tv Today in Washington CSPAN December 2, 2010 6:00am-7:00am EST
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we set a goal of having 500 modifications and we get that. we reached the conversion challenge. at the beginning of 2010, we had about 31,000 permanent modifications and a backlog of close to 700,000 trials. these are folks who would convert. in the first 3/4 of this year, we went from 31,000 modifications to over 500,000. what we know about those modifications is that they are affordable to the home owner and based on the occ metrics, they performed better than historical modifications. well we have not had the numbers we want and continue to focus an outreach efforts to home owners, through our call centers and the events, those homeowners that are in hamp have sustainable modifications that have used taxpayer money wisely.
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we continue to focus our efforts. >> i appreciate your defense of the program. i don't quite see it the way you see it. i know that many members see it the way you see it in terms of what our goals are and what the cosmos are. -- and what the accomplishments are. i hope will get every -- a response from treasury on the six are seven items that can be done administratively internally and many of us on this committee think that in fact would transform that into a much better and more successful program. we would like to get a response for treasury on that. mr. terullo, your colleague on the federal reserve board said that the numerous procedural flaws that have been unearthed are part of a deeper systemic problem. and as long as the business incentives for banks and loan servicers run counter to the
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interest of home owners, there is a need for close regulatory scrutiny of these issues and for appropriate enforcement action that addresses them. to me, that makes a lot of sense. as long as the servicers are incentivize to push foreclosures peru, they will ignore very often the ordinary homeowners needs and the cost of foreclosures. how do we get those senses or realigned? what steps should banks and regulators such as the fed take if any? >> this gets back to my point about the need about combined set of standards which will apply to servicers whether or not they are an insured
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depository institution, an affiliate, or did independence. -- or independent. with respect to fair treatment of homeowners and the way in which a servicer deals with conflicts between one lien holder and another, with respect to the relationship between the servicer and the investors in securitized mortgage, the system as it is now was simply not developed with the prospect of a large number of foreclosures and troubled loans in mind. while uc problems across the board, you generally think you will need more of an across-the- board approach. he that is why i said that we do need more of a national effort to impose standards on everybody. we can do things as we are. with respect to one of our institutions where even par with
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reexamination we see a lot of problems, we are pushing them to change now. we don't need to wait for the end of the examination. that step by step process, one institution by one institution, i don't think it gets to the larger point that you and senator gore and others have raised. >> -- you and senator corker and others have raised. >> both freddie mac and fannie magyar participants of the second loan modification program. it helps a lot of homeowners who are struggling with multiple mortgages. servicers are supposed to implement this program by january of this year. given the stories we have heard from homeowners and consumer advocates about servicesrs' reluctance to engage in second law modifications, i am concerned about the implementation of how this program is going. what roles are in place for
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actually that servicedrsrs participate and have your agency planned to oversee this parade -- program to make sure they are in compliance? >> the second lien program is part of the hamp program so that is administered by treasury. to the general point, this goes back to some comments that were made a few minutes ago in response to the question by senator corker. the existence of second liens has been very problematic for us in overseeing the enterprises with respect to first liens. it is quite turning things upside down to find situations, which is common, where borrowers are continuing to pay and a second mortgage but not paying
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on their first mortgage. the property rights are run to the first lien holder. this has been a true conundrum in this whole loan modification and loss mitigation effort that we have all been engaged in, to figure out the way this should work is that the second lienholder should be taking the first credit loss and yet we are continuing to do low modifications on first liens that basically provide protection to second liens. i would share the comments of my colleagues that as we think about our housing finance system going forward, i think this is an area that clearly needs addressing. as the golan now with second -- with long -- as we go along right now with all modifications, our expectation is that the second lien holder the participants in providing relief to a troubled home owner.
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the first mortgage holder is going to provide relief through a reduced payment, and affordable payment. we think the second lienholder should be sharing in that. >> thank you. i am going to say something that you all won't like. 2006, we had a huge housing crisis in this country. even before that, the market crisis showed its face in 2001 and 2002. all you people here have not come up with a solution to solve it. all your brains and you have a lot of them have not come up with.
