although seemingly disparate these issues are in fact connected by the two common threads. the necessity of putting standing in order to maintain a foreclosure action and severe conflict of interest between mortgage servicers and investors. in order to bring the foreclosure the point must have legal standing. only the rtgage has such stding. many of the issues relating to the regularly on the effect of an offer to counterfeiting relate to the need to show the standing. the problem of the various types of the faulty audits to the to affidavits and counterfeit notes, mortgages and assnments relate to the evidenciary need to prove standing. concerns about securitization chain of title go to the standing question. if the mortgages were not properly transferred and the securitization process, the party during the foreclosure does not inflict on the mortgage and therefore lacked standing to for close. of the market was improperly

transferred the profound implications for investors as the mortgage-backed securities they believe the purchase would in fact be a mom mortgage-backed securities. if so, title most properties in the united states would be clouded and they would also be liability billould greatly exceed the capitol of the major u.s. banks. but that claims underscore the conflict of interest between mortgage servicers and investors. servicers are sponsible for prosecuting violations of representaon and warranties made to investors and securitization deals. servicers bring such actions however not least because there would often be bringing them against their own affliates. the countrywide home mortgage servicing would be bringing those claims against countrywide is self. i'm guessing that many of you received this morning a copy of the american securitization white paper on a residential mortgage backed securities transfer. it's a good document. and i gree with most of the legal analysis as far as it goes

but that's the problem. the problem is the white paper neglects to address three important points. first-come it fails to address the parties can contract about the uniform commercial code which is what asf says he governs the transaction. parties are about to contract by the terms of uniform code and arguably that is exactly what mortgage securitization service cited the agreements do. if that's correct then the asf wte beavers analyze the long law. second, the asf went to first neglects what ever the applicable law is. and there are lot of potential noncompliance problems to such as premature spreading its notes and signing of the purported agents of now defunct companies. the scope of the problems is not clear but noncompliance with transfer could void the transfers. third, the asf white paper but neglects the issue and the securitization. most residential mortgage securitization trusts are

governed by the new york trust all week and poses additional requirements on the transfers. arguably these requirements are not meant by many securitization deals. the new york law provides of the transfer does not comport with the trust documents, the transfer is void even if the transfer or otherwise comply with the law. that is the transfer of avoid the trust do not on the mortgages and therefore lacks the standing of to close. i want to emphasize i am not saying this is the case. ere are many unresolved legal issues and if the evidence your questions. i'm not predicting is a problem of mortgage-backed securities. instead, my point is that they are unresolved questions and the law is not as clear as either the american securitization forum any law firm with of the standing opinion letter liability would like to to believe. some of these -- we don't know how the questions are going to be resolved but some of the potential resolutions have

daughter systemic consequences and the congress should be aware of the possibility because we do a lot better ahead of the ball than behind on the systemic risk one of the system a chris aspect is taking into consideration the context of other problems and a mortgage securitization world. i think it makes a compelling case for early intervention and a global settlement of the foreclosure cris and investor in litigation against services and securitized terse. only a global settlement will help revise the mortgage market, will remove the debt overhang from consumers and financial institutions and restart the u.s. economy. thank you. >> thank you very much. ..

some 6 million customers >> since members of the committee, thank you for letting me to appear before you today. we are committed to insuring all hours are treated fairly and with respect -- all borrowers are treated fairly and with respect and that if for closure is necessary, the process complies with all laws and regulations. we take this issue seriously. we have worked hard to correct these issues. >> they cannot have their -- we can hear -- he is >> that is alive. [inaudible] no, you have home owners here.

chairman, let the home owners speak. >> sir, sir -- [inaudible conversatio] [inaudible conversations] [inaudible conversations] >> sit down. >> sit down so we can hear the rest of the witnesses, and i'll just make those engaging in that outburst, we have to ask you to leave the room. we hope that's not necessary. we are glad to have youear to hear this important hearing. >> foreclosures cause rdship and they result in severe losses for lenders and investors, and therefore we consider whether there are viable alternatives to

foreclosure. chase adopted its own modifications programs in early 2007. since 2009, chase offered 1 million modifications to struggling borrowers and has permanent modifications. sustainable modifications are no always posble and some cannot afford to stay in their homes. while we make repeat the efforts, we must proceed to foreclosure. a property does not go to foreclosure if a modification is in process, but if the foreclosure has begun,nd a borrower continues the modification process, we are instructed to allow the two processes to run at the same time. however, we don't allow a foreclosure sale if a modification is in progress. i understand the focus of the committee is to sus pent foreclosures in a number of states. to be clear, we service millions of loans, and we make mistakes,

but when we find them, we fix them. it is imrtant to note that the issues arisen in connection with the foreclosure proceedings does not relate whether the foreclosures were warranted. we have not found issues that would have led to foreclosures on borrowers who are current. a recent temporary suspension of foreclosures arose out of concerns about affidavits prepared by local counsel and signed by chase employees and losed in proceedings. specifically our employees may have signed affidavits on file reviews and other affidavits performed by other chase personnel and may not have signed them in a presence of the notary, but the facts set forth in the affidavits with respect to the borrower's default, the fact were foreclosure were verified prior to the

affidavits. we take these issues seriously. our process did not live up to our standards. our foreclosures have been halted and we have thoroughly reviewed our procedures and undertaken a complete review of the document policies. we have also rolled out extensive training for all personnel involved. i will be happy to answer any questions you might have. >> thank you very much. last witness and not the least, diane thompson, a familiar face to us here, and written many articles to the foreclosure process and provided and worked rather from 1994 until 2007 at the land of lincoln legal foundation representing low income home owners in east st. louis and testified at our hearing in july of 2009 before this committee, and i'll be interested to hear how progress was made since the last hearing of july of last year. i thank you again for joining

us. >> thank you. thank you for inviting me to testify today and to answer your question, no, not enough progress has been made. i was shocked when i took out my testimony from last july in getting ready for this how much of that testimony is still relevant. aam an -- i am an attorney, and with my work i provide training and support to hundreds of attorneys representing home owners from all across the country, so i hear what's going on in alaska and in mississippi on a daily basis as well as in new york and illinois. the recent signing scandal reveals the contet that exhibited the rules. the rules in the court procedure in the scandal and th contract rules breached by miscommon application and the rules for

modifications honored unfortunately were more in breach. servicers do not believe the rules apply to everyone else applies to them. this lawless attitude created in part by financial incentives and tolerated by regulators is the root cause of the robo signing scandal. in my written testimony, i provided dozens of examples of the harm caused to homeowners by services. many of the foreclosure cases coming to national attention involving signing allegations originated due to the unnecessary force placement of insurance, sometimes at more than 10 times the actual cost of the homeowner's existing insurance policy. often misrepresentations lead directly to foreclosure. in one site cited in my written testimony, a north carolina woman was placed in foreclosure by chase after 15 months of

timely and full modifications payments. when she made the mistake of following the advice of a chase representative to make a partial payment in the 16th month. in another case, they told an attorney that the pooling and servicing agreement prohibited all loan servicing modifications. they went so far to provide the attorney with an electronic snapshot of the relevant section of the psa, but that snapshot converted a comma to a period, and removed the immediately following clause which provided for loan modificaons in most circumstances after default. these abuses occur because servicers have strong financial incentives to deny modifications and proceed with foreclosure. the illegal fees that push homeowners into foreclosure are profit centers for servicers. they recover their cost faster

in modification than in foreclosure and servicers and affiliates profit. this strips wealth from investors as well as homeowners. unless, and until services are held accountable for their behavior, we will continue to see flaws in servicing in cascading costs throughout our society. the lack of restraint on servicers abuse has created and deepens the foreclosure crisis, and at worst, it threatens our global economic curity. solutions must address the affidavit and ownership issues address the recently, but more is needed. we must require servirs to modify before foreclosure, offer modifications will provide a net benefit to the investors and provide that the failure to do so is a defense to foreclosure. funding for mediation and

representation of low income homeowners is desperately needed. principle reduction must be mandat and reign service abuse and restore rationality to the mortgage markets. thank you for the opportunity to testify here today. i am happy to answer any questions you may have. >> thank you very much, ms. thompson. appreciate it. [applause] >> audience please, this is a hearing, not a rally. republican colleagues have a caucus, and i've invited senator shelby to go before me. >> i have a number of written questions to be summited >> go ahead. >> i'll start with you and ms. thompson can chime in here i ho. as i understand, i used to do

this many years ago, let's say a bank in anywhere in america, we'll use my hometown in alabama. a bank makes a loan in a home or a mortgage, banker or whoever it is, and that mortgage, that note is signed and the mortgage, you know, is recorded at the courthouse, and the bank owns the mortgage, that's the security for the loan. now, it used to be, and correct me if this changed, that they would sell that loan, andhey would do an assignment of record saying x assigned the record to y bank or pension fund, and that's recorded, and they went on the mortgage of record, you know. there'd be a rorpd of that in the -- record of that in the courthouse there. if they foreclosured, you recite

this in the foreclosure notice of the default made in certain mortgage dated so and so to x bank and subsequently assigned three or four times, and you'd have to do that. what has changed, electronically what is the problem and what has caused it? did you get away from the basic property laws of the state? you know, i don't know. is that causing the problems when you -- i realize that you in the securitization you maight take a -- might take a thousand of these mortgages i talked aboutnd you pool them and securitytize them, but still the fundamental of the hole owners remains, and they are in debt and there's a record of their indebtedness. am i right? what has changed?

i'll ask ms. thompson. thanks. >> excuse me. there's been a great deal that has changed -- >> tell the committee. >> par of that is that the sheer velocity of the transactions jammed up the recorder's offices. there would be mistakes in the assignments, filed in the wrong order. >> wait a minute, excuseme. you say there's mistakes you say in the courthouses? >> no, senator. >> where are the mistakes? >> in the assignments the banks were prepares. >> okay. the banks made the mistakes? >> yes. >> oka >> and that would ultimately cause title problems, breaks in the chain of title. it was unnecessary that those assignments would be recorded every -- >> why would it be unnecessary to show who owned the mortgage before you foreclosured on it?

heretofore you close in the holder of the record, did you not? i guess? is that right? >> yes, that's the general rule in most states. >> go ahead, sir. >> that still happens today. what merse is is a common agent for all of those banks, and that way when servicing changes hands covered under the truth and lending act, there's a hello-good-bye letter, and any time that changes, that's reflted on e system -- >> excuse me. it might be reflecting on your computer, but is it flected in the courthouse where the mortgage is recorded? >> merse is reflected in the courthouset all times, and then if -- >> wait a minute. do they record the assignment there at the courthouse? i could go look it up and see who owned the mortgage? >> there is no assignment if merse is the mortgaged -- >> that's what i'm getting at.

you're correcting yourself. actually, what you're doing with the electronic transfer, you take the place of historically the propty laws of the states. is that wrong or right, ms. thompson? >> that's correct, and it is true that mers has the case from new york and several cases where clerks challenge the notification and removes from the record any chain of title an complicates the holder of the mortgages. >> isn't this part of the problem in the foreclosure process? people are saying -- i'm asking you mr. arnold you don't check this mortgage, you have no -- there's no record of you owning it, how can you forclose on it is that right? >> if there's a mortgage in the name -- >> is that legal?

is that the law of the land? >> the mers can be fore closed. >> no, i asked you a question. is that the law of the land? you can dohis? you used to not do this. you had an assignment properly recorded in x county to show, would you not? >> whether or not mers can foreclose is a hot issue and varies state by state. in other states there's litigation and other states there's litigation that has forbidden mers to foreclose in its own name. >> mers is part of the problem? >> it complicated what the correct standing is and has the affect of concealing from the public the role of major lending institutions in foreclosures. >> i don't know if you have

answered my question correctly or like i want you to, but i don't -- i'm looking for the truth of what the problem is. i think that when you deviated from the basic property laws of the country, you got yourself in trouble. maybe i'm wrong. >> i think mers is e piece of the problem. there's more serious and complicated pieces of the problem. >> okay, thank you, mr. chairman. >> thank you, bob, and turning it to senator. >> thank you, i appreciate the curtesy from both senators. ms. thompson, help me undersnd this if you will. all of the abuses that you've described somebody altering a document and trying to mislead someone. i don't think there's anyone in the room or anyone in the country that would try to claim

that that's right. it's not right. i mean, fundamentally it's just not right. i want to kind of drill down on the mortgage-foreclosure issue itself, and try to help get your help in me understanding this. as i've done many mortgages through my life, my first mortgage was probably when i was in my 20s and bought my first house, and my understanding is complex as those documents are, and you know they give you a stack about that thick to sign, my understanding was that somebody was giving me money that would at least partially buy the house. these days maybe buy most of the house, andhat if i failed to repay that in a timely way, they

would take the house. i mean, as sad and unfortunate as that is, that was the bottom line. how many instances have you run into, or is it a common practice that these foreclosure people are foreclosing on properties where in fact someone has not failed to pay? do you see what i'm getting to? >> i do, and in my written testimony i believe there's three examples of cases where people were not actuay in default when the foreclosure was initiated. >> let me say again, that's not right, but i'm trying to figure out if it's 3 million or 3,000 or 3ecause -- >> i think it's very -- it's certainly more than 3. i certainly had many examples ke that in thecourse of my practice. it's a complicated question because sometis a person's absolutely not in default, and they initiate foreclosure.

sometimes the wrong bank initiates foreclosure, and sometimes -- >> but -- >> there's a placement of fees that make the payment double or triple, andat that point the person goes into default. now, -- >> yeah let me just -- >> in that case, it's a placement of the improper fees causing of foreclosure even though the person is in default. >> let me just say ain. i don't think that's right. again, i don't think you're going to get much debate from anybody about that. i just don't think that's right, and i want to make that clear, but for the purposes of this banking committee, in this area it's so important that we understand what we're dealing with, and so at least today you can give me three cases where a default was initiated in a situation where a person wasn't in default, three. >> i said there's about 26

example in the written testimony, and i believe three of them involve cases with no default. three of them involve cases where the homeowner submitted a modification by the servicer rs and the servicer then declared a default, and at least three or four involve cases where people went into default solely because of the placement of improper fees. it is not uncommon, i think it is very difficult for us to assess the magnitude of it in part because there's no verification of the modifications they submit. to determine whether this is correctequires hours of analysis of the payment histories. >> ms. thompson, i make this request to you. again, i'm trying to get a notion of the scope of what we're dealing with here, and so

we can unrstand what we are to fix, but if this is truly a case where you're tellg me out of all of the work you've done in this area that you can bring to mind three cases where somebody was default or sued and foreclosed upon, that's a different dynamic r me then if there's 300,000 of them. >> out of all the cases i took, out of the hundreds of homeowners i represented in, every case, i believe the homeowner was not in default looking at the surrounding facts. >> would you be able to provide us with some information to back up that statement? you just made a statement out of all of these cases and virtually every one, the homeowner was not in default. that really -- i find that troubling that there's people out thereforeclosing when the

homeowner is not in default. you see how that doesn't -- >> yes, and as a legal services attorney i had precious little time, and i only took certain cases. i represented in court dozens of homeowners. in every case i believe there's a strong defense to beat the foclosure. you can only beat the foreclosure if you esblish there's not a legal default. it is a widespread problem throughout the country. >> i'm a lawyer myself, and although i did a little bit of this work in my career, i department do a lot, so i start with that deficiency, but i will tell you there are legal defenses, and then there's defenses to the fact that my client is not in default, and that's what i'm trying to get to here is how many of those are in defense. were you actually filing an

answer to the foreclosure petition saying made a mistake, my client is fully in compliance at least in terms of the payment of this mortgage? >> well, again, i don't think there's a simple yes or no because if you have these improposer fees, that causes a technical defat under the note. if you're looking atthe cases where someone was absolutely not in default and no question about their payments, maybe 10% of the cases i handled. if you look at cases like it's something the servicer did that triggered the default, maybe about 50% of the cases. >> okay. i'll wrap up with this because i'm over my te. you've even caused me more concern by your testimony because again if people are doing things that aren't right, we should stop those thgs. we all agree to that, but what i'm trying to get to is this issue of if you haven't paid and

