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Congressional Oversight Panel Reviews Treasury's Foreclosure Prevention Programs
December 14, 2010
HAMP On Track to Prevent Far Fewer Foreclosures Than Expected, but Treasury Can Still Take Steps to Help More Homeowners Avoid Foreclosure
WASHINGTON, D.C. - The Congressional Oversight Panel today released its December oversight report, "A Review of Treasury's Foreclosure Prevention Programs." In the eight months since the Panel's last report on the Home Affordable Modification Program (HAMP), Treasury has made minor tweaks to the program, but the changes have not resolved the Panel's core concerns. The Panel now estimates that, if current trends hold, HAMP will prevent only 700,000 foreclosures -- far fewer than the three to four million foreclosures that Treasury initially aimed to stop, and vastly fewer than the eight to 13 million foreclosures expected by 2012.
While HAMP's most dramatic shortcoming has been its poor results in preventing foreclosures, the program has had other significant flaws. For example, despite repeated urgings from the Panel, Treasury has failed to collect and analyze data that would explain HAMP's shortcomings, and it does not even have a way to collect data for many of HAMP's add-on programs. Further, Treasury has refused to specify meaningful goals by which to measure HAMP's progress, while the program's sole initial goal -- to prevent three to four million foreclosures -- has been repeatedly redefined and watered down.
Treasury has failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications. Treasury has essentially outsourced the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, but Freddie Mac in particular has hesitated to enforce some of its contractual rights related to the foreclosure process, arguing that doing so "may negatively impact our relationships with these seller/servicers, some of which are among our largest sources of mortgage loans." Treasury bears the ultimate responsibility for preventing such conflicts of interest, and it should ensure that loan servicers are penalized when they fail to complete loan modifications appropriately.
It is too late for Treasury to revamp its foreclosure prevention strategy, but Treasury can still take steps to wring every possible benefit from its programs. Treasury should enable borrowers to apply for loan modifications more easily -- for example, by allowing online applications. Treasury should also carefully monitor and, where appropriate, intervene in cases in which borrowers are falling behind on their HAMP-modified mortgages. Preventing redefaults is an extremely powerful way of magnifying HAMP's impact, as each redefault prevented translates directly into a borrower keeping his home.
Treasury should acknowledge that HAMP will not reach the expected number of homeowners and should provide a meaningful framework for evaluating the program in the future. Treasury continues to state that HAMP will expend $30 billion in Troubled Asset Relief Program funding, yet the Panel's estimate based on Congressional Budget Office figures is that HAMP will likely spend only around $4 billion. Had Treasury acknowledged this reality before its crisis authority expired, it could have reallocated the money to a more effective program. Now, that option is gone. Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help -- all because Treasury failed to acknowledge HAMP's shortcomings in time.
The full report is available at cop.senate.gov
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are former Senator Ted Kaufman; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Congressional Oversight Panel to Hold Hearing with Treasury Secretary Timothy Geithner
December 10, 2010
On Thursday, December 16, the Congressional Oversight Panel will hold a hearing with Treasury Secretary Timothy Geithner in room 538 of the Dirksen Senate Office Building. Congress created the Congressional Oversight Panel to oversee the Troubled Asset Relief Program (TARP), which was originally authorized to spend $700 billion in taxpayer dollars.
WHO:
Members of the TARP Congressional Oversight Panel
WHAT:
Hearing with Treasury Secretary Timothy Geithner
WHEN:
Thursday, December 16, 2010; 10:00 a.m.
WHERE:
538 Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 and to provide recommendations on regulatory reform. The Panel members are former Senator Ted Kaufman; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Congressional Oversight Panel Examines "Robo-Signed" Foreclosures and Other Mortgage Irregularities
November 16, 2010
WASHINGTON, D.C. - The Congressional Oversight Panel today released its November oversight report, "Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation." The Panel reviewed allegations that companies servicing $6.4 trillion in American mortgages may in some cases have bypassed legally required steps to foreclose on a home. The implications of these irregularities remain unclear, but it is possible that "robo-signing" may have concealed deeper problems in the mortgage market that could potentially threaten financial stability and undermine foreclosure prevention efforts.
In the best-case scenario, concerns about mortgage documentation irregularities may prove overblown. In this view, which has been embraced by the financial industry, a handful of employees failed to follow procedures in signing foreclosure-related affidavits, but the facts underlying the affidavits are demonstrably accurate. Foreclosures could proceed as soon as the invalid affidavits are replaced with properly executed paperwork.
The worst-case scenario is considerably grimmer. In this view, which has been articulated by academics and homeowner advocates, the "robo-signing" of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. The risk stems from the possibility that the rapid growth of mortgage securitization in recent years may have outpaced the ability of the legal and financial system to track mortgage loan ownership. In essence, banks may be unable to prove that they own the mortgage loans they claim to own.
If documentation problems prove to be pervasive and throw into doubt the ownership of pooled mortgages, the consequences could be severe. Borrowers may be unable to determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose upon the same property. Borrowers who have already suffered foreclosure may seek to regain title to their homes and force any new owners to move out. Would-be buyers and sellers could find themselves in limbo, unable to know with any certainty whether they can safely buy or sell a home.
Further wide-scale disruptions in the housing market, if they arose, could cause significant harm to financial institutions. For example, if a Wall Street bank were to discover that, due to shoddily executed paperwork, it still owns millions of defaulted mortgages that it thought it sold off years ago, it could face billions of dollars in unexpected losses. To put in perspective the potential problem, the mortgage-backed securities market totals approximately $7.6 trillion, so irregularities that affect even a small percentage of this market could have dramatic effects on bank balance sheets - potentially posing risks to the very financial stability that the Troubled Asset Relief Program was designed to protect. The Panel urges Treasury and bank regulators to undertake new "stress tests" to gauge the ability of major financial institutions to cope with a potential documentation-related crisis.
Documentation irregularities could also disrupt Treasury's foreclosure prevention efforts. Some servicers dealing with Treasury may not be able to document a legal right to initiate foreclosures, which may call into question their ability to grant modifications or to demand payments from homeowners. The servicers' use of "robo-signing" may also have affected determinations about individual loans; servicers may have been more willing to foreclose if they were not bearing the full costs of a properly executed foreclosure. The Panel recommends that Treasury immediately undertake more active efforts to monitor the impact of documentation irregularities on its foreclosure mitigation programs.
Documentation irregularities could compound other threats to the mortgage market. In particular, allegations have surfaced that banks may have misrepresented the quality of many loans sold for securitization. Banks found to have provided misrepresentations could be required to repurchase any affected mortgages. Because millions of these mortgages are in default or foreclosure, the result could be extensive capital losses if such repurchase risk is not adequately reserved.
