something, or we can act. this commission has been given a very serious responsibility. our obligation was to work to come together to produce a plan that would bring america back from the brink, and while there are things in this plan i dislike intensely, and i do, there are things in this plan i think our grand slam home runs for the american economy and for the future competitive position of our country. i enter stands -- i understand this. some have not had the chance to i am prepared to support this

plan and to support it strongly because i do not see another alternative. i just do not. this is the work of democrats and republicans, people appointed by the president of the united states. 18 americans who had been given a heavy responsibility. i think they have responded in a serious way. if i looked at this plant briefly, it restores the solvency of social security. it does not take the savings and applied them to the deficit. the deficit reduction, some $4 trillion over the next 10 years is done separately. this plan calls for fundamental tax reform. lower the rates, like out some

of the past expenditures that have run out of control, to help make america more competitive, to make the tax system more fair. i think those are critically important components. i believed it will generate more revenue than any forecast. when you reduce the option and the opportunity to gain the tax system -- i used to be a tax commissioner -- you will generate more revenue. i believe that. i said earlier there are things i do not like. everyone of us can find those we do not like. i think this is a critically important moment. whether or not we get 14 votes, i think this will provide a

guide post for decisions that muste made. rot the sooner they are made, the better for this country. if seeing ireland, greece, and portugal, possibly spain -- if we fail to act now, our country could find yourself in a circumstance in which we have to pay it draconian action at the worst possible time. i pray to god we had the wisdom to act before that point. >> thank you.

this has been intense. it has been so informative. i congratulate you for your leadership and tremendous benefit. i also went to think folks to a ban on the commission. it is pretty powerful. the thought process is extraordinary. this is aboutus, america's greatness. how could such a get such trouble? how could we be on the path that is going to drive us there, to

some form of bankruptcy? it children the lifestyle of every american. . it is about where we go as a country. we have a responsibility to not let this happen the cannot deny the fax. we are on a chorourse. behind our government is growing at a rate that is unaffordable. the fact is it the continues on

the course, prosperity will be jeopardized. we will be the first to pass this burd. the american culture demands that the next generation have more opportunities. that is the essence. this is really about america's greatness. this product is not perfect or global. it just allows us to put in place a path away that says to americans that we are serious about doing something with the problem president.

this is way above our historical position. it is a package which does make a definitive step in the right direction. it does to them and reduce the deficit and debt. it does bring down the deficit. from the spending side, i think republicans will be pretty big. this is rather dramatic. a lot of folks will be upset

about the changes. there is a lot of tax policy in this bill. i have found it unconscionable delhi debate about raising rates. that is not the issue. we should be debating about reducing rates. how do you do it in a way that produces economic growth? this proposal is driven by tax policy that takes this and put it into what i think is the proper playing field.

it is the old cement arms terrorists -- it is the ultimate on the sterilanoids. it did a lot to get it down. i think we did the zero plan, and it would be fair.

this is where the debate should be prepared. they get in the process. even though there will be heartbreak, it is the right debate. he has driven the effort to recognize the regular order social security has been set up here.

they are only for five moving parts and social security. the issue of spending is moving dramatically in the right direction for them the of this year -- direction. the other issue remains healthcare. we've reached a point for the first time in government.

>> thank you for the extraordinary job that you did. i cannot think of a major i congratulate you for gathering together some of the most extraordinary minds in our country to produce this product, which is honest and addresses of the challenge you were given as shares of this commission. we got a little bit this morning. your entire effort could have

gone unnoticed and the report never heard from. i want to thank my colleague i will miss you. we are a great leader in the senate. i amed to inspired us to sit together. we need to be here. thank you for bringing us to this moment. we all go to work here every day. you really bad to this

conversation. as of this for the first time this morning. what would an american family do? when they are making hard choices, it usually does not include cutting off the insulin for gramm operetta we believe any crisis america faces will require shared sacrifice.

this is the standard i use. i understand when you talk about lower tax rates, we have times of economic expansion. i believe those who have been blessed paying more.

there are several things that concern me. thank you for what you did on these tax expenditures. i had been in congress for 20 years. we have never had this conversation. legists make modifications and the tax code them as people never read or understand they think it doesn't have an impact. it does. it is fair for us to step back and saying if you eliminated all of them, would america's or families better off? i think that is a fair question we have to make a choice. we need to save money in the process.

i was around from the reform social security in 1983. we had 50 years a solvency with some painful choices. what you have suggested this acceptable to me. to raise it two years over 60 years is not a radical. providing for those in manual labor and those in need to require -- retire our for the older people on social security who need a helping hand. these things are sensible.

>> your time has expired. >> i expected that. i happen to believe as a subcommittee chair the what is written here is not correct. you argued that it saves $60 billion. that reflects funmental misunderstanding of how it works. i am given a mark. new kmbc you can appropriate of to the mark. -- they say you can appropriate that market. i can have congressional interested spending. it is within the mark. if you are putting a cap, it will receive it. it is already established for th

there is no $16 billion in savings by eliminating it. i have been through these chapters that involve term limits. i am glad to eliminated caps. the changes to remain are esoteric to most the people following is. they have been analyzed to increase the cost of medical care. they have said this to establish that prepare.

it allows congressman ryan of a voucher systemer them we discussed why they have been selected. at seventh that the proposals on health care, we are hastening the day when it led there. we are going to limit the deductions for premiums. we will limit what they pay for federal employees. we will find ourselves or we have no alternative. i have to embrace the public option for them.

>> i mentioned in my travels that countries are able to back to a collective purpose. we are being watched by countries with similar problems. we can no longer rally

americans. i do not believe anyone is giving them the facts. we had a net national debt of $6 trillion. 45% of our debt is held outside the united states with about $1 trillion of that money loaned to us by china. over the next 10 years, even with optimistic economic and cost assumptions, that debt rose to $20 trillion in 2020.

our interest bill alone will be $1 trillion a year. some of us deal with billions in our work life, but a trillion is difficult to grasp. if you had spent $1 million a day since jesus christ was born 2010 years ago, you would still not have spent $1 trillion. that will be our annual interest bill. the american public is on to the right issue, but for some of the wrong reasons. many point to the bush tax cuts, the stimulus, or your marks as that issue. these are all sideshow's as we a cumulate over $20 trillion in debt. my generation is retiring. as we leave to social security, medicare, and medicaid, we will

crush the system. it increases above 4% a year. that is hardly revolutionary. i honestly do not know how you can eared jobs done with the yelling and screaming that goes on. these difficult political decisions will be made at one of two ways. we can do it thoughtfully and proactively. or we can wait for the bond

market to force it upon us. that will be more abrupt and unpleasant. we can asked greece and ireland at what that is alike, and soon, italy, spain, and portugal. many people have problems believing why they should be concerned about the bond market. about $4 trillion of our debt today, about 45%, is money lost to us by foreign countries with $1 trillion of it being long to us by trillion. wall with eight -- what ll we do when they do not want to loan us more money? what will we do? what will happen if the banks do not want to loan you a more money? we have benefited from being viewed as the world's reserve currency. what happens when we are not viewed that way anymore? when we have to raise the price

we pay, interest, to attract the loans we need from foreign countries. when the interest rates americans have to pay go up for the same reasons, thereby hurting the very people we think we are protecting. for me this is not an exciting subject. this goes to the core of our own economic and homelansecurity. with that decline does come, it does not come in small monthly doses. it happens overnight when fear grips the market. the american public deserves better. i do not like everything that is in this proposal. i do not think it is big enough. it goes nowhere near far enough to sort out our most pressing spending issues, medicare and medicaid. there is plenty of blame to go around about how we got here.

it results in plenty of opportunity to work together. there does come a time when we have to act with collective purpose to do what is right for the country. we have to come together, democrats and republicans, old and young, start agreeing and stop arguing. this is one of those issues. we cannot let it be the enemy of the good. this is a time to pull together, not pull apart. i wish it went further. i believe this is a time for us to pull together as a country. i think you have done it one hell of a job working with bruce and his team to develop a realistic and doable plan. i also know we do not officially vote until friday, but i am with you. i am york third vote.