somebody's suing you because you haven't paid, then i need to know the scope of that problem, and if it's 10%, then again that caes me a great deal of concern about your testimony, so hopefully you can provide more information to this committee to try to clarify what you're saying here, and i would welcome that. i think -- i thank the chair i've gone over my time. >> no, i'll tern it over to senate bennett and my colleagues on the democratic side. i noted to the colleagues there's 86% of meowners in compliance. obviously the number troubling to me is the 14% who are not. as i understand it, we've talked about it. today it's around 1% under current underwriting standards of the like. normally it's around 2% would be

the people in default. the fact it's at 14% speaks of another larger -- the coming down to the point where whether or not somebody is in default or no that's the end of the process. there's a lot to occurs before that moment that causes so much concern as well, but i just make that point generally. senator bennett. >> thank you very much, mr. chairman. unlike senator johannes, i'm not a lawyer. my experience with mortgages like his started with getting one. i have defaulted on payments at various times in my career when i simply didn't have the money. fortunately, i got it in time to make up the payment before any legal proceedings were made. i was 60 days late or whatever it might be, but i know the angst that comes from having missed a mortgage payment and worrying about what's going to happen if you can't get the

money to make it up with six children and a foster child at home and a situation where your own economic circumstance is not good, so i have all kinds of emotional reactions to the testimony and to the emotional reactions to the testimony, but let me try to follow-up on senator johanns with the things he was getting a hold of. we have two people here in the business of home loans, the president of the bank of america home loan and ce on of chase home lending. i want your response that we got from ms. thompson. she either deliberately or otherwise gave us the impression that it was the policy of the servicers, that there is a built-in conflict of interest so that it's their policy to try to pile on extra fees, to try to

force people into bankruptcy so they ca make more money, and i'd like those who were on the receiving end of that implicion to have an opportunity to respond, and as a businessman, i'm not a lawyer, but i am a businessman, i would say to the business people in the room, if that is indeed your policy, it's a really stupid policy because while you may make a little short time revenue out of such a circumstance, you build in very serious long-term customer resistance to dealing with you, and i do not suggest that there are not businesen and women who are stupid, and therefore, there are not businessmen and women who don't do that. i think there are some who are stupid and who do do tha but if i were an employee of any

company that was involved with this or serving on the board of my company like that and found out you were deliberately trying to maximize short term profits with these kinds of fees, i would sayhat's about a dumb of thing you could possibly be doing from a business point of view. we have two business people here, and i'd like to hear your response to this. ladies first. >> thank you. senator, we absolutely do not sacrifice the long term brand of bank of america for the opportunity to have short term gains in fees. at the same time, and for what ms. thompson referred to our inaccurately portraying a psa in a customer perience, that is an error on our part. we take that seriously. we make them, and we are not perfect. when they are brought to our

attention, we work to fix them as qckly as we can. we apologize for that error, but we make them, and we work to correct them because our best financial interest is aligned with keeping the homeowner in their home. we've been creative as we c under the circumstances, and unfortunately the 14% of customers late on mare mortgages to attempt to reach out to attempt to make offers of government programs, our own programs, working with others to try to do everything that we c to keep customers in their homes, and ere that's possible, we have succeeded, 700,000 times with permanent modifications enabling customers to stay in their home and we continue to work to do that to extend programs and one of the first in the industryo offer a principle reduction program as an example under a proprietary

program to participate in the hardest hit states of the government funds and to participate in the principle reduction portion that where it's important in states that have experienced the most severe depression in home prices. at the same time, there is no question that we have to balance interest. we put the interest of the customer front and center, that's part of the core value of bank of america, you we also reference the issue of the investors whether that's government agencies or private investors as well as our role in the responsibility as servicer, and we take that balances very seriously. we do not always get it right, but we certainly focus on trying to keep the customer in their home, and that's where the financial incentives are aligned. >> yeah, i would echo

mrs. desoer. we don't make money when we foreclose on customers. it is our purpose to -- as a result of that we have invested in significant effort to beef up our modification efforts. we have 6,000 customers facing employees, we have 1900 people that are the sing point of contact for troupe led -- troubled borrowers and extensive analysis to determine whether or not a borrower is eligible for a modification, and as a result modifications are in our best interest and in the interest of the investor. like she mentioned, we have a balancing act to do. we have to do what's right for the borrower and the vine vest -- investor. >> one last comment.

ms. thompson, i'm sure your information is accurate when you say employees of these companies have misled people and given them improper advice. if you call an irs agent for advice on your taxes, there's a very good chance you'll get wrong advice and end up in tax court. human beings do make mistakes, and i would just say to the two representatives of the two banks, i hope you're checking your training at all times to make sure those kinds of mistakes are not made because as they say, the irs is a government agency, but it has a history of misleading taxpayers, and they act on the basis of the advice they're getting, and they end up in tax court, and it's not a defense to say i did what the irs agent told me.

it doesn't matter. did you want to comment? >> yes, i think it's also important to actually hear the words of another servicer, and this is in a public document. countrywide' third quarter 2007 earning call, i quote "we are frequently asked what the impact on our servicing costs will be from lost mitigation efforts and what happens to costs, and what we point out is as i will now, is that increased operating expenses in times like this tend to be fully offset by increases in ancillary income from our servicing operation, greater fee income from late charges and importantly from insourced vender functions that represent part of our diversification strategy. in 2010, countrywide settled with the ftc on charges that

overcharged charges including markups on services by over 100%." that's the head of countrywide admitting we sacrifice long term for short term. >> as i say, there's some people who are stupid. >> mortgage daily news hardly a radical publication reported that servicers generally, their profit per loan had increased over the previous year despite the fact that foreclosures were sing. servicers business model is not based or not long term profitability of the loan, but based on the fees. the fees make up a large chunk of the profits because they are allowed to retain the fees under their current business models, and that's a structural problem with the existing business model, it insents them to charge and retain the fees. >> thanks. >> i think that's something to look at.

>> i'm going to turn to jon tester and i'll include a letter from the new york fed to, i think it was bank of america or bank of new york and others on october 18of this year. there's one paragraph that goes to the very question senator bennett asked. the psa's, the pulling services association provides that the master services are entitled to recover service advances that are nessary out of pocket costs on expenses incurred and the performance by the master servicer of the servicing obligation is iluding but not limited to the cost of preservation, restoration, and protection of the mortgage property. that's end of quote. that's the section of the law. the letter from the new york fed goes on to say despite the requirements that servicing advances were to be incurred only for reasonable necessary out of pocket costs, the master services used ailiated venders

marking up to 100% or more above the market price to have restoration and protection of mortgage property in a fraudulent and deceptive effort to supplement its serving income. that's from the new york fed, not from, you know, with all do respect, this whole letter, by the way, is lengthy, and should be part of the record. >> we've heard criticism at loss regarding documentation having involved quickly enough to address innovations in business. does the law need to be chged to ensure proper documentation throughout the mortgage process? >> no, sir, i don't believe that's the case. i don't think the problem is the law. the law is actually pretty good. the problem is compliance with the law, and there are, i think, are two potential problems.

one is so according to the american securitization form, and i agree with them, there's two ways to transfer the notes and mortgages in a securitization. one is you negotiate the notes through the procedures set out in article three of the uniform commercial code, just the way you sign the back of a check to negotiate it to the bank to deposit it, and you could endorse it to someone else. that way is fine. alternatively, article nine of the commercial code allows for promissory notes and mortgages to be transferred under just a regular contract of sale. that system works fine. the question is, first question is whether that system was actually the one that governed securitization. the answer i believe, but i can't say for certain, but i certainly believe the answer is no. instead i believe that the law verning securitization was private contractual law.

the parties are allowed under section 203 of article i of the uniform uniform commercial code to contract under article 9. pooling and servicing agreements are trust documents creating a trust and have a transfer of assets to the trust andet forths the security holders because the trust pays for the assets and sets forth the rights and duties of the servicer. the securitization documen themselves call f a rather specific method of transferring of mortgage notes. my understanding, and i cannot -- this is a secondhand understanding. i want to emphasize this. i have not seen more than a handful of loan files. my understanding is that generally the requirement set forth in the pooling and servicing agreements were not

followed, and they were not followed in the following way. pooling and servicing greermt says that -- agreement says there has -- when the notes are transferr to the trust, there needs to be endorsement in blank to the trust as well as a complete chain of endorsements for all proceeding transfers. that means the originator of the lo has to have a specific endorsement transferring to the securitization sponsor, the sponsor to the depositor, and the depositor to the trust. what i'm told is that in the majority of cases, that chain of endorsements is not there. there's just a single endorsement. that creates a problem because it doesn't comply to therust documents and a severe problem because most pooling agreements are trust governed by new york law, and it says if you don't follow the trust documents for a transfer, the transfer is void. it doesn't matter if you intended it, it's void. in addition, there's a very good business reason for having that

particular form of transfer. a critical form of securitization is to ensure the assets in the trust are bankruptcy remote mans that if any of the upstream transfers to the trustr itself end up in bankruptcy, they could not claw the assets out of the trust. this is to protect the mortgage backed security holders. if you don't have that specic chain of endorsements, just an endorsement in blank, it's going to be very difficult to prove you have that chain of transfers nessary for bankruptcy remoesness, so this is -- remoteness. this is the concern. this is not a problem with the law, but a problem of following the law. i don't think there's a a need to change the law to catch up with the market. i think this is rather a problem with the market, the law itself would have been fine and historically these procedures were followed, but as volumes grew during the housing bubble, it just becameasier to disregard the requirements and,

you kn, just as the underwriting standards fell, similarly the transfer diligence fell. >> attorney general given that foreclosure is a judicial process in many states, what were the barriers to recognize the documentation problems that insisted? >> well, i think what happene was recently in some litigation, people that did the signing were deposed and admitted that, and you know, once that happened, then this investigation started in earnest. i don't think there was any way to for the banking regulators just looking at the documents to know they were robo signed as opposed to done properly as the affidavit said, so i think it was really sort of people coming

forward. i think in some foreclosure actions that were being defended in an aggressive, very capable way that these disclosures became public, and then you know, i think the attorney generals, the banking regulators, federal authorities and class action lawyers and the companies have been energized, and so i think what was sort of an unusual occurrence or a happenstance, if we can convert that, that problem ito multiple solutions like the ones i've talked about earlier, you know, we can come out of this much better than we came in. i just agree with senator dodd saying we need a broadly based look at all the problems that he described and i described, and try to work with the companies and the investors and the federal regulators to come up with a comprehensive resolution

that gets us back on track and corrects as many problems as we can of those on the table. >> when you -- another question for ms. desoer. there are been serious questions, concerns raised that it's in the best interest of the back to modify and there's serious concerns raised that is in the servicer's best interest not to file a loan in the structur and potential conflict of interest regarding second liens owned by servicer's present company. can you address that criticism? >> certainly. i'd be happy to start. we are a large servicer of first

mortgages, and also we have a large servicing portfolio, much of which we own of second lien home equity homes and lines of credit in bank of america, and in that context, we didn't even take the second into consideration when modifying the first. it is absolutely not an obstacle that stands in our way. we do modifications on second liens. we've done 95,000 of them independently of the first lien, and also, we were the first servicer to sign up for participation in the hamp program, a second lien modification program that now others in the industry as well as are participating in, so the second lien is not an obstacle, and has not been an obstacle or get taken into consideration when we look at modifying a first lien, so it does not stand our way.

>> i echo her comments. the seconds liens do not stand in the way of modifying the first. we too are participants in treasuries to mp programs recently just rolled out which will allow for an automatic modification of the second when the first is modified and that first is held by another servicer. >> all right. my time has expired. >> thank you very much, senator. because we have a good number of colleagues here, if we can keep it down to five or six minutes. >> i'll do my best, mr. chairman. thank you all for being here. i very much appreciate your time. i am very deeply troubled about the allegaons that haveeen made about improper fraudulent servicing and feclosure processing, and what compounds this is the firsthand reports my office received in montana. i reache out to many foreclosure counseling agencies in montana and i read through the cases my staff worked on in

recent months, and it's not a pretty picture. mismanagement and signing issues. beforehe foreclosure crisis begun, we urged those to be proactive and reach the servicer before they were in trouble, before foreclosure is downing to say the least and paperwork, computer systems, conflict information, so it's a big deal, and the misalignment of the servicer incentives with homeowners is a recipe for disaster. i have some examples and then questions. in montana one of was told by a servicing associate while the loan modification was in review, the homeowner should not make home mortgage payments. he was told by the sercer, bank of america, not to make payments, and if they did, they wouldn't qualify for

modification, that resulted and they were hit with pents and lapse in payments in addition to badly damaged credit. there's a case of a gentleman fighting with voa for over a year to prove that he has should not be in foreclosure despite having the paperwork to say his modification was approved. he never missed a payment with his mortgage after being told the bank confirmed his modification, and he received a letter two weeks later saying he was in foreclosure. i appreciate bank of america's work to resolve the issue, unfortunately no everyone calls thr u.s. senator when they ha a problem, and i'm still trying to understand how this goes on for a year in the case of the gentleman in helena to receive a foreclosure notice and this was received in time when there was a self-imposed

pause in foreclosures in montana, so i need to know how this can happ? there's far too many stories out there and it doesn't have to do with ms. thompson's testimony, although i appreciate it. this is stuff i get in my office. i have staff members spending a ton of time on this issue, and i think it's more than an isolated case, and if it was the folks not paying their bills, i get that. i have empathy for them, and i understand it, and we'll do what can do to help them, but in this cases the folks never missed a payment, and they are getting hammered. can you tell me how a servicer tells a homeowner toot pay a mortgage? >> thank you fo bringing those to my attention. we apologize that it's not part of what we are telling homeowners. of course, homeowner who are current facing default c be considered for programs that they can demonstrate their payments are at risk, and we

take those into consideration and doe the modifications, and we should never be advising -- >> do you attribute this to an employee who screwedp? >> an employee that somow -- yes, unfortunately, and we will after conversations with the staff, we've gone back and reenforced that aspect of our communication to our teammates, and it's a critical part of our training. >> i think it's ablutely critical. if i take myself and put myself in a position, i mean, in these economic times it's tough enough, and then something like this happens, it's wild to think it's possible. th yesmanl from helena how it is possible he received a letter indicating he's in foreclosure? >> this goes back to what i referenced in my written testimony and oral testimony abou the dual track of if someone is delinquent and

subsequently engage in a conversation about a modification, the foreclosure sale will not take place, but that custor continues to get notices, and that's a requirement by certain investors that we do that on a parallel path, and that's where we think ere's an opportunity if we work together to, and we're talking to the state attorney's general under attorney general miller's leadership to try to amend that process because we understand how confusing it is, but a customer does not go to a foreclosure sale. >> okay, and i've run out of time. i have a quick statement, and i appreciate everyone being here today. these hearings are not enjoyable for me so i know they cannot be enjoyable for you. the fact is why we're here is not an isolateed incidence. montana is not a state where people come to the u.s. senor just willie-nilly.

