Today, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to examine recent regulatory responses to the current financial crisis. Five witnesses testified during the hearing and submitted written testimony outlining their role in addressing the financial crisis:

Sheila Bair, Chairman, FDIC

Neel Kashkari, Interim Assistant Secretary for Financial Stability, Department of Treasury

James Lockhart, Director, Federal Housing Finance Agency

Elizabeth Duke, Governor, Federal Reserve Board

Brian Montgomery, Federal Housing Commissioner, HUD

Committee Chairman Dodd opened the hearing with a statement in which he expressed the view that greater emphasis should be placed on foreclosure avoidance in making decisions about how to allocate authorized expenditures under the Emergency Economic Stabilization Act (EESA).

Sheila Bair, who has previously expressed displeasure with the dearth of foreclosure mitigation efforts in the Treasury’s plan, restated her support for such programs. Bair noted that the costs of foreclosures are borne not just by borrowers and lenders, but ultimately cost the entire communities. Bair stated legal fees, brokers’ fees, property management fees, and other costs - which could be avoided in workouts - can total between 20 and 40 percent of the market value of the property. Bair cited the FDIC’s role as conservator of IndyMac Bank as an example where foreclosure mitigation efforts have been beneficial for both the lender and the homeowner. She also stated that the FDIC and the Treasury were working closely and creatively on a plan that would use federal loan guarantees and credit enhancements to provide greater incentives for mortgage servicers to modify current loans.

Neel Kashkari provided an outline of the steps completed by his agency in implementing the EESA. He noted that a great deal had been completed in the three weeks since the bill was passed, including the creation of seven different policy groups currently working at Treasury:

  1. Mortgage-backed securities purchase program 
  2. Whole loan purchase program 
  3. Insurance program 
  4. Equity purchase program 
  5. Homeowner preservation 
  6. Executive compensation 
  7. Compliance

James Lockhart outlined the actions that the FHFA has taken while acting as conservator for both Freddie Mac and Fannie Mae. Lockhart reported that the transition to conservatorship was completed, and he outlined the instructions being given to the new leadership of the GSE’s, stating that “[t]he two new CEOs are committed to increase loan modification and foreclosure prevention activities.”

Elizabeth Duke explained how the Federal Reserve has been working to implement TARP, but also highlighted how they have been working to develop solutions to rising foreclosures, including the Hope For Homeowners (H4H) program, and other partnership efforts to help connect mortgage servicers and the homeowner.

Brian Montgomery outlined HUD’s role in the efforts to mitigate foreclosures. He noted that the agency has seen its mortgage market share grow from 2 percent to 17 percent, with loan volumes three to four times last year’s level. He also explained the role that HUD has played in the H4H program and the agency’s own Neighborhood Stabilization Program that was launched late last month.

During the hearing it was apparent that both members and witnesses felt a sense of urgency to create a system or series of programs to provide relief for homeowners on the verge of foreclosure.

Today’s hearing follows on the heels of a Committee hearing last week that focused on the factors that led to the current financial crisis. The panel at that October 16, 2008 hearing included prominent members of the financial community as well as representatives from the National Urban League and the Center for Responsible Lending.