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i have sat on this committee for 12 years. and listened to the same absolute gobbledy-goop from everyone. you have not had an answer to any of the questions. all you do is deal in hyperbole. you don't deal in fact. how do you solve the problem? how do you get out the first mortgage holder and a second mortgage holder? how'd you get them out? i cannot believe that with all the brains sitting at that table that there is not one of you that can come up with the answer to solve this crisis. this is about to go the wrong way again. if you saw the numbers in 2010
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or october, you saw them minus 2% in housing. i am telling you that if it goes badly in november and december because we have all the programs we had in place and they are no longer in place. the supplemented mortgage market and the housing market -- until we get the housing market straighten that out and alone market straightened out, we will not get the economy straightened out. chairman bair, you have heard this before but it is to afford not to repeat again to you today. i continue to hear from well over 40 kentucky community banks about the heavy hand of your examiners and their
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supervisors. i have talked to you about this before. these banks are not the ones that cause the housing mess. your exam is are blocking them from making good loans and forcing them to treat good laws like bad ones. your regional supervisors are even adding more requirements on banks beyond what the examiner's think are necessary. the biggest complaint is your agency is being inconsistent in applying the regulations day to day and bank to bank. when are you going to do something about getting off the backs of our community bankers? >> senator, whenever this issue comes up and we have discussed before, if you can't give me specific names of banks that have problems, we can review that and make sure what ever examiners are doing on the field. have issued many policies on
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this and we want to -- we want a balanced examine approach. the community banks have been landing gear their loan balances have been maintaining steady throughout the crisis. there are some community banks that have trouble with commercial real estate loans. if that is the case, there will be capital constraints. >> i am talking about people that have 30% down on a home and can go out -- 30 percent down -- >> they have been come to support the mortgage with that, they should be approved. >> they are not being. >> give me specific examples. >> i will give you for remains of 40 banks. >> we will take a look and all of them. >> ok. mr. terullo, mr. demarco, and
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sheila you can get in on this, what kind of losses do you expect the fed and the gse's do yoas a result of mortgage servicing problems? >> from our point of view, the mortgage-backed securities which we purchased as part of a large- scale asset purchase program last year are only those that are guaranteed by fannie mae and freddie mac. we don't have an independent issue there. >> ok, picked up at fannie mae and freddie mac. >> this is something that both enterprises are not servicer- specific issues. it goes to losses in delays in the foreclosure process and because the individual servicer as a problem. >> $4 trillion dollars?
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>> it is nowhere near that amount. what we are looking at is the incremental cost of delay and possible litigation that results from this. i don't think we're looking at -- >> how many foreclosures are we still engaged in? >> i can get that number for you. we report on a monthly basis to the committee. >> does committee staff have that number? >> we will certainly provide it again. >> sent to you report it, i thought maybe they have it. >> we report in the federal property managers report monthly. we have updated data on mortgage
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delinquencies as well as the whole range of loss to engage in activities that are taking place. >> i have another question. are the fed and the gse's going to aggressively pursue pullback of mortgages to the originators and investment banks to reduce taxpayer losses? >> we are very much in the process of doing that. fhsa has been public about that for months. where there is representation and warranty violations by a servicer for loan origination, we have the enterprises put those laws back in my prepared britain's statement, i provided data in how much was done last year and this year. your question about private- label mortgage backed securities --fhsa issued subpoenas in july to gather data on mortgages in
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private-label mortgage backed securities that the enterprises hold our this is to gather information to be able to assess whether there has been representation and warranty violations in those securities. this will be a long process by fhsa has been committed to this and have a responsibility to protect the taxpayer. >> sheila, let me explain why you have not heard from those bankers. they are afraid to put their names forward to figure that the fdic will jump down their throats because they are in total and complete control of who and how they can lend money. that is their reluctance he did come forward. >> you have my personal assurance that would not happen. >> i love that. >> i cannot respond to a
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generalized issues. >> it is no big deal. i will get the names from the head of the kentucky bankers association. >> that would be fine. >> thank-you. >> senator berkley. >> thank you very much. thank you for your leadership on this committee over the last two years. it has been an extraordinary exploration of the process by which we aggregate capital, the spurs capital, and the many, many challenges that have arisen in the course of mortgage practices at the retail and securitization level and these issues will continue to reverberate for a long time. we are addressing one slice of it today. thank you for your leadership on
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dodd-frank. and your huge effort to try to stabilize our financial sector and have it served our nation well in the decades ahead. it has been a pleasure to be part of your team. >> thank you, senator. you have a wonderful contribution as well and want to publicly thank you. as a member of the committee, you became quite active and i thank you for that effort. >> thank you. i want to start with mr. terullo. let me ask you about the put back rest. the numbers you laid out our that fannie mae and freddie mac have $13.3 billion in outstanding repurchase requests. the four largest banks have reserves of less than $10 billion. the reserves are not expected to grow and yet the repurchase requests will probably grow substantially and that does not include other investors.