they are in trouble and thing they have been wronged, and i don't know how many people didn't come to me and ended up on the street and never did anything wrong. it's crazy. i just want to say in closing i'll remain vy concerned about the scope of this problem, the impact it has on the financial system and in the housing market i know the fed is focused on it, and i hope it's something the financial stability oversight counsel takes a closer look at. it strikings me some of the biggest servicers hav been glib about the potential mag my to do of the risks and at a minimum we need to understand these risks before t fed moves forward because quite frankly, there's not going to be anymore bailouts, and it's important to get this squared away. i think both sides can agree on that. mr. miller, you had a comment? >> just a quick comment. i agree with you. we hear it more often than just

being isolated. we hope we can get to the bottom how often it happens, why it happens, and how it can be stopped. it's a daunting challenge, but we want to work with the banks and fed to figure out how this happened and how it can be resolved. >> i appreciate that. if you go to what was said about countrywide ceo said, this can be taken care o quickly by the servicers, i mean, really quickly by the servicers. i mean, to be honest with you heads have to roll if they are given that advice. that's just the way it is. [applause] senator? >> thank you very much, mr. chairman. you made a statement and if i understand it correctly that is if a foreclosure begun before the modification starts, these servicers should continue foreclosure proceedings, did i catch that correctly? >> you did. >> okay. so we have so many folks coming

to our office in oregon working with the servicer to modify their loan, but then they're getting foreclosure notices, phone calls, agents coming to their door and call up the servicer sayg i thought there was a loan modification under way. is that a result of these processe going forward together >> >> yes, it's a result of the dual process, and as i mepsed at chase -- mentioned chase we have a process in place to make sure if there's a modification in process, and if there's a foreclosure in process, and you, you know, initiate a modification during that period of time, that we won't allow a foreclosure sale to happen. >> you don't take the fal step, but you continue the steps leading up to that? >> correct. >>ust short. . this is a story from one of my constituents. my husband and i signed a loan

modification and approved. it was a steep loan rate and our payments went up. we submitted a payment of $577 and made our new payment each time we called in and there was confusion. we got a foreclosure notice in the mail. they assured us everything is okay. make your payments. we made our new payments for a year and still get foreclosure notices. the bank says the accountis not updated and don't worry. we went out of town last month and had a note of foreclosure on the door. when the bank called the bank the lender never signed out on the modification and it was not valid. when i called to check on the account in november, this month, the bank says we are late. i asked what we should do. she told me we may qualify for a loan modification. i said, i do that. i told the woman we were approved and paid our new payment for a year. the woman said this happened

before, and asked what happened with the money we paid, it went towards the account but only a a partial payment, and now we don't know what to do, we want to make a yment, but not if it's a partial payment. it's embarsing for your neighbor to tell you about the foreclosure onour door. we had a man come to us says he's from the mortgage company and we lived here. this has created a huge strain in our family causing stress and our children have been affected by this as well. i have stacks of these stories, this conflict between foreclosure processes. can't we just change this policy and suspend the foreclosure proceedings when a modification is underway, not keep it going forward and create this stress for america's families? >> so the new process, you know, prescribed by hamp instituted this summer was necessitate that we enter into the modification

process and engage with the customer to initiate a modification prior to commencement of forecsure, so that's the process that's happening today. the other major key difference today from in the past is that at the beginning and on set of the hamp program and other modification programs, we did things basedon the statements from the borrower. we entered in trial modification plans based on what they told us over the phone, and then we got into the game of collecting documents, not getting the documents, i'm sure in many cases misplacing the documents, but at the end of the day, this period of time just took way too long, so the new process is such now that we collected the documents before we entered the trial payment, then really the only thing that has to happen in order -- >> let me, my time is almost out. have you changed your practis

to suspend the foreclosure proceedings? >> not the final step, -- we have not. >> i just want to put that forward. ms. desoer, how about with bank of america? is it possible to set aside the foreclosure when in the modification process? >> we're considering that, but we can't do it independently, and that's why we're working with the state attorney's general to do that. >> i think that's one substantial simple step that would have substantial positive consequences because this -- the homeowners are completely confused, and completely stressed by these foreclosure notices, and then suddenly in some cases, people find out the foreclosure is actually gone thugh which leads us then to talk about mers, and in common law, if you had a stake in the house, you can put a lien

against the house because you had that stake, and that is captured in our modern law with a contract that is a promissory note on the contract side and a lien on the mortgage property side, and if you contract right is violated you have a property right to reclaim your damages essentially, but the separation that has occurred in mers between the property law and contract law is creating a lot of court cases. weaver trying to get -- we're trying to get the details, but we think there's a case in oregon where mers doubt doesn't have the standing or in a situation where they have damage. i have your testimony from last year, your deposition saying mers suffers no damages or has economic stake in these mortgages. i'm very concerned about the legal issues getting resolved in part because this poses a huge systemic risk to our banking system as a whole.

we're talking here both about the rights of the homeowner being honored, but also confusion that can throw shock waves through an already challenged system of home finance in our country that's important to all of our homeowners. can any of you kind of comment on what needs to be done to make sure both homeowner rights are honored, and we don't send shock waves through our entire economy with this question? >> well, senator, i would say that one thing that mers does is make all of that more clear. the public can look at the mers system free of charge find out who the sfer is and -- servicer is and who the note holderwas. that was never available prior to mers. that gives a homeownerhe two key players that they would have to negotiate with for a modification so with mers and the land records and the more

system keeping track of the servicer free of charge consumers can get that information and go straight to a modification. with regard to a foreclosure, mers, ifhe foreclosure is done in the name of mers, we have a nationwide requirement that the promissory note be presented at the time of foreclosure. ..

that they can do for mers. there are 20,000 of those nationwide. >> i'm sorry, i'm out of time. but it's created legal confusion and that's an issue and i'm sorry. thank you all very much. >> thank you, senator. senator bennett. >> tha you, mr. ewing. thank you for holding this hearing. i must say it's a depressing how little we've moved in the last three years on these questions. i wanted to just clear something up but didn't understand the answer to the question. i'm a ham program i read in february suggesting that servicers that were part of the hip program out to not pursue foreclosure while they're working on modifying modes. it was my is my understanding mushy in the administration put forward a policy like that. and you just spoke to that, confused about what the status is in the servicers give beard

are you in a position now to be able to say we're going to not pursue foreclosures while we're doing modifications or sounds to me like it's not a something at stake may have imagined it was. or straightforward. >> were not in a positn to say we're not going to follow for colder process and failure to modification. if there is a modification process of being considered, we will not proceed with the foreclosure sale. so the work that i suggested that we considered eliminating the approval process has not yet taken. >> what are they keeping items they are? preventing you from able to do this? >> investor requirements. >> okay. which brings the action to my second. >> senator bennett, may i address the question about the hamp. don't be supplemented to acted to hamp does hold the foreclosure process, but only

for loans that are not yet in foreclosure at the time that the modification review is initiated. so at the foreclosure process is already started receiving for one reason or another, that process is allowed to continue the point ofsale of the on modification review croissants. so wle supplemental trick to turn out to his hopeful comment it did not relate back to cover loans that were already in the foreclosure process. >> you've heard the stories here today and i want to say that my office is facing exactly the same things they senator tester through the offices facing. at the 22 months at town hall meetings and people bng in their documents in the transcript to voicemails, e-mails from servicers telling them what they are doing is okay, but they are in compliance of the loan. and then they find out they've been hit by a penalty of some kind or another.

mr. chairman, there was an article in sunday's denver post that he has to be included. i won't go through the two stories, but one of the people that were affected by all this sorted through the the looking glass business, when the dearest thing we did everything we were supposed to do. this is such a boondoggle of the mask she describes it. and it is a boondoggle of a mess. and i think the thing that i can't understand is where the misalignment of interest is here. as we have millions of people in this country better underwater in their mortgages, right clicks they know that. i for one don't believe that it's possible to prop up the value of all of these houses. that's impossible. and it would be foolish blic policy to do that. but it seems -- it is clearly in the interest for people that can pay on their loans at a reduced value and you want to stay in their home. it's clearly in their interest to do that, right?

for investors in the securities, it would seem to me that it's clearly in their interest to have the homeowner be ae to do that because the value of the modified mortgage is worth more than the foreclosure -- the foreclosure sale would be. it seems to me -- and i could be wrong, any of this you want to correct, please correct. the third piece is that it is clearly in the interest of the adjacent homowners but that will be modified and that person remained in their hous cause if they don't, the value of their house is just going to go down and that can be rpeated over and over and over again unl the neighborhood is actually the entire united states of america, not just one place or state that's been particularly hard hit, but the entire economic recovery in many respects. respa aren't ae to get this

sorted out. but the self-interest that would seem to be president. so the question i have is -- and we've had this hearing and other hearings in the audience loved him unclear, where the miscellaneous cliques why can't we get all of the self-interest aligd in a way that will allow us to proceed expeditiously so that -- not just of my constituents can get on with their lives which they desperately want to do, but so we can get the economy moving again, professor? >> i think there are at let two problems. one problem is mortgage servicers and i think you've heard a fair amount of testimony already of this hearing about the incentive alignment problems. cindy polk, foreclosure is either less costly or more profitable to modification in many cases. the second probem -- >> not as far as the investors are concerned. >> the services within their own

financial interest in me to not match the investors. the second problem is that comes a month better not be serviced by third-party service, both loans that are on. there is a strong disincentive for banks to recognize losses on mortgages quickly. >> what percentage would you say? 's >> around 40% of mortgages are not securitized. we don't actually know how many mortgages are on the u.s., which is kind of an astounding regulatory failure to gather information. no one knows the number. somewhere between 50 and 60 million. of the mortgages on bankbooks, if the bank -- is the one default, the bank can stretch out the period of time before forecsure. that means the bank is and time before it has to recognize the last. at the bank modifies blue nile and wrightstown principle now come it's taking an immediate loss. and this is particularly a problem as i get liens because almost all second lien mortgages on bank stocks.

there's about $40 billion in mortgages out there. that is roughly held by the four largest banks, bank of america, chase, citi and wealth. that's roughly equal to the market capitalization of those for banks. so if they started writing up their second lien mortgages, they would have no capital left. he would be insolvent. and that creates a strong incentive not to recognize losses and just try and pretend that you're there. >> mr. attorney general, did you want -- >> yes, briefly. first of all, you gave my speech, although you give it better than i give it. i just agree with you completely in the fundamental alignment of interest to describe. and i think there's a series of fat there is, some are just mentioned including the second plane and the recognition of loss. in addition, i think there's a question of putting enough

resources into the servicing process. there's been an enormous demand on what they need to do. they've added a lot of people. i think they need to add more and add more resources. and i think additionally the quality of deision-making that i -- it's hard to tell and i hope we get to the bottom of this as well, but i think in the decision-making may make modifications, they aren't mang some of the modifications that they should. for a whole variety of reasons, in some cases i think competent the end in some cases i'm not sure. also, there is a culture here to get over, that servicers traditionally -- their job was to collect money and turn it over to investors. and now they're being asked to do something totally different to make these judgments to underwrite loans than before the first time.

and for someone accused of collecting the full amount to write off part of it, there's a hurd they are. and i think they're getting over that hurdle more and more all the time. but you know, our belief from the state attorney generals believe is, like yours, but a lot more modification should be made that are being made. we're going to try a find out why that's happening. and as they say we're working a lot with the services to figure out what the solution is. but i couldn't agree more with the fundamentals of your question in your statement. >> just quickly, i appreciate the attorney general's comments on that. i just want quick yes or no is, if you disagree with senator bennett? 's >> no, we are the largest consumer u.s. bank and our fincial interests are aligned with can tumors being healthy and the economy recovering. so i agree absolutely when you

look at community and the impact of the foreclosure has in a community versus a household been able to stay together, a family beg able to send their kids to the same school. [inaudible] >> i'm sorry, we are very aligned i agree. >> i suspect everyone is going to agree with what senator bennet said. is that true? 's >> no. >> yes. >> yes. >> and yet here we are. >> if i may, we spent at the center a lot of time trying to answer that question. why does that servicers have failed to modify and produce this report, looking very carefully at the legal and financial incentives that they face and to keep charging and reproducing the testimony submitted today. third three key recommendations we belie would do a great dea to aligned servicer incentives for homeowners, investors and the american public at large. of thos three are web of

senar merkley onsenator bennett have talked about, and in the true track system and not cases with a valuation for the modification be performed before the foreclosure process is initiated and requiring a loan modification be offered to the homeowner if in fact it's going to provide a net benefit to the investor. so the investor will profit you should be offered to the homeowner before his feet get tacked on the foreclosure process starts down the road. that's one. two is there are complicated rules impod by the credit rating agencies and in the service agreements that make i it -- they reduce repayment of servicer expenses when there's a modificatn. so when there's a foreosure, servicers get repaid off the top before the investors can anything, all of their fees and advances. all of those broker price opinions, their title work, foreclosure, all effective

feedback directly to the servicers when the home is sold in a post-foreclosure sale. the repayment of those advances is delayed and much, much less clear if there is a modification. so that is almost a certain disincentive in many cases to perform modifications. and there are to be guidance issued that would clarify that you can get repaid from the pool when you do a modification for your advances, so that servicers would get legitimate advances repaid. the third thing is we talked about the role of season pushing people into foreclosure and encouraging servicers are people and deult because there is these extra fees they can pack on and put in their pocket to offset the cost of foreclosure. we believe you need to regulate those defaults used to reduce the incentives to put homeowners into foreclosure. >> thank you very much. senator cochran. [inaudible]

[inaudible] >> is your microphone on, dan? >> thank you very much, mr. chairman. too manyomeowners in our country has faced the threat of foreclosed on turn foreclosure. and herein are witnesses here, i think of us suffering from this. we at this time, the foreclosure rate in october was the 12th highest in the nation. and in september this year, families in hawaii faced 67% more foreclosures than in september 2009 and 172% more in september 2 years ago. these are alarming.

reported problems among mortgage service providers are. and so, without question, we must do more than we are doing now. and our business here really is legislation. and mr. levitin it did mention it's not the law. it's not been complied to. and so, that is not the problem. in many problems have been -- have been addressed here. and this ssue is very complex as it is now. and though, but may cut this down to asking three of you, and that is, mr. miller and

mr. levitin and ms. thompson to help us and to help us and what we're trying to do. and that is, what recommendations do you have to protect homeowners in foreclosure proceedings from abuses of legal uses? >> you jusawered that question i thought pretty well in the last three things you said. >> is there something you want to add to that? >> i do. with more recommendations recommendations in our testimony. one key point about compliance is you can get muh better compliance with the fund quality mediation programs and newfound legal services attorneys. the mediation programs in new york city and philadelphia are reducing foreclosures by 50%. people that participate, about 50% of those avoid foreclosure. so peeved at the servicers into a program where they are forced to focus on that particular loan and get it out of the automated

processes, you are very likely to avoid many foreclosures and reduce the numbers dramatically. those prrams need to be funded. the other thing that dodds frank authorized legal service programs to assist low-income homeowners and tenants facing foreclosures but that is not been appropriated. all of the robo signing algations from discovery brought to life by aggressive, company attorneys working diligently to represent their clients. homeowners can not negotiate these kinds of issues about lawyers. low income homeowners need funding for legal services and foreclosure defense hadaken several hit in recent years. we urgently need the funding. >> thank you for that. mr. miller? 's >> i would underscore the funding set of issues, you know, we have federal funding for our

hotline and idea what that's working very well tory and help people modify loans in the whole system of support that. legal rvices also is terribly underfunded by the congress for a variety of reasons. i'm also a former legal services attorney. in terms of substantive legislation, you know, it might depend o, you know, how we come out with their investigation and our resolution and what we find. hopefully we can all these issues, but, you know,if we can't come you might want to think about regulation on the fees. >> tom, can i jump in? how do you anticipate the attorney general's going to take in this? >> is hard to tell, mr. chairman. her thinking in terms of months rather than a yearor longer. it depends really on how far we get, how the negotiations get. and as we expand the scope, like

you and i believe strongly we should, that expands the time someone as well. >> excuse me, dan, i apologize. >> maybe something on the fees that are the very paper the forced insurance has a huge abuse they are enemies to either be corrected by agreement or by legislation. same thing with the dual track foreclosure and modification at the same time. and if you all could solve the second main problem, which i think is a daunting problem, we'd all appreciate that. you might want to take a look a that as well. >> thank you. mr. levitin? >> i would certainly support everything that ms. thompson and attorney general miller have suggested. but i would also suggest he might consider an alternative that would go a bit further. namely, taking servicers out of the loan modification process altogether. servicers whenever the loan modification business during the transaction processing business. we're trying to get them to

country business line that they are used to doing nd to expect them to succeed or not is really asking too much. and the way to get them out of that would be having some federally administered loan modification program, where you could do this under the bankruptcy power. it would not necessarily have to be done through bankruptcy courts even although certainly be one-way. it would not necessarily have to be a repeat of the chapter 13 crammed down legislation that the senate failed to pass a couple years back. and you could do this through something like mortgage only bankruptcy chapter, where you have an immediate triage between homeowners who can pay and those who can't. and if they can't have an expedited foreclosure proceeding. if it's an empty house come into the back of the market as fast as you can. if the homeowner can pay given the cookie-cutter mod including principal reduction. if you did something like that, though certainly get rid of the second main problem altogether.