>> i have five al. [laughter] vote. >> thank you. >> i want to commend the staff for having done all this work putting together a serious plan. i think it is a serious plan to address what i regard as a clear and urgent threat of going forward. we could have very quickly -- when they happen, if they happen fast. we do not want to put ourselves in a position where it could

happen. we have to protect low income people. we also have to rethink what happens to them if we have another economic catastrophe. the best thing we can do for those in america is to have a prosperous high-growth economy and not another crisis. i believe these are the choices that we have. everyone said there is a lot of pain here. there is. there is a lot of opportunity. can we see the opportunity to

give this a more appropriate tax system t? there is the opportunity to to read spending. camry sees these opportunities? we could have a higher growth and more efficient economy. this is not my favorite set of options. i am going to vote for it. i will also give you a list of things. i would have liked to see some of front stimulus.

i would have shifted the balance away from so many spending cuts. i'm a little nervous about the timing. this is a very serious plan for doing with a catastrophe. i hope the start this on a path toward a solution before it is too late. >> thank you. >> i want to tell you what an honor it has been forming.

well we have disagreed on a number of things, there are a number of things with which i do agree i hope that i can support. the tax expenditures -- i was somewhat surprised that defense cuts were on the table at thing there was a consensus around the spread them -- around them. and makes what we have done very constructive. i agree with the principles that

were laid out. i do agree that we are on an unsustainable physical path. one way it can be defined is the deficit in the debt. i laid out a plan where we can reach primary budgets. the other where we can measure it is the prosperity in the united states of america. i think it is a problem that we face. i do not feel this proposal addresses the dual problems in the proper way. i agree that we need to have

more significant investment right now. when we get our economy moving, we are decreasing the deficit. there'll be more people working and buying. i think there is a different perception of what it does for economic growth. it still make sure they can go out and the customers. this is what will drive expansion of business. the top 1% of americans to own 34% of america's private net worth right now. the bottom 90% owns just 29%.

it costs 1%. it controls 24% of americans' income in 2007. it lists 30 fours term -- 24% now. we are seeing a rapid explansion ng the wealthy. the top-10 some controls more than 70% of america's network. only one in five working americans enjoy guaranteed pension benefits. they are worried about social security being fair. these are rapidly disappearing. there will be more focus for robust social security.

we talk about shared sacrifice. the numbers indicate that sacrifice has not been shared. some people have lost and others have gained. we are not starting at the same point. we have more than 37 million americans living in poverty. most of them have jobs. these are the working poor. the elderly have an average income of $18,000 a year.

we will reduce the deficit by as the benefit serious to pay more for their health care. i think it is unconscionable to have more money come out. i said medicare should negotiate for low prescription drug prices. drugs are a fraction of the cost. there is very little control

here. the cochairs are not part of the deficit problem the chief actuary has pointed out the proposals they have made. they can lose more than 20% of the benefits. the cost-of-living adjustment, recalculating, means a

significant cut in benefits. i proposed a different way of achieving the solvency. when we talk about cuts in discretionary spending, it caps how much comes from revenue in paid them i do not understand why we do that. we will see programs cut that address the problem of those people who have not been part of the party that the wealthiest americans have benefited from over the years. and so i cannot for the reasons

of equity, of our democracy, of our fiscal path in terms of real live people, support this proposal. thank you. >> i want to thank you for presenting an alternative plan which you do support, which does address this crisis. this is a crisis we have to address so thank you for your constructive approach. congressman ryan. >> you have done a tremendous job with a difficult challenge. you and your staff, some of us have been in budgets for a long

time. i want to take a digression. this is the last time i will be setting at a table with my friend john. you are a great guy. it has been a privilege to serve in congress with you. we agree and everything. you have my respect. thank you for what you have done for our country. thank you. [applause] this commission has been a success. if they label various proposals as too draconian or austere, there will have to come up with our own. if anything, this has been successful because it has helped us move this conversation to the adult level than it needed to go to. regardless of what happens, if you get these 14 votes or not, you should go home proud of what

you've done to advance this debate and put ideas on the table. we have a choice which is are we going to confront this and leave the nation better off or not? we have different opinions about how to do that. you have done a lot to events that debate. let me go through what i do like about this. it is important to see some positive things. i do like the fact that we're sending to get some consensus. on not revenue levels, but on rates. lower rates and a broader tax base leads to economic growth and job creation and international competitiveness. if anything, the concept that tax reform ought to be moved with such a reform is something that is incredibly important. the best way to do with this problem in my opinion is spending control and reform and economic growth. economic growth comes from a

more competitive tax system. a broader tax base. you have done a great job. i like the process reforms. there is some bills -- reforms in this bill. some great budget reforms, what we call the belts and suspenders approach. that is pretty good. social security. you have advance the ball and got us toward a better conversation on making social security solvent. this does not contribute to the debt deficit reduction. everyone gets 22% across the board benefit cut. that ought to be avoided. there is discretionary savings. not as many as i would like. not occurring as soon as i would like. you are moving the ball forward on the fact we cannot keep throwing the special --

discretionary spending. what i want to say is there is ideas in here that are worth copying and borrowing and putting into this next year budget which i intend to do. what are my concerns? my primary concern is health care. i do not believe this fixes the problem. our debt problem is the health- care problem. gao give us a new number of a week or two ago that says we have an 88.6 trillion dollar unfunded liability primarily stemming from are federally funded programs. this does not address that in my opinion. senator durbin said it right. we're hastening the day when the option is the public option. you are right. this defense is that possibility. that is one of the reasons i have a problem. let me go to taxes or baselines. when we look at spending cuts

and revenue increases, you have to do so relative to a baseline. baseline conversations can get esoteric and confusing. the budget matters. it is important to understand what baseline is being used. we set up late last night going through these numbers. the base line follows the president's budget. both in revenues and spending. think that leads to a tax increase. he also included -- increases of base defense and does not [unintelligible] which leads to an increase in spending. this is another way of looking at these issues. using this baseline in excluding debt service. this proposal cut spending by about $2 for every $1 in revenue increases under baseline i would consider more plausible. a cbo base current policy

baseline. these numbers would be reversed. $2 in tax increases for $1 in spending cuts is how we look at these numbers. i would like to share this with your staff and maybe we could go through this before friday. it is important to note that we have got to grow this economy and we have to get a good down payment on taxes and spending now. you cannot fix this problem. you are delaying it if you do not tackle health care. i understand the position you were put in. your president's appointees create this commission. he passed through health care law that i am sure you are not going to want to undo. that does not mean that those of us who do not have a problem with the law want to sign up for something we think advances that law. that is why some of us have some concerns. let me finish on a positive note. you are to be commended.

this is a serious effort in serious proposal. i appreciate the contributions you do. thank you. >> you have been extremely constructive. i have become a real admirer. thank you for your help. thank you. you could have hit the reply button. i will take the privilege of saying much of what he said. i want to add my voice of praise to our cochairs. i think that this effort in some respects has been challenged by the design of this commission. i think just a quick --

juxtaposed against the recent debate over national health care, it has been challenged by timing. it has not been challenged by leadership. we have exceptional leadership that this effort. both of you are to be commended. the thing i like the most about your plan is it is a plan. there are not a lot of them out there to address the crisis. as we continue to use the word unsustainable, in describing our nation's fiscal path, unsustainable is understated. i think we all know that. when the chairman of the joint chiefs of staff says that our greatest threat to our national security is our debt, it should be a sobering wake-up call to every american. and so, again, i applaud you for

putting a plan on the table. any erican who understands the crisis has a responsibility to sign up for some plant, to be in favor of something. i have come to this table, being one of the few and proud to program forls's america's future. i have supported an amendment to the constitution and a number of proposals, some of which ended up in your proposal from the spending deficit and get control act that paul and i have worked on. i think there has been challenges to the commission. if i recall right, you said that this was part of an adult conversation. i do agree it was one of the few adults conversations about this crisis i have been able to

participate in. i would like to say that again, i did not need to act gopal in all regards, i have this, and in my note. the other adult conversation about this crisis that i have participated in have been led by the chairman of south carolina. he is a man who has rarely -- he has not commanded my acquiescence. he has always commanded my respect. he has been an important voice in this national debate. as he exits congress, i hope and pray he does not exit the national debate on our nation's fiscal future. >> i believe that ultimately as we look at our nation's deficit, the deficit is the

symptom, spending is the disease. as i look at the plant, and i will try to be brief. i will talk about what i see is the good and bad. i believe an important part of this debate is the recognition that by broadening the tax base -- a tax base, we can promote economic growth and we can promote jobs. bringing down the corporate tax rate to something i believe close to the median of the eu is an important part of this debate. i know we do not employ a dynamic scoring. i know we cannot grow our way out of this crisis. i believe if we did employed dynamic scoring, this would be not insignificant -- in not insignificant part of this solution. i would applaud you for that.

with respect to social security, i believe in personal accounts. i want to use the power of compound interest to grow our way out of this. that is not in this plan. having said that, i would be more than satisfied to say -- save social security for the next couple of generations. and support the proposals that you have included in this plan. i have been picketed before for my views in trying to save current entitlement programs for future generations. i am happy to do it again. i am prepared to do it again. i continue to have concern about the tax portion of this. concerning a couple of different ways. i do not favor any tax increases.

as we know and -- under cbo, taxes will increase as a percentage of gdp. that is given. the taxes are going up. that is number one. ultimately, even though you put a revenue cap, we do not have a global expense cap. the cost of government is what it spends, not what it taxes. that is one of my greatest reservations of the plan. something i hope we could have achieved. i do not -- i am not sure he will -- we will solve the problem. the third challenge is the history. if i believe the increased revenue would be used for deficit reduction, i might come to the table in a global

agreement. when i look at andrews air force base, it seems to me that somehow the spending restraint never quite materializes and the increased revenues due. it seems like the increased revenues chase more spending. personally, i believe, to quote or paraphrase winston churchill who said that americans can be counted on to do the right thing when they have exhausted every possibility. we have put a spending cap on -- i am not sure the right things get done. if taxes are going to be put on the table, i believe health care will be put on the table. there's a lot of expertise at this table. i studied these issues as a member and as a senate staffer for seven years. i cannot come to any other conclusion.

