and can you speculate as to, or inform us as to why the gses have taken so long. and then the second quell for the record is, does it make any sense to hit the gses with a 10% dividend rate when we have to lend them to money to pay us the dividend and they are not -- i believe in high dividend rates when it's a private institution. but taking money from our right pocket to our left pocket. and finally, does it make sense for us to use the gses as a pay for for non-housing related programs by increasing the guarantee fee at fannie and freddie. >> time of the gentleman is expired. the secretary can submit his answers in writing. chair now recognizing the gentlelady from new york. >> thank you, mr. chairman. mr. secretary, you -- referring to the conversation, the exchange that you had with the honorable member from mtexas mr green a moment ago, discussing taxes and the fact that it soublds as though you are of the opinion that certain amount of raising taxes will actually have an net benefit for the economy, for growth, you know, we look across the country, obviousl

conservatory to ignore his mandate to conserve and preserve assets to the gses. that same day, mr. chairman, new york fed president william dudley gave a speech which he argued that it would "make sense for fannie and freddie to routine reduce principal on delinquent mortgages, using taxpayer dollars." these statements suggest to many that the fed do in fact have a blue print there for housing market policy. that blueprint appears to involve using the taxpayer supported gses as a piggy bank. in weighing in, certain fed governors have begun to take sides in which should be a congressional policy debate, i believe. the fed has been and should, i believe, continue to be a useful resource for information and analysis on the housing market. i believe it should not become an active participant in the legislative debate over the future of housing finance. i hope that the fed's recent foray will not become common practice. mr. chairman, when you say you believe the fed is most effective when it's nonpartisan, transparent and accountable, i believe that's right. i'm inter

you can make a mix of different things and be experimental, and the gses look to be doing that to some extent. we see the experimental reo to rental program, for example. they have done the harp two, so they've been taking steps in that direction. i think there's a big element here of trying to figure out what works best per dollar of cost. fhfa and the gses, we may not all agree exactly on the particular actions, but i think they are trying some things and we'll see what benefits accrue from them. >> a final note that there's two ways of preserving, you know, the corpus of your interests. one is foreclosure and the other one is looking at the whole process of refinancing and where appropriate the private sector has taken about 20% of its portfolio in the banks and said, it makes sense to do, you know, a reduction, the principal. i worry the whole focus is on those entities. >> thank you, mr. chairman, for being here. i know we alternate between the house and senate going first. this is sort of a postgame interview. we thank you for being here today. i want to hone in on the volcker ru

moreover extent that investors no treasuries and gse securities to hold in their portfolios the extent that they ve to over securities like corporate bonds that also raises the prices and lowers the yields on those securities. so the net effect of theser yie across a range of securities. and of course, as usual, interest rates have supportive stimlative effects on the monet policy by another name instead of focussing on the short-term rate, we were focussing on the long-term rates. the basic logic to th economy is really the same. you might ask the question, the fed's going out and buying $2 trillion of securities, how do we pay for that? the answer those securities by crediting the bank accounts of the people who sold them to us. ntd those a showed up as are reserves that the banks would hold with the fed. so the fed is a bank for banks. si accounts with the fed essentially, those are called reserve accounts. so as the purchases of securities occurred, the way we paid for them was basically by increasing the -- the amount of reserves that banks had in their accounts with the fed. so y

now with the tightness of mortgage standards where people can't get mortgage credit even bh they meet gse standards. so we have talked about clarifying the warranties as well. i think that could be a constructive step. servicing is an important issue. you know, you just referred to the beginning the servicing agreement. since early last year we put consent orders on all the major servicers to improve their practices and have principal points of contact for individual borrowers to provide more counseling and better controls and so on. there's a whole variety of things to be done and not all are congressional. so are our own responsibilities at regulators. some require congressional input. >> the vice chairman is now recognized for five minutes. >> thank you, mr. chairman. chairman bernanke, in your testimony you describe the recovery as modest relative to historic terms with note for the record that under this administration when you add in those that are underemployed, those who have left the labor force due to giving up the true unemployment rate is 15.4%. half of all americans are low i

so it's 40 months or so since the last time we originated and sold a loan to the gses.we think we're on the backside of that. it takes a while for the agencies to work through any backlog. it has been an earnings headwind for us over the last several years. but if you take that away, the core fundamentals of the business continue to improve in our capital markets or fixed income distribution business and in our core banking business. so the headwind will probably persist for a while longer, but to my earlier point, we think we're on the back half of the gse repurchase issue. >> well, in your presentation on march 8th up at the citi financial services, you say that nonstrategic expenses total $302 million in 2011, $160 million of that was this gse mortgage repurchase expense. you think if we're on the backside of this, that's a number that's really hurt earnings that i will not have to worry about two years from now. >> that's right. we think -- and the other way we've talked about it, jim, is that we expect to get our expenses down to in the $1 billion range, which we'r