you would have another problem, which as you might have four very large large insolvent bank that's a problem that exists whether or not you recognize losses in our leisure. >> thank you here's my time has expired. >> thank you very much. senator reed. >> even anticipated my question, mr. levitin, which how do we deal with millions of individualized cases given the general models of the hamp program, et cetera, which apply to a specific case which require someone to wave the ability of the borrowed to pay, job prospects, et cetera, which all comes down to some type of impartial, both sides respect and impartiality seems over going to do. you might be aware -- i became aware to senator white house's hearings in rhode island at the southern district of new york, their bankruptcy judges are

participating a program like this under their mediation procedures. they've taken a step forward and apparently it is working. they are quickly, as you ggest, finding debtors who in no way can pay given their job circumstance is in the pain and the insurgency is over it and the pain might linger, but at least i won't mind the foreclosure is completed. ratherhe modification is going to affect and make good on there, et cetera. i thk that suggestion is. he mentioned previously and i get comments from others, too. you were talking about a global settlement because you also suggested the implications on the ballot sheets of the banks, the overall economy. what are the components in addition to this bankruptcy type approach would you suggest should be in this global settlement? >> you need to make sure that there's quiet title on real

estate in the united states. that's also something bankruptcy can do. that's something bankruptcy of courts routinely do. so that is one way of sorting through the change of title programs. i think ultimately our real problem is that there are losses in the system and we have to figure out how to allocate them. there's not a solution where everyone walks away happy with no losses. right now both houses are being put on mortgage-backed security holders and frankly on, you know, average homeowners. not just one of foreclosure, but the ones who live next door and have the vacant property next to them for the lawn hasn't been watered and so forth. that may -- the losses have to go somewhere. they can go on the banks. they won the masters or the homeowners with the government. those are the four choices. i certainlyon't like the losses going on the government. we made a move that way in 2008 i don't think there's a lot of appetite to see that expand.

the homeowners -- >> very perceptive. [laughter] >> maybe give me tenure. i don't think anyone wants to see these losses borne by the homeowners, but that's where it's going right now. it's really a question between the investors in the bank. and frankly i think the investors have relly the argument of the more innocent party that they didn't originate these. there was a lot of problems on the origination end. that wasn't the investors part. certainly they bought the stuff and made a market for appeared in certain cases the investors are saying now is that we were buyi at her paper that you sold us. he said you were selling b+ paper and it turns out this was actually, you know, c+ paper. we want our money back. but we need to recogni where to allocate the losses. and we can either just avoid that for a time, but recognizes long as we don't specifically address the loss allegation, we are making a choice. and that choices stick all the losses on the homeowners and

investors. and that's really not where they should be. >> just one point. i want to ask the general his comments about the direction your investigation is going and recommendations and also give you the opportunity for the financial representatives to respond. one of the phenomenon, and ms. thompson as it here. it's worse today and it might get worse. and if the strategy is to just try to hope for recovery independent of anything we do here of solving th problem, we could find ourselves coming back in months or years now with even a worse situation and investors seem more frustrated and more willing to see the banks, et cetera. so there is i think a problem -- a problem for the two shin. the homeowners, financial and the two sins.

and we have to start moving towards a solution, not simply waiting because they're getting worse in my mind or i hope i'm wrong, but that impression. just quickly, general miller, will your recommendations touch upon some of these discussions we've had in terms of a bankruptcy like approach to settle these individual disputes between individual homeowners and banks, take the services out if you will. we'll talk about some type of distribution or sharing of the losses, which professoprofesso r levitin suggested could be substantial. give an idea of where you're headed with your recommendations. not specifically, but what catalysts? >> you know, there could be some commendations, but the core of what we're trying to do will be in agreement with the services, with the banks that are servicers. and you know, we're trying to

figure out ways to change the paradigm with them staying in place. you know, they're not goingto agree to the kinds of, you know, fundamental change that you've talked bout. so our goal is to change the paradigm within the current stem so that it functions. and ideally i think from our point of view, so it functions the way senator bennett, you know, described that it should function. that is certainly our goal. and what we want to do is have some provisions of what we're talking about now, some provisions, some requirements that they have to live up to. only one contact person, deal with the dual tracks and other issues as well. and then i think there'd have to be some way that it be enforced. ybe a monetary something we've talked a little bit about. maybe some penalties if they don't comply.

but where we're at right now is to change the paradigm within the current system of the bank services that you see in front of you and anoer large three. we tak about coming in now, and we struggle with sort of the dysfunction of the system. and you know, we haven't gotten to the point of the resolutions you've talked about. but it's a cyst done, you know, that was designed, as i mentioned, to collect money and turn it over to investors. and now it's a much different this time that has some issues concerning, you know, reliance on fees to pay for some of the new resources they have to bring in the talked a little bit about earlier. the conflict of the second liens are involved there. but i guess, you know, what we are still to do is have enough change within the current players to resolve some of the

issues so that we have amh better sstem, the best syste that we can have, so that when a person comes before them and ask for a modification in the calculation is done quickly and fairly and accurately in the modification they are requesting produces more money for the investor than for closing, then not happen. and i don't think it does happen that often now. i think there are some fundamental problems. so you know, we are trying to do what i'm trying to say. we are struggling with how to do that, you know, in the committee and the committee staff have any suggestions, we'd love to hear from you. come back ..

the economy. and if the economy gets worse for reasons not directly related to this sovereign debt risis etc. than the foreclosure oblem we face today, the bottom keeps slipping down, down, down and this problem becomes. >> and we feel all that pressure, by the way.

>> i know you do. and again, there won't be recommendations if there is agreement there will be agreement but we will go forward from there. >> let me ask mr. desoer and also mr. lowman, implicit in -- i don't want to put words in your mouth -- there could be significant losses here, and the question really is our efforts being made to minimize losses which frankly if i was a business person that might be my first goal for the shareholders or effectively deal with these modifications to follow the guidelines, etc., and i suspect in reality there's probably a constant concept to that, but i just wt to give you an opportunity to comment on this whole discussion we've had. >> thank you for the opportunity. there is not conflict in our mpany.

in the dollar, in the resource, and the capability that is needed, our busine has the support of that. there's nothing more important to the recovery of bank of america's brand to doing this right, listening to peopllike ms. thompson, understanding the senator's individual situations dedicating people, training people to do it. we have moved people as a general miller indicated we have had to build a brand new capability. people process technology to deliver it. we have moved as many resources, exriencehe nderwrte, othersho have exerience into the servicing space to build that. we've made progress but there is no question there is great inconsistency that we are dedicated to eliminating but it is not a constrain. it's not that someone is saying no that will mean a lack of profit for the company, the most important issue in the company and no constraint on dollars

that we will but against it. >> mr. lowman. >> we've sustained billions of dollars of losses in this whole crisis as a banker, and i believe our interests are in fact aligned with other investors. the fact is the best outcome is to keep a person in their home and to keep them paying, and we are all we vintaged by doing that. we don't have anything to gain by having someone go into foreclosure. so i would just echo barbara's comments. our interests are aligned and we are doing everything we can. spanish is the final point this echoes one of the recommendations miss thompson has made on the legislation i had which is basically two require a hint th standing the full attempt to modify would be made prior to any foreclosure that would be enacted that might

require negotiating your agreements with service and the trust. i don't know, but is that somethingyou'd consider as a policy initiative in the banks when it is made of it believed -- immediately? >> that is as we described in the hamp plan today. we have to offer a odification to the foreclosure process. so as time goes on, it wil have to have happened before for osure. >> any comments? >> as i said earlier, first of all, senator reid, thank you for your work on supporting. we greatly appreciate it, and your bill is a very if enacted would be a very important step forward. as i said in response to mr. bennett's earlier, what

mr. lowman just said is over time we will see that a mod will be offered, and the problem is over time means that there are going to be tens and hundreds and perhaps millions of foreclosure that occur until you get to that point where loan modification is offered before for closure, and over time if you're waiting for over time you're going to see millions of dollars of fees piled on to homeowners accounts which makes the modification much more difficult. >> final word. the chairman has been very, very gracious but i think it's important just to remember that hamp -- the modification only place to hamp and only about one of six loans that is currently 60 plus days delinquent is hamp eligibles we have a problem of hamp being a program that has had to back narrow a focus and that really doesn't solve the problem. >> thanks, mr. chairman.

>> attorney general miller, the outset of my opening comments i talked about the importance of getting this financial stability council that we've established in the financial reform bill to anticipate systemic risk and collectively work as a body chaired by the secretary of the treasury along with the fdic, the occ, there are ten members of that, independent member and five others that are part of it. this seems a classicand we didn't anticipate and we drafted the legislation but exactly we are in crisiswith this. we can argue it's not a systemic crisis that we sa an 08, but we are in te middle of the crisis. the idea of course was to minimize the crisis so we don't go into the larger systemic crisis. have you had any contact with secretary of the treasury is there any communication going on with the attorney general's and of the chairman, the treasury,

the office to begin to talk about the will of the federal government might be in formulating an answer to all of this? >> we haven't had any contact with the council. we have the repeated contact with the department of treasury, with the assistant secretary, michael barr, and his staff. we've developed a terrific ongoing relationship with them and talk about these issues and try and help and support each other on these issues. as we've had a lot of discussions with treasury but not that particular. >> it seems senator warner and others -- senator merkley has a similar thought. i'going to use this and obviously a public setting to urge the secretary of the treasure and others to convene that council, to begin to work with you and others so that there is a role to examine this question in seeking broad solutions to this question so my hope is they will hear this request to pick up that obligation that we have laid out

in that legislation. i want to ask if i can also as well both you, ms. desoer and mr. lowman, to respond, if you could, to the suggestis that ms. thompson made regarding the three raised and anyone else can jump in on this but i would like to get your response and he argues the elimination of the to track system we just discussed and as pointed out, only one in six, and again having been involved in the crafting of him, we are trying to put together a bill in this committee that was awkward and trying to get a majority getting 60 votes and doing the best wecn to have some answer to all of this at the time and if i could have written their loan to a difficult minefield politically here in the institution, but i want to get your response to the elimination of the two truck system. forget whether hamp requires it what is in your interest or would like to see happen in all

of this regarding the homeowners are fully evaluated for the loan mofication before the foreclosures. second, she proposes failure to offer loan modification was such a modification is net present positive another was the modification has a better return for investors than foreclosure allowed to be used as a defense against foreclosure and third the principal reduction should be mandatory under hamp and i've been advocating that for almost four years principal reduction would really address this issue directly. but i would like to get -- mr. lowman i would like to add with you commenced of going first we will have you go first. give me your answer to these three. are you in favor of them or not and why? >> first with respect to the to track system, as i mentioned the hamp program already requires -- >> forget for a second. would you be willing to accept what is argued? >> i think we have to be careful with that and i just believe

that we have now a process inside of our company wherever redefault's vara were gets linked up with a single person and a single accountability. >> how you what is the point he made earlier. if you're going for -- to have a foreclosure and all of these costs are mounting of it seems you are working against yourself if you're trying to get a modificati. wouldn't you be advised to get a modification? >> right, so that's currently -- >> but you are doing both at the same time to use the mcalister the modification process much sooner than the borrower is referred to foreclosure. ressa the modificaon process with the first talk -- >> so you reject that. tell me about number two. >> to make sure i unerstand number two can you repeat it? >> correctly if i misspoke, she points out tht the modification is better in turn for investors in foreclosure to be allowed to

use that as a defense against foreclosure. schenectady the way the process works is we run the net resent fell you models to determine ether or not we should for -- foreclose and whether it is in the best interest to modify we offer a modification. >> if there is a net present dalia that makes it more valuable than foreclosure that proves not to be the result -- >> if we should modify the london and should be modified. >> what about the principal reduction, mandatory? >> principal reduction, first of all, we are participating in the hamp principal reduction that was recently rolled out. all of our analysis indicates that what is most important is that the borrowers ha affordable mortgage payments and we've got lots of experience

having done many modifications. and we do that by reducing the interest rate, by extending the term, and by deferring principles where necessary with no interest attached to that. we as a servicer have a duty to our investors to minimize office and principal forgiveness potentially increased losses, it then lastly i think if we want to rebuild the u.s. mortgage market and continue to have investors and banks have confidence in the market, we need to ensure that the collateral values are there. >> and a stand that, but going back i recall four years ago making the case the was a study done in the square block of chicago. one study immediately caused the lowering the value of every other property on that block immediately by 5%. you end up with two or three foreclosures on a city block and to get a larger obviously impact. why wasn't it make more sense to

go directly of the principal issue which makes it greater possibility that homeowners be able to afford that mortgage and then avoid the kind of cascading effect we see in the standards which is obviously you can't work to your interest. >> we are able to achieve affordability with the tools that we have today which includes the deferment of principle. so you get to the same and state. >> i wish that were the case. ms. desoer, how about responding to those three points. >> as i discussed we are very open to discussing changes for the existing pipeline that is going through the track. i agree with mr. lowman that with everything we've done, hopefully nobody is eligible for a modification dates to the start of a foreclosure, but we can't -- we know e've got a peline to work through so we are minimal to that. on the -- on the second issue wow degree and then the third issue of the principal reduction we do have a proprietary program that we are executing with 40 states and the principal

reduction program, and we are participating in the principal reduction program. we have the hardest hit states with government funding and those are the places where it is the largest issue. thank you. >> senator merkley, do you have any additional questions you would like to raise? i'm going to leave the reco open, but we believe this is awkward with caucuses around here and everything else to leave the record for a few days with other members to submit questions to the panel. >> thank you very much, mr. chair. i just want to clarify a couple points. i know that we sought to create a safe harbor for the servicers from the investors so that they were following the hamp program that they would be in the safe harbor with the safe harbor not provide enough protection to disconnect the foreclosure track from the modification track, and do we need to take action here to provide an expanded safe

harbor? i guess i just i come because of the constituents streaming in the doors with the enormous stress connected with working on a modification and ye some other group of folks somewhere within the same servicer are pursuing every step on foreclosure it it just seems like the two parts aren't talking to each other and they are enormously stressed and it seems like there's a good faith modification effort under way that the foreclosure process of to be shut down until it becomes clear the modification will work. event gears up again. but what do we need to do to help create the ability to read and ms. desoer, you refer to that you're working on this, what do weneed to do -- 22 anything? what needs to be done to help create a legal framework that will allow you to ke a step that would be a tremendous step

forward for american families? >> first, the safe harbor has enabled us to get to some of the 700,000 permanent modifications that we've done is certainly the 85,000 that we've done under hamp because without that not all the investors would have agreed to those modifications who do today so that has been beneficial. on the dual track as an investor which is about 23% of our servicing portfolio where bank of america is the investor on those mortgages, we have the ability to do something about that because we have the authority ourselves as investor as well as servicer, but for the rest of the investors it would take their approval to make a change, and that would include the government sponsored enterprises and other private investors as well.

stomachs of it is a process directly pursuing, you are requesting those changes in the servicing contract? >> that is what we are in the early discussions of with the state attorneys general about seeing if we can use that forum to get investors to the table as well for consideration in that. >> i didn't hear you mention anything that we need to do here to provide additional legal framework. mr. lowman company -- per your sense to you need additional legal authority to be able to set the foreclosure track aside while you are in good faith modification? >> i am not certain that we have the right safe harbor, but frankly, i'd like to follow-up. >> the would be -- the would be great. >> -- on that question. >> this is the last question i will last. everything we talked about this so complex. i have 100 questions, but i will stick with this one, and that is mr. lowman, you noted that your services -- your interests are

aligned, and m. desoer, that as a community bank you have a huge stake with the family bank and so forth, but is it different when you are contracted to be the servicebut you don't on the loan? you don't have a stake in the success of the loan if you will, you have a stake only in the fees generated by the servicing unit. in that situation is it really the case as ms. thompson has been laying out that there's enormous financial incentive of this is servicer to pursue this foreclosure track that she has all these charts and information that she is analyzed and it is her testimony fair and if it's not, what is she missing? >> as a reference, we are not perfect. we inconsistencies as we've built our capabilities out, and

there are customer issues. i don't deny that. we worked every day and have the aff to support all of our customers who have those issues while we get to the point we can eliminate the issues that we have. you have to remember the financial cost is one aspect of it, but the reputation cost to the bank of america brandt is a very powerful driver of why we are working as hard as we are to get this right and why we listen to customers, community groups certainly working with state attorneys general spirit our interests are igned working to get this right which is for a homeowner who has the ability to pay and a desire to stay in their primary residence is in all of our best interests to get to a solution that enables them to do that by taking care of all

of the programs and abilities and resources that artificial and that is what we are committed to. >> so from what i just heard your not contesting her analysis of the financial and incentives that certainly favor for closure but because repetition the bank is at stake that balances that out. >> i have not looked all the analysis and would need to do that to confirm or deny that with you. >> yes, professor. >> i would like to point out many servicers are in a different situation than bank of america. bankamerica has a lending in its own name. there are plenty of services though our servicing units of a major bank but service under a completely different name, and the consumer isn't likely to make any connection between any misdeeds brought by the servicer and the lending unit. >> so professor, in that case of the financial incentives to pursue foreclosure by defense of

the reputation of the banking institution. >> you couldn't even make such a claim. that's correct. >> mr. lowman committee want to share your thoughts on that? >> as a servicer, the calculation that's used to determine whether to foreclose or to modify doesn't take into account our remuneration as a servicer. and i think it's imortant to noted that as i said earlier, we make money. we earn fees on performing loans. and when we modify a loan we get the servicing stream because we've made it a performing oan, and to the extent it is the hamp we get an income stream as a result of payment from the government for having successfully modified the loan. so i guess i don't agree that we are incentive to foreclose.

