- the floor is yours. >> manufacturers of legitimate dietary supplement share the concern that you have for the distribution of body building products that contain anabolic steroids birdie at first that banks are well known and they should not be available for general use. it is important recognize that the vast majority of dietary supplements are in no way implicated by the matters being discussed at this hearing 31 to 150 million americans regularly use legitimate dietary

supplements, and those products offer significant health benefits to those who use them. and this is the main focus of my presentation -- there is no need to amend existing legislation to deal with anabolic steroids. that the administration -- the agencies can make use of existing statutory powers. congress has twice amended the controlled substances act to give dea special power to regulate anabolic steroids the most recent in 2004 greatly expanded the list of substances subject to regulation under the statute to include metabolic research groups -- metabolic precursors. congress also simplified the burden for mistreated scheduling action. person to traffic in illegal steroids are subject to

punishment. although many of the products that are currently promoted in stores and on the internet are labeled as dietary supplements, they seldom if ever are in compliance with a dietary supplement provisions of the law. fda has multiple enforcement tools which in fact are set out and mr. levy's written testimony to this hearing. they can deal with products of that type. these include provisions of the federal food and drug and cosmetic act to drugs and to the dietary supplements. many products are advertised with claims that fall within the new drug provisions of the food and drug act, and are for this reason both ms. branded and in violation of statutory provisions that require pre- market approval of new drugs. other contains new dietary agreements for which require pre-market notifications have not been made to fda under the dietary supplements provision

statute. those products are legally deemed adulterated and are liable to a full range of enforcement measures, including seizures, injunctions, and criminal prosecutions. the provisions of the food and drug act governing premarket submissions for new drugs and you dietary ingredients do not require fda prove that the product is unsafe, but only that the procedures have not been followed. the burden of proof on the government is minimal and experience suggests that courts are willing to interpret the provisions of the act literally to protect the public against unlawful products. for this reason, all warning from fda backed up with a credible threat to take further enforcement action is usually sufficient to achieve compliance. fda has distributed warning letters to those to distribute anabolic steroids and it has the capacity to issue more letters and take more formal actions as appropriate.

effectively addresses the problem of designer drugs that are formulated to prevent the -- tour -- to circumvent the scheduling process. they will typically be new, within the new -- the meanings of the provisions, that requires the approval of new drug applications are the submission of new dietary ingredient notifications. as is also been mentioned, recent reports suggest that there are some products on the market whose labeling does not declare the presence of anabolic steroids that are detected and laboratory test. they might be surreptitiously added to what might otherwise be lawful product. they are clearly illegal under multiple provisions of existing laws. the food and drug act, for example, prohibits the addition of the deleterious subject -- substance.

it requires a label disclosure of ingredients as dr pepper can said. what is on the ball must be on the label. as with the provisions of the law relating to new drugs and you dietary ingredients, these provisions can be enforced with the full range of sanctions under the law. for these reasons, i do not believe that amendments to the law, especially including a pre- market approval acquirement, would be appropriate existing law as it properly enforced is sufficient to assure protection of the public. a pre-market approval requirement -- requirement, which they were not subject to prior to 1994, would only add to the expense of bringing them to the market and increase administrative responsibilities at fda. by building products constitute less than 10% of the market for dietary supplements in the united states, and the products that are supposed subject of this hearing are a tiny fraction

of that market segment. it would be at the state to alter the carefully crafted regulatory framework simply to deal with a small number of products that can be effectively controlled under existing statutory provisions. thank you. >> thank you, mr. kingham. we will now proceed with the 10 minutes round of questioning. mr. tygart, in your judgment, are the existing laws adequate to protect the public from dietary supplements represented as dietary supplements, which has steroids or steroid like substances? >> i think, clearly not, from our perspective. >> could you have him step for to let us hear what happened to him? would you mind stepping forward?

mr. tygart has described your experience. would you tell us what happened to you in your own word. >> yes. i went to college in missouri and while i was in school, i ended up getting sick. i went home for the summer, and i found a supplement on line, that i thought would be healthy for me. it would be something that would not hurt me. at the beginning of the year, our coach comes then with the help instructor and gives a list of all the supplements that we cannot take. so the list was in debt. i looked at the list, and i went to gnc and compared things that i could not take. most in satgnc i could not take, because i the the supplement or something in the supplement was banned from incaa.

however researching for about three or four weeks. different products that i could take that would be legal that would not be harmful. when i found, the product was called superdraw. i thought it was a diamond in the route, something that would not hurt me off. >> did you take it? >> yes. >> did harm you? it actually gave me of liver failure. >> liver failure. how long were you in the hospital? >> it was four years ago. to be exact, it was anywhere between four to six weeks i was in the hospital. and it was not in and out, i was in there and could not lead. -- and could not lead. >> did you hear the

consequences? >> the doctor let me know that throughout my life, he could come back anytime. as of right now, i am ok. the doctor told me to be aware of what right do, that it could come back anytime. >> mr. levy, you testified that there are problems with misstating labeling, no quality controls, you have issued warnings and public health advisory. some 28 warning specified and listed a long line of problems from pulmonary embolisms, stroke, liver problems. in the absence of three clarence, is there any aspect of way for the fda to deal with these problems? -- in the absence of preclearance, is there any effective way for the fda to deal with these problems? >> this is a very cen