The Panel emphasizes that mortgage lenders and securitization servicers should not undertake to foreclose on any homeowner unless they are able to do so in full compliance with applicable laws and their contractual agreements with the homeowner.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are Senator Ted Kaufman (D-DE); J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO;and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Congressional Oversight Panel to Hold Hearing on TARP Foreclosure Mitigation Programs
October 22, 2010
WASHINGTON, D.C. - On Wednesday, October 27 at 10:00 a.m., the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) will hold a hearing in room 138 of the Dirksen Senate Office Building. The hearing will inform the Panel's upcoming November oversight report, which will evaluate the progress of Treasury's foreclosure mitigation programs and examine the impact of recently reported foreclosure irregularities on these programs and on the financial sector.
WHO:
Members of the TARP Congressional Oversight PanelWitnesses
Panel One:
Phyllis Caldwell, Chief of the Homeownership Preservation Office, U.S. Department of the Treasury
Panel Two:
Guy Cecala, CEO and Publisher, Inside Mortgage Finance Publications, Inc.
Joseph Evers, Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency
Julia Gordon, Senior Policy Counsel, Center for Responsible Lending
Katherine Porter, Professor of Law, University of Iowa College of Law
Faith Schwartz, Senior Advisor, HOPE NOW Alliance
WHAT:
Hearing on TARP Foreclosure Mitigation ProgramsWHEN:
Wednesday, October 27, 2010; 10:00 a.m.WHERE:
Room 138, Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are Senator Ted Kaufman (D-DE); J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO;and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Congressional Oversight Panel to Hold Hearing on the TARP and Executive Compensation Restrictions
October 15, 2010
WASHINGTON, D.C. - On Thursday, October 21 at 11:00 a.m., the Congressional Oversight Panel will hold a hearing in room 538 of the Dirksen Senate Office Building to examine executive compensation restrictions for companies that received Troubled Asset Relief Program (TARP) funds.
WHO:
Members of the TARP Congressional Oversight PanelWitnesses
Panel One:
Kenneth R. Feinberg, Special Master for TARP Executive Compensation (June 2009 - September 2010)
Panel Two:
Kevin Murphy, Kenneth L. Trefftz Chair in Finance, University of Southern California Marshall School of Business
Rose Marie Orens, Senior Partner, Compensation Advisory Partners, LLC
Ted White, Strategic Advisor, Knight Vinke Asset Management
WHAT:
Hearing on the TARP and Executive Compensation RestrictionsWHEN:
Thursday, October 21, 2010; 11:00 a.m.WHERE:
Room 538, Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are Senator Ted Kaufman (D-DE); J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO;and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Congressional Oversight Panel Examines Use of Private Contractors in the TARP
October 14, 2010
Despite Treasury's Efforts, Significant Concerns Remain about Accountability and Potential Conflicts
WASHINGTON, D.C. - The Congressional Oversight Panel today released its October oversight report, "Examining Treasury's Use of Financial Crisis Contracting Authority." The Panel found that Treasury's extensive use of private contractors in Troubled Asset Relief Program (TARP) programs creates significant concerns about transparency and potential conflicts of interest. Although Treasury has taken considerable steps to ensure the appropriate use of private contractors, further improvements can and should be made.
Private businesses today perform many of the TARP's most critical functions, operating under 91 different contracts worth up to $434 million. In fact, the vast majority of people working on the TARP now receive their paychecks from private companies. Fannie Mae alone employs 600 workers on TARP's foreclosure programs, while Treasury has only 220 staffers working on all TARP programs combined.
Treasury has made notable efforts to ensure that it has used private contractors properly. For example, Treasury provided for competitive bidding for most of its contracts, and it has established several layers of controls to monitor contractor performance and to prevent conflicts of interest. This praise must be viewed in context, however. The government contracting process is notoriously non-transparent, and although Treasury appears to have performed well on a comparative basis, it remains capable of improvement.
Significant concerns remain about the transparency and accountability of private contractors. Contractors are immune to requests under the Freedom of Information Act. They may hire subcontractors, and those subcontracts are not disclosed to the public. Important information is buried in task orders that are never published in any form, and Treasury publishes no meaningful information on contractors' performance during the life of the contract. To address these concerns, the Panel recommended that Treasury publish subcontracts online and provide regular, public updates on contractors' performance.
The largest TARP contracts, provided to Fannie Mae and Freddie Mac, raise particular concerns. Both Fannie Mae and Freddie Mac have a history of profound corporate mismanagement, and both companies would have collapsed in 2008 were it not for government intervention. Further, both companies have fallen short in aspects of their performance, as Fannie Mae recently made a major data error in reporting on mortgage redefaults and Freddie Mac has had difficulty meeting its assigned deadlines. The Panel explored these concerns in a detailed case study.
Because private businesses seek private profit and may serve many clients with different motives, their work may create conflicts of interest. For example, some of the law firms providing advice to Treasury have also advised banks that received TARP funds. Treasury has taken steps to prevent conflicts of interest, but it relies primarily on contractors and agents to self-disclose their own conflicts. The Panel recommended that Treasury develop an independent mechanism for monitoring conflicts that makes it less reliant on contractors and agents for information.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are Senator Ted Kaufman (D-DE); J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO;and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Sen. Kaufman to Chair Congressional Oversight Panel
October 4, 2010
WASHINGTON, D.C. - The members of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) today unanimously elected Senator Ted Kaufman (D-DE) to serve as the Panel's new chairman. Kaufman, who was appointed to the Panel last week by Senate Majority Leader Harry Reid, will fill the role previously held by Elizabeth Warren.
"I'm honored to be appointed to this panel and elected chair," said Senator Kaufman. "Continued oversight of the TARP is serious business, and I am eager to get started."
The Congressional Oversight Panel issues monthly reports that oversee Treasury's administration of the TARP, assess the impact of spending to stabilize the economy, evaluate market transparency, monitor efforts to prevent foreclosures, and help to ensure that Treasury is acting in the best interest of the American people.
In addition to Senator Kaufman, its members are J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky. By statute, the Panel will continue its oversight work through April 3, 2011.
Sen. Kaufman Appointed to Congressional Oversight Panel
October 1, 2010
WASHINGTON, D.C. - Senate Majority Leader Harry Reid has appointed U.S. Senator Ted Kaufman as a member of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP). Kaufman will fill the vacancy created by the resignation of former Panel member Elizabeth Warren.
The Congressional Oversight Panel was created to oversee the expenditure of the TARP funds authorized by Congress in the Emergency Economic Stabilization Act of 2008. The Panel issues monthly reports that oversee Treasury's actions, assess the impact of spending to stabilize the economy, evaluate market transparency, monitor efforts to prevent foreclosures, and help to ensure that Treasury is acting in the best interest of the American people.
In addition to fulfilling his duties on the Panel, Kaufman will continue to serve in the Senate until his successor is sworn in on November 15, 2010.