they -- i know it's not part of the popular wisdom but the gses were actually more conservative, more careful in their underwriting standards than the loans they took. so the broader quality of their loans is actually better than the broader market in this context. again, our job is to try to make sure we're doing everything we canning to reach as many people as we can whether we think there's a good strong case for the country on the merits, not just for the taxpayer. >> the gentleman's time has expired. mr. secretary is, we'll also send you a copy of the field hearing information from brooklyn which actually has fed and other representatives' testimony to that point so that you're briefed before you come back to the ranking member. with that, we go to the chairman of the full committee emeritus, mr. burton for five minutes. >> what did you call me. >> emreitus is a forever term as is chairman around here. >> i got it. >> please, mr. chairman. >> according to crs, the exposure that the united states has in portugal as of september of last year was $54 billion. ireland was $111 billio

>> brian, i think what we see now is the gses -- the former gses completely dominating.duct is essentially going there. the banking system either for lack of demand or perhaps lack of willingness is really -- >> are they effectively insolvent? do you believe that? >> i think there are certain financial institutions whose balance sheets are under significant strain. i think the fed is well aware of this. despite the stress test we just went through, most of the product, the $800 billion of home equity product, the second liens are clearly at risk. the write downs that were forecast nowhere near what we think they really will be. >> sorry, come in, diana. >> i just wanted to say i agree with you on that point, but you're leaving out something which is fha, which is a huge market for the first-time buyers and people on the lower end of the market who are now renters and should be buyers. fha is raising premiums april 1st and tried to shrink market share by raising premiums before and raising costs and fees. that's another problem we're seeing in the market right now. you ne

term rates the fed began to take -- undertake large scale purchases of treasury and gse mortgage related securities. so just to be clear here, the securities that the fed has been guaranteed securities either treasury the fannie and freddie securities u.s. government after they were taken into conservatorship. there have been two major round. one as qe 1. another announced in november 2010 known as qe some additiona variatio a program to lengthen the maturity of our existing assets. those were the two biggest programs in terms of the size the balance sheet. to get taken together these fed balance sheet by more than $2 trillion. here's a picture of the asset si balance sheet to help us see the effects of the large scale asset purchases. the green the traditional securities holdings. absolutely clear even under all most normal circumstances thd of u.s. treasuries. we

. >> now, we've seen adjustments to the llpa from the fannie and freddie, the gses, and congress needed to fund a couple months of the lower social security tax so we hit another ten basis points for the next ten years. do you see us hurting the housing market if we go back to that well again and increase the llpa or increase the guarantee fee that is put on top of what home buyers and home refinancers have to pay. >> first of all, it improves the profits and improves the profits of the treasury. another benefit is by raising those fees gradually, you may eventually begin to bring in private competitors in the market. that's part of the strategy. if you make it more costly to get a mortgage, that will hurt the demand for housing which is already pretty weak. >> yeah, and i would think another decline in housing prices in a failure to get them inching upward is bad for the economy and the people i represent, so i yield back. >> the gentleman from california, mr. royce, is now recognized for five minutes. >> thank you, mr. chairman. i'd like to go back to that chart. government spending i

released extensive reports about how taxpayer paid principle reductions would be a net loser for the gse. so my question is this. given the tremendous job mr. demarco has done at the fha, what will the administration's reaction be or position be if decides and fails to adopt the new provisions because he believes that it has a tremendous cost to the taxpayers of this country? >> well, we've actually been working very closely with mr. de marco. he's been overwhelmingly supportive there's some areas where we disagree a bit. of course, what congress designed for the fha, the administration has no authority over the choices he makes in this area. but we believe it's best served by initiatives h the area. we'll work to encourage and adapt those as we have quite successfully for three years. on the issue of principle reduction, there's a very strong economic and financial case to provide principle reduction in some circumstances where people are deeply underwater and face a hardship, like a loss of job. and that's why you're seeing banks and investors across the market doing principle reductio

are doingw, the gse's a private program to see if that will work. the issues have to do with whether or not there are enough foreclosed homes in a local area. is there refinancing available for mass purchases of homes? are there supervisory restrictions on banks that would on banks that would prevent them? there are some areas we could remove that might make this -- we might see the private sector undertaking this. part of that would be refurbishing and repairing dilapidated homes. >> the biggest barrier ic has been the lack of community banks giving loans to those who want to carry out those programs. let me move to another question that is of great interest to me. i have served as ranking member of the higher education subcommittee. i am concerned about the cost of higher education and the increasing amount of debt that our students are burdened with. last year, students received more than $100 billion in college loans. the spending is expected to track -- pass $1 trillion. default rates on college loans have jumped up. i would like to hear inside

