Earlier today, the House Financial Services Committee held a hearing on “Priorities of the Next Administration: Use of TARP Funds under the Emergency Stabilization Act of 2008. The Committee heard testimony from:

Panel One:

Donald Kohn, Federal Reserve Vice Chairman  

John Bovenzi, Deputy to the Chairman and Chief Operating Officer of the FDIC

Panel Two:

Janet Murguía, President and Chief Executive Officer, National Council of La Raza  

John Taylor, President and Chief Executive, National Community Reinvestment Coalition  

Edward L. Yingling, President and Chief Executive Officer, American Bankers Association  

Cynthia Blankenship, Vice Chairman and Chief Operating Officer, Bank of the West on behalf of The Independent Community Bankers of America  

Joe R. Robson, 2008 Chairman-elect of the Board, National Association of Home Builders  

Charles McMillan, GRI, CIPS, 2009 President, National Association of Realtors  

Michael Calhoun, President and Chief Operating Officer, Center for Responsible Lending  

Chris Mayer, Senior Vice Dean and Paul Milstein Professor of Real Estate, Columbia Business School

During the first panel, Federal Reserve Vice-Chairman, Donald Kohn urged that, “ the bulk of the remaining TARP funding be devoted to strengthening financial institutions, thereby supporting the normalization of credit markets and the flow of new credit.” Noting the effect that foreclosures have on the economy and financial system as a whole, Kohn encouraged providing funds to avoid preventable foreclosures. To reduce the number of foreclosures, Kohn suggested quickly modifying mortgages by streamlining the re-underwriting process, similar to the plan implemented by the FDIC or allowing the government to buy delinquent mortgages at steep discounts to the remaining balances.

Kohn also noted that TARP funds should be used to support programs that help restart key credit markets such as the Term Asset Backed Securities Loan Facility. He concluded by saying, “Despite the understandable focus on the near term, we do not have the luxury of postponing work on longer-term issues. High on the list, in light of recent events, are strengthening regulatory oversight and improving the capacity of both the private sector and regulators to detect and manage risk.”

FDIC Chief Operating Officer, John Bovenzi said that the development of a program that assists institutions in addressing their inventories of troubled assets is “key” in moving forward with TARP funds. Encouraging the development of a program that stresses accountability, transparency and viability, Bovenzi stressed that the program “should be made available to banks of all sizes, rather than just large financial institutions, to address financial stresses that may be occurring at the regional and local levels.”

Bovenzi agreed with Kohn in that additional measures should be taken to prevent foreclosures, believing that it is “vital to institute a specific program aimed at foreclosure prevention.”

Commenting on existing programs, Bovenzi suggested broadening the scope of Temporary Liquidity Guarantee Program to not only cover insured depository institutions, but also depository institution holding companies, “as appropriate to the benefits they receive. He also pushed for the Capital Purchase Program (“CPP”), to be “implemented in a manner that encourages and rewards private capital investments to be made alongside TARP capital.”

During the second panel, lawmakers heard testimony from academics, housing industry officials and bankers. The President and CEO of the American Bankers Association remarked on the confusion about the differences between TARP proposals and CPP, “We are committed to working with this Committee to clarify once and for all the purpose of the Capital Purchase Program, to target remaining TARP money where it will do the most good, and to provide the transparency needed to restore public confidence.” Discussing the need for TARP funds to be used for an asset-purchase program, Lawrence White, finance professor at New York University stated, “If the government becomes the sole owner of these mortgage assets, it’s easier for them to rewrite the terms. There are virtues of the original plan that seem to have been forgotten.”