The Panel's other members are J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky. By statute, the Panel will continue its oversight work through April 3, 2011.
Congressional Oversight Panel to Hold Hearing on Treasury's Use of Exceptional Crisis Contracting Authority
September 17, 2010
WASHINGTON, D.C. - On Wednesday, September 22 at 10:00 a.m., the Congressional Oversight Panel will hold a hearing in room 428A of the Russell Senate Office Building to examine Treasury's use of private contractors under the Troubled Asset Relief Program (TARP).
The law authorizing the TARP allowed the Secretary of the Treasury to waive any provision of the usual Federal Acquisition Regulations (FAR) and arguably expanded Treasury's authority to hire financial agents to fulfill critical government functions. As of August 13, 2010, Treasury has entered into approximately 83 contracts and financial agency agreements, with a current approximate obligated value of $445 million. Most significantly, its agreements with Fannie Mae and Freddie Mac for the Home Affordable Modification Program (HAMP) total approximately $220 million.
This hearing will inform the Panel's October 2010 oversight report by providing a better understanding of how Treasury uses contracts and financial services, how it decides to hire contractors and financial agents, and how it prevents conflicts of interest and ensures full disclosure by its contractors.
WHO:
Members of the TARP Congressional Oversight PanelWitnesses
Panel One:
Gary Grippo, Deputy Assistant Secretary for Fiscal Operations and Policy, U.S. Department of the Treasury
Ronald W. Backes, Director, Procurement Services, U.S. Department of the Treasury
Panel Two:
Joy Cianci, Senior Vice President, Making Home Affordable, Fannie Mae
Paul Heran, Program Executive, Making Home Affordable - Compliance, Freddie Mac
Panel Three:
Scott Amey, General Counsel, Project on Government Oversight
Professor Steven Schooner, Professor of Law and Co-Director of the Government Procurement Law Program, The George Washington University School of Law
Professor Allison Stanger, Russell J. Leng '60 Professor of International Politics and Economics and Chair of the Political Science Department Middlebury College
WHAT:
Hearing on Treasury's use of contracting authority under TARPWHEN:
Wednesday, September 22, 2010; 10:00 a.m.WHERE:
Russell Senate Office Building, Room 428A
(Hearing Room of the Senate Committee on Small Business)
Additional witnesses will be announced prior to the hearing.
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.
Warren Steps Down from Congressional Oversight Panel
September 17, 2010
WASHINGTON, D.C. - Elizabeth Warren today released the following statement announcing her resignation from the Congressional Oversight Panel:
"When Congress established the Congressional Oversight Panel to monitor the Troubled Asset Relief Program (TARP) almost two years ago, our economy was in the midst of the worst financial crisis since the Great Depression. As Wall Street firms fought for their very survival, families across America watched the value of their homes, their savings and their retirement funds collapse.
"Since then, the Oversight Panel has submitted 24 reports to Congress and has held 21 public hearings on TARP. During the course of its oversight work, the Panel has closely monitored how TARP funds have been spent. We have analyzed and sometimes challenged key policy decisions, and we have worked hard to hold officials from both political parties accountable for their economic decisions. While the Panel has voiced many concerns with TARP and has made hundreds of specific recommendations, it also has concluded that TARP played a significant role in ending the panic created by the 2008 financial crisis and helping to stabilize the financial markets.
"I am grateful to Senate Majority Leader Harry Reid for appointing me to the Panel and for his unqualified support for tough oversight over the past two years. I am also grateful to the dozens of Members of Congress of both parties who have been steadfast supporters of the Panel, and I deeply appreciate their encouragement, advice and support.
"None of our work would have been possible without the unique insights, invaluable experience and contributions of my fellow panelists, J. Mark McWatters, Richard Neiman, Damon Silvers, and Kenneth Troske. While we have at times approached problems from different points of view, we have respected and learned from each other's ideas at every turn. More often than not, we have also come to consensus.
"The Panel's work, in every way, has been more effective, more incisive, and more comprehensive thanks to our talented and dedicated staff. From the beginning, the Panel's staff established a reputation as professional, non-partisan, effective and tireless. They have worked long hours and made considerable personal sacrifices, always in the public interest. The staff has never missed a deadline, and they deserve enormous credit for producing one top-notch report after another. I wish them the very best in the final months of their work."
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky. The Panel will continue to issue monthly oversight reports through April 3, 2011.
Congressional Oversight Panel Assesses the TARP on the Eve of Its Expiration
September 16, 2010
WASHINGTON, D.C. - The Congressional Oversight Panel today released its September oversight report, "Assessing the TARP on the Eve of Its Expiration." The Panel found that, although the Troubled Asset Relief Program (TARP) provided critical support to the financial markets at a time when market confidence was in freefall, the program has been far less effective in meeting its other statutory goals, such as supporting home values, retirement savings, and economic growth.
Under its original authorization, the TARP would have expired at the end of 2009. Late last year, however, the Secretary of the Treasury exercised his legal authority to extend the program until October 3, 2010, the latest date authorized by statute. This month, in anticipation of the final expiration of the TARP's most significant authorities, the Panel explored the program's overall effectiveness. The Panel found that:
Although the TARP quelled the financial panic in the fall of 2008, severe economic weaknesses remain even today. Since the TARP was authorized in October of 2008, 7.1 million homeowners have received foreclosure notices. Since their pre-crisis peaks, home values have dropped 28 percent, and stock indices -- which indicate the health of many Americans' most significant investments for college and retirement -- have fallen 30 percent. Given that Treasury was mandated by law to use the TARP to address these measures of the economy, their lingering weakness is cause for concern.
The TARP's extension served primarily to extend the implicit guarantee of the financial system. When the Secretary extended the TARP, he stated that any new use of funds would be limited to providing mortgage foreclosure relief, extending capital to small and community banks, and supporting the securitization market. He also noted that extending the TARP would preserve his authority to intervene swiftly in the event of another financial crash -- essentially prolonging the government's "implicit guarantee" of the financial system. In practice, this second justification proved by far the more significant, as Treasury did not add any additional funding to any programs intended to address the specific economic weaknesses identified by the Secretary.
The TARP's "stigma" has grown and may prove an obstacle to future financial stability efforts. Treasury's policy choices have been increasingly constrained by public anger about the TARP. For example, the TARP is today so widely unpopular -- due in part to shortcomings in Treasury's transparency and its implementation of TARP programs -- that some banks refused to participate in the Capital Purchase Program for fear of losing customers. The unpopularity of the TARP may mean that the government will not authorize similar policy responses in the future. Thus, the TARP's greatest consequence may be that the government has lost some of its ability to respond to financial crises.
