[Senate Hearing 115-349]
[From the U.S. Government Publishing Office]
S. Hrg. 115-349
NOMINATIONS OF ELAD ROISMAN, MICHAEL R. BRIGHT, RAE OLIVER DAVIS, AND
DINO FALASCHETTI
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
Elad Roisman, of Maine, to be a Member, Securities and Exchange
Commission
__________
Michael R. Bright, of the District of Columbia, to be President,
Government National Mortgage Association
__________
Rae Oliver Davis, of Virginia, to be Inspector General, Department of
Housing and Urban Development
__________
Dino Falaschetti, of Montana, to be Director, Office of Financial
Research, Department of the Treasury
__________
JULY 24, 2018
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada JON TESTER, Montana
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas DOUG JONES, Alabama
Gregg Richard, Staff Director
Mark Powden, Democratic Staff Director
Jonathan Gould, Senior Counsel
Matt Jones, Counsel
Elisha Tuku, Democratic Chief Counsel
Laura Swanson, Democratic Deputy Staff Director
Beth Cooper, Democratic Professional Staff Member
Megan Cheney, Democratic Professional Staff Member
Dawn Ratliff, Chief Clerk
Cameron Ricker, Deputy Clerk
James Guiliano, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, JULY 24, 2018
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 36
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
NOMINEES
Elad Roisman, of Maine, to be a Member, Securities and Exchange
Commission..................................................... 5
Prepared statement........................................... 37
Biographical sketch of nominee............................... 38
Responses to written questions of:
Senator Brown............................................ 79
Senator Menendez......................................... 79
Senator Warner........................................... 80
Senator Cortez Masto..................................... 81
Senator Jones............................................ 83
Michael R. Bright, of the District of Columbia, to be President,
Government National Mortgage Association....................... 6
Prepared statement........................................... 46
Biographical sketch of nominee............................... 48
Responses to written questions of:
Senator Brown............................................ 84
Senator Moran............................................ 88
Senator Menendez......................................... 88
Senator Cortez Masto..................................... 89
Rae Oliver Davis, of Virginia, to be Inspector General,
Department of Housing and Urban Development.................... 8
Prepared statement........................................... 57
Biographical sketch of nominee............................... 58
Responses to written questions of:
Senator Brown............................................ 90
Senator Menendez......................................... 91
Senator Warner........................................... 91
Senator Cortez Masto..................................... 92
Dino Falaschetti, of Montana, to be Director, Office of Financial
Research, Department of the Treasury........................... 9
Prepared statement........................................... 71
Biographical sketch of nominee............................... 72
Responses to written questions of:
Senator Brown............................................ 92
Senator Rounds........................................... 94
Senator Reed............................................. 95
Senator Cortez Masto..................................... 95
Senator Jones............................................ 97
Additional Material Supplied for the Record
Letter submitted in support of the nomination of Elad Roisman and
Dino Falaschetti............................................... 98
Letters submitted in support of the nomination of Michael R.
Bright......................................................... 99
(iii)
NOMINATIONS OF ELAD ROISMAN, MICHAEL R. BRIGHT, RAE OLIVER DAVIS, AND
DINO FALASCHETTI
----------
TUESDAY, JULY 24, 2018
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. The Committee will come to order. I have
been informed that Senator Brown will be here momentarily, but
that it is OK for us to go ahead and get started.
This morning we will consider the nominations of four more
individuals to serve in key leadership posts in the
Administration: Mr. Elad Roisman, to be a Member of the
Securities and Exchange Commission; Mr. Michael Bright, to be
President of the Government National Mortgage Association, or
Ginnie Mae; Ms. Rae Oliver Davis, to be Inspector General of
the U.S. Department of Housing and Urban Development; and Dr.
Dino Falaschetti--did I get that right?
Mr. Falaschetti. Yes, sir.
Chairman Crapo. To be Director of the Office of Financial
Research.
Welcome to all of you this morning, and congratulations on
your nominations to these very important offices. I see friends
and family behind you today and welcome them here as well.
Each of these nominees, if confirmed, will play an
important role in supporting our financial system, ensuring it
remains vibrant, safe, and sound for all Americans.
I will start by recognizing Mr. Roisman, in particular, who
continues to do outstanding work for this Committee as Chief
Counsel. I can personally attest to Elad's impressive command
of securities law, his keen intellect and work ethic, and his
commitment to doing what is right.
As many on this Committee know, Elad is intimately familiar
with the inner workings of the SEC, having previously served as
Counsel to Commissioner Daniel Gallagher and as Chief Counsel
at the NYSE Euronext.
Elad, thank you for being a trusted adviser and a resource
to me and to the others on this Committee. If confirmed, I am
confident that you will successfully execute the SEC's mission
of protecting investors, maintaining fair, orderly, and
efficient markets, and facilitating capital formation. We will
be sad to see you go, but the SEC will have gained a tremendous
asset from which our whole country will benefit.
Michael Bright also has a distinguished career as a Senate
staffer and is no stranger to many in this room. Over the last
decade, Mr. Bright has established himself as a leading voice
on housing finance policy.
Most recently, over the past year-and-a-half, he has
overseen all aspects of Ginnie Mae, including its nearly $2
trillion portfolio of mortgage-backed securities, and has
already taken significant action to protect taxpayers and help
consumers.
If confirmed, I know Mr. Bright will continue this
important work, and I look forward to working with him on
opportunities to address the last piece of unfinished business
from the financial crisis: comprehensive housing finance
reform.
Rae Oliver Davis has dedicated her entire career to holding
others accountable. As a former Assistant U.S. Attorney, Ms.
Davis spent years investigating and prosecuting financial
criminals, among other crimes.
Over the past decade, she has turned her focus to holding
the Government accountable, working for various Inspectors
General within the United States Postal Service, the Troubled
Asset Relief Program, or TARP, and HUD.
If confirmed as HUD Inspector General, Ms. Davis will draw
from this deep experience, working on behalf of taxpayers to
eliminate fraud, waste, and abuse in our housing programs, and
to make sure that those programs run as efficiently and as
effectively as possible.
Dino Falaschetti has had a distinguished career in
economics that spans academia, the private sector, and public
service--most recently as Chief Economist for the House
Financial Services Committee.
For many years, Dr. Falaschetti's expertise on finance,
corporate law, business strategy, and economic policy has been
widely sought out. In addition to holding faculty appointments
at eight different universities, Dr. Falaschetti served as
Senior Economist for the President's Council of Economic
Advisers during the second Bush administration, where he worked
directly under future Fed Chairman Ben Bernanke.
At the Office of Financial Research, or OFR, Dr.
Falaschetti will be charged with overseeing much of the
research and data analysis that supports the work of the
Financial Stability Oversight Council. If confirmed, he will be
a trusted and valued resource for FSOC and the Treasury
Department as he has been for Congress and many others.
We have four highly qualified nominees before us, and I
urge my colleagues to support them so that they can quickly get
to work for the American people.
Congratulations once again on your nominations, and thank
you for your willingness to serve.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, for holding today's
hearing on the nominations of Mr. Elad Roisman, Mr. Michael
Bright, Ms. Rae Oliver, and Dr. Dino Falaschetti. Welcome to
all of you. I look forward to meeting your families, and I want
to welcome you to the Committee.
Mr. Roisman has been nominated to be a Commissioner of the
Securities and Exchange Commission. If confirmed, Mr. Roisman
would return to the SEC and continue the public service he
began there.
His time at the SEC and on the Banking Committee provide
him with an understanding of the challenges facing the agency
and the markets. Although I expect Mr. Roisman to face many
difficult issues, if he is confirmed, I hope he pays particular
interest to the downward trend in enforcement actions and
penalties. That is a serious problem.
The SEC must emphasize integrity and fairness in the
capital markets in order for investors to have faith in the
markets and in the regulator.