that blueprint appears to involve using the taxpayer-supported gses as a piggybank.y, certain fed governors have begun to take sides in which should be a congressional policy debate, i believe. the fed's independence for monetary policy has always been premised on its remaining nonpartisan and not advocating for specific legislative measures. the fed has been and should, i believe, continue to be a useful resource for information and analysis on the housing market. i believe it should not become an active participant in the legislative debate over the future of housing finance. i hope that the fed's recent foray into the housing policy will not become common practice. mr. chairman, i believe went you say that you believe the fed is most effective when it is nonpartisan, transparent and accountable, i believe that's right. i'm interested in hearing from you today, mr. chairman, on how you intend to continue to improve the fed's performance on all three objectives. thank you. >> thank you, senator shelby. welcome, chairman bernanke. dr. ben bernanke is currently servin

let me observe at 60% of all of the mortgages are either owned or backed by the gse's. some people have proposed a right those down, the ones we can write down. yet they have not been. there is some resistance to that. what other ideas do you have regarding the housing market? it is the one thing that seems to be dragging the economy down. it is not just construction jobs. it is a loss of equity. they are preparing. that law, only question. >> the federal reserve put out this without making recommendations. there are a whole range of issues. one problem is getting the excess supply of housing up the market. one way to do that is to concurrence the housing. he can also get rid of the dilapidated housing. we have not taken a position. we have looked at various alternatives to foreclosure. short sales allow people to get out of the house. a final area is about availability or access to mortgage credit. it provides greater assurance. another way to improve it is to reduce uncertainty about servicing obligations between the various agreements that have occurred recently. cur

fhfa and the gse's, they are trying some pains.t benefits accrue from them. >> there are two ways of preserving the corpus of your interest. one is through foreclosure. the other is through looking at the whole process of refinancing and, where appropriate, the private sector will take about 20% of its portfolio on the banks. it makes sense to do reductions in principal. i worry that our whole focus seems to be preserving the corpus through foreclosure, which at the end of the day, has a whole other mideast -- destabilizing element. "i agree with you. what i was discussing was not foreclosures -- i was talking about the best way to address the foreclosure issue. >> senator mcwherter. >> thank you, mr. chairman. we alternate between the house and the senate. this is kind of a post-game interview. i want to home and on the volcker role. there has been a lot of testimony about the economy, quantitative easing, and how that affects prices over the next day and a half. with the volcker rule -- we are just tried to make it work now. why

allowing property to fall into foreclosure and can you speculate as to or inform us as to why the gses have taken so long, and then the second question for the record make sense to hit them with a 10% dividend rate when we lend them the money to pay us the dividend, and they are not -- i believe in high dividend rates when it's a private institution, getting money from somebody else by taking money from our right pocket to the left pocket, and finally, does it make sense to use the gses as a pay-for for non-related housing programs by increasing the guarantee fee at fannie and freddy? >> time of the gentleman expired, and the secretary can submit answers in writing. we now recognize the gentle lady from new york. >> thank you, mr. chairman. mr. secretary, referring to the conversation, the exchange you had with the honorable member from texas, mr. green, a few moments ago, discussing taxes, and the fact that it sounds as you're of the opinion a certain amount of raising taxes will actually have a net benefit for the economy for growth. you know, we look across the country at, you know,

there is a big element here of trying to figure out what works best, and fha and the gse's may not all agree on their axes, but i think they are trying some things, and we will see what benefits accrue. >> there are two ways of preserving the corpus of your interests. one is through foreclosure. the other is through looking at the whole process of refinancing and where appropriate the private sector has taken about 20% of its portfolio on the banks and said it makes sense to do reductions in principal. i just worry that our whole focus seems to be in those entities, preserving the corpus through foreclosure, which at the end of the day as a whole other destabilizing effect on the marketplace. >> i agree. foreclosure is costly for the community and the country. what i was discussing is not whether foreclosures are a good thing. i talked about what is the best way to address the foreclosure issue. >> thank you for being here. we alternate between the house and senate going first. we thank you for being here today. hone in on the voclker rule. with the volcker rule, we understand it is pa