Economists surveyed by the Panel raised severe concerns about moral hazard. The Panel sought the input of four prominent economists on the effectiveness of the TARP. These experts generally agreed both that the TARP was necessary to stabilize the financial system and that it had been mismanaged and could pose significant costs far into the future. Further, the economists unanimously felt that the program created significant moral hazard. TARP offered its funding on relatively generous terms, without requiring participating institutions to enter liquidation or receivership, remove failed managers, or wipe out existing shareholders. The fact that the government chose not to impose such stringent costs meant that the TARP's moral hazard costs were much greater than necessary.
The full report is available at http://cop.senate.gov/. The Congressional Oversight Panel will continue to issue monthly reports evaluating the TARP until the Panel's statutory authority expires on April 3, 2011.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Examines the International Reach of the TARP
August 12, 2010
TARP's International Impact Greater Than Impact of Other Nations' Rescues on America
Panel Recommends Further Stress Testing and International Financial Crisis "War Games"
WASHINGTON, D.C. - The Congressional Oversight Panel today released its August oversight report, "The Global Context and International Effects of the TARP." The report recommends that Treasury collect data on cross-border flows of funds, increase the scope and frequency of stress testing on financial institutions, and collaborate with foreign policymakers on a cross-border resolution regime and for regular crisis planning and financial "war games."
The financial crisis that began in 2007 exposed the interconnectedness of the global financial system. Although the crisis began with subprime mortgage defaults in the U.S., its damage spread rapidly overseas. The Panel found that policymakers were ill-prepared for such a worldwide crisis and that "the internationalization of the financial system has outpaced the ability of national regulators to respond."
Despite the limits of international coordination, most countries ultimately intervened in markets using the same basic set of policy tools: capital injections to financial institutions, guarantees of debt or troubled assets, asset purchases, and expanded deposit insurance. The U.S., however, targeted its rescue very differently than other countries. While most nations targeted their funds to save individual institutions, America simply flooded the markets with money to stabilize the system. Since much of this money accrued to U.S. institutions with extensive international operations, it appears that America's rescue had much greater impact internationally than other nations' rescues had on the U.S.
The Panel made several recommendations, including:
Policymakers need strong, clear data to measure the success of their rescue efforts and to respond effectively to future crises. Treasury gathered very little data on how bailout funds flowed overseas, which makes pinpointing the exact amounts and sources of the flow of cross-border rescue funds impossible. In the interests of transparency and to help inform regulators' actions in an increasingly integrated world, the Panel urges Treasury to collect and report more data about the international flow of TARP funds and to document the TARP's impact overseas.
The Panel believes financial "war gaming" and "stress tests" should be used much more widely. One of America's most powerful tools in the financial crisis, and one that was emulated by other countries, was the Supervisory Capital Assessment Program (SCAP), or "stress tests." On the international level, vigorous stress tests could identify the weakest points of the international financial system and allow policymakers to plan an emergency response. U.S. officials should encourage regular international crisis planning and financial "war gaming."
The crisis revealed the need for an international plan to handle the collapse of major, globally significant financial institutions. A cross-border resolution regime could establish rules that would permit the orderly resolution of large international institutions, while also encouraging contingency planning and the development of resolution and recovery plans. Such a regime could help to avoid the chaos that followed the Lehman bankruptcy and the struggles that preceded the AIG rescue.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Evaluates Small Banks in the Capital Purchase Program
July 14, 2010
CPP Served Large Banks Better Than Small Institutions
Many Small Banks May Have Trouble Repaying Treasury
WASHINGTON, D.C. - The Congressional Oversight Panel today released its July oversight report, "Small Banks in the Capital Purchase Program." The Panel found that the result of the Capital Purchase Program's (CPP) "one-size-fits-all" repayment terms has been that large banks have been much better served by the program than smaller institutions. Small banks may find it difficult or impossible to exit the program, particularly if the current distressed financial markets persist.
Treasury provided capital to banks participating in the CPP under a single set of repayment terms designed at the outset of the program. Of the 19 American banks with more than $100 billion in assets, 17 participated in the CPP, receiving 81 percent of the total CPP funds. Money was made available to many of these large banks in only a matter of weeks, in some cases even before the banks applied for the funds. Of these large banks, 76 percent have already repaid taxpayers, and many are now reporting record profits. By contrast, of the 7,891 banks with assets of less than $100 billion, only 690 received funds from CPP and less than 10 percent have repaid. Those banks experienced a longer and more stringent evaluation, and many are now struggling to meet their obligations to the taxpayers.
The Panel identified several concerns:
The "one-size-fits-all" approach suited large banks much better than their smaller counterparts. Small banks do not benefit from any "too big to fail" guarantee; regulators have been quite willing to close down smaller failing institutions. Small banks are disproportionately exposed to commercial real estate, where future losses are likely. Small banks are often privately held or thinly traded and have limited access to capital markets. Despite these differences, the terms for repaying CPP capital are the same for both small and large banks.
Small banks are at risk of becoming stuck in program: unable to raise enough money to repay their CPP investment with many struggling to pay their TARP dividends. Already, one in seven small banks has missed a dividend payment. The problem will grow worse in a few years, when TARP's dividend rate will nearly double from a relatively modest 5 percent to a very expensive 9 percent. This, in combination with other strains from the recession and commercial real estate liabilities, could force some banks to default on their obligations to taxpayers, consolidate, or collapse.
One lasting effect of TARP may be a banking system that becomes more concentrated. In its earliest days CPP provided a capital cushion that helped large banks weather the financial crisis and, in some cases, to purchase smaller banks. Now small banks are struggling and TARP may not be making a difference. For as long as small banks remain weak, small business lending will remain constricted and the economic recovery will struggle to get off the ground.
The Panel recommends that Treasury take immediate steps to ensure that as many banks as possible repay taxpayers and to prepare to deal accordingly with the banks that cannot. In particular, Treasury should work to support CPP banks' efforts to raise new capital, determine options for the illiquid portions of its portfolio, including bundling and pooling investments, and articulate a process for appointing board members for banks that fall too far behind on their dividend payments.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel to Hold Hearing with Treasury Secretary Timothy Geithner
June 16, 2010
On Tuesday, June 22, the Congressional Oversight Panel will hold a hearing with Treasury Secretary Timothy Geithner in room 192 of the Dirksen Senate Office Building. Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program.
In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 19 monthly reports, two special reports, and held 20 hearings on a wide range of TARP and related financial stabilization initiatives.
WHO:
Members of the TARP Congressional Oversight Panel
WHAT:
Hearing with Treasury Secretary Timothy Geithner
WHEN:
Tuesday, June 22, 2010; 10:00 a.m.
WHERE:
192 Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Examines AIG Rescue and Its Impact on Markets
June 10, 2010
WASHINGTON, D.C. — The Congressional Oversight Panel today released its June oversight report, “The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy.” The Panel found that the Federal Reserve and Treasury failed to exhaust all other options before undertaking their unprecedented, taxpayer-backed rescue of American International Group (AIG) and its creditors. This rescue resulted in extraordinary risk to taxpayers and a fundamental redefinition of the relationship between the government and the country’s most sophisticated financial institutions.
