Panel II of the Hearing of the House Committee on Financial Services

Statement

PANEL II OF THE HEARING OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
SUBJECT: LEGISLATIVE AND REGULATORY OPTIONS FOR MINIMIZING AND MITIGATING MORTGAGE FORECLOSURES

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REP. STEPHEN LYNCH (D-MA): Thank you, Mr. Chairman. I want to thank you for holding this hearing. I want to thank the ranking member as well. And I'd like to thank the panelists here for their help in informing the committee and helping us with our work.

I know that most of you on this panel were here for most if not all of the testimony of the previous panel -- Mr. Paulson and Mr. Bernanke, especially. But I personally got the sense that by their remarks and this was true of the previous hearing that they are of the opinion that this crisis is either well in hand or actually behind us. And I think that is in stark contrast to some of the comments I've heard here today.

Ms. Liben and Mr. Marks, I think, you know, you've been emphatic in the scale of the scope of this problem.

I also think Mr. Bernanke especially in his remarks, evidence by his statement that he thought that the GSEs and their offer of help -- the help ought to be temporary and they ought to do it quick because pretty soon the market's going to take care of this thing and there'll be no crisis.

I am not of that opinion. I've read through all of your testimony.

Mr. Mudd, I noticed you have a very good synopsis of the scale of the problem. And you note correctly that there is about 600 billion in subprime mortgages that will not reset until 2008. And that will be another impact as well, not only in the subprime market but also in the wider markets. We don't have a compartmentalized economy here. And I think as you've indicated there'll be a wider impact.

My feeling is that the GSEs' role -- they need to get in the game in a bigger way. We've set them up in the charters here to do exactly what they need to do right now and provide liquidity. I have in my hand -- you wouldn't know it from the previous testimony but there was a list of 80 lenders that have closed shop or been acquired or stopped making loans. I have a list of about 120 hedge funds and private equity firms that are in dire straits because of their investments in subprime paper.

I would like to ask you, Mr. Mudd, specifically, given that the consent decree, which Capture portfolio was built around several requirements and actions you needed to take in order to fix the accounting and control problems that were discovered, can you update this committee where you stand on your financial reporting and other remediation efforts and where are we in that process? I know the chairman called at the beginning of this hearing for the Senate to take up the GSE bill and I am in full support of that -- but I'd like to just get a snapshot of where we are in this process.

And Mr. Syron, if you could elaborate on your side as well.

MR. MUDD: Sure, absolutely, Congressman. We are registered with the SEC. We completed our restatement which was redoing the financials from '01 through '04. We have subsequently issued our financials for 2005 and 2006. We would expect to have the quarters -- the quarterly reports, 10Qs out for 2007 and to file the year as with other companies completing, you know, the current year on time this year.

Those are kind of the items that have been checked off. The other way to think about those is it's not just going through the paces but there is an enormous amount of underlying work that starts with a review of all your accounting policies, rebuilding the systems that support those, rebuilding the team -- not only in the accounting department but at various levels of management, changing board procedures, creating independent reporting. Indeed the chairman of our audit committee is the former head of the FASB, to pick one example.

So there has been really an overhaul from top to bottom that has produced that amount of progress. So I guess my argument would be that while we're anticipating being a current filer and having all those items solved -- we're not there yet and I understand that's for us to do. But certainly in this time we've made more than 10 percent improvement in the way we operate that would justify a 10 percent increase in the cap.

REP. LYNCH: Okay. Absolutely.

Dr. Syron?

MR. SYRON: Thank you, Congressman Lynch. You don't have to call me doctor because I don't do colds, but -- our situation is, I think, quite similar in a lot of ways to what Dan talked about. I mean, we have totally rebuilt our organization in terms of the management of the organization, the board of the organization, our accounting systems, our control systems. This takes a while. We have made, I think, enormous progress. We've a little ways to go. But we filed this year our, you know, last year right after the turn of the year we filed quarters. For this year, we'll file another quarter before Thanksgiving. We will file our '07 10K in a timely basis. Shortly after that we will be filing with the SEC.

And, again, I like the construct that Dan used. If you wanted to say, you know, there wasn't any cap on these institutions and I've been open in previous history in saying that I think in some parts we grew too fast but gee, to have a complete ceiling now, right? While these organizations have made substantial progress and say, "Well you have to wait until you get to the total end." And one final point -- I mean, these organizations are creatures of the body politic and they should do what the body politic wanted. The body politic set a capital ratio for the organizations. We agreed because of our problems to have a 30 percent cap over that. There's a cap even on top of that.

REP. LYNCH: Okay. Mr. Chairman, could I have 30 seconds?

REP. FRANK: Very quick.

REP. LYNCH: All right. I just want to thank Mr. Mudd. I know you've done some great work with the mass housing finance agency in my district as well as Ms. Liben and Mr. Marks -- you've done great work in my district putting people -- hardworking people -- maybe some low- income people but hardworking people into housing that they could afford, and that's much appreciated. I yield back, Mr. Chairman.

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