that blueprint appears to be using the taxpayer supported gse's as a piggy bank. certain fed governors have begun to take sides in which should be at the crystal -- a congressional policy debate. the fed's independence has always been presence -- premised on its remaining nonpartisan. the fed has been and should i believe continue to be a useful resource for information and analysis on the housing market. i believed it should not become an active participant in the legislative debate over the future of housing finance. i hope the fed's recent foray into housing policy will not become common practice. mr. chairman, i believe when you say that you believe the fed is most effective when it is nonpartisan, transparent, and accountable, i believe that is right. i am interested in hearing from you today, mr. chairman, on how to continue to improve the said's improvement on all three objectives. thank you. >> thank you, senator shelby. welcome, chairman bernanke. his first term began under president bush in 2006. director bernanke was chairman of the council of economic

there has been plenty of discussion about gse reform, covered bonds, and other fiscal uncertainties.nother question. dodd-frank effective date for the volcker rule is july 21st. we've heard the regulators think this is a daunting task. do you have any plans to phase in implementation of the poker rollbacks >> yes. the statute allows for a two- year transition period we will certainly be giving institutions adequate time to adjust and adopt to murder rule is being put out. >> thank you. i have heard from some of my constituents insurance companies that the fed staff has been deployed to insurance companies. what is the purpose for their presence given that the insurance companies are regulated by the states? is the fed simply increasing insurance expertise or does this give the fed authority to regulate insurance? >> we do not have any authority to regulate insurers and last, in the future, a systemically critical an insurance company, as so designated, and it has not happened yet. i'm not quite sure what you are alluding to. there have been discussions to give ourselves better insigh

i know it's not part of the popular wisdom, but the gses are more conservative, more careful in theirns they took so the broader quality of their loans is actually better than the broader market in this context. again, our job is to try to make sure we're doing everything we can to reach as many as people as we can whether we think there's a good, strong case for the country on the merits, not just for the taxpayer. >> thank the gentlemen. mr. secretary, we'll also send you a copy of the field hearing information from brooklyn which actually has fed and other representatives' testimony to that point so that you're briefed before you come back to the ranking member. with that we go to the chairman of the full committee emeritus, mr. burton, for five minutes. >> is that what you call me? >> emeritus is a forever term, as is chairman around here. >> i got it, i got it. >> according to crs, the exposure that the united states has in portugal as of september of last year was $54 billion. ireland was $111. italy $310 billion, germany, $635 billion and france $685 billion for a total of $2.0

in particular the gses, fannie and freddie, when they sell their mortgage-backed securities they provide guaranties against credit loss. so if mortgages go bad, fannie and freddie make the investor whole. now, fannie and freddie were permitted to operate with inadequate capital. so in particular they were at risk in a bad situation where there were a lot of mortgage losses. they didn't have enough capital to pay off, make good the guaranties they promised. while many aspects of the financial crisis were not well anticipated, this one was. going back at least a decade before the crisis the fed and many other people said that the fannie and freddie just didn't have enough capital and they were in fact a danger to the stability of the financial system. what made the situation even somewhat worse was that fannie and freddie besides tell selling these mortgage-backed securities to investors they also purchased on their own account large amounts of mortgage-backed securities, both their own and some that were issued by the private sector. so they made profits from holding those mortgages but a

there would be in each sector a chief prevention who is at least a lieutenant commander with civilian gse investigator or the marine safety engineer. it's a qualified chief prevention in place at each sector now. >> as i think we've brief to the past, which also included a number of civilian marine inspectors in the workforce. our goal is 30% so every sector has civilians who will be our longstanding experts in every port. the of the local knowledge, the awareness of the industry, and they also assist in the training of more junior people. so i think we've made considerable progress under title v of the coast guard. >> very good. title fight is required the certificate inspection signed by the senior coast guard member civilian employees who inspected the dessel in addition to the officer in charge of the marine inspection. as the coast guard in compliance with this requirement? >> i will have to confirm that that has been put in effect. it is certainly our intention to comply with -- >> how soon can you get us the information? >> i can get that to you in the day or so. >> similarly title

gses are looking at that. that's a positive development. another way to improve originations is to reduce uncertainty about servicing obligations and between the various agreements that have occurred recently and the fed's cease and desist orders, current discussions about national servicing standards and the like, i think some of that uncertainty is being removed. there's a whole variety of things that can be done. none of them as a silver bullet, but many of them can be helpful. >> thank you, mr. chairman. >> time of the gentleman has been yielded back. chairman bernanke, we thank you for your testimony today. the chair notes that some members may have additional questions for chairman bernanke, which they may wish to submit in writing. without objection, the hearing record will remain open for 30 days for members to submit written questions to the witness and to place responses in the record. this hearing is adjourned. >> thank you.