On September 16, 2008, the Federal Reserve Bank of New York (FRBNY), with the full support of Treasury, rescued AIG with an $85 billion, taxpayer-backed Revolving Credit Facility. These funds would later be supplemented by $49.1 billion from Treasury under the Troubled Asset Relief Program (TARP), as well as an additional $133.3 billion from the Federal Reserve. The total government assistance reached $182 billion.
The Panel conducted a comprehensive overview of the AIG transactions based on a review of thousands of documents. Through a series of actions, including the rescue of AIG, the government succeeded in averting a financial collapse, and nothing in this report takes away from that accomplishment. But after reviewing the federal government’s actions leading up to the AIG rescue and the actions of Treasury, the Panel identified several major concerns:
The government failed to exhaust all options before initially committing $85 billion in taxpayer funds. In previous rescue efforts, the government had placed a high priority on avoiding direct taxpayer liability for the rescue of private businesses. With AIG, the Federal Reserve and Treasury broke new ground by putting US taxpayers on the line for the full cost and risk of rescuing a failing company. The government has repeatedly stated that they faced a “binary choice”: either allow AIG to fail, or rescue the entire institution, including payment in full to all of its business partners. The Panel rejected this reasoning. The government had additional options, such as orchestrating a rescue funded entirely or in part by private parties. It failed to exhaust these possibilities before committing $85 billion in taxpayer dollars. Earlier and more aggressive efforts to protect taxpayers and maintain market discipline would, if successful, have had an enormous calming effect on the market — and even if ultimately unsuccessful, they would have strengthened the government’s credibility with taxpayers during a time of crisis. The importance of exhausting all options upfront is even greater given the government’s contention that, once the initial financial commitment was in place, any withdrawal of government support would have led to a catastrophic collapse of market confidence.
The rescue of AIG distorted the marketplace by transforming highly risky derivatives bets into fully guaranteed payment obligations. In the ordinary course of business, the costs of AIG’s inability to meet its derivative obligations would have been borne entirely by AIG’s shareholders and creditors. But rather than sharing the pain among AIG’s creditors, the government instead shifted those costs in full onto taxpayers. The result was the government backed up the entire derivatives market, as if high-profit, high-risk trading deserved the same taxpayer backstop as savings deposits and checking accounts. Every counterparty — from pension funds for retired workers and individual insurance policies, to sophisticated investors and other financial institutions — received exactly the same deal: a complete rescue at taxpayer expense.
Throughout its rescue of AIG, the government failed to address perceived conflicts of interest. People from the same small group of law firms, investment banks, and regulators appeared in the AIG saga in many roles, switching sides in a matter of minutes. These entanglements created the perception that the government was quietly helped banking insiders at the expense of accountability and transparency.
Even at this late stage, it remains unclear whether taxpayers will ever be repaid in full. AIG and Treasury have provided optimistic assessments of AIG’s value. The Congressional Budget Office, however, currently estimates that taxpayers will lose $36 billion. The uncertainty lies in whether AIG’s remaining business units are will able to generate sufficient new business to create the necessary shareholder value to repay taxpayers in full. The ultimate cost or profit to taxpayers is unknowable, but it is clear that taxpayers remain at risk for severe losses.
The government’s rescue of AIG continues to have a poisonous effect on the marketplace. Markets have interpreted the government’s willingness to rescue AIG as a sign of a broader implicit guarantee of “too big to fail” firms. The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions and to assure repayment to the creditors doing business with them. So long as this belief continues to hold sway among investors, the worst effects of AIG’s rescue on the marketplace will linger.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel to Hold Hearing on TARP and Other Government Assistance for AIG
Updated May 25, 2010
WASHINGTON, D.C. - On Wednesday, May 26, the Congressional Oversight Panel will hold a hearing in room 342 of the Dirksen Senate Office Building on the financial assistance provided to American International Group, Inc. (AIG) under the Troubled Asset Relief Program (TARP) and other government financial stability programs.
Through a series of coordinated efforts, Treasury and the Federal Reserve have provided over $133 billion related to AIG since September 2008. Under TARP's American International Group, Inc. Investment Program (formally known as the Systemically Significant Failing Institutions Program), the U.S. Treasury Department has preferred stock holdings in AIG with an aggregate liquidation value of approximately $49 billion and currently holds an approximately 79.8 percent stake in the company.
The testimony gathered at this hearing will inform the Panel's June 2010 oversight report by providing a better understanding of AIG's current and future financial stability, the structure and staging of Treasury's and the Federal Reserve's investments, the rationale behind that support, and AIG's prospects to repay the taxpayers' investment.
The Panel is currently scheduled to hear from the following witnesses:
Panel One
Scott G. Alvarez, General Counsel, Federal Reserve Board of Governors
Thomas C. Baxter, Jr., General Counsel and Executive Vice President of the Legal Group, Federal Reserve Bank of New York
Sarah Dahlgren, Executive Vice President, Special Investments Management and AIG Monitoring, Federal Reserve Bank of New York
Michael E. Finn, Northeast Regional Director, Office of Thrift Supervision
Robert Willumstad, Former Chairman and Chief Executive Officer, American International Group, Inc.
Panel Two
Martin Bienenstock, Partner and Chair of Business Solutions and Government Department, Dewey & LeBoeuf
Rodney Clark (ADDED), Managing Director, Insurance Ratings, Standard & Poor's
Michael Moriarty, Deputy Superintendent for Property and Casualty Markets, New York State Insurance Department
Panel Three
Clifford Gallant (ADDED), Managing Director, Property & Casualty Insurance Research, Keefe, Bruyette & Woods
Panel Four
Robert Benmosche, President and Chief Executive Officer, American International Group, Inc.
Panel Five
Jim Millstein, Chief Restructuring Officer, U.S. Department of Treasury
Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program. In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 18 monthly reports, two special reports, and held 19 hearings on a wide range of TARP and related financial stabilization initiatives.
This hearing will allow the Panel to fulfill its duties under EESA, specifically to report to Congress on "[t]he impact of purchases made under the Act on the financial markets and financial institutions" and "the effectiveness of the program from the standpoint of minimizing long-term costs to the taxpayers and maximizing benefits for taxpayers." Evaluating the public investment in AIG and assessing the status of the repayment of taxpayer funds is a critical component of the Panel's oversight mandate.
WHO:
Members of the TARP Congressional Oversight Panel
WHAT:
Hearing on TARP and other Government Assistance for AIG
WHEN:
Wednesday, May 26, 2010; 10:00 a.m.