we in fact our incentive to modify. >> well i just want to thank you all for addressing these complicated issues. i don't think we really got into the other big piece of this which the chair referred to which is a systemic risk that comes from the legal issues that are being raised and how we can really get our hands around that which is important to both homeowners in terms of the right and economy and availability to credit, but certainly i've learned a lot and thank you very much. >> let me say that would hopefully be the subject matter in the next hearing on the subject matter because i think it is a critical point we have to address and i say ts respectfully of others and i know the oversight panel made suggestions somehow this was much larger than a technical issue and i am not disagreeing that may be the conclusion but it's just as premature to make that conclusion it's a technical problem and so the case language like that can cause its own distortions and i get a little uneasy without knowing the implications of what we're doing

making predictions among those lines in. i had a chance to talk with ms. desoer, and correct me if i'm wrong but i thought this was interesting. 30% of all foreclosures nationwide are in the judicial states, i think it's 23 of the judicial states. 68% of the foreclosures are in the state of florida. is tht correct? >> of the 23 judicial states in bank of america's portfolio of the foreclosures, over close to 60% are in florida. >> and 70% of the foreclosures tionwide are in the nonjudicial 27 states are nonjudicial states. and of course in the nonjudicial the burden is on the homeowner as opposed -- and simplify and this, looking a attorney general probably rolling his eyes to make the broad sweeping statement but as i read

basically the burden shifts in a nonjudicial and judicial state, and correct me, tom, if i'm wrong but on the nonjudicial, the burden is on the homeowner to make the case they've not been able to make a payment and so forth where as the judicial the burden is more on the surface inside of the equation. am i supply and that? is their anything i should draw from the statistics that 70% of the forclosures are on the nonjudicial? the there's something about that equation that places the burden on homeowners while we are seeing so much more of the foreclosure occurring in the nonjudicial state as opposed to the judicial state? am i just reading too much into these numbers? >> senator, i think it's mre related to economic factors, like unemployment or housing price declines as to the states that are experiencing the greatest level of foreclosure. so i don't think florida is related to the fact that it's a judicial or nonjudicial state

but to the state of the economy -- >> that would make sense. but otherwise when it is not the case as the judicial framework -- those that have been a strong implication in the outcome in terms of a modification versus a foreclosure? >> senator, one point is of course california and nevada are nonjudicial foreclosure states, so that makes a big difference. there are some studies that show that being in a judicial for closure state increases slightly less likely to lead the modification so ere is some evidence -- >> not the 37 numbers. i wouldn't think the numbers would be that high. >> i want to thank ms. desoer for sharing this information with me and again it's a separate subject matter but one that concerns me, and that is when you are getting the foreclosure homes were bought it

wasn't 40%, 30% of the r closures that are brought are brought with cash. >> for 30% of all of the u.s. home sales are cash purposes. of all u.s. homes sales 30% are purchased with cash, and i can give you the study that produced monthly that shows that makes of how many new homes puchased are purchased for cash or financed with a conventional mortgage or financed with an fha mortgage as an example but 30% of the last month has been running about that for several months entire home purchases and cash purchases. >> further again, correct me i i am interpreting these numbers in too broad context, but that number brought with cash these are not owner occupied these are investment properties. >> the vast majority of those

purchases are investors as opposed to primary homeowners, correct. >> and in the implications that means in terms of neighbhoods and so forth as having owner occupied verses rental properties. >> if it's concentrated n terms of the mix of investors coming into a community it could mean a shift from primary omeownership to rental but the primary incation of a strong to say is there are investors with cash who think the price of the property is right off of which to earn a retu as a rental property, and i think in certain communities where as we acquire the real estate for our own portfolio after a foreclosure sale those properties to eel relatively quickly. >> gallen a great advocate we need to increase rental stock in the country. one of the problems is we have such an emphasis on home ownership that we have a limitation of increasing rental stock and that's created its own

set of problems. but is there any correlation between having less owner occupied properties and the value of other properties in that neighborhood? >> i don't know the answer to that you estimate this thompson? welcome thank you very much. it's a long me, i'm sorry for starting lead but otherwise it would have been difficult to hold all of you here so let me thank -- but we thank all of you for your testimony. i will lve the record open so that members can provide additional questions but it's been helpful to hear what you have to say and i am grateful to all of you for coming and sharing your thoughts and tom miller, the attorney general, thank you for what you're doing and how hard you're working at thisnd i hope you might make that call to the treasury department and would like to hear what this systemic council is also, what their thoughts might be on this as well it. we will stand adjourned. hearin

speedy hearing will come to order. could after now if you. i apologize for being late. we have one too many caucuses and in the course of this organizing few days here but we appreciate the opportunity to have this hearing and i thank you for your patience and also for bearing with us as we moved it back just a little bit to accommodate senate schedule. we are here today with a group of senior industry officials to examine the recent disputes between video distributors and broadcasters, and i thank all for being here and given the truncated time i'm going to try to summarize my statement and we will try to move as rapidly as we can to the testimonies. at issue in these disputes are the fees that broadcasters charged distributors were retransmitting the broadcast signals sent over the public airwaves. too often the negotiations over those these lead to both sides

putting up web sites and ads, calling each other greedy, urging consumers to take aside and warning those consumers about the loss of service. that is typically followed by tense last-minute negotiations and in some cases the pulling of the signaling continued recriminations until one side or the other bends or breaks as the case may be. at the end of the process, after that period of consumer uncertainty, there is no transparency in the price reached or the nature of the agreement. "the new york times" now characterizes retransmission consent come for patience patients as a quote regular event, and bloomberg news says quote, tv blackouts in the usa briefs the highest level in a decade and may climb as pay-tv operators bite higher fees sought by content producers. during the most recent of these disputes, millions of cablevision subscribers

interested in watching fox had to find a place other than their home to do so. one couple ended up having to watch the giants game in a bar instead of in their living room. the wife, marilyn o'dell, told "the new york times," we are too old to be in this place. and on the other hand, for bar owners subscribe to cablevision, they lost business. an ap story quoted one saying, this is ridiculous. i am relying on people to come and who are giants fans and they are walking out, even though i paid for the football package. and he went on to say that quote, regular everyday people get caught in the middle. and that is precisely what rings is here today. our goal is to discuss alternative ways to resolve these disagreements and to protect the consumers. that is what brings us to the table. our predilection is not to get involved, not to try to somehow

manage the marketplace in ways that you know are inappropriate and our first i think in thing for everybody here is to want that are good place to work effectively, but when the consumers keep getting crunched in the middle and keep coming back to us and saying we feel powerless, and we seem to get screwed. we are tired of it. that is when we come to the table. our constituents should not need the ponds in these corporate negotiations and i'm concerned that without a better, more transparent process for dealing with impasses in negotiations inadequate fcc oversight, more fights and disruptions of service are what people have to look forward to. prices for consumers will rise and independent programming will get crowded out. during the recess, he circulated an alternative process for resolving an impasse. it would still allow a broadcaster to pull a signal, wouldn't take away your market

power, but it would limit it to a last resort after the fcc have executed some oversight over the negotiations to ensure that the parties are acting in good faith. hopefully, we can encourage greater cooperation by staving off the pulling of the signal and imposing transparency on offers in case of a true impasse. ultimately, parties are going to ask consumers to take sides and deny them service, then frankly, consumers deserve to know why. ..

>> we'll go into the testimony, thank you. >> thank you, mr. chairman, video programming in marketplace america today is incredibly robust and diverse. video content owners negotiate dozens or hundreds of deals with their distributers. most get done quietly, but as we've seen lately, any negotiations are more difficult. this year they have captured the attention of the press and policymakers alike. in the case of cable vision's negotiations with abc and fox, millions lost programs while deals were being worked out. in light of these disruptions,

it makes since for the committee to hold a hearing on the laws that impact distributer negotiations. there have been extraordinary changes in the tv marketplace since the rules credited in 19 1992. americans can watch high definition digital broadcast over the air for free and can be on pay tv services offered by cable companies, dish companies, and telephone companies. in 1992 there were far less cable channels available. satellite was not a robust competitor to cable, and telephone companies were not in the pay-tv picture. companies have access to a remarkable array of online video content that they can watch from their computer, tv, cell phone, or mp3 player.

it may be time to consider revising our retrains regulations. while i appreciate the thoughtful work senator kerry has done on the issue, i have concerns on the idea of putting the fcc in the middle of negotiations. we shouted take a holistic look at the copy right rules to see if we should move them in o more free market interest rather than competition. indeed, congress directed the g oorks o and the copy right office to study that. during a hearing last year on stella is one of the several provisions that impact the negotiations. like i did during that hearing,

i urged my colleagues today to think whether our regulations fit today's market place. this hear k is part of the process to review the appropriateness of those regulations, and i want to thank the chairman for holding today's hearing. i want to thank the panel of witnesses before us. we know you are busy executives, and we appreciate the time you've taken today. thank you, mr. chairman. >> thank you. i also recognize that you are busy folks. television is a powerful force, but i believe the system we have to developing television content, packages that content, and driebting that -- distributing that content is broken. it may serve companies well, but it does not serve us well. as consumers and probably more importantly as citizens. let me explain why.

when it comes to developing content, our entertainment machine is too often in a race to the bottom. in fact, it is in a race to the bottom, getting close. even worse, our news media has all but surrendered to the entertainment, and most of the news is entertainment opposed to news. up stead of -- ib stead of a watch -- instead of a watchdog, we have a barking of a 24 hour news cycle. we have journalism that is ravenous for the next rumor, but insufficiently hungry for the facts that can nourish something called our democracy. as citizens we are paying one heck of a price in the dumbing down of america. you're partly responsible for that. when it comes to packaging

content, why do consumers have to order so many channels? why do they have to pay so much when households watch so few channels? the old add damage of 500 channels and nothing on as never been as true as it is today. when it comes to delivering content, why do we pay so much, the federal communication tells us from 1995 to 2008, the average monthly price of cable service rises three times of the rate of inflation. no wonder customers are cutting in record numbers and turning back to the over the air television and turning on to programming over the internet and other sources. they are tired of paying rates that go up so much every sing of

year. in our hearing today we do not get at the root of the problems, and i'm here to make this statement. that is is a broader discussion we will need to have and will have, and indeed it's a conversation we owe to the citizens of this country. today's hearing is important and timely because we make a good faith effort to address one of the symptoms of these broader concerns. we're talking about retransmission con acceptability. this is a policy that allows local broadcasters to negotiate with cable and satellite companies or carrying of their local stations. when it works, they see it on their satellite systems. when it fails, they are filled

with the dark screens and denied access to local news and sports programming. that's what happened obviously to millions of television viewers in new york who turned on their sets to watch the world series, but didn't quite get to see that. let me caution our withins today -- our witnesses tod. -- today. this affects our situation. when we do that, we'll seek to do more than referee your corporate money disputes because more than just retransmission consent ails our television markets. we need new catalyst for quality news, and entertainment programming. i hunger for quality news. i'm tired of the right and the left. there's a little bug inside of

me that wants to get the fcc to say to fox and msnbc, off, out, good-bye, it would be a political favor to do our work in congress and for the american people to do some faith in their government and more importantly in their future. we need slimmed down channel packages that better respect what we really want to watch, and we need to find ways to provide greater value for television viewers at lower costs because people are tired of always escalating rates. again, i thank you for being here today, and i greatly respect senator kerry and the interest he's shown in this whole area in which he was most expert. i thank you. >> senator rockefeller, thank you, thank you for an important and i think courageous statement.

i appreciate it. senator lottenberg has asked for an opening statement. if we get tied up with every senator, so can i ask for that up -- indulgence? >> mr. chairman, i just want to say that i'm very proud of our chairman for that statement which arctic collates what so many of us have been feeling about the slow decline of bringing news to the consumer and the consumer having available packages that they want to see and that they don't have to buy something that they don't want to see, and that they are not threatened as u you pointed out in the screen going dark, you pointed out in the northeast it happened a year ago in the sue gar -- sugar bowl when the university

of florida was playing and there was a big dispute between fox and one of the cable companies, and of course, that was the threat up until the 11th hour, the 11th hour and 59 minutes, as a matter of fact, so let's put the consumer first, and i'm delighted that we have uni even vision here today. >> we are here today to make sure the american people are no longer forgotten in the fight between the cable companies and the broadcasters, and this isn't about taking the side of the broadcasters or taking the side of the cable company. this is about taking the side of what i'll call the customers who need us to look out for them. the big media corporations believe it's good business to leave consumers in the dark while they haggle over their

latest retransmission gain. that's what happened in recent battle between fox and cable vision when 3 million subscribers already mentioned including 1 million new jerseyians were unable to see their favorite programs or anything they were interested in including part of this year's baseball playoffs. make no mistake, this is about much more than simply being able to watch sporteds on tv. television remains a lifeline for millions of america even in this age of ipads and youtubes. more than 80% of the viewers receive television by sub subscribing to cable services. they rely on this service for news and programming. seniors rely on television as a source of critical information like emergencies in their

community that may affect their safety, and many parents depend on educational programs to help their children get ready for school and it's wrong to hold viewers like these hostage during negotiations and it's wrong to treat them like chess pieces. it's wrong to deny viewers the ability to see programming that they need and that they want and need and pay for. we've got to put a stop to these programming blackouts once and for all, and that's why i'm pleased to work with chairman john kerry and legislation. it will put the focus back where it belongs on the consumers. our proposal would require a cooling off period when programming must be kept on the air during an impasse in negotiation, and mr. chairman, my support to work with you is

unbounded. we're going to get this done. i look forward to hearing from our withins. work together to make sure american television viewers are never again left in the dark. >> thank you very much and thank you for your patience, folks. we are pleased to welcome the ceo of warner and e.c. and you are not feeling well and may have to leave early, but we appreciate you hanging in here. mr. tom rutledge and mr. chase kerry and mr. charles segers thank you all for being here. mr. britt, would you lead off and we'll go down the line? >> good afternoon. i want to thank you for invite

ing me here today and i want to express my appreciation to members of congress who recognize the regime is fundamentally broken and in they'd of reform. i'll focus on three points to demonstrate why reform is needed. first, congress created retransmission concept 18 years ago as a property right to subsidize free over the air broadcasting, but much has changed since that time. when retransmission concept was first created, broadcasters and able operator each enjoyed local monopolies, and as a result they came from equal positions of strength and with a shared interest on reaching an agreement. this produced a process that was essentially invisible to the public, but retransmission concept negotiations now occur in a vastly different

environment. today, the pay tv industry is robustly competitive while local broadcasters have benefits that now distort negotiations. that has allowed to play off of each other and encouraged broadcasters to take more extreme disruptive conditions rather than compromise. consumers are the ones getting hurt. unfortunately, this imbalance in negotiating power is exacerbated by the fcc's rules which take a handsoff approach based on the outdated assumption that broadcasters neither have the incentive or ability to disrupt signals. the fcc has brought statutory authority overbroadcasters and the retransmission rights. there's coalitions with diverse

interests asked the fcc to adopt new rules to protect consumers such as dispute resolution measures. despite wide sport for these and other reformed proposals and the growing number of disruptive retransmission disputes, the fcc has failed to act. instead, the fcc insists its hands are tied when it comes to protecting the public from the consequences of retransmission concept fights. my second point focuses on the impact on consumers who are bearing the brunt of the fcc's inaction. broadcasters have both the incentive and the ability to put nsumers in harm's way during negotiations. as we've now seen on several occasions, broadcasters are willing to hold consumers hostage by pulling signals as a negotiating tactic. even when a service disruption is avoided, viewers are

subjected to weeks and even months of misleading advertising designed not to inform them, but to put pressure on tv providers to give higher fees that ultimately will be paid by consumers. finally, i'd like to put to rest one of the arguments often made by those opposing these reforms. namely, that the government should not interview with free market negotiations. time warner cable agrees that free markets are preferable to regulated markets. retransmission consent, however, is not a free rket. rather, it is one of the special privileges given to the broadcasters by the government as part of outdated regulations. these special privileges which include must carry rights, territorial exclusivity protection, a guaranteed right to basic care are supposed to

safeguard programming. time warner cable does not object to paying broadcasters to retransmit signals. our objection is to a government sanctioned process putting consumers at risk. in order to protect consumers, congress should encourage the fcc to exercise its existing authority and to mental anguishuate rule -- initiate rule making. in addition, congress should continue to explore legislative changes. if broadcasters truly want to operate in a free market, then they should not be allowed to keep their special privileges, but if broadcasters want to obtain their special privileges, then congress and the fcc should update the rule from preventing consumers to gain leverages on negotiations. we look forward to working with senator kerry and other members

on the committee on this important issue, and i'll be happy to answer any questions you might have. >> thank you very much. >> good afternoon, thank you, chairman kerry, chairman rock feller and members of the subcommittee. i'm the president and ceo of univision. a program reduction business, our radio stations, and our online services, we own and operate 62 television stations across the united states and in puerto rico, making us one the top five tv station groups. today, i'd like to share yiewn vision. i think our experience powerfully demonstrates the importance of the rtc system to the power of the broadcast platform and the communities we

serve. traditionally stations relied upon the must carry rules in order to have cable and received no compensation from multichannel video distributers for our programming. at the same time, our programming like that of other broadcasters was helping propel the growth of those distributers. in 2008, univision took the step of announcing we would embark on negotiations with our distribution partners seeking for the first time fair compensation for the valuable programming our stations offer. over the next 18 months, uni vision had agreements with cable, satellite, and telephone companies. these were reached bout disruptions and their viewers.