you're not fixing the problem. i do not believe health care is here. i understand the timing has been poor. what we passed in congress is part of the solution. there are those of us who feel strongly it is part of the problem. i believe that also when you juxtapose what you are doing on the tax expenditure side which is good, i would agree with senator durbin who is no longer here. you are hastening more people into the public option. something that many of us on this side of the aisle do not relish. ultimately, we must reform the current entitlement programs and grandfather of the grandparents. my a -- i'm willing to put defense on the table. i do not want to see any tax increases, but if they are on the table, health care has got

to be on the table. i will end on this note. i am paraphrasing. being thehe verge of first generation in america's history to destroy the american dream. i do not believe the american dream is homeownership. it is letting your -- leaving our children with greater freedom and a higher standard of living. every generation in our country has kept faith with the american dream. i do not know if this is the grand bargain. it is not, the grand bargain should come soon. i would remind all, i do not know of this is 16 or protein or 10 votes. i have lost count of how many votes you have. i do not know if you'll get my vote. i would say this.

nothing prevents our leaders from bringing this plan to the floor. there is nothing magical. nothing prevents them from bringing this plan to the floor. nothing prevents them from bringing this to the floor. i would like to see this plan come to the floor. we must advance the debate. thank you. >> ? you have been helpful and positive.

>> let me begin by saying thank you for doing what many people that you could not do. that is to keep 18 commissioners with diverse views together to this point so that we discuss a plan which, although the two of you put it together, certainly a number of them members of this table are prepared to vote for. i think that maybe the story of this commission's life. somehow the two of you found a way to keep all of us working together. i applaud you for that. let me thank each and every one of our commission colleagues who participated. this could have easily collapsed immediately before we got to this point. had we decided to run to the

media and start talking about what we like and did not like to undercut your efforts as chair. i think to each of my colleagues on this commission, thank you for helping make this a constructive effort. perhaps the second bit of news if i were writing the front page of my newspaper, where we were kept together working and -- almost to the point of having a plan presented, you were serious. you put taboos on the table. sacred cows are in your plan. i think if nothing else, we have laid before the american public the template that gives people an opportunity to start discussing what we have to do to get our fiscal house in order. i started the first time we met by saying that to me, we have to

somehow get to the point of understanding how it is we went from surpluses as far as the eye could see 10 years ago, to deficits as far as the eye can see today. something happened in these 10 years that caused us to go from an economy that was turning to an economy that is in the hospital. some of it is cyclical. it is part of the structural process we go through in our economy. you have to acknowledge that a good portion of this is due to the fact that we have ups and downs. we are in a down. part of it is because as i think you say in the beginning of your report, if i can call you -- quote this, i am reading from page 10. the federal debt has increased

dramatically, rising from 33% of gdp to 60%. it was driven by two wars which were never paid for. the escalation was driven by fiscally and irresponsible policies along with the economic downturn. the resolution of our fiscal crisis depends on making sure that we no longer get involved in activities that we're not willing to pay for and we're not responsible for. we were coming along, creating surpluses, creating millions of jobs for americans and now we're not. i want to attack those problems. what were the sacred cows that

had as partying for some while others were left to clean up the mess? this plan identifies some of those and i believe that for those reasons, it is worth considering where this plan takes us. let me briefly tell you what i think are the absolute positives of this plan. you put those taboos on the table. you create fire walls. they are critical because we know what happens. everyone coaches and the best poachers are the most influential. the special interests who have tons of money know how to approach best and they know how to succeed. when it cos to making cuts, we may have benevolent motives. at the end of the day, it is the strongest of the poachers who prevails. invariably, what gets cut is not necessarily the most important place to start creating

responsibility. secondly, you did something i think few people were willing to do. you identified these their marks. if we want to talk about spending, you cannot just talk about on the preparation side. our spending dwarfs anything we do on the appropriations side. we had this conversation about spending earmarks, $60 billion in the year. spending is 70 times greater than appropriations earmarks. it would take us 70 years of having eliminated the appropriations earmarks to equal one year of spending through the tax code on just the remarks. i applaud you for having raised that. let me tell you where i do have some concerns. well you took on the remarks, i

think you did it -- we have averaged $11 trillion in tax giveaways. if your plan takes care of a $4 trillion problem, we had almost three times the amount of money you have in your plan in cuts available through tax earmarks. to me, you punted. we punted. if you want to take on the special interests, the poachers, you would have taken on the biggest poachers. there are no school kids i know of who forced us to spend money on textbooks. we do it because it is an investment. there are folks who have tax breaks because they spend tons of money to make sure they got to appach. the fact this pn dedicates 10% of those earmarks that you have identified to resolve the deficit says that for the last 10 years, $11 trillion won out

that were going to ask for a small percentage of that to help deal with the deficits we face. that is anemic. this commission would punt if it allowed it to occur. secondly, on the issue of the appropriations spending, the fire walls are some important. if they are not real, we will end up making cuts that are devastating to middle class america. the folks who party for a decade will not have to clean up their mess. i believe it is time the department of defense was on the table. we will ask the department of defense to be audited and account for itself so we can figure out where the waste and fraud is. we have to be serious about that. i will say that given the serious way that the chair is addressed this problem, i want to make sure i give a serious

response to your efforts on social security. i have a father who worked all his life with his hands. he got a sixth grade education. he did everything from canning tomatoes to fixing the brakes on railroad cars to cleaning ships in the l.a. ports to picking every crop he could think of a pin down the west coast and spending the bulk of his time doing road construction during the heyday of our freeway construction. when he retired in his 50's, he showed the effects of all that physical labor. if we are going to make this a plan that works for mayor, it invests in americans, those who work hard. social security is not a problem. in terms of the fiscal crisis. social security has trillions of dollars in surplus. there is no aspect of the government that has anything

near $1 in surplus. to say we must take on social security i think is -- should be a dead hearing. it does not really work here. we have to do with the long term solvency. if we could talk about the federal government's operating budget, the government will have a deficit. social security is in surplus. it wilnot have a problem for least 25 to 30 years. saying you have to do it now is a disturbance to someone like my father who worked hard and paid all this time to social security. i am not interested in cutting the benefits of a man who made -- never made $22,000 a year. simply because we have to take care of the fiscal mess that was

caused by poachers in this economy. i do not know if anyone could have done a better job. i have some concerns. i do not want to leave the table because i started off at first they say everything must be on the table. you left everything on the table. i will stay at the table. we will see what happens on friday. you did made a valuable service. >> i worked on immigration stuff with you and you always kept your word with me. >> you have been great. i hope you end up in -- being a great leader of our party. i now go to my congressmen and my friend. the person who i can tell you.

lots of us got credit in the balanced budget trade it would not have happened without the leaders here. thank you for all you have done. >> first of all, i would like to echo what everyone else has said. but would not be here where we are, about to do something of significance. to the staff and their output, he made a huge contribution to this. i will miss doing battle over the budget with you this year. i wish you said those we showed that you can have comity, you can have stability, and you can have a constructive criticism without coming to a

conclusion on all of the same points. we proved it can be done. we never did sit down and make a search for common ground and come up with a deficit reduction budget. this is an opportunity that may not pass again soon. if we fail today, i am not sure of the destiny. i would like to make one thing clear. i think it bears repeating that the cuts that are outlined in this proposal, namely the tax expenditures -- this committee has no authority to pass any particular law or put it in the process of being passed, but it lays down an agreement. for those who say how do you do it? they come forward with policy

based on arguments that would accomplish the bottom-line results. i have been concerned about certain aspects of the budget. in 1997, erskine and i worked together. it has to be balanced, fair, and equitable. i have a problem with discretionary spending to start with. i think it is right to have a cap. i think it is right to have fire walls. if you ask someone who knows the problem well, one is revenues, what is tax cuts, and the other is mandatory spending. the reductions in discretionary spending, as i understand it, it

was two times mandatory spending. it is part of the problem. it is a little odd that we are discussing the renewal of the tax cuts. it will be around $4 trillion. we are laboring to give birth. if we do nothing of the tax cuts, we would have the same bottom line effects. that must strike you as ironic. i go back to my initial point. it goes to the committees of jurisdiction. they will decide what policies are implemented in order to achieve the bottom-line results that are essential to achieving the overall results of this package.

we only make illustrative ideas that are feasible, can be done, and that policy-based reasons to be changed. what we are looking at here is a great opportunity. i will not declare my colors until i have read it all, but this is an opportunity. if it fails, i do not think we will revisit it for some time to come. it is important to continue the process. we have been given a baseline. we should keep this process moving and billing. >> thank you, mr. chairman. >> thank you, chairman spratt. we are going to dr. cockburn. >> first of all, let me add my thank you to the staff for incredible leadership.