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this situation in terms of its systemic risk down the road, i believe the federal reserve is conducting a detailed examination of this risk. when you anticipate that there will be a point where you have a report. is this systemic risk council undertaking this issue? >> we have requested that the comprehensive capital plans from the largest bank holding company is whether or not they are mortgage servicers, put back is a significant risk. we have requested those plans by the first part of january. this will be the occasion for us digging into each of them for each of the institutions with respect to specific issues. where there are issues that may call for supervisory guidance or action, we would take those. i would not anticipate that we
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would release firm's specific information about that but obviously we will be happy to communicate on our general evaluation of the level of put back risk with respect to the institutions as a whole. >> on a scale of one-time, how big of an issue do you we anticipate this will be? >> let me say i will be evasive and i don't want to give you a number because we are in the middle of the process now. if i had to guess, i would guess that for a few institutions that number would be reasonably high and for many it will actually be reasonably low even if the dollar amount is significant because these are such big institutions. >> thank you very much. it is important we continue to pay attention to this in
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congressional oversight. ms. caldwell, i want to turn to your questions about the dual track. you said you have done procedural safeguards to minimize dual track, to make sure the foreclosure process does not move ahead with the loan modification process. did i roughly capture your comment? >> yes, you did. i want to acknowledge the work of your staff and providing input into the hamp program and the bar or protections announced in january that the clarification -- and the bar were protection's a massive january. >> we are much more worried about this than perhaps treasury is based on your testimony we recently had two major banks,
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chase and bank of america, which said clearly it is their policy to pursue both tracks simultaneously. they said the only factor that is a caveat is that they do not go through with the sale of the modification process is still under way. the foreclosure process going forward simultaneously in which the homeowner is receiving notice after notice and i read a letter about one of the homeowners in our gun, is enormously confusing and enormously stressful to our families. i wish there was in fact a rule in place that said the foreclosure track will not be pursued until the modification is completed. that would change the dynamic of the modification process enormously for the families involved. is that a potential point the
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treasury can back, completely suspend the foreclosure track until the modification track is completed? >> with respect to the hamp program, servicers may not start the foreclosure process until loans have been evaluated for hamp or until a measure of doubt -- ever to the homeowner has been tried and exhausted. >> let me interrupt you for a second. my time is out. can i pursue this for a second? thank you, mr. chairman. often, when folks seeking a modification, they are told by the servicer they need to be delinquent before they start this. at three months delinquent, that is kind of the official start of a foreclosure process. now that that is under way and the modification is being initiated, the banks to do not
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suspend the foreclosure process. what i am saying is that technically you are making a correct point that if no foreclosure process has begun, it cannot begin during the modification but so often the interaction results in the family being 90 days behind in their for triggering the foreclosure process before the bank will proceed for modification and the foreclosure process is not suspended. that is a reality on the ground that all those hours -- are saying with our constituents. we need a much stronger position with regard to that situation. >> we completely agree with you that the dual track process is confusing for homeowners. i want to venture to clarify that within the hamp program will issue guidance affected this year that servicers had to stop the process in place and evaluate that the homeowner for hamp.