we decided to elect retransmission consent for several reasons. first, we recognize in order to meet the changing needs of the rapidly growing u.s. hispanic community, we needed the additional resources that come from a dual revenue stream. second, we believed it would be fair to participate with our distribution partners in the value of our high quality program. indeed, the audience for uni vision's distributer have been paying carry fees for years. finally, we elected retrain mission consent because we saw an opportunity to establish long term, value-creating partnerships with our multichannel distributers such as the leading spanish language video on demand service. revenue from retransmission concept enabled to expand the mission of informing,

entertaining, and empowering hispanics in the united states. for example, we recently launched campaigns to promote the value of education in the hispanic community, encouraged hispanics to participate in the u.s. census, and promote financial awarend and planning in our community. we created univision studios creating programming on our station. we launched a nationwide voter education drive to help boost hispanic voter turnout in the midterm elections, invested in the most rebust election coverage we have ever offered and hosted debates. listening to the rhetoric of content, one might have thought we would have never been able to reach agreements without disruption. as a direct participant in the deals, i can personally attest

that we were able to do so because in every retransmission consent negotiation, there's natural incentives for the parties to reach an agreement. from univision's perspective, the desire to reach a deal without disruption is a motivator. it's our most valuable asset. we believe that our distribution partners face similarly compelling negotiations to reach a deal. they understood that a signal disruption created the risk of subscriber nutrition and severe customer dissatisfaction. i understand the concerns of elected officials that their constituents not have to face the temporary loss of a favorite station on cable or satellite, but we are very concerned that government mandates requiring us to provide our program to a

distributer even where we failed to reach a deal would distort the market by the primary incentive to reach agreement. we are concerned that even the threat of government intervention will have a negative impact on our business. investors know that mandated interim karria -- carriage only -- thank you, mr. chairman, for allowing us to join in the conversation today and i look forwards to any questions. >> thank you. >> thank you, senators. let me begin, mr. chairman, by commending you for the leadership you've shown in this area and as you noted broadcast agreements are reeking havoc and we need to resolve them without

holding customers hostage. the dropped legislation was a good framework, and we look forward to operating with you. i would like to make two simple points today. first, retransmission can set negotiations take place in a liely regulated -- highly regulated environment that favors districters and hurts consumers. it is not a free market. plain and simple, the rules create the potential for network television blackouts and raise prices for consumers. second, because of the government laws created the problem, only the government, the fcc, or congress can fix it. we proposed a few modest changes to stop blackouts and protect consumers. here is why it is broken. fcc rules give local broadcasters a monopoly on local programs and markets. the cable and satellite provider wants to carry that programming, but thinks the local broadcasters price is too high.

too bad. they prevent that provider with negotiating with the hundreds of other stations across the country with the same network content. government rules also require that our subscribers buy the broadcast channel before any other cable service regardless if they want that station or regardless of the prices charged by the broadcaster. the government gives the broadcasters free distribution and gives them carriage through must-carry. finally, cable operators are prohibited by law to drop a programming during sweep week, yet nothing prevents the broadcaster before pulling the plug before a big testify vised event. last month programming from 3 million households for 15 days blocking out major league baseball playoffs, the world

series and football. the rules that allowed this blackout were created by the congress and administered by the fcc, but the fcc claimed to have no power to restore the programming. any claim that broadcaster not been paid for their broadcast channels is false. broadcasters have used existing rules to force other cable networks that they now on on to cable and satellite systems charging billions of dollars for the cable networks in return for permission to carry their broadcast stations. broadcaster own have grown from just 8 in 1993 to over 90 channels today. in fact, the driving force behind the rate increases in cable is the ability of broadcasters to demand take and pay for the 90 channels and tieing them to reconsent of their broadcast stations. government law has created the

problem, and so only government, the fcc, or congress can fix it. we have proposed to the fcc is few modest changes to begin implementing now to take consumers out of the middle. have consent agreements to the carriage of broadcast channels so the actual cost of broadcast stations are clear. sec, require transparency. there's no reason why the cost of carrying networks needs to be secret. retransmission fees should be public, and third, forbid discrimination. broadcasters set the price of carriage, but not on cable and satellite providers.-"f

>> without reasonable revenues, broadcasters cannot compete with cable channels. we have seen an increase of sports migrating to cable, college football, championship series, and other major events, major league baseball, college basketball. local news could be less local in nature. ultimately, this result would be devastating for the americans who rely on over the air television because they don't have video service. moreover, in a digital world of increasing fragmentation where advertisers have ever-expanding choices, it is unrealistic to believe broadcasters can compete with cable channels without a dual revenue stream. to argue the price are replacing access to dual revenues defies economic reality.

second, some claim that the retransmission consent process is broken. the definition of broken is not when one party doesn't want to pay a fair price. an issue is a rate negotiation for carriage of a channel. they negotiated thousands of agreements over the years. if we were asking for an unprecedented rate, then maybe one could say this process is broken, but we are asking for one that puts us well blow espn and others, all channels with a fraction of our audience. there's large percentage inningses, but fox received no cash cap before and any increase over 0 appears large. the statement that the process is broken is also puzzling given we have successfully included agreements with the three largest contributes without disruption.

our deal with cablevision resulted in a disruption despite we began negotiations with them more than a year before our contract expired, and yet we found ourselves in october working with a company that didn't want to reach a deal despite the fact that cablevision was offered the same rate with the broadcast stations we had negotiated. cablevision agreed the rate was fair, but they just didn't want to pay it. their goal was to politicize the issue and interject the government into our private negotiations. for the disruptions that occurred in the marketplace this year involved one company, cablevision. everyone in the room cares about viewers, however it is important that the government not let a sector, private industry, manipulate a process to gain advantage. we believe there are steps that can and should be taken to protect consumers. first, we request educate

consumers on their options for getting signals elsewhere by hooking up to an over the air antenna or switching to another distributer. we can require the consumers get a rebate credit if channels are removed from their lineup. in conclusion, the retransmission consent law is experiencing growing pains because broadcasters like fox are seeking cash compensation. the good news is the actual interruptions in service are few and far between. in this period of adjustment will be short lived one distributers accept they have to pay a fair price to resell broadcast content just like the other content they distribute. it is the most effective and efficient way to help consumers whether this short unrest. thank you. >> mr. chairman, committee members, on behalf the ovation, the only national network

dedicated to arts and culture, thank you for inviting us to testify. i am the ceo of ovation, a viable, independently owned tfg network that has earned carriage in 43 million homes, paid a fair rate on market based rate to providing consumers. they include time warner. mr. britt was the first. direct tv, when you were returning direct, you launched our service. dish charter communications and even today, comecast cable. mr. chairman, the detrimental affect of this concept threatens the very exist enof independent networks like ovation. i am here supporting reform of these regulations to ensure consumers have access to a diversity of voices in television. senator, kerry -- senator kerry, you pointed out that the old rules are outdated

and to continue what the status quo is bad for consumers, competition, and democratic participation. as an independent programmer trying to remain competitive, your words ring true. this regulatory structure restricts our ability to grow our distribution, maintain fair subscriber fee to the networks #, and reinvest those fees into programming for an underserving consumer. retransmission enabled primarily the largest broadcast companies to bundle channels, easing up band bandwidth and taking up their fair share in fees that would otherwise be available in a free market system. i fully grasp the meaning of being between a rock and a hard place. it's the predicament that innovation and all programmers find themselves in today. on one side it was a well-operated integrated media

company who since 1992 traded retransmission consent to retain carriage and fees to launch all new network. now they are seeking effectively to get paid twice through a redistrict payment of broadcast programming and on fee increases on the cable channels their concept een abled them to launch. on the other side are major distributers who believe they are forced to carry networks they did not want, and now they pay for a retransmission, a free over the air broadcast signal that adversely affects their ability to affordably provide tv to their subscribers. between these companies is the last remaining independent television networks. with retransmission fees likely to top $1.3 billion in 2012, distribute ores will have to look to their customers to make up the difference, and they will

have to cut programming costs. independent networks with no service bundling advantage through retransmission and limit leverage despite the arts will be targeted. as a result, diversity in programming, one of the very reasons retransmission consent carried in the first place will vanish. this is a call for a level playing field. if large broadcasters can use their air waves owned by all americans to extrablght payment for historically free tv services, then let's not allow them to bundle all their services with it. if an alternative dispute resolution process for distributers and programmers is to be considered, please don't limit it to only programmers on concept, but open that dispute process to all programmers including the few remaining independent ones. the greatest measurement of our democracy serves the freedom it gives to people to express their

views and ideas and information. you can mandate an examination of consent and recommend an adjustment the regulation to better safeguard our freedom by ensuring the survival of diversity of independent networks in the media. on behalf of ovation, the only network in america, thank you for your time today. >> well, thank you for your time. thank you all of you for taking time to come in. let me first of all just begin as a matter of a framework. i like to have this kind of hearing. i know sometimes, you know, congress summons the executives, and we have thee show and tell deals. that's not my way of approaching this. i'd like to have a thoughtful dialogue with you folks to really try to understand this tension in the marketplace that obviously has an impact, and i think, you know, our preelection

as i said earlier is for the market to be the marketing, and to let pricing be determined by the legitimate forces of the marketplace. the problem is that what we have here, i think, is a situation where a lot of the participants in that market are expressing the view that as was just said, the playing field is unfair and there's an inability for them to have a normal market relationship. now, to try to understand that, we need to sort of bear down on sort of what the number of things. first of all, i think we ought to dispel ourselves of the myth that this is sort of just a free market, and we ought to bog out, and we don't have an interest. it seems to me the case is fairly strong that when you have

the several elements that were laid out earlier by mr. britt, i think, that you got the retransmission concept, you got spectrum itself, sweeps week, safe harbor, those are all government granted privileges. your access to the american consumer is fundamentally a government granted privilege based on a certain set of standards which we don't always measure very effectively, but within that, you know, we have obviously tried to allow those forces -- i remember when we wrote the 96telecom bill, we were behind the curve because within 6 months of the ink on the bill it was completely jut -- outdated. it was a debate in a new age

information, and everybody got left behind, and that's the world we're operating in in many ways with huge transformational impacts. let me begin by trying to figure out a couple things if we can. first of all, i accept that there are thousands of these agreements in which you all reach agreement. is there something particular that distinguishes those cases where you can reach agreement from these sort of celebrated cases that wind up with a pulled signal? anybody want to tackle that? is there a way to frame why you can reach the agreement easily in some of those cases and the p's seem to be fair? >> sure. i think the easiest answer is if the rate of fee increase to the distributer is proportional to the kinds of general cost increases that are occurring in an economy, it's a reasonable expectation that a deal gets done.

when someone comes in and asks for a very disruptive price and in our case, somebody else paid the price, therefore you must pay the price regardless of what your conditions or market is, then you have a very big rate increase potential or a big cost increase potential to your business, and so i think it's really a question of degree and how exploy at a timive the request is. >> so your judgment, i mean, basically what you're saying is in the most recent case with respect to the world series ect., those fees were accessive, is that correct? >> yes, from our point of view, we had done deals over 18 months with cbs, nbc, univision, and abc, and all of those deals were less than being asked for the particular service in question

that had the world series, so that was -- we thought that was a lot, and we thought it was irrational, and we thought that we should say no to that. you know, ultimately -- >> but to what degree might there be a legitimacy to someone's belief that you're somehow saying, well, okay, let's get washington to get involved in this and, you know, we'll make this a case so that we don't get beat up in the future and in the market just in terms of the normal market forces? >> right. well, # what we reallimented was -- what we really wanted was a price similar to what the other stations we had already done deals with had agreed to absent that, and we had basically a take it or leave it offer. we thought that binding arbitration would make sense. we thought that an abiding arbitration that if anyone

looked at the market place in new york and looked what we were paying would work to our benefit. >> what about what i suggested beyond binding arbitration and beyond forces people away from the market decision, but we're at least creating a sufficiency of a judgment about the negotiation process itself being in good faith and also making a judgment about the transparency? >> right. >> so that people know what's going on. would that not -- if you shed light, if that sunshine existed in that way, would that not create a greater fairness in the bargaining process? >> i believe it would. in fact, that's what we proposed to the fcc previously. we had asked they do three things, prohibit tieing, that they be transparent. the reason you prohibit tieing is there's agreements between 13 channels i believe, and so how

you allocate the costs of all of those services is questionable. we think that in order to look at that and to really have transpaper sigh, you need to -- transparency, you need to seg agree gait what people -- senator kerry -- segregate so the cost is legit mas, and finally, do not discriminate. you know, the broadcaster has power over a small cable operator. they can extraght for the same product. >> do they? >> yes, and our competitors pay different rates than we do. direct tv or dish tv may pay more in some cases or pay less in some cases, but because of your position in lack of transparency, you have the same customers living next door to each other paying a different rate. >> what do you say to that mr.