being the first tied to serve on a commission and not having any political affiliation, it has been an interesting experience. i came to this with no ideologue see -- with no ideologies on how to address the issue other than a citizen with children and grandchildren concerned about the future. it is clear to me all of you have the same feelings as well. there are a couple of things i would like to highlight. as we develop this framework, and i do believe it is a framework whether we get 14 votes were not, i believe any of the things listed here will be addressed if not all of them. but it is important as we chart a future of growth for our

country that we put into perspective the importance of how much we look in the rearview mirror and how much we look at the future. i think that is what we tried to do with this document is to understand clearly the demographic trend, to understand clearly the need for greater global competitiveness because we are in -- we are indeed slipping, to understand the focus for education and developing a talent-base in this country that can compete globally, and to get back to a position of economic growth. we can all the different on whether we agree this is the right approach to get there, but let me say this. i deeply support what we are trying to do in terms of tax

reform. from a business standpoint, we have been hamstrung by the tax clause we have in place. i also think it is time to look at social security, not just for the next 20 or 30 years, but where we will be longer term. if we do not take the action now, we do not put ourselves in the position to address the situation in the longer term. i do believe the time is now. i would hope that as we move forward we do not find ourselves caught up in a process that takes us years to implement many of these things. if we take action now -- and this has been reinforced -- the importance of taking action now can put us on a path for a

stronger future over the long term than if we wait and discuss and the years go by and we find ourselves in a place we do not want to be. many of our colleagues have reinforced the point that once the ball starts rolling in the wrong direction, it increases in speed. we had the opportunity to impact our future. if we wait to act on certain things, we risk putting that ability to shape our future is in great jeopardy. i for one support this. do i agree with everything? no. i am about 80% there. that is more than enough to agree that this is the framework for us to move forward.

i thank you you for your work. i would like to thank senators conrad and gregg. it has been your epoch this and focus in helping us come together that has brought us to this point. >> thank you. i think that is absolutely true. mr. stern? >> i said at the first meeting that i do love this country and i happen to think that when the congressman says it is a gift, it has been a gift for me. i imagined my grandfather sitting at the table with all of these congressmen and senators. it is been a great honor. i want to say to people everywhere, including my own community, this has made me appreciate the precarious situation we face as a nation.

our inability and waiting to act will only make the situation a lot worse. i do not normally get to sit at the table with all of these republicans. [laughter] but to them and to the others, i think this was a unique process. i got to understand and learn that people are serious about getting things done. i appreciate the environment you set. this may be a different process than some people have a chance to experience in washington, d.c. no matter what happens, the commission has been a success. we focused the views of the nation on a very serious problem, a very sobering problem. i actually have to write my own plan. at the end, this is about plants. it is not about ideas.

it is not about what your favorite things or. -- favorite things are. it is the same kind of discretionary spending. i want people to read it and give you the sense of the agreement that i have. i think the problem in washington too often is that we are historians and not future is. we are at a very different moment in economic history. this is the third economic revolution. it has only taken 30 years. we are witnessing what a global economy is. we are acting in ways that we are not familiar with to make strong and decisive decisions. i want to put on the table some things i do not think are necessarily part of this report,

but i think goes to the whole question of jobs, economic growth, and competitiveness. one is the tax system. i think you have hit the sweet spot on tax expenditures and lowering rates. we need to clean up this mess up so americans do not have to hire tax accountants every time they make a business decision. that is not how we should do business in america. two, when it comes to health care, i appreciate that we want to go back and take a look at obama and health care. i think we need to go forward. we are the only nation on earth that puts a price on our health care against the cost of our products. the problem we have in health care will not be fixed by patching up a system we have

that needs fundamental restructuring. paul ryan has a one set of ideas. there are other sets of ideas around the world. we are restructuring, not try to patch up a plant that cost just 5% more of gdp than other countries. we cannot compete with a global economy. how we deal with that will be a great debate, but we have to deal with it. for all the discussion about competitiveness and a lowering corporate tax rates, i do want to acknowledge that most countries around the world have an additional way to help their competitiveness. that is to have some kind of consumption tax. if you look at europe and other places, they lower tax rates. so could we. we could eliminate 100 million tax returns. we need to think about taxes

that help our exports and defer or hurt our interest. we have a tax system that does not help our system around the world. it helps everyone else. i appreciate what the cochairs have done. they note this is not my methodology of doing it, but i think in the end, a pay-as-you- go system does not allow us to make the money. if we cannot figure out a way to invest in infrastructure, we have to push it into a stimulus bill. that is not a reasonable way for a country to make decisions about its long-term investments. i have written my own attempts to try to get to the same place. i think we need to tackle some of the biggest issues. there is no reason that the

president of the united states and the leaders of the house and senate cannot put a plan on the house of before. we should keep voting, debating, and amending until we have a plan. it cannot wait any longer. >> if there were two people that i came up here with a caricature of, it would be dr. coburn and another. i could not be more wrong. you have been constructed. i thank you for that. dr. cockburn has become my doctor and my friend. nobody's staff has been more helpful to us than his staff. he has pursued this with logic each and every step. thank you for all you have done. we will go to you, dr. coburn. >> always like to thank you for your efforts. i would also like to recognize a

might staff who have gone a lot of slick -- who have gone a lot of sleepless nights trying to develop a product. as a physician, i am frame to find the real problem. at what is the real problem? not the symptoms. what is the real disease? the real disease is a we have abandoned the concept of our founders. we have created reliance instead of depending on self-reliance. we have created government programs that are unaffordable. we have abandoned limited government. we have abandoned enumerated powers. now we are in trouble. nobody is looking at what the real problem is. the real problem is us. alexander tyler said, "all

republics fail." the average length is 200 years. they all fail over fiscal issues. they rocked from within. we are wrrotting. in 2004, i had the privilege of reading a book by peter peterson. he talked about where we are today long before anybody was talking about it. he wrote the book in 2002. it is called "running on empty." it is not a partisan book. it raised the awareness of what is happening. if you do not think we are in trouble, think about the following numbers. 36 trillion dollars -- $36 trillion has to be funded to the world. that is what the borrowing we --

will be from governments around the world. what do you think will happen to the interest rates? what will happen to the cost of not living with a your economic means? it will be disastrous for us. it is not coming in four or five years, it is coming in one or two. all of our trading partners are reacting to it negatively in the hopes that we can stimulate our economy when the real problem is that we have a way too much government and not enough of the thing that makes american great -- independence and self- reance. we have created dependency. one in 19 americans is taking disability. with the law says you are only disabled if there are no jobs in the economy you can perform and

we do not address this issue, we will be broke in seven years. we are adding more. they are getting ready to add two new categories to disability in the next month without congressional oversight or anything else. we are out of control as a government. we have abandoned the principles that made america exceptional, which were not the government. it was the people. it was relying on it ourselves and not saying, "i can't take a path and depend on big government." a compassionate response to those who cannot fix their situation in the other way, we ought to be there to help them. that is not what we have created in our country. there are a lot of things i think have been accomplished to

this commission. there is a lot of knowledge gained by a lot of people. we totally disregarded the long- term problems that we have with health care. i believe -- i agree with paul. paul's roadmap is a way to solve that problem. nobody has come forward with another solution because nobody has the courage to come forward and say we cannot have all we think we have today and still have a future. paul has had the coverage -- has had the courage to say if in fact we want to solve the problems, everybody has to sacrifice. that means you cannot be comfortable with the status quo. the real problems for our nation will come forward in two years.

we have a treasury department still borrowing short-term money believing they will save interest costs on our debt terms. they are sacrificing be good for the short term. what looks good in the short term are all big problems for the long term. do what looks good. this plan is a plan. the people who worked on it have struggled to try to build a consensus. i have a heart aches with tons of it. but i know we have to go forward. this is not the first. if we pass this plan by the congress, two years from now we will come back and make it more difficult. this is just the down payment on

what are some very real and difficult sacrifices that everybody in this country will have to make. if you really think about what built our country and what is the heritage of our country, it is sacrifice. jeb talked about, the real opportunity as it goes forward -- it is not about owning a house, it is the potential to own a house. where we come together and put something out, even though probably 50% i am not happy with, as a downpayment to make a statement to say this problem is so real, thomas october and cannot help what he wants. i will have to sacrifice. my family will have to sacrifice.

but i want to make sure my grandchildren have some of the same opportunities and freedom that i have experienced. the potential for us to read embraced -- reembrace the character of america will only come if we embrace the principles that our founders embraced when they started this. when benjamin franklin was asked what he did, he replied, "i gave you a republic so you could keep it pure "history says we are not going to make it. we all have to give up something. everybody at this table give up something. the way forward for america is for everybody to start sacrificing so we create a future that is honoring the

tremendous sacrifices that came before us. >> i share the view. i did not know who you were. i know you were a man of integrity and honesty. you are real. >> i hope everybody sees that. i could not have more respect than i do for you. thank you for the guidance and wisdom you have given me. >> i am the wrap-up speaker? [laughter] >> do you not wish? [laughter] >> i am will continue to study this for a day or so. i will not give my decision today.