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in our last hearing on this committee, the two large servicers testified that for those loans in the hamp book, they do stop that process but for the loans that are subject to other investor guidelines where they are -- or they are not permitted to do so, they cannot. hamp does that have the authority to override existing investor contracts but that is a specific hamp guidance that was issued in january of 2010 and effective in june and was done in response to the overwhelming complaints we heard during 2009 about confusion among homeowners about the process. >> because of those existing agreements, this has little practical effect because fannie mae and freddie mac are telling those servicers to continue with the foreclosure process, not the final set, but the foreclosure process until we have a real problem on the ground that needs to be addressed. >> if i may, to the extent of
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the concerns about gse loans, that is under our authority. while it is run in tandem with and is meant to be an in alignment with the hamp program, those are not hamp loans per se. i would be glad to see big to the dual tracking. i think this is a matter of confusion not just for home buyers or home owners but it is confusion in a lot of other places as well. the responsibility here and the way this is run for enterprise loans which is in harmony with what is done in the hamp program is that as soon as the borrower mrs. payments or context there
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mortgagor, there is a single track. they were lost mitigation option that is tailored to their particular circumstances. foreclosure does not begin and that is what we should be working on. at some point, foreclosure does need to begin. typically it is four months. it has been reported in the testimony of several of us, the foreclosure process is extraordinarily long. we have to be careful about terms. to have a dual track, if you have a foreclosure process that will take one year or more means that while you're going to the foreclosure process there remains an opportunity for the water to secure that law and order to qualify for some other kind of loss mitigation activity, i fully understand the concern about the confusion for the borrowers. we all have a responsibility to be working on a greater clarity for the borrower.
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at some point, once the foreclosure process starts, i have a responsibility as conservator for the lead the foreclosure process to be moving along if we are not making -- hitting a meaningful miles done with respect to loss mitigation alternatives that are offered these offers are numerous. we absolutely want the servicers of the fannie mae and freddie mac clones to do everything possible to come up with an appropriate alternative starting with a loan modification. that must start months before any foreclosure process would start. if there is meaningful progress on those long modification activities, foreclosure will not start for it was the foreclosure process does start, i do think
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there is a responsibility to be moving battle law. when a successful trial modification is initiated, we will seize the foreclosure proceedings. >> this is a very difficult issue. this is one we all share a concern for the homeowner and the tax payer. >> i am completely dissatisfied and we will continue the conversation. >> it is an important question. some bunning past -- senator bunning as for numbers. between january and the end of august, there were 278,000 completed foreclosures. since january to date, the ones in process of foreclosure,
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761,000. those are the two numbers. i will put this in the record. the top five reasons for deliberately is on this chart. the overwhelming number, almost 50% are curtailment of income. it is confusing. there is an unemployment statistic and that only accounts for about 8%. i don't know what the difference in curtailment of income is. hopefully, someone else could enter the question bamut there could be a dual income household one person had a reduction in hours and so forth. >> but more than likely it is loss of employment. >> thank you for your leadership
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of this committee and allowing me to participate and for your excellent, excellent speech yesterday. >> thank you very much. >> i hope we hear more like that one going forward. i want to go back to an observation that mr. terullo made about the macro-economic implications. they are potentially devastating. we had this housing bubble. we have this crash. we have people trying to figure out how to preserve these home values which is like holding back the ocean. i am very concerned that we are moving in exactly the opposite direction. because of the issues that have been raised here, we find ourselves in a place where it is in the investors economic interests for many of these laws to be modified rather than foreclosed, it is in the home of
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his interest to get modifications done, because it is in the broader economic interest of this entire country that we don't drive housing prices down because we are for closing in neighborhoods on necessarily, somehow we still find ourselves in capable of streamlining this process. the dual track as a lot to do with that. the observations that the servicers made that was because of fannie mae and freddie mac, they said that they cannot get out of this dual track. they cannot find a way to modify the loans the way they want to. the question i have -- is this an issue about standards? or is this a broken system of incentives and we don't understand the incentives in the marketplace or is it some
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combination of those two things? from my point of view, this entire conversation has been like watching a slow-moving train wreck for 22 months. for the homeowners in my state, there have been devastating consequences as a result of this. hen cannot hold values of w the market drops. it is impossible. i am worried we are engaged in a process of value destruction and therefore creating a horrible potential economic consequence to the country. do you want to respond to that? >> i'm sure i will have something to say on that. i agree with your point about the macroeconomic consequences here. secondly, i think it is about standards and the standards themselves can be about incentives.