WHERE:
342 Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Statement of Chair Elizabeth Warren on Paul Atkins's Resignation and Welcoming Kenneth Troske to the Congressional Oversight Panel
May 21, 2010
WASHINGTON, D.C. - Congressional Oversight Panel Chair Elizabeth Warren released the following statement thanking former Securities and Exchange Commissioner Paul S. Atkins for his service and welcoming Professor Kenneth Troske to the Panel:
"Paul has provided unique insights and a keen understanding of the financial markets to the Panel's work to bring accountability to the Troubled Asset Relief Program. I am very grateful for his service to the American people and wish him the best.
"It is a pleasure to welcome Kenneth Troske to the Panel, and I look forward to serving with him in the months ahead. As a scholar and economist, Professor Troske will bring an invaluable perspective to the Panel's ongoing oversight efforts."
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Evaluates TARP's Impact on the Small Business Credit Crunch
May 13, 2010
WASHINGTON, D.C. - The Congressional Oversight Panel today released its May oversight report, "The Small Business Credit Crunch and the Impact of the TARP." Although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring general credit availability, the Panel found little evidence that the TARP has spurred small business lending.
The Secretary of the Treasury recently designated small business credit as a primary focuses of the TARP, and he pledged TARP funds "for additional efforts to facilitate small business lending." The Panel found that:
Small business credit remains severely constricted. Data from the Federal Reserve show that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9 percent, more than double the 4 percent decline in their overall lending portfolios.
TARP has done little to restore stability to the smaller banks that provide the bulk of small business credit. With Wall Street banks pulling back, some small business borrowers looked to community banks to pick up the slack. Many of these banks, however, continue to struggle with their exposure to commercial real estate loans and other liabilities, constraining their ability to lend.
Treasury's new lending program for small banks, even if enacted by Congress, could have only limited success. The proposed Small Business Lending Fund (SBLF) would provide $30 billion in low-cost capital to small and mid-sized banks, along with incentives to increase lending. The SBLF's prospects are far from certain. The program requires legislative approval, and even if Congress acts immediately, the program may not be fully operational for some time. Moreover, banks may shun the program for fear of being stigmatized by its association with the TARP, or banks may wish to avoid taking on SBLF liabilities at a time when their existing assets, such as commercial real estate, remain in jeopardy. To the extent that the lending contraction reflects a shortfall of demand rather than of supply, a supply-side solution like the SBLF may fail to gain traction.
The Panel called on Treasury to consider creative solutions that engage banks, state-based lending consortia, and other market participants, as well as to take active steps to gather more detailed and dependable data on small business lending. The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel to Hold Phoenix Field Hearing on Small Business Lending
April 21, 2010
WASHINGTON, D.C. - On Tuesday, April 27, the Congressional Oversight Panel will hold a field hearing in Phoenix to examine the nationwide contraction in bank lending in the wake of the financial crisis, with a particular focus on small business lending. The Panel will hear from local bank officials and small business executives about their perspectives on credit availability and the performance of the Troubled Asset Relief Program.
The Panel is currently scheduled to hear from the following witnesses:
Candace Wiest, President and CEO, West Valley National Bank
Lynne Herndon, City President - Phoenix, BBVA Compass Bank
James Lundy, President and CEO, Alliance Bank of Arizona
Mary Darling, CEO, Darling Environmental and Surveying, Inc.
Cindy Anderson, CEO, Great Biz Plans
Robert J. Blaney, District Director for Arizona, Small Business Administration
Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program (TARP). Through 17 monthly oversight reports, two special reports, and 18 hearings, the Panel has overseen Treasury's administration of TARP and assessed the program's impact on the financial markets, the economic recovery, and the ultimate return to taxpayers.
By visiting Phoenix, the Panel will hear directly from a community that has been deeply affected by the financial crisis and where small businesses continue to struggle to gain access to credit. Between 2000 and 2008, Arizona had the second-fastest-growing population and the fourth-fastest-growing job market in the country. But the state was particularly hard hit by the housing crisis, and its unemployment rate has more than doubled since the 2007 peak of the housing boom, hitting 9.6 percent in March 2010.
Strengthening credit access for small businesses will be important to reviving Arizona's economy. According to the Bureau of the Census, businesses with fewer than 500 employees account for 97.4 percent of the state's employers and 48.8 percent of its private employment.
This hearing will inform the Panel's May oversight report on small business lending.
WHO:
Members of the TARP Congressional Oversight PanelWHAT:
Field Hearing on Small Business LendingWHEN:
Tuesday, April 27, 2010; 10:00 a.m. MST (1:00 p.m. EDT)WHERE:
UA-ASU College of Medicine - Phoenix
Virginia Piper Auditorium
600 East Van Buren Street (Building 2)
Phoenix, Arizona
The hearing is open to press and public and will be webcast live at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Evaluates Progress of TARP Foreclosure Mitigation Programs
April 14, 2010
Panel Applauds Recent HAMP Revisions, But Treasury's Programs Are Not Keeping Pace with the Foreclosure Crisis
WASHINGTON, D.C. - The Congressional Oversight Panel today released its April oversight report, "Evaluating Progress of TARP Foreclosure Mitigation Programs." The Panel commended recent changes to the mortgage modification program designed to reach more homeowners, but found that Treasury is still struggling to get its foreclosure programs off the ground even as the crisis continues unabated.
Since the Panel's last examination of foreclosure mitigation efforts in October 2009, Treasury has taken steps to address concerns that the Home Affordable Modification Program (HAMP) did not adequately address foreclosures caused by unemployment or negative equity, including by establishing a voluntary principal reduction program. Despite these and other efforts, foreclosures continue at a rapid pace. In 2009, 2.8 million homeowners received a foreclosure notice, and nearly one in four homeowners with a mortgage currently has negative equity. While housing prices have begun to stabilize in many regions, home values in several metropolitan areas continue to fall sharply.
The Panel found that "Treasury's response continues to lag well behind the pace of the crisis" and that, even when HAMP is fully operational, they "will not reach the overwhelming majority of homeowners in trouble." The report raises three specific concerns with Treasury's foreclosure programs:
Timeliness. Since early 2009, Treasury has initiated half a dozen foreclosure mitigation programs, gradually ramping up the incentives for participation by borrowers, lenders, and servicers. Although Treasury should be commended for trying new approaches, its pattern of providing ever more generous incentives might backfire, as lenders and servicers might opt to delay modifications in hopes of eventually receiving a better deal.
Sustainability. Although HAMP modifications reduce a homeowner's mortgage payments, many borrowers continue to experience severe financial strain. HAMP typically does not reduce the total principal balance of a mortgage, meaning that a borrower who was underwater before receiving a HAMP modification will likely remain underwater afterward. Many borrowers will eventually redefault and face foreclosure. Redefaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures.