that does not mean that i will not go over what i see here in the process. i first want to go back to comments that were made with regard to erskine or allen. i did not know you will. i probably met you on social occasions. during this deliberation is where i came to know both of you. i have developed a great respect and admiration for you -- and for all of the members of the commission. i knew some of the well. others in you very well. -- others i knew very well. the relationships that were developed on this commission have been a very big part of the success of its. i personally have great respect

and admiration for each of the commission members. i want to add to that, the other idahoan on the commission has been outstanding in bringing us togeer and delivering a product for us. having said that, i do share a lot of the opinions that have been expressed by other members of the commission. i will not go over all of those, but i want to talk about some of the positives and some of the concerns i have. i have a lot of heartburn about this. there are also some things in here that are really important to me. i think they are important to the american people. let me just go through them. at the outset of this process, i was very concerned that this commission would take too small or limited a view of our task.

there has been plenty of discussion that i will not go over about the threat we face and about how we are on an unsustainable course. i will repeat what someone else said -- we are understating it if we are not clearly spelling out in our minds and for the american people what the alternative of an action is. in fact, for those who will attack what ever happens from this commission or any other plants that are brought forward, i think it is important that america understands the discourse and debates that will take place on this issue in the context of what the status quo is. is the status quo better or worse than what is being proposed? frankly, when a clear

understanding of what we are facing is achieved, i think a better perspective of this proposal is achieved. that being said, i was concerned about how this process started out. i was very concerned that we would have too limited to eight view and not take the opportunity to make the bold steps that need to be made and come up with a bold comprehensive plan that will put us on the pathway to achieving the american dream as has been described here and making get so this generation can pass on to the next generation a better standard of living in the ability to live their lives in this country with the freedom they deserve. in terms of the strength of this proposal that i see, one of the

key strengths is that it does recognize that spending is the problem. it also, i think, fortunately recognizes that on the revenue side, the issue is reform of our tax code. that is one of the most significant, big parts of this plan as i see it. i have said too many of you in other meetings, that if we set out to establish a tax code that is more inefficient, more unfair, or more anti-competitive with the rest of the economies in the world, which could probably not do much worse than what we have with our current tax code. in congress we continue to have the debates which we are having right now about raising or lowering the rates.

what we ought to be talking about is what kind of tax code should we have? this proposal put that on the table and it moves the debate into the arena of how we should structure our tax code, which is a key part of making our economy dynamic and strong and building the strength we need to build if we want to build that american dream. i think that is very, very important. erskine, i think you shed week -- you said we should not hollow out our country. i think that is one of the key things we must focus on. we must reform the tax code. in addition, as i have thought about the areas where i have problems -- they are similar to the issues that others have

raised -- it struck me as i was thinking about it that in most of those areas, my concerns are with what is not in the plans as opposed to what is in the plan. not all of them, but some of them -- in fact, most of them. some have said the plan should go further. i am, on the -- on the spending side, it does not go far enough to get us where we need to get. we need to have a more robust effort to address the spending issues. the plan takes the very strong steps on the spending side. as you know, i have continuously harped about the fact that process is important. you cannot achieve the outcome if there are not processes in

place. i would like to see the process protections strengthened so we can have an even stronger guarantee that the task this plant sets out are followed. i appreciate that one request i made has been added. if we see a dynamic impact on our economy as a result of tax reform, spending reform, and the other efforts of this panel, then those increases in revenue as they are plugged into the fiscal picture of our congress and our country, or to be used towards deficit reduction or rate relief in our tax policy as opposed to more spending. i appreciate that reform being put into this package. that is one of those things -- that is an example of one of those things i thought was not

in there when it was first put out. i agree with the concerns about the planet did nature of reform in the health care arena, which is one of the areas on the spending side we need to be performing. i have concerns that we have not achieved what we need to achieve there. what does all this brings me? there are others. i want to mention one other before we go on. i, from day one, believe that we should have an enforceable spending cap. right now be a cap is a 99% or 100%. this is at least moving get dramatically in the right direction. if you put in their the protections that if the dynamic

economy does do what we are trying to do here that the money is put into deficit reduction -- we need a spending cap. i am not sure where i come down. there is a lot of heartburn here. there are a lot of positive steps that the country needs to be engaging in quickly. but as i look at it, i do not see anything that stops congress from engaging in more health care reform. i do not see anything in the plan that says that we cannot add some stronger process protection. i do not see anything in the plant that says that we cannot engage in further reform and further reduction of spending excesses' in congress. so the question i have is are we

putting into place a system that will at least get us the heavily down the road in the right direction and allow the process in congress to fill it out and strengthen it as we move forward, or are we putting into place a system that really does not get their and sees the tax increases occur, but the spending reductions are not occur, where the problems that have been referenced with earlier reforms? those are the serious questions i have. if we can get rate reduction, we may be able to dramatically change the ratio. i think we will dramatically change the ratio of how much of solution is coming from where it should be, which is spending versus revenue increases.

i know i have gone across the waterfront here on some of the issues, but i believe these kinds of issues and these kinds of processes are what we should go through when we think of whether we should send is planned thru to congress. this plan is a concept plan. it has some good details. congress will have to put a lot of structure to this as the proposals are turned from the stage into legislative language. my hope is that my heart burned can addressed in that process -- my heartburn can be addressed in that process. i struggle over whether we can give life to a process that can put us on a right path, moving in a right direction, or whether it is a process that will put in place the mechanisms

for the kind of failures that some other efforts have faced in the past. that will be might decision. that will be the basis on which i make my decision. again, i want to thank you for the effort. it has been an outstanding work product at this point. >> thank you so much, senator. we are down here shaking our heads. we were nodding in agreement. we hope this is a start. it is not a balanced by any stretch of the imagination. we have some heavy lifting ahead of us, especially those of you who are elected representatives. i have only been down the snake river. i do not know a lot about idaho. i know a leader when i see one,

and you are one. >> i want to make sure that you know that we are going to try to get together friday. if that is not possible, if we look for you all to let us know by 11:00 on friday where you stand. >> i have a long-standing commitment. i apologize. >> you cannot miss your wife's 60th birthday. >> her 39th birthday. >> we would not be here without you and senator conrad. i also want to thank our team. last night i got an e-mail at 3:30. the night before that, at 2:30. bruce reed has been a great

leader. anything smart i said came out of his brain. roses are being thrown around and it is nice. but you two, thank you to both of you. it was tough for you to face the senate. you rose above that and came down here. -- yoush your teet gnashed your teeth and got it done. let me say, i can't assure you that this is a big -- i can assure you that this should not concern you about being watered

down. it will not go away. it is indigestible. absolutely indigestible. you should feel confident that it was crafted that way. i have as much pain as tom. i come from a state filled with oil, gas, and coal. i may have to divert my flight. i may have to -- i may have to divert through montana. umass with the depletion allowance. -- you messed with the depletion allowance. what are you doing? we will just stuff it back in.

captioned by the national captioning institute ---www.ncicap.org--- the for closure problems that have recently come to light underscore the critical importance of the making home affordable launched by treasury of which this is a part. through modifications and other home retention opportunities continues to be a critical priority. it dislocates family and destabilizes local housing markets. over the last 20 months we've developed rule and pro see cures for meaningful modifications. we increase staffing and customer service. specific guidelines and certifications of how and when they can be observed for ham up

recommendations. evaluateing for hamp at the same for closure process. they require participating servicers of non pp agency loans to evaluate for hamp modifications before referring them to for closure. suspend any for closures against those who have applied while applications are pending. evaluate whether homeowners who do not qualify or fallen out qualify for private modification programs. evaluate whether homeowners go for short sale and written explanation for any homeowner not eligible and to delani for closure sale for any day to give the homeowner time to appeal.

servicers may not proceed unless they tried the alternatives. servicers must issue a written certification to their attorney or trustee stating all available lost mitigations have been exhausted and a nonfor closure option could not be reached. treasury clearly reminded them of this rule. we've instructed our compliance team to pursue the ten top procedure. if we find noncompliance we'll take corrective action which may include re-evaluateing the effective homeowners for hamp. it's important to remember that treasury administers it does so through voluntary contract verses regulatory or placement authority.