Market participants need to see meaningful efforts by the
SEC to enforce the law and to punish bad actors. Ten years
after the financial crisis, we are reminded that regulators
have failed to hold any senior executives accountable for the
widespread misconduct that devastated millions of families, and
many, many, many of those families have not recovered.
Tough enforcement policies can discourage wrongdoing and
maybe even help avoid the practices that led to the last
crisis. Mr. Roisman, I hope you will do everything you can to
make strong enforcement a priority.
Mr. Bright is a fellow Ohioan and is no stranger to this
Committee. He advised Senator Corker on Committee issues for 4
years, including proposals to reshape the housing finance
system.
He has held many roles in the housing finance industry,
including his current position as the Executive Vice President
and Chief Operating Officer of the agency he has been nominated
to lead, Ginnie Mae.
For 50 years, Ginnie Mae has facilitated access to
affordable loans through the FHA, VA, and USDA mortgage
programs by connecting federally insured loans to investors
around the world. Today some 11 million households have access
to affordable mortgage credit and rental housing because of
Ginnie Mae.
I have been encouraged that, under Mr. Bright's leadership,
Ginnie Mae has strengthened its risk management and continued
to adjust to an evolving home lending market.
But I have questions for Mr. Bright about his work and the
policies he advocated before his nomination and how this will
inform his vision for Ginnie Mae.
HUD's Office of Inspector General plays an important role
in ensuring the integrity and effectiveness of HUD programs.
The Inspector General serves as an independent check on the
agency, working to ensure that HUD's programs and personnel are
accountable to taxpayers and advance the mission that Congress
has given HUD to assist our families and communities.
If confirmed, Ms. Oliver would bring years of investigative
experience to the role of Inspector General. I look forward to
hearing her testimony today.
Dr. Falaschetti has been nominated to be the Director of
the Office of Financial Research. OFR was established by the
Wall Street Reform Act to monitor and study emerging risks to
the financial system and to support the work of FSOC.
As both Congress and the regulators make changes to rules
that roll back the strong post-crisis regulations, the OFR's
analysis of market trends and potential gaps in regulators'
view of risks is critical to financial stability.
Dr. Falaschetti, I know you have been a skeptic of
regulation in the past. If confirmed, I hope you will take
OFR's mandate seriously. Hardworking Americans cannot afford
another crisis. Too often the White House looks like a retreat
for Wall Street executives. All of us on this Committee, at
least on this side of the aisle, are concerned about that.
Whatever OFR can do to monitor risks will benefit everyone.
Not seeing the signs of the next crisis would be bad
enough, but to miss them because the office created to study
systemic risk does not have resources it needs is inexcusable.
Mr. Chairman, I would like to also in closing mention the
number of regulators that we have approved--that we have had
hearings on and we have approved in this Senate contrasted to
the last 2 years of 2015 and 2016 in the Obama administration.
I do not lay that at your feet. I lay that at your party's feet
and the Chairman before you. I was speaking yesterday to
Governor Brainard, saying the only non-Trump nominee, the only
non-Trump appointee at the Federal Reserve in 18 months because
of Republican obstruction, because of Leader McConnell and
Chairman Shelby, this Committee simply did not do its work, to
block every possible Obama nominee they could, and we have
simply not played that role on this side because we, in fact,
do believe that the President is entitled to his nominations. I
would hope that both parties would learn something from that.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown. And I do
appreciate the fact that you have been willing to work with us
on this Committee to move nominees through, and I recognize
that as well. There has been a serious amount of obstruction on
the floor, but I do not put that at your feet either.
We will now administer the oath. Would the witnesses please
stand? Would you all please raise your right hands? Do you
swear or affirm that the testimony that you are about to give
is the truth, the whole truth, and nothing but the truth, so
help you God?
Mr. Roisman. I do.
Mr. Bright. I do.
Ms. Davis. I do.
Mr. Falaschetti. I do.
Chairman Crapo. And so you agree to appear and testify
before any duly constituted committee of the Senate?
Mr. Roisman. I do.
Mr. Bright. I do.
Ms. Davis. I do.
Mr. Falaschetti. I do.
Chairman Crapo. Thank you. You may take your seats.
Your written statements will be made a part of the record
in its entirety. Before you begin your statement, I invite you
to introduce your family, if you choose to do so, and we will
proceed in the order you were introduced. So, Mr. Roisman, you
may proceed.
TESTIMONY OF ELAD ROISMAN, OF MAINE, TO BE A MEMBER, SECURITIES
AND EXCHANGE COMMISSION
Mr. Roisman. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, I am honored to appear before you
today as the President's nominee to serve as a Commissioner of
the U.S. Securities and Exchange Commission. My professional
experience as a securities lawyer at a global law firm, a chief
counsel at NYSE Euronext, counsel to an SEC Commissioner, and
now Chief Counsel on this Committee have afforded me a broad
spectrum of experiences that would enable me to effectively
serve the public and carry out the SEC's mission should I be
confirmed.
Mr. Chairman, I would like to introduce members of my
family that are here with me today. My wife, Helaina Roisman,
who is a social worker at George Washington University Hospital
and, without question, my far better half. My parents, Hanna
and Yossi Roisman, who taught me at an early age the importance
of integrity and having the courage to do the right thing. My
brother, Shalev Roisman, who showed me the importance of trying
to understand the other side of every issue. My father- and
mother-in-law, Larry and Laurie Bernstein, and my brother-in-
law, Jacob Bernstein, who have always been incredibly
supportive over the years. Last, my daughters, Talia and Yael,
are too young to come today, but remind me daily of what is
most important in this life.
As the child of two immigrants who moved to this country
determined to pursue a better life for themselves and their
children, I have a strong appreciation for the stability and
security that our form of Government and financial markets
provide. My parents did not have much when they came here. But
what they did have was confidence--confidence in America and
confidence in a financial system that would enable them to save
and invest so that they could raise their family and help
provide for their children's education. When I think about what
gave them such confidence in a system that they barely knew,
one thing stands out: public trust. While they may not have
understood or appreciated the complex system of oversight and
regulation that governs the conduct of market participants in
our financial markets, they believed and expected that our
markets would be regulated in a fair and orderly manner with
requisite investor protection, transparency, and
accountability.
While serving as a chief counsel at NYSE Euronext, I saw
firsthand the excitement and pride of entrepreneurs and
innovators when they rung the opening bell as their companies
went public, enabling them to grow their companies, invest in
communities, and allow investors to share in their success. My
belief in the importance of fair markets and the role they play
in our country is what motivated me to move from New York to
Washington, DC, to join the SEC. I wanted to utilize my
insights and experiences from the private sector and passion
for the securities markets to help further the SEC's important
mission. As counsel to an SEC Commissioner, I worked with the
SEC's expert staff and witnessed their dedication and
determination to protect investors and enforce the law. And as
a Chief Counsel on this Committee, I have developed the utmost
respect for this institution and the critical role of
congressional oversight. I believe my personal and professional
experiences have prepared me well for the role for which I am
being considered. I fully recognize and appreciate the critical
role the SEC serves in the lives of investors so that families
like mine can save for their children's education, pay for
unexpected expenses, and retire with confidence.
The U.S. capital markets are the envy of the world, and the
importance of the SEC's role in this cannot be overstated.
Throughout its history, the dedicated Commissioners and staff
of the SEC have worked to preserve confidence as our markets
grew and evolved. To continue this, the SEC must examine and
reexamine its rules, regulations, and guidelines to ensure that
they are still working as intended to accomplish the SEC's
mission. This is most recently manifested in areas such as data
protection and cybersecurity, as well as the emergence of new
investments and technologies such as initial coin offerings and
blockchain. It is essential that the SEC approach these new
challenges in a fair and transparent manner, provide clarity
and certainty to the markets and investors, and enforce the
laws and regulations that hold market participants accountable.