Accountability. The Panel is concerned that the sum total of announced funding for Treasury's individual foreclosure programs exceeds the total amount set aside for foreclosure prevention. Treasury must be clearer about how much taxpayer money it intends to spend. Additionally, it must thoroughly monitor the activities of participating lenders and servicers, audit them, and enforce program rules with strong penalties for failure to follow the requirements.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Reports on the Unique Treatment of GMAC Under TARP
March 11, 2010
Treasury's Decisions on GMAC at the Height of the Crisis Severely Constrained its Options
WASHINGTON, D.C. - The Congressional Oversight Panel today released its March oversight report, "The Unique Treatment of GMAC Under TARP." The Panel found that the government's early decisions to rescue GMAC instead of pursuing other options as part of a broader bailout of the domestic automotive industry resulted in missed opportunities to increase accountability and better protect taxpayers" money.
GMAC Inc. (GMAC) began as the in-house credit arm of General Motors (GM) to provide credit for car dealers to purchase inventory—known as "floorplan financing" - and for individual borrowers to buy their own cars. Over the decades, it expanded to provide home mortgages and other financial services products. In 2006, GM spun the credit arm off into an independent company, which today ranks as the fourteenth largest bank holding company in the United States. Treasury has stated that support to GMAC was necessary because of GMAC"s dominant role in floorplan financing, and that refusal to support GMAC would have undermined the government"s investments in the automotive companies.
The Panel found Treasury and the Federal Reserve made critical decisions during the height of the financial crisis that severely constrained their options for addressing GMAC's uncertain future. In an unusual divided vote, the Federal Reserve approved GMAC's conversion to a bank holding company. When as a result of this decision GMAC was included in the government-run stress tests a few months later, Treasury committed itself to a full bailout strategy: taxpayers would provide any necessary new capital identified by the stress tests that GMAC couldn't raise in the private markets. If GMAC had not been included in the stress tests, Treasury might have had options other than committing new public capital, such as orchestrating a bankruptcy or isolating the auto financing business, which could have put the company on a stronger economic footing.
Treasury provided GMAC with TARP funds under the Auto Industry Financing Program. GMAC's bailout dollars, however, have also supported crippling losses in its mortgage lending business. During a hearing before the Panel in February, GMAC CEO Michael Carpenter testified that the mortgage lending operation was the "millstone around the company's neck." GMAC was one of the largest issuers and servicers of residential mortgages. By late 2008, the residential mortgage unit was severely impaired by the downturn in the housing market and in 2009, the $8.3 billion GMAC lost on its mortgage business constituted more than 80 percent of its total net losses.
The Panel is deeply concerned that Treasury has not required GMAC to lay out a clear path to viability or a strategy for fully repaying taxpayers. Despite a $17.2 billion TARP investment, there is still no clear business plan for GMAC. Treasury has not given due consideration, for example, to the possibility of breaking apart GMAC and merging the auto finance part back into GM, a step which would restore GM's financing operations to the model generally shared by other automotive manufacturers.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Hearing on Citigroup Assistance Under TARP
March 2, 2010
WASHINGTON, D.C. - On Thursday, March 4, 2010, the Congressional Oversight Panel will hold a hearing in room 538 of Dirksen Senate Office Building about the government's assistance to Citigroup under the Troubled Asset Relief Program (TARP). Assistant Treasury Secretary Herbert M. Allison, Jr. and Citigroup Chief Executive Officer Vikram Pandit are scheduled to testify.
Over the course of the financial crisis Citigroup received $45 billion in TARP funding, including $20 billion through the Targeted Investment Program (TIP) and $25 billion through the Capital Purchase Program (CPP), as well as a government guarantee of a pool of approximately $301 billion in assets. Citigroup announced on December 23, 2009 that it had completed repaying its $20 billion in TIP assistance and had terminated its asset guarantee. Treasury continues to own approximately 7.7 billion shares of Citigroup common stock - approximately 27 percent of Citigroup's outstanding common stock - as a consequence of CPP assistance.
WHO:
Members of the TARP Congressional Oversight PanelWitnesses:
Panel One:
Herbert M. Allison, Assistant Treasury Secretary for Financial StabilityPanel Two:
Vikram Pandit, Chief Executive Officer, CitigroupWHAT:
Hearing on Assistance Provided to Citigroup Under TARPWHEN:
Thursday, March 4, 2010; 10:00 a.m.WHERE:
538 Dirksen Senate Office Building
Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program. In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 15 monthly reports and two special reports, and held 17 hearings on a wide range of TARP and related financial stabilization initiatives.
This hearing will provide a better understanding of the Administration's financial stabilization efforts and the impact of TARP assistance on Citigroup. It is open to press and the public and will be webcast on the Panel's website at cop.senate.gov.
Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
COP Hearing on GMAC Financial Services
February 23, 2010
WASHINGTON, D.C. - On Thursday, February 25, the Congressional Oversight Panel will hold a hearing in room 342 of the Dirksen Senate Office Building about the government's assistance to GMAC under the Troubled Asset Relief Program (TARP) and the government's broader financial stability efforts. The government spent $17.2 billion in support of GMAC and now owns a 56.3 percent stake in the company.
The Panel will hear from the U.S. Department of Treasury, GMAC Financial Services, and industry analysts about their perspectives on GMAC's current and future financial stability, the structure and staging of Treasury's investments in GMAC, the rationale behind that support, and GMAC's strategic initiatives and plans to repay the taxpayers' investment.
The Panel is scheduled to hear from the following witnesses:
Panel One
Ron Bloom, Senior Advisor to the Secretary of the Treasury
Jim Millstein, Chief Restructuring Officer, U.S. Department of Treasury
Panel Two
Michael Carpenter, Chief Executive Officer, GMAC Financial Services
Robert Hull, Chief Financial Officer, GMAC Financial Services
Panel Three
Christopher Whalen, Senior Vice President and Managing Director, Institutional Risk Analytics
Michael Ward, Analyst, Soleil-Ward Transportation Research
Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program. In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 15 monthly reports and two special reports, and held 16 hearings on a wide range of TARP and related financial stabilization initiatives.
This hearing will provide a better understanding of the Administration's financial stabilization efforts and the impact of TARP assistance on GMAC Financial Services, and it will inform the Panel's March oversight report.
WHO:
Members of the TARP Congressional Oversight PanelWHAT:
Hearing on Assistance Provided to GMAC Under TARPWHEN:
Thursday, February 25, 2010; 10:00 a.m.WHERE:
342 Dirksen Senate Office Building
The hearing is open to press and public and will be webcast on our website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
GMAC, Citi CEOs to Testify at COP Hearings
February 19, 2010
WASHINGTON, D.C. - The Congressional Oversight Panel today announced two hearings with the chief executive officers of two TARP-recipient financial institutions.