thus our compliance efforts are focused on insuring they're providing the servicer participation agreements. we're looking to ensure volunteers are being properly evaluated for hamp. reevaluating loans for el gilt. resoliciting borrowers and enhancing servicer processes and additional trainer to servicer staff. 1.4 million have started trial modifications and over 520,000 have started permanent modifications they've experienced the 30 percent meeting reduction in mortgage payments of more than $500 a month in the first quarter of 2009 nearly half mortgage modifications increased or left them unchanged. by the second quarter of 201090% lowered payments for the bovespa

rower. more sustainable solutions have been accepted to day. hamp uses taxpayers money efficiently. it helps those who are committed to staying in their homes and the investor retains the risk of borrower payment. in conclusion, we believe that these for closure problems underscore the continued need for servicers to focus on evaluating for all retention starting with h hamp. we appreciate improving design and performance. i look forward to taking your questions. >> mr. byer. shellby and members of the

committee. thanks for requesting the impact on the financial system it's unfortunate problems in mortgage services and for closure prevention continues to require the scout any of the committee me. it's persistent shortcomings our of nation's largest mortgage servicers while the fdic is not the primary supervisor we have the ensurer of many of the institutions the through auerbach up examination. they've been working on-site as a review team at 12 of the major 14 mortgagers. weaknesses identified in practices during the mortgage crisis are a by product of o rapid growth and a design not modified for this. third party mortgages fees put in mace well before the crisis is based on the outstanding

mortgage balance and does not provide for additional management. large servicers aggressively automated systems and consolidated to maximize short-term returns but the drive has driven up structures creating incentives just as the time as they need more attention to the momming meant of problem loans. the problems we're seeing go behind this and other technical documentation to include questions regarding tight tunneled proper establishment of private secureization trust. it's potentially damaging to our housing and nations institutions relating. transparent functioning for closure process is necessary to the recovery of the housing market and economy. another implication is mortgage

problems cast a cloud over uncertainty of mortgage, borrowers and investors. there's more partys with possible significant claims. while we do not see immediate systemic risk it can financial oversight ability was established under the dodd frank to deal with this type of risk. it's in a unique position to provide clarity of what standards should be applied to establish the chain of title and recognize the true sale of loans. while my written statement goes in more details there's principals that i believe should be relevant to the issue. establish a single point of contact for struggling homeowners. this will go a long way to eliminate miscommunication in today's dual track system and will provide borrowers that

their application is consider inned good faith. two, simplify loan efforts to reduce the number of for closures. the loan process is far too complicated given the shortage of services. the modification needs to be dramatically streamlined. modifications need to be put in place early at a stage of delinquency and require payment. these are the key factors that have been shown to determine the long-term success in exchange mortgage servicers should have help if for closure is unavoidable. and have well trained staff and strong quality control. inadequate staffing and lack of standards and failure to follow legal requirements cannot be tolerated.

tackle the second lien issue head on. services should take a meaningful write down if a second is approved for short sale. all stake-holders must be willing to compromise if we're to find solutions and lay the foundation for recovery in the housing market. thank you for the opportunity to testify and i look forward to your questions. >> thank you. >> thank you, senator shellby and members of the committee. let me build on what sheila has said to a few introduction comments. on the extent of the problem that shellby started with at the last hearing. i want to first caution that the three, four actually, agencies represented here are all still in the middle of investigating the firms themselves where the, gse's or the banking institutions so we need to be provisional in any observations we make.

but i think with respect to the documentation issue it's already a present there's extensive weaknesses in audit, control and staff training and over-site of third party providers such as law firms. the extent of the problem appears to vary across firms, but my suspicion is when all is said and done, we're going to find some problems in all services. large medium and small. the problem will be particularly bad in some servicers where the difficulties and shortcomings have been the greatest. when we look at the problems in the context of all the difficulties associated with loan modifications senator menendez referred earlier, seems we do need structural changes the way these are regulated. i also want to say a word about, put back exposure. this is not directly related to

the for closure documentation problem but documentation problems have both drawn attention to tissue and maybe motivated some investors to pursue additional arguments for why sponsors should take mart gamings back. the result here refers from the fault range on underlying mortgages that motivate put back efforts by investors that hold the securities and the legal liability of a securitizer or original may or the. this liability could be quite significant for some firms, although particularly with effect to private label securitization's it could be spread overtime as litigation ensues. with respect to put back liability, right now, we have, what we'd already started was a process of requiring each of the major holding companies to produce to us their

comprehensive capital plan we're supposed to get in early january. that's an exercise of mortgage for closure but as part of the exercise we asked for and assessment by the firms of the put back liability that they may be facing. turning to a supervisory responses the written tournament. range of supervisory enforcement tools available to the three banking agencies here. i expect many or all of them will be used with appropriate respect to specific institutions so i just note from the particular supervisory that our management rating at the holding come company level will be the same as a bank subsidiary. they're thinking about supervision from our perspective. two points are apparent. we need to use to if fullest

additional authority to send our examiners into nonbank affiliates of nonlarger holding companies and we all need ways to leverage control audits of some functions in firms to improvements and processes across the firm because we're not going to be able to audit every single control process in all institutions. i want to say a few words on the loan modification issue but for more of a macro economic perspective because i think there is a close relationship as many of you have suggested already between for closure difficulties and relatively sluggish pace of modifications. the race that frequently occurs between a modify equation of a particular pro see seeding has more often than not been done by

the for closure process. we now know it has not been fairly run in the first place. even if there there's a large economic point to be made here for. the housing market and economy as a whole. i'll there's no single method for gaining balance between for closure and modifications i wholeheartedly agree with sheila that it's incumbent on people to renew attention to measures that can facilitate sensible modifications across the country and there by to create conditions for housing recovery that will be in turn important for supporting renewed stronger growth in our own economy. thank you very much. >> mr. walsh? >> thank you, senator. ranking member and members of the committee. i appreciate the steps being taken by the office of the control

er to address these issues. when i appeared in september i allowed early step to addresst for closure process. can i report we've greatly expanded to address the critical problem working with other government agencies. let me state clearly the soty practices come to light have been improperly documents are absolutely unacceptable and raise questions about the integrity of the for closure process and concerns of whether or not some homes have been improperly taken from offices. f.c.c. can hold accountable to fix processes. problem loans surged and the primary focus was on efforts to prevent by increasing the volume and sustaining loan modifications. when we saw loan data from the metrix project that a number

niching yatesni initiated were defaulting we encouraged banks to take action. since we've seen modifications that lowered monthly payments and fewer defaults. many families though are still struggling and face the prospect of losing they're home. we owe them the best effort to receive every protection provided under the law. questions rise about the continuing for closure even when the modification is negotiated and is enforced. we agree the dual track is unnecessarily confusing for distressed homeowners and the o.o.c. is directing bank services to successfully performing modifications with legal ability and are not doing so. it's important to remember the private investors dictate the terms for nonhamp modifications so these options may not always

be available. for closures are also governed by state law and applicants across jurisdictions. most nation wide servicers hire those familiar with the requirements. fannie mae and freddie mac pre approve for a given locality. o.o.c. review a banks for closure to determine if it has appropriate policies procedures and internal controlsness to ensure accuracy relied upon in the for closure process and compliance with federal and state law. we expect banks to test through periodic and audits and on-going quality control function. examers generally do not test standard business processes such as validity of signed projects or processes used to notarize documents. absent red flags that indicate

systemic flaws. three neither internally or data from the consumer call center suggested processing was an area of systemic concern. when problem where is identified outside of the banks we immediately directed banks to review and take corrective action and on-site examinations took place at each servicers which are now on their way with more than 100 bank examiners assigned to the task. these examiners are reviewing whether closed borrowers were appropriately considered for loan modifications and whether fees were appropriate and documents were appropriately reviewed and that proper signatures were obtained. we're reviewing if servicers complied with state laws and whether or not they had control over documents to forgo a legal

for closure proceeding and there's also an inner agency registration system and income mrieps with fdic and we're participating in examination led by the federal reserve of lender processing service providing for closure services to banks. we're directing banks to take action. foreclosure. members of the committee. recently identified deficiencies

for legal documents to carry out foreclosures are unacceptable. those deficiencies undoubtly reflect strains on a system operating beyond capacity but also represent management oversight breaks down. there's the two-fold responsibilities to ensure foreclosure process is done with the servicer contract and applicable laws and the protect taxpayers on defaulted mortgages. before any foreclosure is completed we expect servicers to exhaust all alternatives. f.h.a. has taken to date these as well as those under way. context for understanding the problems that have come up including consideration of the role of servicers in a description of the diverse range of the requirements. as i reported previously to the committee, the enterprises

freddie mac and fannie mae offered distressed borrowers loan modifications and repayment plans. these lost mitigation tools reduced the enterprise loss and helped homeowner retain their homes. services of enterprise mortgagers no these are first response to a homeowner that falls behind on mortgage payment but for some delinquent borrowers mortgage payments are not affordable due to hardship and loan modification is not a workable solution. these cases the enterprise offer foreclosure in the form of short sales and deeds in lou of foreclosure despite a graceful exit. foreclosure remains theness option in many cases. recently.