If confirmed, it would be an incredible privilege to rejoin
the ranks of the SEC's dedicated public servants and further
its mission.
Thank you, and I look forward to your questions.
Chairman Crapo. Thank you.
Mr. Bright.
TESTIMONY OF MICHAEL R. BRIGHT, OF THE DISTRICT OF COLUMBIA, TO
BE PRESIDENT, GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
Mr. Bright. Chairman Crapo, Ranking Member Brown, and
distinguished Members of this Committee, thank you for inviting
me here today. It is an honor to appear before you as the
nominee to be the President of the Government National Mortgage
Association, or Ginnie Mae.
Let me take a moment to quickly thank my family who is
here. I am joined by my wife, Maggie, and my son, Mac. My
daughter, Margaux, who is 5, is at her grandparents' house in
Florida, but probably watching on the computer. All three of
them have been incredibly supportive of me since coming to
Washington, and that comes despite the many nights of coming
home tired, grumpy, and distracted with work. I know that I ask
a lot of them, and I am always thankful for their love and
support.
In addition to being a father, for the past 12 months it
has been my honor to serve as the Executive Vice President and
Chief Operating Officer of Ginnie Mae. I would like to tell you
a little about what I have learned and what I think still needs
to be done.
Ginnie Mae was created in 1968 when Congress spun off
Fannie Mae as a Government-sponsored private company and
retained Ginnie as a complementary Government corporation given
the task of facilitating the securitization of certain
mortgages with an explicit, transparent, and paid-for
Government guarantee. Ginnie Mae has since evolved into a $2
trillion Government security with a focus on facilitating
lending to low- and moderate-income, rural, urban, and veteran
borrowers.
Today Ginnie Mae's bond and Ginnie Mae's brand are globally
recognized as the most pristine mortgage security in the world.
This is because of Ginnie Mae's track record of success and our
robust process for ensuring the timely payment of principal and
interest to security holders. Ginnie Mae has never missed a
payment in its 50 years of existence, even during the financial
crisis. That is exactly what an explicit Government guarantee
is meant to provide, and delivering on that mission is what we
do at Ginnie every single day.
The day job of managing the roughly 150 employees of Ginnie
Mae has been an incredibly rewarding experience for me over the
past year. Ginnie has some of the most dedicated,
knowledgeable, and mission-focused professionals I have ever
worked with. They are squarely focused on the challenges of
dealing both with Ginnie's growth and the evolving nature of
the U.S. mortgage market.
To address some of these challenges, over the past 12
months we have launched a modernization campaign which we call
``Ginnie 2020,'' a 3-year strategic plan that will have our
data centers running on cutting-edge technology, realign our
counterparty risk management framework, help bring in
additional financing for mortgage servicing rights, and expand
our investor base through outreach and education in dozens of
countries around the globe. All these efforts are well
underway, some are even nearing completion, and we are very
excited about the promise they hold for the future of our
organization.
One issue that I have worked with many of you on this past
year is that of so-called VA loan churning, or the rapid
refinancing of VA loans with little or no benefit to the
borrower, as well as the making of VA loans with interest rates
higher than a veteran should be getting. I want to specifically
thank Senators Tillis and Warren for their leadership on this
issue. Between the work that we have done administratively at
Ginnie as well as the language recently passed into law, we
have taken a major step toward rooting out behavior that was
threatening the very viability of the Ginnie security, and
thereby the viability of the VA, USDA, and FHA programs that
Ginnie supports. At Ginnie we will not tolerate this behavior,
and we now know that Congress stands with us. Collectively, our
efforts are working. We can already see that in the form of a
better security price, which directly translates into lower
rates for FHA, VA, and USDA borrowers.
I did not begin my career in Washington. I came here after
working in my twenties on mortgage trading desks in Los Angeles
and Charlotte, including through the financial crisis. During
that time, I learned thousands of lessons that I place into two
thematic buckets:
First, I learned that the mortgage market is incredibly
technical and enormously complex. I feel honored to be able to
use the technical knowledge I gained to serve a broader public
policy mission that benefits all Americans.
Second, I learned that greed and unbridled ambition can be
dangerous realities, and if left unchecked in the housing
market, the consequences can be disastrous. I came to
Washington in large part to help ensure that we never repeat
the 2008 financial crisis, and I wake up every day with that
mindset still.
I also want to say thank you to the Members and staff that
I have been privileged to work with in the past, most
especially Senator Corker. Working with Senator Corker, as well
as Senators Warner, Crapo, and others as a staffer was a
tremendous honor and an experience I still think about every
single day.
Going forward, my main goals for Ginnie Mae are to ensure
that the agency is well run, and that the agency can continue
to serve its statutory obligations to help ensure a stable U.S.
housing market. There is much to be done, and I look forward to
the task.
Thank you.
Chairman Crapo. Thank you.
Ms. Davis.
TESTIMONY OF RAE OLIVER DAVIS, OF VIRGINIA, TO BE INSPECTOR
GENERAL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. Davis. Thank you, Chairman Crapo, Ranking Member Brown,
and Members of the Committee. It is an honor to appear before
you as the nominee to serve as the Inspector General of the
United States Department of Housing and Urban Development. I
would like to thank my family, friends, and colleagues--some
are here today--for their support. I would particularly like to
thank my parents, Charles and Jerry Oliver, and my husband,
Chris Davis, for their love and support. I would also like to
thank my three stepchildren, Graham, Addy, and Liam, for
inviting me into their lives and guaranteeing that I would
never suffer a dull moment, including some here today as we all
prepared to come join you.
I am proud to have made a career in public service and
oversight. As a young staff attorney, I cut my teeth working on
the then-Senate Governmental Affairs Committee and the House
Government Reform and Oversight Committee. I then joined the
Tennessee Office of the Attorney General where I led consumer
protection investigations that resulted in nationwide
settlements with Fortune 500 companies. I aspired to be a
Federal prosecutor and was fortunate to receive an offer with
the U.S. Attorney's Office for the Western District of
Tennessee in Memphis. I prosecuted a wide variety of cases in
that office, including false tax claims and investment schemes
to firearms and drug violations.
After returning to our Nation's capital, I landed in the IG
community, where I have happily spent the last decade of my
career. I have worked in three unique and challenging agencies:
the Postal Service, the Special Inspector General for the
Troubled Asset Relief Program, and most recently HUD. I have
been boots-on-the-ground conducting and leading investigations.
I have also served in senior-level positions where I gained an
appreciation for the tough decisions that IGs must make every
day.
In my most recent position with the HUD OIG's Office of
Special Inquiry, our efforts have focused on senior official
misconduct and enterprise-level risk to the Department. We have
created a multidisciplinary team of attorneys, investigators,
and auditors to address complex issues in a comprehensive
manner.
I would like to share with the Committee my personal
constitution with respect to IG work and my vision for HUD OIG,
if confirmed as Inspector General.
The foundation of IG work is independence. It is the
principle that protects our ability to shed light on the truth
about Government. An independent IG cannot allow the department
or the agency it oversees to direct its work in any way. And an
independent IG cannot stand for obstruction or delay in agency
access to records.
I also believe the best IGs are strong communicators. IGs
must have solid relationships with their authorizing and
appropriating committees to ensure they are prioritizing the
right work and keeping Congress informed. In my rounds with
Senators and your staffs, I committed to ensuring that we
conduct comprehensive investigations and deliver thorough
reporting. I am aware that our work is also of significant
interest to taxpayers. Shedding light on Government
mismanagement and misconduct through our reports can be as
effective as prosecutions and financial recoveries.
To remain current in our efforts, we must communicate well
with HUD. We can be independent in the direction of our work
and our reporting while maintaining strong lines of
communication about HUD's priorities, initiatives, and
planning. I believe strongly that we must also be active in the
IG community, through cross-cutting initiatives, training
programs, and development of best practices.