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the first lane/secondly issue is a good example of that. this will also have to be about resources. we mentioned the inadequacy of resources to deal with foreclosure and modifications and perhaps even with the ongoing servicing ofnon- foreclosed mortgages. rules will not be the and all and be all but it will be an occasion for a consolidated group to think about how all these things interact and try to get a more or less uniform set of standards and expectations for how this needs to proceed. >> we want fixed the securitization market going forward unless we deal with this huge economic driver of this with having servicing done
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on these lots ofthe gse's have a big role to play. on the question of dual tracking specifically, one reason we have suggested that all services require a single point of contact is acknowledging the reality that in some circumstances it may be a legal requirement that you dual track. there might be a valid reason to start the process. there needs to be somebody talk ing to borrowers. we need to give them my phone number and a real person will answer the phone to call if they get confused because of this process. i think this would be operational challenging but i
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think they should do it. borrowers are confused or scared. they need to reduce payments and they are getting caught in this confusing trap. people want to play out the system and some are benefiting. it is completely upside down. that would be our solution, a single point of contact. >> to add to that, the two go together, the number of institutions about a single point of contact to eliminate confusion. we do a great and we are all too frequently have agreedr servicess sharing the concern about the dual track is confusing. if you have entered into a modification and you are performing and have a new arrangement in place, you should not be getting things in your mailbox and thinks stock under house and find an advertisement in the paper about the home where the services have the flexibility to do so, we are
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directing them to halt the foreclosure process when there is a mortgage modification in place. it is dominated by contractual obligations because of the servicing arrangement. either through private label range and g or these's there are rules that apply. i think we need to give some attention to sorry about and produce uniformity. >> let me ask you something. nning in his forthright manner expressed his frustration as others have less direct terms and i thank you for your direct message -- every person represented at this table today is a member of the financial services oversight commission, the one we
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established in the dodd-frank legislation. we try to anticipate systemic problems shared by the treasury. you are not the secretary of the treasury but you are here, ca messlwell. caldwell. there may be contractual issues that limit the regulators capacity to implement these ideas that you seem to agree on that makes sense, a single point of contact and other suggestions, what are you doing? this is a classic case. we did not anticipate this but here we are by all of you admitting we have a systemically risky problem that could put our economy in a tailspin and the issue is, why aren't you meeting on this thing?
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why am i not reading about this commission that we formed specifically for a purpose like this getting together to do something about it? what is going on? >> in our last f-stock meeting there was a presentation by assistant secretary bair in the session which has been taken up by the council. we need to complete the work that is under way which is due to be completed within the next month in the institutions and brought back to the council at its january meeting. it is certainly something of that has been taken up. >> sheila bair made recommendations and others made recommendations, was that talked about at that meeting? are we hearing these for the
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first time today? think we are hearing ideas for the first time but i would characterize the discussions as being at more of a systemic level in that first discussion that we held. once we have details of the nature of the problems, will move on to solution. >> i apologize, five of the members of the 10 members are sitting at this table. i have raised this in the past at hearings. if i could of conjured up -- i don't think we could have seen anything this quickly when below was assigned a few weeks ago. i did not think i would be sitting there with a bunch of witnesses talking about a systemic problem and i don't hear much out of the entity we created. i'd expect miracles. good lord, i would expect
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something coming out of this operation. what better case could you have than this one to demonstrate the value of having a commission like this? >> thank you very much, mr. chairman. like every other member, >> i will be mercifully brief. first, let me thank you, mr. chairman, for your service. with your changing circumstances, the caucus of those of us who followed our fathers into the senate will be somewhat diminished. we will have to count on some p amateurryor to carry on -- we will have to count on south p enterrior. -- we will have to count on senator prior.