On Thursday, February 25, 2010, the Panel will hear from GMAC Chief Executive Officer Michael Carpenter and Chief Financial Officer Robert Hull, as well as from Ron Bloom, Senior Advisor to the Secretary of the Treasury, Presidential Task Force on the Auto Industry. Jim Millstein, chief restructuring officer for the Department of the Treasury, will also testify.
On Thursday, March 4, 2010, Citigroup Chief Executive Officer Vikram Pandit and Assistant Treasury Secretary Herbert M. Allison, Jr. will testify before the Panel.
Both hearings will take place on Capitol Hill. Hearing rooms will be announced soon.
GMAC received $16.29 billion under the Automotive Industry Financing Program, part of the Troubled Asset Relief Program (TARP). GMAC is now 56.3 percent owned by Treasury.
Citigroup received $45 billion in TARP funds as well as a government guarantee of a pool of $301 billion in assets. Treasury now owns approximately 27 percent of the company's common stock as a consequence of TARP assistance.
GMAC Hearing
WHO:
Members of the TARP Congressional Oversight PanelWHAT:
Hearing on Assistance Provided to GMAC Under TARP
Ron Bloom, Senior Advisor to the Secretary of the Treasury
Jim Millstein, Chief Restructuring Officer, U.S. Department of the Treasury
Michael Carpenter, Chief Executive Officer, GMAC
Robert Hull, Chief Financial Officer, GMAC
(Full witness list BA)WHEN:
Thursday, February 25, 2010; 10:00 a.m.WHERE:
Capitol Hill (Hearing Room TBA)
Citigroup Hearing
WHO:
Members of the TARP Congressional Oversight PanelWHAT:
Hearing on Assistance Provided to Citigroup Under TARP
Herbert M. Allison, Assistant Treasury Secretary for Financial Stability
Vikram Pandit, Chief Executive Officer, CitigroupWHEN:
Thursday, March 4, 2010; 10:00 a.m.WHERE:
Capitol Hill (Hearing Room TBA)
Both hearings are open to press and the public and will be webcast on the Panel's website at cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9925 at least two business days in advance of the hearing date.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Analyzes Commercial Real Estate Losses and the Risk to Financial Stability
February 11, 2010
Wave of Refinancing Could Overwhelm an Already Weakened Financial System Community Banks at Greatest Risk
WASHINGTON, D.C. - The Congressional Oversight Panel today released its February oversight report, "Commercial Real Estate Losses and the Risk to Financial Stability." The Panel is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession.
Commercial real estate (CRE) loans made over the last decade - including retail properties, office space, industrial facilities, hotels and apartments - totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present "underwater," meaning the borrower owes more on the loan than the underlying property is worth. While these problems have no single cause, the loans most likely to fail are those made at the height of the real estate bubble. The Panel notes, however, "Even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit."
Community banks, unlike the largest Wall Street banks, face the greatest risk of insolvency due to mounting commercial real estate loan losses. According to federal guidelines, 2,988 banks nationwide are classified as having a "CRE Concentration." None of these banks are among the 19 largest bank holding companies. Forecasts project that banks will suffer their worst losses well after the timeframe examined by the stress tests - an exercise conducted only on the nation's 19 largest bank holding companies - and well after Treasury's authority expires under the Troubled Asset Relief Program (TARP).
The Panel found that "a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American." When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel to Hold Field Hearing in Atlanta on Commercial Real Estate
January 21, 2010
On Wednesday, January 27, the Congressional Oversight Panel will hold a field hearing in Atlanta on the state of commercial real estate lending, the potential effect of commercial real estate problems on the banking system, and the role and impact of the Troubled Asset Relief Program (TARP) in addressing that effect. The Panel will hear from government witnesses as well as local bankers and investors about their perspectives on commercial real estate, the financing markets, and the performance of the TARP.
The Panel is currently scheduled to hear from the following witnesses:
Jon Greenlee, Associate Director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve
Brian Olasov, Managing Director - Atlanta, McKenna, Long and Aldridge
David Stockert, Chief Executive Officer, Post Properties
The full witness list will be announced in advance of the hearing.
Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program. In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 14 monthly reports, two special reports, and held 15 hearings on a wide range of TARP and related financial stabilization initiatives.
This hearing will provide a better understanding of the Administration's financial stabilization efforts and the impact of TARP on commercial real estate, and it will inform the Panel's February oversight report.
WHO:
Members of the TARP Congressional Oversight PanelWHAT:
Commercial Real Estate Field HearingWHEN:
Wednesday, January 27, 2010; 10:00 a.m.WHERE:
Georgia Institute of Technology
Technology Square Research Building, Room 132
85 Fifth Street NW
Atlanta, Georgia
The hearing is open to press and public and will be webcast on our website at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
Congressional Oversight Panel Assesses TARP Exit Strategy
January 14, 2010
Divestment Principles Sometimes at Odds, So Broad That Measuring Success Will Be Problematic
Even After Every Asset is Sold, Unwinding the Implicit Guarantee Created by TARP Will Remain a Challenge
WASHINGTON, D.C. - The Congressional Oversight Panel today released its January oversight report, "Exiting TARP and Unwinding Its Impact on the Financial Markets." The Panel found that the repayment of TARP assistance represents only the first stage of exiting TARP. Even after repayments are complete, Treasury will hold a massive pool of assets, worth hundreds of billions of dollars, for several years to come. Managing these assets will present extraordinary challenges. Furthermore, any effective exit strategy must address the unwinding of the implicit guarantee created by TARP.
Treasury has articulated three principles guiding its strategy to unwind TARP: maintaining a stable financial system, preserving individual institutions, and maximizing the return on taxpayers' investments. The Panel found that these principles will sometimes be at odds with one another. For example, the most profitable moment to sell a TARP asset may not be the moment that best promotes systemic stability or the moment that best serves a particular institution. Further, these three principles are so broad and subjective Treasury could justify almost any divestment decision using this approach, effectively giving no metric to determine whether its actions met its stated goals. These concerns are compounded because Treasury is a unique market participant: TARP investments are so large that the decision to hold or sell has the potential to impact the financial markets.
Treasury must learn from the mistakes made in the past and demand greater disclosure in funds spent this year. In announcing his decision to extend TARP through October, Secretary Geithner said TARP funds would be used, for example, to provide capital to small banks to increase lending to small businesses. Treasury failed to require the recipients of the first infusions of TARP funds to account adequately for how they put taxpayer dollars to work. The Panel recommends Treasury require that future recipients provide much greater disclosure of their use of TARP dollars.
Even after every TARP asset is sold, unwinding the implicit guarantee created by TARP will remain a serious challenge for policymakers. The financial rescue created moral hazard that distorts pricing and infects calculations of risk. There is broad agreement that a new approach to systemic risk regulation is necessary so that businesses are not insulated from the effects of their own bad decisions.
The full report is available at cop.senate.gov.
The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.