My vision and goal-setting for HUD OIG will focus on
effectiveness. We can spark positive change by making hard-
hitting recommendations relating to HUD's top management
challenges.
HUD's mission is far-reaching, and there are many pressing
issues in HUD programs that require attention. I am honored to
be considered as the nominee for this important oversight
position.
I appreciate the opportunity to appear before this
Committee today and to answer your questions. Thank you so much
for your time.
Chairman Crapo. Thank you.
Dr. Falaschetti.
TESTIMONY OF DINO FALASCHETTI, OF MONTANA, TO BE DIRECTOR,
OFFICE OF FINANCIAL RESEARCH, DEPARTMENT OF THE TREASURY
Mr. Falaschetti. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, it is an honor to appear before you
as the President's nominee to serve as Director of the Office
of Financial Research.
I want to introduce my wife, Suzanne, two rows behind me,
and I want to acknowledge other incredible people who cannot be
with us today.
Betty, Suzanne's Mom, is packing up her home in Chicago for
a move to Montana. She will be a great constituent for what
many call ``the last best place.''
My brother, Dominic, and his partner, Greg, are watching on
the Committee's website; work in Chicago did not allow them to
join us today.
I also want to acknowledge several people who are no longer
here, but continue to be a great source of love and wisdom:
Suzanne's Dad, Rich, as well as my Mom and Dad, Myrna and
Dominic.
My parents are the reason I am here. Growing up in South
Chicago, my grade school was a tough place. Tough enough that
my Mom, a substitute teacher, and my Dad, a high school
teacher, saw early on that I was headed down a dead end.
Unfortunately, a better school district looked beyond my
parents' reach.
Mom and Dad decided to stretch their budget to the end, and
then more, so that my brother and I could grow up in a much
safer neighborhood and attend much better schools. They could
not have pulled it off without the confidence of local bankers
who provided the support necessary to enable my parents to do
what was right for their family.
My high school brought together kids from very different
backgrounds. I sat between two young men: one would graduate
and go on to Yale; the other was already in a gang.
My experience growing up is a powerful illustration of the
importance of a loving family and access to financial services.
Absent either one, I could have easily continued down that dead
end. With them, I was able to earn a business degree and a
doctorate in economics that gave me access to a rewarding
career.
My work in business, research, and policy has prepared me
to lead the Office of Financial Research and ensure that it
efficiently and effectively provides the high-quality data and
analysis that Congress intended. It is my upbringing that
taught me why this mission is so important.
If confirmed, I look forward to working with this Committee
and with the other members of the Financial Stability Oversight
Council to promote a more resilient financial sector so that
all Americans, wherever they might have started, have reliable
access to the kind of financial hand up that helped my parents
realize their dreams.
I am honored to be here today and look forward to
addressing your questions.
Chairman Crapo. Thank you very much. And I also want to
thank each member of the panel for ending your testimony well
within your time limits. Impressive.
I will start with you, Mr. Roisman. While I recognize that
the Chairman of the SEC sets the agenda for the Commission, can
you please discuss two or three areas that you intend to focus
on personally?
Mr. Roisman. Thank you, Senator. What I would say is I
think it is important to further the SEC's mission, and that
entails promoting investor confidence in the markets as well as
in the SEC itself. I have heard from Members of this Committee
as well as from friends and family who believe that there is a
perception that the markets are rigged against the little guy,
and I think it is important for the SEC to try to dispel that
notion. And one of the ways they can do that is by having a
strong enforcement program, a program that holds regulated
entities and individuals accountable.
I also think it is important for the SEC to try and hear
from folks that may not make it to Washington. There is a large
part of the country that is represented by small business
owners, investors that may not have as much as some of the
people--as all people, I should say, or, you know, very rich
people. But their perspectives are incredibly important, you
know, in determining what the SEC is doing right and what it
could improve on.
And, finally, I think I would like to focus on improving
capital formation and secondary market liquidity for smaller
companies.
Chairman Crapo. Well, thank you very much.
And, Mr. Bright, could you go a little bit further into the
activities you have been involved in in addressing the churning
that has been going on with regard to the VA loans?
Mr. Bright. Yes, thank you, Mr. Chairman. You know, we
noticed--I noticed, actually, right when I came on that there
was behavior in our security price that was sort of
inexplicable. Ginnie Mae pricing had fallen for no rational
reason, which tells you that investors were not buying our
bonds. And so we started to dig into it and realized that
investors were not buying the bonds because they were
prepaying, meaning they pay some price for the security, and
then 2 months later they get their par back, you know, get the
principal back, and lost money on transaction costs and all
these other things. And so the people were not buying the
Ginnie security. If people do not buy the Ginnie Mae security,
then you cannot make FHA, VA, and USDA loans. So we knew this
was existential and something we had to go after.
After we started researching it, we realized that veterans
were being targeted with very misleading, very deceptive
marketing materials, and in some cases they were being duped
into refinancing their loan three, four, and even five times in
a 12-month span. And all these refinancings, they were driving
up the loan balance of the loan; they were causing a lot of
consternation in the investors upon whom the security relies.
And so we knew we needed to get our arms around it.
So we began a dialogue with the CFPB, started sending them
data, began a dialogue with the SEC as it related to
whistleblowers who came forth. But, most importantly, we
decided that actors who had behavior that was not explainable
by anything rational would not be eligible to participate in
our multi-issuer pool.
So we actually took action and told a few lenders who had
pools of loans that looked like there was behavior that you
could not explain from rates. Borrowers were refinancing even
though rates were not going down. We said that until you get
your act in line with sort of your peers, you are not allowed
in the multi-issuer pool, and it has had a positive effect on
our program, which means it has had downward pressure on rates
for FHA, VA, and USDA borrowers.
Chairman Crapo. All right. Thank you very much.
And, Ms. Davis and Dr. Falaschetti, I only have about 90
seconds left, so could each of you take about 30 or 45 seconds
and just tell me a couple of areas you intend to focus on in
your new positions?
Ms. Davis. Thank you. I hope to ensure that Americans
continue to have access to safe and sanitary HUD housing by
looking at important issues like lead paint and the
circumstances in Alexander County. I hope to also conduct
effective oversight of disaster relief by leveraged our in-
house expertise. These disasters are not new to the HUD OIG
either. And, finally, I hope to ensure that Americans have
trust in their Government by thoroughly investigating
allegations of misconduct at the Department.
Chairman Crapo. Thank you.
Dr. Falaschetti.
Mr. Falaschetti. Thank you, Chairman. If confirmed, my
first goal is to provide FSOC and its member agencies with the
firmly grounded and data-driven research they need to evaluate
and address risks to financial stability. Fulfilling this goal
is important for robust economic growth and taxpayer
protections.
My second goal is to build out OFR's foundational work to
strengthen market discipline by increasing transparency to
financial transactions. Work toward this goal promotes
financial stability and strengthened economic growth as well.
Chairman Crapo. Thank you very much.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I want to talk about SEC enforcement. Mr. Roisman, you said
something that did not exactly disturb me, but maybe piqued my
interest. You said you wanted part of the role in this job is
to dispel the notion that the financial system is rigged. That
suggests you fundamentally believe the system is not rigged in
any way. And when we see in this country banks making huge
profits, getting a huge tax cut, especially the financial
service industry, executive compensation from 2016 to 2017, the
CEOs of the largest banks got a 22-percent raise on the
average, and tellers still make $12.50 an hour--maybe a little
bit more than that, it has gone up a tiny bit. Just as an
important Government official trying to dispel the notion the
system is not rigged I do not believe is the right way to look
at that. So we need you to particularly be vigilant to make
sure the system is not rigged against the middle class and
against workers, because this Government clearly sings with an
upper-class accent, and this Committee has collective amnesia
about what happened 10 years ago, and it is pretty clear that
the rich are doing better and better and better in this
society, and the 80 percent of the rest of society has been
left behind. So if that is not a rigged system, it is certainly
a fundamental--there are fundamental problems in that system.