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although out of time here will come to a conclusion, our friendship will not. i know you sacrifice a many ways personally and the for the last couple of years and all we have been throat and i want to thank you and your families for your devotion to our country. i had to are three quick questions. mr.terullo, we avoided the worst possible outcome of with the downturn. the fed is engaged an extraordinary efforts which support to prevent a more sluggish economy. this is quantitative easing. we have other drags on the economy. we have a lack of consumer confidence businesses are setting on a couple of trillion dollars because of their lack of clarity about future final demand. we have some of the problems of
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sovereign debt in europe which is causing more sluggish growth there. china may be worth about increased inflation so they may be raising their interest -- interest rates. obviously, real estate has been a huge drag on the economy perry we have been hoping that the clearing process would take place and we would get footing under the real estate sector and then it could contribute to economic growth going forward and yet the dragging out of this process runs the risk of retarded combat. from a macro economic standpoint, do you have a sense of what kind of risk this prevents the overall economy? >> at this juncture, our internal forecast is for housing prices being stable to maybe slightly declining depending on
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which forecaster in utah to over the net -- or the course of the next year. that is obviously not providing an impetus to growth. as senator bennett suggested earlier, there are multiple ways in which the housing market and clear. some are with a greater costs, more neighborhood problems, more lost value and foreclosures, more lost home because of deterioration and some with your costs. there will the costs either way. we will not avoid all the disk -- foreclosures in it -- by a long shot. if we are to guess housing to be an addition to gdp growth, we will need to deal with the overhang of foreclosed homes which we are undoubtedly having. >> home prices can start rising again and people can be confident? >> absolutely, if you look
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objectively based on past experience, conditions and other conditions for home buying, pricing, credit, are quite good. home buying is obviously not merely what people hope it will base. why is that? there are a couple of reasons. people may be uncertain about their own economic situation and they may think housing prices are going to decline more. until we strengthen the economy to help deal with number one and clear the market to deal with number two, we will not get their. >> the more protracted this foreclosure problem, the more that the letter is this? >> it is a sufficient source of uncertainty. >> you mentioned that for a couple of institutions of this may be a material issue. said there was a variation in estimates. for a couple of them which i assume are the bigger ones, this may be a problem for them if
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they become significantly affected, does that present a systemic risk of some kind? >> i want to underscore the tentativeness of everything i am saying about examinations or put back in dallas says. secondly, this is why we are trying to get ahead of the issue. we want to do it in the context of a capital plan. to the degree that any institution is to reserve more and to capital preservation, we want to be able to give the kind of guidance in a timely fashion. >> obviously they are not lending and that is another drag upon recovery. >>sure, at this juncture, i wish the capital requirements for the principle drag upon landing. they don't seem to be. the demand factor seems to be playing a greater role. >> my last question has to do
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with what many people are asking them cells. they pick up the paper and there is an understandable sense of outrage from someone who has been on deservedly foreclosed upon. at the same time, you read these articles and it would appear that a fair amount of this are technical paper problems that ultimately will be resolved. do any of you have any sense about the percentage of these cases that are miscarriages of justice for lack of a better term and how many of them are purely technical and postponed the day of reckoning that will inevitably come? >> again, we keep mentioning the fact that we are in the middle of these exams.
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the indications that are coming in are that we are not seeing many cases where the wrong person has been identified, where there were current on a mortgage of working on a modification on winter -- under which they were performing. these are long and dated foreclosure process is taking place where the problems are more technical part o. if there is a violation of law, that is unacceptable. you have to cure that problem and remedy that situation. even if the problems are more technical in that sense, they are legal deficiencies. they have to be fixed. they are not legal foreclosures. >> the reason for my two questions is we are paying and macro economic price for the delay in resolving this issue. as much as we look for a pain-
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free resolution, that is what politicians usually do and economists remind us that is not possible. the more efficiently we can resolve this while still -- if only one person has been on just a foreclosed on, that is one person to manage. how you keep that from happening? how could we avoid the overall drag to the economy because every american to suffer? that is the underlying purpose of my two questions. really encourage you to look at the misalignment of incentives. if we are going to avoid a repetition, there is a wonderful saying in law school many years ago. a problem susceptible of rock -- of repetition is aiding review. we don't want that here. this is susceptible to repetition.
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we don't want to get amor to this morass again. >> thank you for your patience and your work on this committee. in my last monologue about the financial services oversight commission, this is a question for the secretary of the treasury, the chairman of this commission. i have raised the issue to all of you at the table, the question goes back to the secretary. i would appreciate if you could carry this back to him. you only convene meetings but it seems the idea of getting the collective wisdom of people around this table in front of us could really help the situation. please convey that message. >> thank you very much, mr.