carrey? >> as i said in my opening comments, we were getting 0 before, so, yes it was an increase, but any increase from 0 is going to be significant, and i do think that you have to have -- look at what we were asking for in the context of the quality of what we provide and look at it competitively again what other channels are asking for, and when you look at other top-rated cable channels, we were asking for a small fraction of it, so, you know, we were asking for an increase and you can say the broadcast business was negligent in past years and may have been the euphoria leading up to 2007 before the market crashed in 2008 and brought home the issues of being a one-revenue business,

but what became clear as a one-revenue business, broadcasters were going to have deep problems, and our network today for the each of the last few years has lost hundreds of millions of dollars while the cable channels we compete with, you know, make hundreds of millions if not in some cases billions of dollars. we have seen proct that is moving. we up until a year ago the college football is moving to cable. we need to have a viable dual revenue business to be able to compete in this market. >> i don't disagree. i can remember the broadcasters, frankly the broadcasters' arrogance in the early years as cable came out, and they wouldn't talk to them. >> excuse me? >> in the very beginning when cable started to come online in the early years of warner, i can

remember when they first came to boston and there were negotiations going on and in subsequent years they had a hell of a time getting broadcasters to even talk to them and work out a deal and get carriage and so forth. the tables have turned, and now indeed there's a very significant revenue. i don't disagree with that at all, but that doesn't license a discriminatory relationship or a completely unbalanced relationship in the marketplace so that the consumer winds up not knowing what's going on, not knowing what the price is related to, and in fact paying conceivably much more than their neighbor is paying because of the relationships in absence of that transparency. i know there's a revenue issue, but shouldn't there be a fair blueness in negotiating that revenue stream? >> we actually negotiate, but i

say we take great pride in negotiating or agreements with consistent sigh in the market -- consistency in the market place. >> is it possible to negotiate without taking signals off the air in >> that's our goal. we got three agreements without going off the air. >> what's the distinctions? >> the one what went off the air in >> yes. >> i think they had the government come in and mandate a solution. they didn't want to pay the rate increase even those the rate increase we asked for we think we went beyond any judgment to be reasonable about it when you look at the quality and the rate, it's a fraction of what the channel would be worth on any competitive basis. >> i want to come back and ask you because i used up my time, and i'll come back and i'll recognize senator lautenberg. >> thanks, mr. chairman, and

thank you all for your testimony. we are stuck in not just middle, maybe a muddle, but the fact is that it's very hard to understand what takes place when mr. carrey you describe your rate increases fair. how do you define fair? i mean, is it -- do you have costs escalating for the transmission that you make to the cable company? >> i guess we look at fair we first look at the market. we're competing today with hundreds of channels. i mean, we are in a market place that, you know, is from our perspective for channels as robustly competitive as any we've been in. we compete with them for audiences and content, so certainly one measure of fair,

you know, is what are we receiving for compensation compared to other channels we're competing with receiving. we are, in fact, our request in this case, you know, has us receiving a small fraction of what others receive who have a rating that is a small fraction of ours. >> mr. rutledge, during the past year, cablevision has been involved in the two retransmission disputes resulting in blackouts where as competitors were able to negotiate agreements with -- without any blackouts. why are competitors able to negotiate agreements without a blackout when cablevision can't? >> well, cablevaition is --

cablevision is trying to hold its rate and hold a valuable of a product as it can. our objective is to come out with the lowest rate as possible so we have the lowest price for service because we're competing against other providers, and so we've tried to hold the line, and we've looked at our marketplace, and we've actually been successful at holding the line, and we've had low rates of increase on a relative basis, but we're fig -- fighting for our customers and keeping our product as competitive as possible in a very competitive environment. we have robust competition with satellite, two providers, at&t and so we have a very competitive distribution market

and price matters. cablevision is very successful in the marketplace and we have the highest penetration of video of any company in the industry. we have the highest data penetration and highest voice. we have served our customers well, and we want to continue to do that. that's our objective, and that fixuates us on cost. >> do you -- >> i guess, i mean, i do think it's important and mr. rock feller addressed the cost of con feint. i agree what you said. it's a whole lis tick issue. i don't think one can look to is say somehow broadcast networks are going to be reel kateed to second class citizen status and not be fairly compensated in order to deal with the cost of content. if you're going to look at the cost of content, i agree what was said up front. you can't expect broadcasters to carry a unique burden in that

regard and not have the opportunity to be fairly compensated. >> what happens during a blackout? do your advertisers aren't getting what their paying for. >> no. >> and so yo -- and so you do you lose revenues? >> yeah. >> is it charged by the day? >> they essentially pay on ratings so if we're not delivering an audience -- >> so are the rates calculated daily? >> every ad is based on the ratings that we receive for the show in which that ad -- >> so the advertiser does not get the exposure, and but is the calculation for those few days

reduced to the advertisers? >> yeah, i mean, if it's a broadcast station where we're not receiving free cast train fission, then the lost revenue is advertiser because we're not reaching the audience. >> what's been the rate of increase you received over the last several years? let's talk about cablevision in particular. do you have an idea? >> well, in retransmission, we've received nothing, so we've had until, you know, this last year, we've received 0, and so that is essentially -- >> that's a recent phenomena? >> yes, and as i said, in some ways you can say broadcasters should have realized this one-rev new business model was not going to survive and be competitive in the world of dual networks. i think the economics strength of the market through 2007

masted a bit, and then, you know, didn't, you know issue probably made broadcasters, if any, delinquent in recognizing the problem. i think it hit home, and i think it became quite apparent that a single revenue advertising based business was not viable long term, and hence in the last 12 months we've moved to become a dual revenue business. >> mr. chairman, i think the hostage here is, of course, the consumer, and they're paying a price with nothing to say whether or not they're charged less over the week or month that they are out, and the consumer is left outside, in my view, like a spectator. they are not part of the negotiation. they are a victim of or a ben fish rare of as you can see it, of an agreement between the

parties, and there is really special place that all of you occupy because tv watching is now an integral part of life almost like gas and welcome -- electric and things of that nature and since the license is without fee for you to deliver your services, i wonder, you know, i come from the business community, and so i know you're in business to earn a profit, to get a return on investment and so fort, but i wonder what kind of a special obligation you feel to deliver this i'll call it a precious commodity that is now part of daily life for the american people? >> we consider it a tremendously

important obligation and a privilege in reality to deliver that content, but we need to have, you know, a business model that enables us to invest and create great content. in the last few years we lost millions of dollars a year on a broadcast network. that's not a sustainable model. you know, we need to move to a place, you know, where we have a business model that enails us to invest in keeping product like, you know, the nfl, you know, on fox, to continue to produce the local news that we do, and i do think, in fact, it is why you have seen a continued migration of product away from broadcasting and broadcasting with this business model to cable channels with a healthier business model and for us to continue to invest and create great content, that is our goal to create shows like american idol and glee and deliver them to the american public, but we

need a business model that enables us to do so. >> thank you. >> when you say we were paying nothing, we plaid nothing at that -- we paid nothing or we got nothing at that point. it's not because you bundled your cable and broadcast, and that was sort of a quid pro quo for your access; correct? >> yeah, we do. ..

>> isi -- i mean, yes it's been negotiated as a bundle. i'm not sure i agree with characterization as a dalia transfer because we built transfers that value customers and the amount we get for those channels is competitive, not against when you compare rates to the national geographic channel we get left in discovery we compete with. >> let me come back to the competitive and i want to recognize senator lemieux. spriggs before, mr. chairman and for the way you are approaching it where we can have a discussion about these issues. sitting here listening to this occurs t me that there's a lot of regulation of this industry and perhaps it's the regulation that's causing the problem.

while i agree television is important and certainly i want to be able to watch football and baseball i've heard words like a devastating and crisis applied to these things in light of the other things that we are addressing it congress, not sure that they are. but let me say that with all these regulations perhaps the view should not be that we should create more regulation but maybe we should unpack some of the regulations we already have. the world is changing. television is important but there are so many alternate ways to receive content. we are watching television and movies and other forms of communication through various sources, not just the tv but on computer and how this will be transformed the next few years is hard to anticipate. it's going to be very different world and which we receive content. anderson and the importance of content, you have to tell you it. we have copyright laws in this country. we have to tell you those copyright laws, but it occurs to me if we are going to get more

involved in this discussion about the transmission consent and bring congress and federal government more into that process, we are going to create more unintended problems. i think if you look back 20 years ago when this legislation was put in place, it's probably caused many of the problems we have here today. now, perhaps i'm naive and i still knew here also i'm about to leave -- [laughter] but it looks like the the deletion has caused a lot of these problems. i want to ask the folks of the table instead of adding more regulation is there a way we can unpack the regulation so this marketplace can work? >> yes, i think that is a different way to go. if you think about chase was saying he thinks broadcast networks are not viable. this is a different thing and they really need to look and act like cable networks and have two revenue streams. the part of the issue about

every transmission consent is that there is a whole set of rules and regulations and laws that treat broadcasting different than the rest of this television industry. so i would say in response that if we got rid of all those special privileges and what have you for broadcasting, and if she's wanted fox to work with the cable network that would be perfectly fine with us and i think you would see -- >> the only have ktv. >> that is an alternative. that is an alternative. >> do you think you would please the american people? >> i think 80-some of a percentage subsidizing the rest would be happy. alternatively, the question is how do you figure out the amount of the subsidy? so rather than -- i said earlier before in my testimony that we are not protesting the idea of paying. we are just saying that the

mechanism for figuring out the amount is broken. and actually having a debate about who's channel was worth more or whatever is kind of irrelevant. so if we are going to treat broadcasting has a special thing and think it is soluble some of our citizens get it for free, which certainly is what was intended originally, and if we have other people subsidize that then we need to figure out what the mechanism is for deciding that amount. and that's what's broken is that process of figuring out the amount. >> mr. uva. >> thank you, senator. thank you for being here. i believe that what is special and unique about broadcasters is the way we serve the local community on a variety of ways, and localism is fundamentally important in making sure that the citizens of this country are informed each and every day, not just by cnn or fox news on

global international news age use or by a network newscast although we do network newscast just s fox does. we are very committed and we believe very strongly in the ability to stay relevant to the local communities. and that is an incentive for us to make sure that we deliver those newscasts and information that we purchase a peak in the community in ways that are in power in members of the community through public and community service and that costs money and that is where a great deal of the funding that goes to local broadcasters, particularly univision is reinvested and broadcast a special and cannot be treated and looked at the usual basis compared to what the cable networks are. >> mr. kerry? >> i guess i want to first say

that the wheat transmission clearly has a unique level of importance and we need to do a revenue stream, and we've had these other provisions in the end of the business but again is not competitive. it's not a trade. in most of the provisions that exist are ones we can achieve contractually and we are not -- i think the spectrum is important to provide a service for free to 30 plus million americans and actually have the ability of every american to get it for free, so the spectrum put in a different place has a different role and provides unique value that we think is important to provide the opportunity for every american to get a level of broadcasting. the others i think the ad importance to the broadcast industry as a whole and are a part as mr. uva said the localism that exists but for us the transmission as a whole different level of importance because it provides an economic foundation to have a competitive business going forward.

the others are things we can competitively compete for in the marketplace but i do respect the broadcast industry and recognize they are important and the foundations of the localism that has been so important for the local broadcasters and local communities. >> mr. chairman, mr. rutledge wants to finish up. >> thank you, senator. i want to say i think it's a policy question is the united states want to have a broadcasting business. if it does what are the objectives of that coming and historical you've got a broadcast license you've got some spectrum you ought to operate in the public interest and you have an obligation to serve the community and came up with renewals and were subject to question as to whether or not you met those obligations. so the power that has been entrusted to these organizations is enormous. the reason that the world series exists on a broadcast network is because of the public trust that was granted to those entities to

serve their communities and they mask their audiences that they did and had the power by the world series in creating the kind of contant that exists today, so it is a policy question. what do you want from broadcasters and how do they fulfill their obligations to the community? and if you're going to give them dalia will spectrum -- because i can turn that spectrum into a broadband wireless network very effected flee i think and serves a different part of the community. it is a valuable resource to the country and it's being used in a way that sexually abusing the consumers of the country. >> could i just that every household in america did have the opportunity including everyone living in cable television to get the world series over the air for free. >> which makes the notion of charging for it ridiculous. [laughter]

>> we treasure the opportunity to provide a signal for free, others are read transmitting the signal and the building a business based on it, we feel we have a right to be compensated if someone else is building a business based on the retransmission of our content we pay a lot of money for and invest a lot of money in. >> senator pryor. >> thank you, mr. chairman. i want to thank all the changes in technology and society since 1992. i do feel like it is time for us to try to draft legislation that embraces all those changes in the past but also paves the way for more innovation and to be smart about how we do things in the future, so i appreciate your tufting this piece of legislation, mr. chairman, and one thing i like about it as i understand it is there is a

revision where the signal states on the air where there's a breakdown in the negotiations and that makes sense to me, but what i would like to ask of panelists is is that good public policy or what's wrong with that policy of allowing signal to stay on the system when there's a breakdown negotiation. mr. britt, you want to take that? >> i think it's one of the very good ideas that are around. again i think it relates to everything that's been said because broadcasting occupies a unique and privileged place in our society. and depriving consumers of that is a problem. again, some people will say that will tilt the scales in favor of the distributors and other people's the other things. but it is the consumer that is being held hostage, and that isn't a good thing. so we are, again, advocating

some sort of better process for settling this. again we are not denying the value of the networks or whether the there should be payment. there is value but how do we decide the amount without disrupting the public? >> mr. uva, did you want to -- >> senator, thank you. i believe that the government needs to tread very carefully in this area cox and to remove the primary incentives to get a deal done if during negotiations you force a signal to remain at through the negotiations there doesn't seem to be negotiation on the distributor in a timely fashion to get an agreement. furthermore i think the rules as currently exist under the communications act certainly fcc rules, the fcc is empowered to oversee this and if one party

has a dispute or claims the other not negotiating and good faith and in fact bad faith, but during the time it shouldn't necessarily be a requirement -- >> that's a good play. on that issue the has the fcc ever found that the party is not proceeding in good faith? >> i am aware. >> i don't think they have as far as i know. mr. rutledge? >> i think that broadcasting has a special place in the social obligation to its community, and i think that the fcc and through other policy means should intervene when, rather than let signals go off, it does have some disruption, you know, nobody wants to pay high year rate, so i agree to make negotiations more complex for broadcasters, but i still think it's better than allowing people to be held hostage so i think it is inappropriate for

broadcasters to troops it falls which are free and unlikely spectrum being used for the public good. >> mr. uva? >> senator, thank you. i also believe that there is a very important role for both sides to play in educating consumers about twice because of the end of the day the consumer does have the choice to receive the signal free over the air, to buy it from a multiple system cable operators and satellite provider or telephone company. we believe very strongly that educating consumers about the choices they have and the remedies available is also important. >> mr. kerry committed to what that something? >> i would add a couple of things because i agree with mr. uva's points. first in terms of time, you know, we provide a lot of time for the actual negotiations we had. our process with cable was for

the better part of six months, so it's not -- it's not like these have come up and somehow there isn't time to address them. there's a lot of time. we've provided a lot of time to get there and realistically most agreements get done with a deadline and that seems to be the way the world works. at the point of a deadline they don't go along and i don't know -- we were getting zero. we were trying to get a fair rate. if one is going along open and the i'm not sure where the incident isn't for the cable operator to keep it going open-ended lee for as is happening pushed to a point of time which it happened in some other cases this summer where the broadcaster has particularly disadvantageous time of year like this summer when you're on the run and all of a sudden decide that's a good time to bring it to the head and drop it

because of your ship is at the lowest point of times of the deadline is important to get a deadline. and i do think it is generally where it works. we have a lot of channel negotiations. we do this in a lot of cases. i still struggle with this negotiation is so unique. we are not asking for a rate that is presidential. >> i've never done one of these negotiations. i have no idea of complex they are but he said time is not usually a major factor but the deadline is helpful and we understand that put on these are you mostly just negotiated with the number of channels and the price per viewer? it is a fairly straightforward set of negotiations -- >> that's why i don't know if you just extend it with the extension is going to achieve other than just a draft.

i agree with you. that's why i said when you've been talking for 13 months you probably have sifry attack on the table and it just becomes a point in time -- >> to make a decision. >> we've had times of times with the channels and distributors and you get to the point and reach an agreement to read the process worked. this just happens to be a case where the distribution industry wants to politicize and try to change the rules on how the system, yet this isn't that different a process and what we've been asking for is as said before on any comparative basis more than fair. >> would you like to -- >> i just want to make sure that any re-examination or reform lookit transmission includes the dependent program we need to participate in that dispute process if that is put into place. i would say i don't want any of senator kerry's comments to get lost when he mentioned cheese is

sitting here saying the broadcast network hasn't gotten paid in reality has also launched a number of different cable channels based on the retransmission and many of the channels are extraordinary value for the consumer so there is billions of dollars that are being generated by the real-estate that read transmission allows. cable also has good to do and they are launching an art network a week of every day and say they have a responsibility not just the broadcaster and they reached down to a small independent network of privately funded, no government handout and they're putting in art network on cable television but it gets very complicated when we transmission takes about only the valuable bandwidth, but these very public arguments ensue. >> chairman kerry, have one more closing comment rather than a question but if anybody has a response. it's always bothered me in these

negotiations the total lack of transparency where a consumer, john v. were out here doesn't know sam sitting on comcast for example i don't have any idea what comcast is paid and i don't know and i travel and stay with million walls or something and they are on time warner, whatever it is, i have no idea what they pay for that and i cannot imagine any public policy reason for the total lack of transparency. is there a good policy i am missing here? >> does anyone want comment on that? >> realistically i can't think of any real business where you negotiate in a public forum in a public forum i think the competitive complications will be damaging as you try to continue to do deals putting in

a public forum the provisions of private negotiations and i can't really think tough -- i'm trying to tnk of an industry -- >> it happens all the time when one already knows the market value is for something and they go out and negotiate -- >> we have a pretty good understanding. i mean, there's industry research out there that in a range will tell you pretty much what most of the channels get. they may not be accurate with precision, but there is certainly industry experts and the industry is covered in many ways that that information is there and its publicly available. >> i think what senator pryor is getting out and i mentioned the transparency earlier -- with the transparency may be one of the most effective ways to deal with this without you guys would missing that, quote, heavy hand of government coming in and suggesting what happens here. but there are really more than two parties of the table, with all due respect.