Let me talk, though, about enforcement. We discussed in our
one-on-one meeting--and I appreciated your coming by--
enforcement and the decline in completed cases and penalties.
You mentioned individual responsibility. Is the SEC doing
enough to hold bad actors responsible?
Mr. Roisman. I think it certainly--that is the role of the
Enforcement Division, and I think, if I may, I would like to
just give you the kind of principles I have in terms of what
strong enforcement----
Senator Brown. Certainly, but let me ask a question to roll
into that answer. Are the penalties meaningful enough to deter
wrongdoers from violating the law?
Mr. Roisman. I do not know if the actual--I cannot tell you
the amounts because I just do not have them in front of me.
What I will say is I think it is important for the SEC, if they
have rules on the books, to enforce them. You know, each case
is on a facts and circumstances basis, and it is important to
hold individuals and regulated entities accountable.
You know, I agree with what the Chairman has said, which is
there is no place in our markets for bad actors.
Senator Brown. Does the decline in enforcement cases bother
you?
Mr. Roisman. I do not necessarily gauge the success of the
program based on numbers. I think it depends on the type of
cases and, you know, the impact certainly on recidivism. I
would say the Commission has been focusing on retail fraud,
which is important to root out, as well as what I would call
``market integrity cases.'' If confirmed, I look forward to
speaking to the staff about what else they are focusing on.
Senator Brown. I am going to request that the GAO examine
the reliability and transparency of the SEC's enforcement
statistics. If you are confirmed, I hope you will commit to
working with Members of this Committee and your fellow
Commissioners to ensure that the SEC's enforcement statistics
are reliable and transparent so we can answer that question
that you, understandably now, are unable to answer.
Mr. Bright, welcome, a fellow Ohioan. In testimony before
the House Financial Services Subcommittee on Housing and
Insurance in November, almost a year ago, you said you
``definitely were not walking away from the paper'' you
coauthored with former FHFA Director DeMarco that would greatly
expand the role of Ginnie Mae. You said you believed in the
conclusions in the model even more than when the paper was
written.
Do you intend to continue to advance the proposal from your
papers, including the proposals outlined in ``Toward a New
Secondary Mortgage Market'', as the head of Ginnie Mae?
Mr. Bright. No. I have a day job. And, in fact, the context
of that answer was I think they kept asking me about housing
finance reform, and I kept trying to talk to them about the day
job of managing Ginnie Mae and, you know, said, ``Look, I am
not walking away intellectually from some of the conclusions
here, but I actually have a day job to manage.''
I will say that, you know, in my day job, as it relates to
housing finance reform, to have an explicit Government
guarantee, if that is where policymakers decide to go, you
know, one thing I have definitely learned in the last year is
that you do not just put an American eagle stamp on a piece of
paper and wave a magic wand and how the explicit guarantee
works. So to have investors buy it, to have investor
acceptance, to make sure that that capital is there requires a
track record and requires an administrative process to ensure
that P&I moves on time, and that is what Ginnie does. And I
think that is really the heart of what I am saying in terms of
I still believe in what Ginnie brings to housing finance reform
if and when everybody gets to it. But that is not why I am
here.
Senator Brown. Briefly, Mr. Chairman. So you talked about
your day job and walking away and you do not abandon your
intellectual views. Do you still support the elimination of the
affordable goals?
Mr. Bright. For Fannie and Freddie?
Senator Brown. The affordable housing goals that this
Federal Government has stood for.
Mr. Bright. I do not remember proposing completely getting
rid of affordable housing goals. I think we have an
affordability crisis in this country, and I am focused on using
Ginnie to address it as much as possible. I think housing
affordability continues to get away from us, and we need to
have a comprehensive bipartisan approach to solving that.
Senator Brown. But did your proposal not rescind the
affordable housing goals without requiring that the new system
would serve at least as many borrowers?
Mr. Bright. That Ed DeMarco and I wrote? I think it--I know
it had a Housing Trust Fund and a 10-basis-point strip. I think
it retained a duty to serve. I think we were vague on the
housing goals as far as, you know, the quantified way that they
are using it now. But, I mean, I do not have a strong opinion
right now actually on that. I have not thought about that paper
in 2 years.
I believe that I----
Senator Brown. Well, I think you have because that was 9
months ago that you testified, so you thought about it in
November 2017 when you were asked about it.
Mr. Bright. Well, listen, I am very focused on using the
Ginnie Mae platform to support the vital FHA, VA, and USDA
programs, and any other programs that Congress wants in our
security to ensure that all Americans of all incomes and all
geographies have access to an affordable mortgage.
Senator Brown. And last statement, Mr. Chairman. I
apologize. You do know this fact that 25 percent of renters in
this country spend close to or more than half their income on
housing----
Mr. Bright. Yes, and I think it is a moral failing.
Senator Brown. ----and what that means.
Mr. Bright. I think we have to fix that.
Senator Brown. OK. Thank you.
Chairman Crapo. Senator Corker.
Senator Corker. Thank you, and I thank all of you for your
desire to serve our country in your nominated positions. I
appreciate you being here.
I am going to focus a little bit on Mr. Bright. I am glad
his family is here, and I do appreciate all the public service
he has been involved in here, and he has worked with many, many
people who are on this side of the dais.
You have effectively been running Ginnie Mae for the last
year. Are there things that you have learned over this last
year that, as the actual confirmed person, you would be able to
overcome in this position, whereas over the last year you have
been a place holder in many ways and not confirmed?
Mr. Bright. Well, yes. For one thing, when we go global and
we speak to investors, these are very high level meetings, and
it would be nice to have the imprimatur of the U.S. Senate to
say that they continue to support the Ginnie Mae program and
they continue to have my--you know, I have their support when I
go and I speak to heads of central banks, large pension funds,
and regulators globally who buy our bonds. I mean, that is a
big part of the job. I actually did not realize how big a part
of the job that was. But the blessing of the Senate is a
critically important piece of that because the fact--how the
explicit guarantee works, the fact that it is legislative, it
is not through some arrangement, you know, between Treasury and
some other agency that could change, and that the U.S. Senate
stands behind it, that does go a long way. So that would be
very helpful, yes.
Senator Corker. During your period of time here, there were
numbers of attempts to try to do housing finance reform, and,
again, you worked with people on both sides of the aisle. I
know you used to convene staffers on both sides of the aisle
and worked with many in a very constructive way.
Without getting into the weeds, what was it you learned
during that process?
Mr. Bright. Well, I learned, of course, that the market is
very complicated and that having this Committee do a financial
restructuring exercise is a very difficult thing. You know, I
would say that the bill that we introduced in 2013 was 155
pages. It was the very first ever bipartisan comprehensive
attempt at housing finance reform. I am proud of that as a
starting point. We knew it was a starting point. We knew there
was a lot that needed to be addressed. A lengthy process was
undertaken subsequent, and it did not end up in a place that a
lot of people liked. I was not part of, you know, the
subsequent process after introduction, but I am proud of where
we started.
I have learned that Senators can get up to speed very
quickly on the technicals, and I think that that was
impressive. But in the last 5 years, there are aspects of
conservatorship that I think have proven a bit more durable
than we thought. That does not mean it is ideal. That does not
mean you all should not do comprehensive reform. I think that
that is important. But there has not been a blow-up, and in
2013 people really were concerned what would happen. And in the
last 5 years, I think housing affordability has continued to
get away from low- and moderate-income Americans. And so if I
were redoing the whole thing right now, I would start there.
Senator Corker. And then as it goes into the future,
assuming you are confirmed--and my sense is you will be
overwhelmingly--what role would Ginnie Mae continue to play in
housing finance reform?