fhfa provide as four point policy framework for handling deficiencies. first, verify that the foreclosure process is working properly. second, remediate any deficiencies identified. third, refer suspicions of fraudulent activity and fourth, avoid delay in processing foreclosures in the absence of identified problems. pursuant to that guidance enterprises gather information on the full nature of the problems. only a small number of servicers reported back to the enterprises as having some problem with foreclosure process that needs to be addressed. still these firms present a sizeable portion. they are currently working with servicers to ensure all loans are handled properly and corrections and refiling of paperwork are completed where

necessary and appropriate. to be clear. fhfa does not regulate mortgage services and the enterprise relationship with them is a con t contractual one. they expect all contractual responsibilities to be filled including compliance with the seller service guide and applicable law. also fhfa remains committed with services foreclosure alternatives. important to remember they have a legal obligation as conservatory to cancer t.v. assets. this means minimizing losses on delinquent mortgages. foreclosure including loan modification cans reduce losses relative to foreclosure. but when these alternatives do not work, timely and accurate foreclosure processing is critical for minimizing taxpayer

losses to conclude, regulatory agencies including fhfa are carrying out important activitys to better inform the issue. regulatory responses should a wait the results of examinations in evaluation of the information developed. thank you. >> thanks very much and i'll ask the clerk to try and keep it to six minutes and stick with that a large panel is here and there's a second panel to get to. >> that's six minutes a question? >> for you and me and everybody else. nice to see you, jim? how you doing? [laughs] well, let me begin with you, dan. i thought your tournament was - sorry i have to get to a mark up but i read the tournament last evening so committee with your

description of the review of the mortgage crisis and stated preliminary findings suggest weaknesses in risk management. quality control audit. compliance practices and shortcomings in staff training and loan modification and closure staff and management and over-site including legal services. despite from that there weren't too many problems. according to experts, including the next panel. these problems have been documented for years and i think he claims since 2003 by actions taken by the fdc for example so there's so some real background. i'd like to ask whether or not the other agents agree with these governor's conclusion in the tournament. whether or not you feel what you said is accurate description of the situation and given the

apparent severity why the various agencies that do have regulatory authority have not been taking action earlier. think is a lot of evidence. not some new information. why haven't day been more aggressive about this early on. we'll start with that. >> thank you for the question. i'll talk from the perspectives of the hamp program, and i think it's important again just to say hamp is a voluntary program and we have contractural relationships with the largest servicers to participate in the mortgage mott if iication program. we're in those largest servicers every month. certainly our observations have been that, there was, they were ineffective in soliciting homeowners for hamp. delayed processing and improper use of the treasury net process value model.

as a result, actions have included sending the servicers back to reso list it certain pools where they identified not solicited and had them re-run the net value model and had a temporary review period where services could not decline a homeowner from hamp until they reviewed the status of documentation and payment. notified the homeowner of what their records showed and gave the homeowner an opportunity to review. again, we agree that there is not been sufficient capacity relative to the magnitude of the processing. >> john, this is again, not new information. why haven't we been more aggressive as regulator? >> certainly it's not new information with capacity constraints going back to 2008.

we had been both gathering more information but also conducting horizontal exams in the major services focused on the modification problems occurring and clearly, we had seen arise in the number of complaint throughs our own system that tin dikated problems with mortgage modifications. we were in the exam processing that there were clear deficiencies otherwise being reported and we were consistently pushing servicers to hire, train, to adopt the secession of issues and procedures coming forward from hamp to develop their own proprietary modification programs. but the push was always trying to get them to ramp up as has been described a very large surge of problem loans was coming into the system.

they were clearly not ready for it. they have made substantial efforts to improve processing and deal with the problems that are there, but they clearly have not caught up with the modification piece of it. we've now seen the surge of cases move through to foreclosure and there was a - somewhat of a pause going back six to nine month as they did ramp up and we saw increased modification activity but the foreclosures were an inevitable piece. as i mentioned "in foc in my tot we required on things to look at large volume activities but clearly, the institutions failed in their oversight of for ex, third parties, agents and law firms and didn't ensure quality

insurance in their activities and use of third parties. clearly, in line site we should have seen that problem was going to appear successfully in each link in the chain, but and so now that's where we're focused. >> dan? you want to comment on this? >> skied the same people that you asked of us. you know, everybody asked their own specific story for the specific advisor but i came with a few observations. one, as john has already said there was a lot of supervising resources focused on servicers but dominantly on the slow pace of modifications. i actually asked our folks to pull the records of consumer complaints that we collect through the community and

consumer affairs division of the board, and dominantly the complaints about foreclosure are complaints from people being foreclosured when they think their eligible for a modification and that's where a lot of the attention was directed. i say that, the second thing is - that we - control process audit that i mentioned a moment ago, is one that i guess i've now concluded needs to be rethought because what you do is you pick out a particular function. of an institution where you say, maybe there's problems here. let's dig in and you dig in and once your finished, you find difficulties or don't, but usually do and take some sort of supervisor action. you know you can't audit all process control functions you don't have enough number of examiners you need.

so new jersey the absence of specific complaints about specific processes, the question is how do you use those audits that you do to try to rectify problems elsewhere? i don't want to push this point too far. i think it's pretty provisional in our own thinking. i think we do have some sense in institutions where for example on the modification problems we had been doing a control process audit and asking for some changes that we still see an incidence of problems on strict foreclosure side, but they don't seem to be quite as pervasive. what we're trying to figure out and will going forward is where there's some sort of causal relationship between having done one kind of control audit on the one and, and on the other, getting firm to pay more attention to what it does or frankly, senator it may be just

a coincidence but that's sort of my observation at this point. >> thank you for that. my time is expired. >> governor, i'd like to follow up on something earlier. risk management and quality control. you, eluded to the fact that there are obviously weaknesses here. when did you, the fed or did the fed realize there were problems in this documentation process. dealing with mortgage? >> so, for me, personally, it was really not very long at all. maybe a day or so before the public because one of the institutions, well one institution that we are the primary supervisor for, a lie did come in d allied did tell that they had self identified these from.

>> what do you believe is the fundamental problem here that needs to be resolved? for example, years and years estate properly laws and laws that you buy home and execute a note and mortgage. mortgage is sold say to fannie mae or somebody. historically, they used to record the assignment. every time a mortgage was sold. is this electronic system that we talk about - is that part of the problem? where are we? we're trying to solve this problem. for example if somebody is not paying their mortgage, my gosh, i believe that, you got to for close. you got to unless you agree to modify it or something like that to for close you have to own that mortgage in a sense. that's the law. isn't it? so where are we and what do you

think needs to be done? >> so - i can only give a provisional answer to that, senator, but i have to say - in looking at getting briefed on the extent of the problem. the complexity office national servicers doing not just foreclosures but servicing in every state - in many counties within particular states. thus differences in requirements and the continued requirement for fiscal recording. obviously, is for them a substantial costly undertaking. >> those state property laws though. >> and we, the regulators can't do anything about them. i suppose you could if you decided it was important to have a national - in other words state owned property and recording.

that's strong statement. >> exactly. that's why i did not propose that in my tournament. what i proposed was thinking about national standards for servicers. >> let's go back a few years. let's say, 10-yearsing a. did we have those problems then? for years we didn't have those problems. people executeed the mortgage. they sold the mortgage. recorded the assignment. they did the documentation. risk management. quality control. did they get too risky. too sloppy in what they were doing dealing in hundreds of - billions of dollars of mart gainings. does that taint the securitys in a sense, that you sell? >> well - say a couple of things.

one new jersey all honesty, we don't know what the situation was in 2001. at least, i don't know. we don't know if an examination was done of servicers whether some issues might have been food found, been found. you didn't have the problem so though up at the courthouse doors. i don't think there's any doubt but that the enormous increase in the servicing operations. >> so the volume of the mortgage? >> absolutely. huge volume and more concentration in the servicing. >> where do we go from here, today. december first of 2010. we still have this problem. senator dodd has had a number of hearings. are we close to solving the

problem? or are we where we are? >> from my perspective i wouldn't say we're close to solving the problem for several reasons. one, as i said earlier, i think it is related to the relative balance between foreclosures and modifications. two, i think that until you get a more or less, integrated approach - what do you mean by integrated approach? >> i think you need a set of standards that apply to servicers whether they're in a national bank, affiliate of a bank or, or this may be the case in the future. nonbanking institution. >> what standard? recording and showing ownership of stuff? we've had that, haven't we for years? >> i don't know that we've had clearly articulated standards as apposed to requiring firms to have their own process to abide

by in the law. and so i think what this has shown us, we do need more standards and particularly during a period in which there is, as i said. race between foreclosure and sometimes literally between that and foreclosure and modification between servicers. some sense of how that race is supposed to be conducted needs to be set forth on a standard iced basis. >> thank you mr. chairman. >> thank you. senator reid? >> thank you. chairman baird, the hamp program is voluntary. covers roughly, my guess about 25% of loans. as a result, the vast majority of loans have no requirements for banks to offer maryland if

iication are iicat modifications. should we? >> we've suggested to have some type of global settlement to have procedural hurdles that appear together foreclosure because of lack of documentation and not falling fully to state and local foreclosure lo laws. if they give it time to see. they need to do that first if the loan can't be ra habilitate they'd can proceed and perhaps they can have procedural. i think to say this might provide additional leverage to get it more streamlined process nongovernment modification. legislation would be another option. i'm looking for more things that we can implement immediately.