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chairman. like everybody else in this committee, i offer my praise to you. has been a pleasure and honor to serve with you. you are one of the very best senators that the united states has ever had. thank you for everything you have done. i'm concernedman bair, about farm lending and commercial real estate lending. according to the fdic, farmers are falling behind their loans at a 17-year high oftentimes collateral for farm-operating loans is the firm itself. -- is the farm itself. they are at risk of losing their me.elihood but also their hop several banks are telling us that regulators are seeing farm loans suspect and discouraging
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community banks from carrying farm loans. this attitude is hurting rural america without making the banking system and the safer. what is the fdic doing to work with banks to make sure that farmers have adequate access to credit? would you consider offering guidance on farm loans similar to the commercial real estate guidance that was issued last year? >> thank you for that question. the dairy industry has been having some trouble we appreciate that. we have guidance encouraging prudent lending and loan restriction activity. i would be open to doing something specific to ag landing. that is a point well taken and there are parts of it that are troubled. providing clarification and
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better expectations is something we would be open to. >> i heard you to say that you are willing to offer specific guidance on farm loans that i absolutely. >> that is great to hear, thank you. >> because of the decrease in real estate prices, many commercial borrowers will not be able to refinance. community banks are known to have large real estate portfolios and will be hit hardest by this downturn. community bankers are not certain how regulators will treat commercial laws that they have on their books. this makes it hard for them to lend to small businesses. the fdic and other regulators last year came up with guidelines for when a bank and modify a commercial real-estate loans. these guidelines say the letters would not be penalized by examiners for pursuing prudent efforts with their borrowers.
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regulatory examiners do not always follow these guidelines. what can be done to bridge the gulf between what is written in washington and what is happening at the local level? is the fdic serious about giving banks and borrowers a chance to work out these loans without freezing the bank's ability to make other loans? >> we have very specific guidance we issue with the other regulators encouraging prudent loans. we have the courage to work out some of residential and commercial loans. if the collateral has gone down, that does not immediately mean that known -- the law needs to be criticized.
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this would need to be the case and of the accounting rules. we have tried to exercise flexibility and provide guidance in this area it is very difficult right now. parts of the country, commercial real estate still has some troubles. the balance sheets are getting cleaned up and the construction development loans have been coming down. the credit quality is improving. we are emerging from desperate there are some banks have cabby -- have reconcentration. this is driven by the fact that there is troubled loans. it has nothing to do with the supervisory process. we have tried to be flexible and prudent and continue to encourage community banks to lend.
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the loan balances have kept increasing during the crisis. community banks of the strongest group that has been lending during this crisis. they must be appreciated for what they are doing. if there are specific institutions that you feel the policies and washington have not specifically applied, we would be happy to look at that. we want to make sure our policies are appropriately applied. i know one raise expectations. there are many commercial real estate loans will take a long time to resolve. >> thank you very much. >> good questions, i will leave the record open for additional questions but i -- but we have a second panel. i would quickly asked dan
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terullo about the issue of standards which i think it's a terrific idea. i want to get a quick recognition. to the rest of you, is that an idea from treasury down to fha, do you like that idea? >> servicing standards? it is something we support. hamp was set up to perform some status for the industry. >> we have tried to address this for banks. >> certainly given all that we have seen, we need to give serious thought to the model here and whether we can improve this question of incentives. are there perverse incentives
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that are operating in canada better aligned. this is a good time to give that a local. >> i hope that part of what we do will be standards. i would go beyond servicing standards and a range of things in the mortgage industry where we can assure where and how standards are established and overseeing them and them being in force should be part of that discussion. >> tim johnson chairing the committee and a -- will be charing the committee in january. we want to get specific ideas. maybe this is something that the financial services oversight committee might submit to us with legislative ideas on language that could be part of
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this committee's consideration over the next month or so. i will make that request of all of you. for the treasury, maybe the oversight commission might not be a bad place to cook these ideas and make a presentation to make this more efficient and a single point of contact. i thank all of you. this will be my last opportunity to say thank you and i am grateful to all of you. i have enjoyed immensely working with treasury and the fdic and the board of governors as o thecc and i want to commend againfhfa. without you there and without the housing financing system, we would have a deeper problem. most people recognize that. i want to take this opportunity to thank you for the work you and your staff are doing. i look forward to working with the committee.
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i thank all of you very, very much. >> thank you, mr. chairman. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> cspan, it is all available to you on television, radio, online, and on social media networking sites. find our content any time through the cspan video library. we also take cspan on the road. we bring our resources to your community. this is washington your way. we are now available in more than wanted million homes created by cable and provided as a public service. >> "washington journal" is next. the house will vote on whether to censure new york senator charles rangel. the chamber could also choose a lighter pu
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