Mr. Bright. If Ginnie Mae is well-run, as I intend for it
to be, and as it has been for 50 years, the process, as I said
earlier, of ensuring that the explicit guarantee works, it is
not pixie dust and a magic wand. It is an administrative
process to track the payment of principal and interest from
lenders through servicers into the bond administration platform
and out to investors. And if there is a hiccup anywhere along
the line, since the Federal Government has said this thing is
guaranteed--in the case of Ginnie, $2 trillion worth of bonds--
then Ginnie's responsibility is to make sure that any shortfall
is made up so that the investor gets their money every month on
time. It is a very operationally intensive process. We do it
well, and so I think leveraging those mechanics would be a very
sensible thing to use going forward.
The other thing that Ginnie, I have learned, does is we are
already written into the investor guides of global investors,
so, you know, think pension funds in Japan, insurance companies
in Germany, you know, they have different risk weightings for
Ginnie versus other securities. To just stamp, say, you know,
conventional loans are going to have a guarantee, it would be
at least a decades-long process of going around and explaining
to everybody how that one would work; whereas, our process is
proven in terms of the remittance of P&I and the brand
acceptance. So I would advocate for leveraging that. And I do
think that that is really when I was, you know, continuing to
stand behind the paper that Ed and I wrote, that is something
that we learned in between 2013 when we introduced that first
bill and now.
Senator Corker. And just to close on that note--my time is
up, but I know there was some ambiguity in the affordable
housing piece. But the fact is there were more resources than
ever going to be allocated under both revisions, both bills,
both the one in 2013 and the one that was recently written.
There would have been more resources toward affordable housing
by far than there is today. Is that correct?
Mr. Bright. Yeah, I mean, I hope so. That was the idea. I
would say that, you know, part of the think tank and
legislative process is not that you just put your ideals down
on paper, like if I had a magic wand and could redo the world,
this is how I would do it. It is trying to say, you know, if
someone has this principle but we also need to solve this
problem, how do you solve it? And these were all attempts at
doing that. But at its core, I think that continuing to solve
affordability is critical, and the interest rate piece is only
one component of it. We have a lot to solve.
Senator Corker. Sorry. I thought I was going to get a
``yes'' answer.
Mr. Bright. Yes.
[Laughter.]
Chairman Crapo. Senator Reed.
Senator Reed. Well, thanks very much, Mr. Chairman, and
thank you all for your willingness to serve.
Mr. Roisman, we had a very good discussion about
cybersecurity, which is probably one of the most critical
issues we face. As you know, along with Senators Collins,
Warner, and McCain, I have legislation that would have a simple
disclosure rule, and I can tell you, we would not be offended
if you stepped in and by rule at the SEC adopted this. So feel
free, OK? But, basically, this I think is the most serious
issue systemwide we are facing. Can you just very briefly
comment on how critical it is to get something like this
disclosure on the books at the SEC?
Mr. Roisman. Thank you, Senator, and thank you and Members
of this Committee for raising this important issue. I think you
have held several hearings talking about the importance of
cybersecurity and the importance of revisiting these esteemed
rules that the SEC has, whether companies are appropriately
disclosing their cyber-risk profiles and risks to investors,
and I think it is critical that the SEC continue to monitor
what the cyberdisclosures are as well as the cyberprotections
at regulated entities. And if confirmed, I look forward to
working with you and others to see whether any additional
changes need to be made.
Senator Reed. Well, I would just point out that there are
some companies, in fact, many companies that have stepped up.
But the problem is it is the ones who are not, they are the
most vulnerable typically or the least aware, and that is where
the acts of attack usually take place. So I would urge you to
have your colleagues move more aggressively on this front, in
fact, adopt it as a rule before we get around to legislation.
That would be very good.
Mr. Bright, thank you for your service. Back in that 2016
paper, you suggested that Ginnie Mae be spun off from HUD
independently, which would deny HUD resources that they use for
community development block programs. Do you still hold to that
position? If so, how do we make up the difference in terms of
funding?
Mr. Bright. Thank you. I have actually been surprised at
how good the working relationship has been between Ginnie and
HUD. When we had this idea of leveraging the Ginnie Mae brand
to operate as the explicit rep, there were a lot of people who
said, ``Oh, you got to get out of HUD. You got to get out of
HUD.'' These were people who had worked at HUD and Ginnie just
recently at the time. And so we kind of took that as, you know,
word and did it.
I do not think that that was necessary. I think that what
is necessary or what would be helpful would be a little bit of
additional flexibility on Ginnie's part in terms of how it
allocated its salary and expense resource. I am not saying more
funds. I am just saying a little bit of flexibility for--you
know, we have some very technical, competent employees who
literally leave and go three blocks down to FHFA, and that is a
problem that we have that we have to solve. But we do not need
to go as far as we thought we did from the outside.
Senator Reed. Thank you.
Ms. Davis, just let me thank you for your professional
service in so many different roles and the integrity you bring
to your efforts. Thank you very much.
I have limited time. Dr. Falaschetti, OFR was created to be
analytical and apolitical, not political and ideological. And
you have been vested personally as the Director with great
independence. The language of Dodd-Frank: ``The Director shall
have sole discretion in the manner in which the Director
fulfills the responsibilities and duties and exercises the
authorities describe in this subtitle.'' So I wanted to
emphasize that to you.
In fact, frankly, having been here with my colleagues
present at the creation, as they would say, the hope was that
OFR would be such a powerful analytical office with the
strength to speak truth to power that you would be able to tell
us where the next crisis is coming before it comes, not like
2006 and 2007 and 2008 when we found out about it when we read
about it in the newspaper.
So, just quickly, what are the one or two areas you think
are the weak points right now and that you will explore
comprehensively when you are there?
Mr. Falaschetti. Well, Senator, thank you for that
question, and thank you for your work on OFR from the very
start. I very much appreciate it, and I think it plays an
important role in our economy.
If I am confirmed, I can commit to, you know, throughout my
career in academics, that is, to have data-driven, firmly
grounded analytics. You mentioned 2006, for example. We were
discussing some risks to financial stability at the Council of
Economic Advisers in 2006, and I see that as--the fact that--
well, there were other economists at the time, prominent
economists at the time. You may recall Raghu Rajan, for
example, in the 2005 Jackson Hole conference, really, you know,
called out what ultimately happened. And so the question is:
Why didn't people listen? And that is where I see the power of
OFR. It is a central place that is relying on firmly grounded
research, data-driven. Theory does not always give you the
answer. You need to look at the data to get those kinds of
answers. And independent--the research is independent. You
crafted it to be independent. It is a 6-year term, and it has
that independence for the research task that it was given.
Senator Reed. Thank you very much.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman.
Mr. Roisman, first of all, thank you for taking the time to
visit with me in my office. As you will recall, we discussed
the future of the fiduciary rule. I believe we both agreed that
this rule was not originally intended to have been promulgated
by the Department of Labor, and the Fifth Circuit Court of
Appeals basically agreed, vacating the rule in June.
In April the SEC proposed Regulation Best Interest, its
proposal to address the fiduciary standard for broker-dealers
providing investment advice to retail customers. Can you
discuss your views on what a proper fiduciary standard should
look like?
Mr. Roisman. Thank you, Senator. As you noted, there is a
proposed rulemaking, so I have got to be careful just not to
prejudge, but I would like to try to answer your question as
well as I can.
I think, first of all, it is important for the SEC to have
acted, and I think it is important also, now that they have a
rulemaking out there, for interested parties to come meet with
staff and Commissioners, and if confirmed, I would look forward
to doing that as well as reviewing the very lengthy comment
file, because they are going to be able to tell you what they
got right and what could be improved. And I think generally it
is important to think about things, whether the rule is
appropriate, things such as ensuring access to financial advice
as well as do investors understand the nature of the
relationship with the financial service provider, including the
conflicts, how those are addressed or mitigated, and obviously
investor protection.
I think another critically important thing to consider is
whether the rule is business model neutral, meaning that the
SEC is not picking winners and losers, and preserving investor
choice and different types of services for consumers.