>> processes we prove every day, is slow. so - bank regulators? >> no. so you're envisioning a regulatory solution initially that would use what ever authority you have that are substantial to deal with a host of issues. one is, making sure everyone is offered for modification. not voluntary but everybody. dealing with issues of title of standing and et cetera that may require legislation but at least you can pursue it at a regulatory position. the other sort of sets of issues would be, the capacity of the institutions to do a job service that you have to increase. but there's another issue here

which was the individualized evaluation in the foreclosure process of the status of the person, and you're probably aware, i'm sure at least in some districts, the bankruptcy trustees have become very active about requiring the paperwork be corrects. that something you would like to see broaden. the courts as well. increasingly much more stringent in exacting in proof of good chain of title challenging the title. i think this is a real issue. as dan said. not clear to me. depending on how the case law goes that all and we need to think about some type of pro

vision. using leverage early in the process. give them a fighting chance. then if not. wait to procedural projections and then waiting to foreclosure. work at the loan to mitigate losses when you separate ownership from the loan. the securitization same economic incentives aren't there and you have this very high s volume wih a compensation system with few troubles systems. i think going forward. >> my time is limited, but essentially your saying model that worked before does not work any longer and we're pursuing this model in the same old

fashion. just do ate ap a little bit mor. time is of the essence. huge sets of issues with respect to legal liabilities of large financial institutions or security laws violations, et cetera and the sooner, there is, i think a coming together of the financial community and the regulators with a coherent program that addressing the issue, the better off we'll all be. what i'm concerned people that are left out are the mortgage holders struggling to stay in their homes. not the flippers. not those folks but people, who have seen one spouse lose a job. tuition increase and are struggling and until they're part of the solution, we're not going to get a total solution. that goes to bankruptcy of empowering trustees to be much more pro active. let me turn to mr. walsh. what you've pointed out, i think

in the characterization is severe manager failure in a lot of institutions in the terms of the way they're operating and they they accumulate mortgages. >> i want to with hold a final characterization but we've already seen a lot of problems and when you see a lot of problems there's some degree of management failure, and i would suspect some are sus substantial. self reporting that they've had major problems. let me ask you. what steps are you taking in ensureing the resources are available. manager skills and emphasis from the top of the institution all the way down and maybe in terms of the compensation arrangements that are doled out. - fit this critical, national

goal of stabilizing the mortgage markets of securitization and services model that no longer works. we've leaned hard on the modification part of this. and done a series of exam on shortcomings in staffing and the rest. and the banks have not improved fast enough and now the problem has migrated to the for closing process where they've again, been caught short. there's clearly deficiencies there. i think we have to be clear that the deficiencies that were laid bare by the surge of problems are ones that should these problems pass through and the system returns to normal, it may

sort of look like it's old self. these problems will now have been exposed and the question is how do we deal with them over time time.

>> i thank you for that and i hope you'll give me another minute my questioning. >> you take as long as you like. [laughter] >> is the prerogative of the chair. >> we have had a number of difficult issues and i think the way committee members have interacted with each other has been a reflection of your outstanding leadership and i think you for that. >> i say this about senator shelby as well, the tremendous job my colleagues have done but i would be remiss -- particularly on the financial reform package -- the work of senator bob corker and working with mark warner and working with so many people on this side over made a major contribution to the effort. we did not all come to an agreement, the effort made a far

better product than would have otherwise been the case i am eternally grateful from the guy from tennessee, bob corker. >> i intend to attend the latin american hearing later today. you said you could run for president of any of those countries play. i will move onto our wonderful witnesses. i thank all of you for coming today. as it relates to just the macro-prudential issue of the invitations -- the servicer is involved -- we have not really talked about the issues. we have been flooded with phone calls. you have been helpful to us as we try to navigate that. as it relates to the macro-

provincial issue, the strength of these organizations, what may happen over time financially, i would love for chairman sheila bair and mr. teruullo and mr. walsh to respond how that would impact overall theme we do not see is this a big impact at this point. >> we need a concerted pro- active action to get ahead of this and make sure it does not spin into something we don't want to see. there are two key issues. this is what it says about the housing market which could impact other institutions. i think getting this situation cleared up so that borrowers on the front-end are given a fair chance on a in rehabilitative loan and if that does not work out and foreclosure is unavoidable, there is a process to proceed.

there are also many litigation exposure is here. law enforcement -- potential for law enforcement actions and i don't think we could that -- have a good handle on that yet. the institutions need to do their own risk assessment on this. we are continuing to collect information and do not have a good handle on it yet. >> i am aware of a number of those issues. do you have any sense of the order of magnitude -- i know you don't know exactly -- is this something we should be concerned about as it relates to the large servicers and their institutions? is this a large problem or does not matter? >> i think it could be very significant. it could happen over a period of years but it could be quite significant. it could relate to legal issues and how they are resolved.

the risk is something that the fed has taken the lead in analyzing. i'm sorry but we don't have all the facts yet and much of it would be determined by how courts would resolve these open ended issues. we need to provide leadership in coordination now where we have appropriate authority and that would be helpful. >> as you are entering, mr. terullo, is there typically recourse back to servicers? is there significant records back to them? >> let me echo what sheila bair said of the issue of the housing market and add to that something i noted in my written testimony which is until we get a handle on and a reduction in the overhang of the foreclose inventory in the housing market and until we have a process that is moving smoothly with

modifications and foreclosures, there will continue to be problems in the housing market and obviously for the rest of the economy. with respect to put back risk, that is a function of several things. one is the default rate that one anticipates for its security holders only want to put back the securities when there are enough defaults that are not paying well. we can at least model that based on certain macro assumptions. second is the legal set of issues. those are harder to pull apart right now at least. mr. demarco can probably give you a straightforward answer about put back liabilities with respect to things the gse's are involved in. private label securities vary enormously and the representations and warranties in those agreements of barrie.

even if there is litigation over one, that may not tell you what the liabilities and others may be. the third factor is the particular configuration of the defaults and the legal exposure at a particular institution. you could have an institution that securitized a bunch of mortgages that are not doing well but had a set of representational warranties which are weak or they met. it will take time to disentangle that. we will take a first stab at getting the firms themselves to do it in the capital plan but that may not be final buried in terms of order of magnitude, i don't want to give you a number. senator dodd noted the order of magnitude in non-governmental assassins differs bike -- assessments differs by a factor of three or four. we don't have a better number than that.

with respect to some institutions, this could be a significant exposure them not before mr. walsh >> before mr. walsh, could you all respond to whether the service and pricing -- the servicing pricing -- it was priced itlots -- what is an appropriate length of time for foreclosure? it is different in different states. they are both incredibly long. how long should a foreclosure process take? is it 90 days, 100 days? it is probably not 492 days. lastly, the issue of conflicts. we talked more about the mechanism of servicers. we had an amendment on the floor which we were unsuccessful in passing over the last year? but there is a built-in conflict with servicers will end up

having home-equity loans and others. that, to me, is a huge issue that we need to deal with. in many cases, they are putting their interest ahead of the first mortgage. it greatly change is property rights. with a bat, i will stop and thank you for the latitude. >> do you want to quickly respond to that? >> on the systemic peace, there is a systemic risk here. it is on like the market crisis in 2008. it is something that appears to be something that will be drawn out as we sort through the problems that are there. on the length of the foreclosure process, it tended to average eight or nine months and now it is averaging 15-80 months. it takes a long time by design. it is not supposed to be easy to take someone's house away. it has become quite drawn out.

do we need to streamline that in some way? >> if i could -- i completely agree with your observation on the first and second lien and i think that is one of the many reasons why we need to have a more consolidated set of standards applicable to service service. there is an inherent conflict there. when you observed a second lien doing quite well any firstly moving toward default, you raise your eyebrows >> and a bit> >> we have done our own securitization is and we have tried to implement service in reforms --servicing reforms. we have also engaged in qualifying residential mortgages as part of the dodd-frank implementation.

at the top of our lives, there is a second lien problem so if the servicer is going to service the first and service the second, they will have to fill out in the advance what will happen is that first league gets into trouble that is a good suggestion. >> ms. caldewell 17 of my colleagues join with me in a letter to the secretary. it is our concern about the servicers and the banks and hamp which was originally projected to take care of 9 million homeowners which has fallen four -- far short with 495,000 permanent modifications since january of 2009. at the same time in 2010, we are estimating there will be about

3.5 million homeowners who will receive foreclosure notices. less than 2% of the funds allocated for hamp have been expended. there is something wrong with that. we sent a letter that outlines a series of actions that can be done not with congressional approval, simply administratively by the secretary including the process of holding services accountable. treasury offers incentives for their participation but no consequence for mistakes. the issue of the office of homeowner advocate, the issue of automatic conversions it, if you have a successful trial modification, the issue of revise eligibility requirements, the documented of investor-based modification to niles, the release of net present value

analysis -- why can't we get that done by treasury? >> i heard a lot of suggestions there. let me first talk in general about the program. it is important to realize that when we started the program 18 months ago, fox said servicers would never sought out voluntarily. it went from zero to over 100 servicesrs. servicesrs.