you could say conceivably there are four parties at the table. you have consumer, who is sort of battered in the middle of this thing on occasion, or even, los? price differentials, maybe they are paying a lot but they are not sure what the differential sar and then you've got us, because the truth is that public broadcasting is receiving billions of dollars of subsidy. through the thing called a spectrum. it's worth billions. that is a huge subsidies. and let's be honest about it. so, and there are standards applied to the who gets it and how which i don't think has been a rigorously thought through, there's a public interest there there is a public interest of the table, and so i think that

in many cases people in this country for home in emergency life in our communication or other kinds of information that's vital to the degree a couple of companies called it a commodity in the context of a lot of people would cook monetize it sweet to think the implications are which is where the fcc has certain authorities. what would happen if every transmission is taken away? what would happen? where with your business plan go? there's no transmission consent requirement. >> so we're in advertising only supported business. >> went to survive? >> long term our survival would be threatened. >> what do you think mr. uva? >> is a very threatened -- >> threatened, correct? the fact the government is requiring the transmission consent to create your business

plan -- >> to be competitive we are creating with channels -- stat how do you have a plan of your not competitive it's not a good plan. so, you know, this -- we've got to think this through carefully. i do not want, and i said this at the beginning, i don't think any member here wants to come leaping in an inappropriate way, but i think what's been put on the table this kind of at least for discussion purposes a way of engaging in thinking about what's the harm insurance renzi. suppose people have a better sense with the costs are in certain places for instance mr. britt, what's the difference the retransmission consent payments that you pay to carry the espn versus fox for instance

>> on the top of my head i don't know that but we would be happy to get that for you. we of many networks from those companies so -- we can get it to you. >> you can't tell me whether you consider it fair the source differential? >> it's the result of a negotiation. i'm not sure what fare is in the sense you're asking. >> you've ever walked out and said why we got screwed on that? [laughter] >> i say that all the time. >> i think there's a fair amount of public information. i used to sit on the other side of this and so i am not going to disclose their numbers but it's widely known that espn would have a rate that is five, six

times what we would be getting in retransmission to be done was to have a unique deal unlike anybody else it is a multiple -- >> you were sitting on the other side of that weren't you? when you sat on the other side you thought it was good to pay zero. [laughter] >> about was my job if i can fight that fight. estimate to understand what my job is. >> i do understand. the reality wasn't that long ago and i did see it from both sides a i think it is why in many ways it tried to approach. i've said publicly we could have gone in and asks for a higher number in the justified based on ratings and other things. we didn't try to do that we tried to go with a request we thought was manageable, was realistic but enabled broadcasters to have a model that would be competitive in the

i was at directv still. i would be pushing back at that. that's my job and i would be trying to manage my cost as i can. the fact of the matter is directv, the two companies here make a lot of money. they are not fighting for survival in the of very profitable high margin businesses and we recognize nonetheless they are trying to manage the business intelligence. i respect that but i do think broadcasting content needs to have an opportunity to continue to compete in this marketplace. i don't think it benefits anybody including the guys here if you find the nfl is going to be on the cable network when our deal expires in three or four years and that's where you are headed because you don't have a business model that lets us

compete. >> on the understand that and that's why we've met over the years, 25 years now, many times with broadcasters coming in and complaining about their lack of power in the marketplace which is why i commented on the reversal where we were and then i want to comment to the kovacic am i senator klobuchar. in the 2009 cable industry prices and they concluded from 1995 to 2008 the average monthly price of expanded basic cable grew from $22.35 to $49.65. to an increase of 122.1%. and going forward, the media research firm predicts that retransmission consent revenues for broadcasters would grow from 762 million in 2009 to

1.36 billion in 2011 and perhaps more than 2.6 billion in 2016. i assume some of these can be passed on to consumers in terms of their monthly mvp. i am not sure. what are we looking at as we go forward? what are we going to be able to say as we go home and they complain about the sort of packaging and what they have to purchase and total amount of money and so forth? >> i guess what i would say is those numbers will still be a small fraction of the aggregate programming cost that exists for that universe. >> that amount of money? >> if you look with the total program cost is for the content for that same universe is a small part of its and with some

degree singling them out. >> what we are talking about in terms of global production costs. >> in global programming costs? >> i probably don't have the number going to spitball it and my guess is it is a 30 to 40 billion-dollar number. 30, $40 billion. i'm doing that very extrapolating of the top of my head so it might be completely right. so, you put those numbers in that context, and again i get trouble on how the broadcasters takes unique blame. i'm not blaming or vilifying other companies, but there are big companies out there that are big driving networks with viacom that have largely talk about networks that are driving and creating new networks around a big powerful networks. it's not just broadcasters

bundling. it's everybody and somehow this issue is putting broadcasters in this unique might like they are doing something the industry is asking for something that is outside the practices of the business. we are looking for a fair rate like the channels to compete with. we think they are benefits for us and the consumer and the distributors for us to continue to develop programming that is of interest to them, and we do take a responsibility to look to put prices that are fair that we think are reasonable and when we look at fox we think we are asking for a more than fair price for fox. >> much did you ask for and receive for cable at time warner? >> again i think specifics -- i think putting -- i don't think

it's constructive. i think it's a fraction of what channels like espn or nsg which cable loans is a small fraction of what other channels like that but a much smaller than us receive. before cable vision we dealt with them fairly and consistently. >> well we have to figure out whether we need to get at those numbers in order to sort of thing through what's the reality of this location in the marketplace or not. maybe it isn't and they conceive those numbers would help you, not hurt you but we don't know the answer to that right now. so let me fall that one over and see how we proceed. senator klobuchar. >> thank you very much

mr. chairman for holding this and for your thought-provoking questions and i know a lot of questions have been asked but i will add a few of my own. i think you said 86% of all americans pay for their television and that's why retransmission consent is an issue that affects americans whether they've heard of it before and know it or not and my primary focus is to make sure the consumer is protected with their cable bills go up or they are subject to a blackout consumers end up being the innocent victim and that just shouldn't happen. so since you were fielding a lot of the questions, mr. kerry, i will start with you. i've heard from executives from the broadcast network that he should be compensated on par with cable networks especially given the fact the audience share is haulier for broadcast and cable. do you agree with that statement? >> yes i think we should have fair compensation and i guess i would say we are asking for a

small fractions of what that mass would calculate and would lead to as a great. >> mr. britt, you want to comment on that how you think the compensation what would be fair? >> yes i think we're talking about apples and oranges and peaches. they were created an uncertain environment which was around free over the air broadcast. they are for each station and we don't really talk about a station as we talk about networks. they are exclusive so there's only one fox station on each market, completely different market cable networks were invented in the world they had to sell to the different

distributors the british and no privileges, they conveyed copyright with the network. we support lippitt for copyright's for the broadcast networks so it's a very complicated question. one thing left out of all of this is we are talking as though the broadcast industry is a monolithic thing. most that own networks and the relationship between the stations and the networks have changed dramatically since 1992 and i'm not in this business but my understanding is at that point the networks used to pay the stations and now they don't and in fact the networks are asking the stations to be paid. so you don't have anybody here that's just a station owner but they ought to be here, too, because that relationship is an important part of this whole

thing. >> anyone want to respond to that? >> i have one question to -- >> mr. rutledge had one. >> i think would come out of a long history in broadcasting and broadcasters have a public obligation in my view and they get public benefits including very valuable spectrum to provide that public obligation. over the last 18 years since the retransmission consent has been forced, we've gone from eight channels owned by broadcasters that are cable channels to 90 calls a substantial part of america is feeling now is controlled by large network broadcast of winners and cable owners, the ellen both come and the value being extracted in various places, so it's hard to pinpoint what things cost the the fact is to raise the historic public obligation

broadcasters have. and the other thing i want to say is in the new york area where we primarily operate cable systems there's over 25 tv stations. only five look for retransmission consent. all the rest do what is called must carry which is another opportunity for broadcasters to be carried on a cable system and enjoy the benefits of the channel placement and so forth that is included in bill wally so the majority of broadcasters aren't even in this regime it's only the powerful network owned broadcasters and affiliates that are trying to extract these payments from customers. most broadcast stations aren't doing this. >> mr. carey i thought you might want to respond very powerful. [laughter] >> i'm at their mercy [inaudible] [laughter] we have a public service

obligations and to get jerry seriously and is embodied in the local news and is in many ways a foundation of what we do. i don't think the public service obligation means we are on loss-making businesses. i don't know you were here i said before the last year we have lost between 2 million to $3 million, so, yes, we do have a public service obligations. we take it seriously. we treasure the ability to bring television to every household in america. we don't have the right to get compensated in some deals retransmits and builds business based on our product, but we think to remain viable and continue to brank programming to america will need to have the ability to have a viable business model in the world today is different than it was in the past and clearly in today's world with hundreds of channels that have tool revenue streams you just can't expect a broadcaster to compete as an advertiser supporter network and

it will end up losing money. it will end up having content migrate to cable channels and it will end up with us becoming second-class citizens in the business environment. yes broadcasters pursue different paths. we invested three expensive the 25 stations to york we pursue the region's missions and we invest billions of dollars in creating the great content in order to make that business makes sense to bring the nfl, to bring the world series, to bring american vital to the american public we need to have a business model that lets us sustain that. the channels pursuing are a different role in a different strategy that pursues the different business model but the stations like ours that are pursuing a type of television

that i think is the american public cherishes requires our ability to be competitive in the marketplace. >> mr. segars, how does the retransmission consent impact specialized programming geared to the minority community? >> i can say that when broadcast treated on the retransmission to launch a networks i will say that some of those networks to they have brought great value and no one wants to vilify the networks by the imagination the the small broadcaster does have a public -- really a public responsibility but cable also does, and i've said this again and again that cable is reaching down to support independent networks. a diversity of voices, the arts be in one of them, an independent family channel called hallmark and outdoor channel, gospel music channel, all independent networks but we are a dying breed and free transmission because the

bandwidth of all these channels that has been leverage by the retransmission and placed on to the cable operator and the rates and cost provide a small independent from getting to a critical mass. we cannot find the space or the money to move our business forward. we can certainly tell you the art would be and 90 million homes but we don't have that regulation. we don't have the ability to trade on the transmission so it does affect us. many distributors have told us our growth is in jeopardy because of free transmission. >> i just have one last question and you want to just respond 30 seconds? >> i would say, you know, they are clearly the larger programming groups to distribute in number of channels but it's not unique to broadcasters and i've made the point before that when charles talks about if he were owned by turner i think

this thing would be true -- the same would be true. he was owned by discovery the same would be true. it's not a unique -- said that obligation unique in broadcasters i think is not fair in the context of large groups broadcasting and not another words when you're a mother channel on the dial. >> one last question and a word to senator kerry. julius genachowski, the chairman, wrote that the sec, quote, has very few tools with which to protect consumer interest when it comes to these issues. what you think? you think this is true, do they need more tools? >> i think if the fcc is there to help protect diversity and media than they do have a tool because the diversity and the independents are being squashed in the current system. >> mr. kerry? >> i honestly believe as this process has worked for decades we are negotiating a rate for

the channel and i do think it is the specter of government involvement that is sort of distorted the process, and i think if people accept the have to go along with business and largely with pretty constructive relationships here. yes, broadcasting went from zero and i understand we've gone from zero to say we need to get paid and that's a change but i think the facts of what broadcasting is facing proved it is a reasonable request. but i think we will get on to business. as we have gone on to business and in many ways i think we can get back to focusing on how we use the digital age and other things to bring excitement to the consumer but this is not some unique complicated process. i think there's been an attempt, a segment of the business to make it sound much more unique, much more complicated. i think this is a rate negotiation like all of them that have happened if one should have been in the private

marketplace it will go forward. >> mr. rutledge? >> we think the fcc does have the authority to help -- >> is your light on? there you go. >> we do think the fcc has the authority. we know the letter sent to the chairman, but they've exercised broad authority in other ways. they do have the obligation to watch out for consumer prices and to protect the consumer and fairly broad authority which we pointed out in our written testimony, and so we believe they do have the authority to help the consumer in these kind of disputes. >> okay. thank you, mr. uva. >> i do agree that the fcc has the of 40 in its rules and the communications give the right to monitor and determine whether the negotiations were taken place in good faith or bad faith and the ability to enforce. >> mr. britt? >> yes, we think they both have

the authority and the obligation to oversee and be involved as appropriate but they have chosen not to exercise that. >> thank you very much. i appreciate all your time. >> thank you, senator klobuchar. let's try to sort of wrap up here a little bit on these thoughts. mr. speaker, let me ask a couple more questions if i can before we wrap up. broadcasters argued in the amount of profit margin that you guys make, you are more than able to deal to pay them the cost of the retransmission consent fee without passing them on to consumers, and they've argued further that it's fair sharing if you will of the profits that you make off of their content so you ought to be able to pass that on.

what do you say to that? >> i would say that the company is in front of you are all very profitable including news corporation and disney who's not here, so the issue we are raising is not about the relative profitability of different companies. we are really raising an issue that in the context of this narrow thing called the transmission consent which was set up by the government do we have the right process for deciding the amount of that subsidy of the viewers. we are not questioning whether there should be a subsidy or whether there should be a payment, but the mechanism for determining the amount seems broken and there's a lot of ansparency, so that's our focus. we have plenty of competition so what we end up charging consumers is pretty much

determined by a competitive marketplace. >> i won't disagree the market has provided increased competition. a lot of people surprised but it is very broad with a digital download and so forth et cetera, it is a new world out there and there is no question about that. well, here's sort of what the congressional research service, which is non-partisan as you know, has concluded that the negotiations between programmers and distributors although private are strongly affected by statutory and regulatory requirements and cannot be properly characterized as just free-market so there's sort of a beginning principle here which we need to think about. second, although the ncta of

which i think all of you are a member including news corporation, is divided on the solution to the president has said that he wants to debunk the notion that free transmission consent is purely and simply a free market negotiation as many tv station and cable company. that, he said, is complete nonsense. third, the disputes that started putting consumers in the middle and about 2007 is when it started and they seem to be escalating since then. and i think we need to take note of that that we went a long time without it and started and now it's going to escalate and the prospect of this being the tool in the absence of some sort of a other mechanism seems to loom fairly large, the government

staying out of that certainly hasn't resolved the disputes, nor relieve the consumers of the problem that is, more and more to our attention. and, you know, it's interesting the most recent dispute kind of hit a significant level of discussion when fox made the decision to pull the signal off the air. i understand or desire to hold on to that right. and i think, you know, what we've put on the table respect that, but it requires a simple level of both the transparency and a sort of judgment, are they working in good faith if we have a good faith argument based on the marketplace, based on competitors, based on the various offerings that are available to people at city, people step back and say that's

not our dealer and you can still pull your signal. so you're not without a very significant lever it's just that it try is somehow to create a level of accountability to the public if you will in light of all the other benefits on the table. so, i just ask you to think about that, and we are going to think about it in light of the sort of discussion we've had today and maybe we can continue to have a private dialogue on this and see if we can't find some way to do something that relieves us of the burden because if we go forward in this atmosphere i suspect given the nature of competition and the nature of the hour marketplace building on this diversity people may feel more compelled to press for an advantage and pull the signal and as we go forward here, and no one here i think is going to react very positively to that.

so to the degree that you want this to remain a source hands of an arm's-length transaction where the market place has a maximum amount of ability to play itself out and that would be our preference, too i think you have to think about what is the compromise mechanism, what is the way to try to say we are doing something, let's give it a try and see if it creates better balance and a better outcome, and i suspect that in the end and somebody said a moment ago you were all very profitable companies. i don't think a lot of people are going to, you know, be thrilled with the idea that, you know, they are becoming a pawn in sort of for that extra percentage of profitability is going to be measured against the high levels of profitability you've already experienced measured against the government's, you know, gift if you will on behalf of the