Senator Rounds. The concern that many of us had with the
fiduciary rule was that in demanding a certain level of
professional advice and limitations, it was restricting the
number of individuals who could actually offer services to
clientele with smaller amounts of money to invest. Can you talk
a little bit about the need for those small investors to have
access to the equity markets?
Mr. Roisman. I think it is critical, Senator. There is a
large discussion about the retirement crisis that is looming,
and in many areas there is only a set amount of financial
services providers, and it is important to, you know, maintain
the ability for people to get access to that.
Senator Rounds. I think that is kind of the critical issue
that many of us had, isn't it, the fact that the fiduciary rule
made it very, very expensive for those individuals with small
sums, yet very important sums, to be able to get access to the
equity markets? Isn't that really behind a lot of the concern
that was expressed with the fiduciary rule?
Mr. Roisman. Yes, I believe so.
Senator Rounds. OK. Thank you.
Dr. Falaschetti, as you know, the Office of Financial
Research, or OFR, has been the target of some criticism since
its creation as a part of Dodd-Frank. The OFR has been accused
of undermining consumer privacy by collecting data on the
financial transactions of millions of Americans, being
unaccountable to the Treasury and the Government as a whole,
and not having any notable achievements.
What do you believe needs to be done to make the OFR
perhaps more accountable and yet maintain its independence with
regard to accurate data?
Mr. Falaschetti. Thank you for that question. As you know,
the staffing levels and the budget is a conversation between
the Director and the Treasury Secretary, so that is not
independent. What is independent is the research--how do you
carry out the research in service of the FSOC as well as long-
term priorities for financial stability.
And in terms of the privacy, you know that OFR has subpoena
power, for example, and just asking for that information, I
mean, that is a lot of power. You can just walk in and say,
``We want X, Y, and Z.'' And I think back to when I was in
corporate finance and financial accounting where we had
subsidiaries, we had businesses that were very different from
each other and had different scales and different businesses,
and we would see similar problems at these various businesses.
But we would tailor the solution to their business model, and I
think that is what needs to be done so that we do not create
undue costs for financial services. My opening statement
highlights how important it is for especially young families,
community bankers. It is critical for those financial services
to be affordable, and as you know, the funding for OFR comes
from the banking sector.
Senator Rounds. Thank you. My time has expired. Thank you,
Mr. Chairman.
Chairman Crapo. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Congratulations
to all of you on your nominations.
Mr. Roisman, I understand that you served as counsel to
former Commissioner Gallagher, and I would like to ask you
about enforcement. I think we can all agree that the SEC
functions best with a strong Enforcement Division that stays
ahead of the markets. Unfortunately, over the last 18 months,
the SEC has taken steps to undermine its enforcement
capabilities.
In 2009 former Chair Schapiro expanded the investigative
authorities of senior officials in the Enforcement Division, a
critical post-crisis policy designed to assist the SEC in
initiating investigations and going after the bad actors that
ravaged investors and our economy.
Last year former Acting Chair Piwowar revoked this
substantial and investigative authority and limited it to the
Director of the Enforcement Division, a decision which Chair
Clayton has upheld.
Since you were at the SEC when this stronger enforcement
policy was in place, was this policy problematic, in your view?
Mr. Roisman. Thank you, Senator. I am not sure I can answer
that question since ultimately my role in determining the
strength of the Enforcement Division was not something I was
focused on. I did work on reviewing enforcement matters. I
think this is just a concern folks have had in terms of
employees just having the ability to issue subpoenas when there
may be things like--there is an ongoing investigation in
another office. So, for example, one of the benefits, I think,
of having it at the Division Director level is they have line
of sight into all enforcement cases. So----
Senator Menendez. Well, let me ask you this: Do you think
that the SEC's enforcement staff abused the rights that they
had, the investigatory authorities?
Mr. Roisman. I did not see that.
Senator Menendez. Do you agree with the policy change of
revoking investigatory authorities from senior enforcement
analyst?
Mr. Roisman. I do not know if I can speak to that. I can
say I think there is merit in having it at senior officials,
and one of the reasons I said is they might have line of sight
about different enforcement cases. Also, there have been--when
you have it at this Director level, you have the ability to
have people who have issued or authorized subpoenas in multiple
cases, and they know when it is appropriate or not.
Senator Menendez. Well, that could be done in a senior
investigatory--I mean, that is just a procedural safeguard that
could be institutionalized, right? I am just wondering how
limiting the authority to initiate and formalize investigations
better protects investors and deters misconduct?
Mr. Roisman. I guess what I would say is, if I am
confirmed, what I would look forward to is talking to the SEC
staff and Commissioners and see if they felt that this has
inhibited their ability to investigate or bring cases.
Senator Menendez. Let me ask you this: Senator Akaka and I
worked to include Section 913 of Dodd-Frank that authorized the
SEC to require broker-dealers to act in their clients' best
interests. In simple terms, after seeing so many hardworking
families duped into investing in products that lined the
pockets of their brokers but did little to help them prepare
for retirement or send their kids to college, we felt it was
both common sense and past due time to require brokers to put
their customers' interests instead of their own.
Despite a 2011 SEC study recommending a uniform standard of
conduct for brokers and investment advisers, the SEC's recent
proposal fails to establish a uniform standard of conduct for
broker-dealers and investment advisers and puts the burden on
the customer to understand the difference between brokers and
investment advisers, ignoring the SEC's own findings.
So why should customers have to bear the burden of trying
to decipher the complex legal relationships to understand
whether they are making good investment decisions?
Mr. Roisman. So, Senator, I note there is a pending
rulemaking, and I am going to try to answer your question, but
I need to----
Senator Menendez. I did not ask you about the rule. I asked
you about the greater view.
Mr. Roisman. OK. So the greater view in terms of whether
there should be a fiduciary standard that is uniform for
investors?
Senator Menendez. Yes.
Mr. Roisman. So I think it is important for there to be
investor choice in different types of services provided to
investors, and I think it is important for investors to
understand the nature of the relationship with a financial
services provider. And I think one of the things that has been
talked about in the debate for a long period of time is
ensuring that, you know, if there are conflicts, that they are
addressed. And I think whatever the SEC ultimately does or
whatever the agency does, I think that is critical.
Senator Menendez. Mr. Bright, last, housing finance. I read
your most recent paper on this topic, and I just want to say
that reading it, to generate funding for affordable home
ownership and rental options, you propose a 10-basis-point user
fee on all mortgages securitized in a new system, an idea that
others have floated as well. But under your proposal, that fee
would not even be available to support access and affordability
until a certain reserve threshold had been met. Is that right?
Mr. Bright. I think that that may have been right.
Honestly, I have not read it in a couple years.
Senator Menendez. OK. Well, it is your paper. How long
under your proposal do you think it would take to meet the
threshold requirement?
Mr. Bright. So I believe that the current regime would have
stayed in place during this time, and it would have taken maybe
5 years to build that up, and then the additional funds would
start kicking in at that point.
Senator Menendez. Well, some say it takes 10 years under
your proposal, which would make zero contributions to promote
and fund affordable home ownership and rental options for a
very long period of time. So I am not sure if you are still
committed to this view, but it would be concerning to me, as
someone who is concerned about affordable home ownership.
Mr. Bright. I share your concern about affordable home
ownership. I am not in any way here to advocate for anything in
that paper. I am here to run the Ginnie Mae program so that we
can continue to support FHA, VA, and USDA programs in as
affordable a manner as possible. I agree with you we have an
affordability crisis in this country. I am your partner in
helping to solve that.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Crapo. Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Mr. Bright, the National Flood Insurance Program is going
to expire July 31st. If Congress allows it to expire, how will
that impact Ginnie Mae's ability to guarantee mortgages?
Mr. Bright. So we saw with the hurricanes last year that if
properties are not in conveyable condition, then the servicer
has difficulty filing a claim with the FHA. If and when that
were to happen en masse, it would put pressure on the issuers.
They could go insolvent. Then that puts Ginnie Mae at risk. So
we certainly want and need homes to be conveyable, and if there
is an insurance problem, which means the servicer and the
homeowner had difficulty getting the property into conveyable
condition, that absolutely has downstream pressure on Ginnie
Mae.
Senator Kennedy. If a homeowner is required to carry flood
insurance and he declines, Ginnie Mae is not going to guarantee
the mortgage, is it?
Mr. Bright. If they are required to?
Senator Kennedy. Yes.
Mr. Bright. Yes, you need to follow all program guides.
Those are set by the FHA.
Senator Kennedy. But Ginnie Mae is not going to guarantee
the mortgage.
Mr. Bright. That is correct.
Senator Kennedy. How does the FHA and Ginnie Mae ensure
that flood insurance is kept in effect throughout the life of
the mortgage?
Mr. Bright. That is an FHA oversight responsibility, and at
the time that a claim is filed, the FHA makes sure that
everything has been in order.
Senator Kennedy. They do at the time of the closing, but
how about on a continuing basis?
Mr. Bright. Actually, I am sorry. I do not know. I will
find out, though.
Senator Kennedy. OK. Would you and let me know?
Mr. Bright. Absolutely, sir.
Senator Kennedy. I think you are going to find out it is
not going to be a long exercise. They do nothing.
Mr. Roisman--am I saying that right?
Mr. Roisman. Yes, sir.
Senator Kennedy. You want to be on the SEC. Is that right?
Mr. Roisman. I do, Senator.
Senator Kennedy. You are going to regulate the Municipal
Securities Rulemaking Board. Is that right?
Mr. Roisman. That is correct, sir.
Senator Kennedy. My understanding is the MSRB sort of self-
regulates the municipal securities market.
Mr. Roisman. Yes, Senator.
Senator Kennedy. OK. Kind of like Congress regulates
itself.
Mr. Roisman. Slightly different. The SEC has oversight of
all self-regulatory organizations, including the MSRB.
Senator Kennedy. All right. There are 21 members of the
MSRB. Eleven of them are supposed to be public members; ten of
them represent regulated entities. These public members, what
does that mean? They represent the public, the consumer? Are
they consumer advocates?
Mr. Roisman. I apologize, Senator. I am not familiar with
their rules in terms of how you define ``public.''
Senator Kennedy. Well, let me tell you the problem, and
Senator Warner and I have a bill to try to help with this. They
are supposed to represent the public, and I am not saying they
are not good people. I am just saying the whole thing is
incestuous. If you go look at their resumes, they are all--
well, for example, these are the folks representing the public.
One is a former managing director at Nuveen. The other one is a
former executive director at JPMorgan. The other one is a
former managing director at Artemis Capital. Another one is a
former head of Vanguard's long-term municipal bond group. I am
not saying they are not good men and women. I am just saying
they are insiders who are representing the public.
Do you know how the board is picked?
Mr. Roisman. I do not, Senator.
Senator Kennedy. I will tell you how it is picked. I am
glad you asked.
[Laughter.]
Senator Kennedy. They pick themselves. It is a little club.
And so when they need to add members, they all get together and
decide who they want. It needs to be changed. It needs to be
fixed. These folks regulate the entire municipal securities
market. And I am not saying they are not all fine people. Some
of them are friends of mine. Some of them are probably going to
be former friends of mine. But it is a club, and it is
incestuous. And I cannot figure out who on the thing really
represents consumers.
How is that for a bill? What do you think about that?
Keeping in mind you are not confirmed yet.
[Laughter.]
Mr. Roisman. Given that it may require an SEC rulemaking, I
do not want to prejudge the issue. But I understand your point,
and I want to answer your question, which I think it is
important for investors to have confidence in self-regulatory
organizations, and this is something that many Commissioners
have talked about. There needs to be greater accountability and
transparency, and I am for that. I would be happy to work with
whoever is interested to kind of further that discussion.
Senator Kennedy. OK. Thank you.
Chairman Crapo. Senator Tester.
Senator Tester. Thank you, Mr. Chairman. Thank you, Ranking
Member Brown. And, once again, congratulations to all of you
for your nominations.
I am going to start with you, Mr. Roisman. This is not a
document that you wrote. This is a document that, if you get
confirmed, one of your fellow SEC Commissioners wrote--Ms.
Peirce. The piece is entitled, ``Laws against insider trading
come with great cost,'' and in that is a quote that says--and I
had to read this about six times to make sure I was reading
what I said from an SEC Commissioner, but it said, ``Depriving
the markets of the most informed traders harms market quality.
The stock market would look a lot like a lottery if traders
possessing nonpublic information had to wait for every other
trader in the market to acquire the same information before
trading.''
That was said by an SEC Commissioner that you will serve
with if you get confirmed.
Ranking Member Brown talked about your statement about it
appears that the system is rigged against the little guys.
Would you agree with Ms. Peirce's perspective? And I do not
want to pitch against Ms. Peirce, but it is a pretty amazing
thing said by a SEC Commissioner, in my book.
Mr. Roisman. Senator, I need to kind of--I do not have the
context, and I appreciate hearing it at this time.
Senator Tester. Well, basically, let me ask you this: Would
you agree with the statement that said that traders possessing
nonpublic information should not have to wait until every other
trader in the market for the same information?
Mr. Roisman. I do not want to be technical, but let me try
to give the quick answer and then the longer answer so I am
addressing your concern. I think what she was maybe saying is
that there needs to be a certain duty under insider trading
laws when you trade. But I think to your point, which I think
we can all agree is--if people are using material nonpublic
information to line their pockets at the expense of other
investors when there are, you know, rules and regulations and
laws prohibiting it, it needs to be quickly addressed and, you
know, appropriate sanctions need to be taken.
Senator Tester. OK. And people need to be held accountable.
Mr. Roisman. Absolutely.
Senator Tester. Would you oppose then any weakening of
insider trading rules and regulations?
Mr. Roisman. I would not, Senator.
Senator Tester. You would not oppose----
Mr. Roisman. I would not oppose weakening any insider
trading--I would like to keep the insider trading law as
vigorous as it is.
Senator Tester. OK, good. Yes.
Mr. Roisman. I got caught in a double negative.
Senator Tester. That is all right.
[Laughter.]
Senator Tester. Wow. That is good. Thank you.
Mr. Bright, when did you start as Acting Director?
Mr. Bright. Twelve months ago.
Senator Tester. Twelve months ago? When did you bring
action against the bad actors that you spoke about, the folks
that were refi'ing veterans and misleading veterans?
Mr. Bright. We started about 10 months ago.
Senator Tester. Ten months ago. So you were on the job for
2 months. Were the sanctions permanent?
Mr. Bright. Yes. I mean, the new rules that we have are
absolutely permanent, especially now----
Senator Tester. OK. So the actions you took against the bad
actors who were charging more than--are permanent. Those guys
are not going to be allowed in no matter what they do moving
forward?
Mr. Bright. They need to materially completely change their
business. I mean, they are on the outs, yes.
Senator Tester. OK. Thank you. And I would----
Mr. Bright. And they are big.
Senator Tester. Yeah. That is good. I would just commend
you in that. Look, Michael, we had a chance to work together
when you staffed with Corker, and I appreciate what you do, and
the fact that you were on the job for 2 months and pulled the
trigger is a very, very good thing.
Mr. Bright. Thank you, Senator.
Senator Tester. Thank you.
Ms. Oliver Davis, you have an incredibly important role as
IG of HUD. I guess the first question I have is: Who do you
work for as IG of HUD?
Ms. Davis. I work for the American people, sir, and I
report certainly to the Secretary but without direction and
also to the Congress.
Senator Tester. OK. And so your independence is something
that you very, very much respect?
Ms. Davis. Oh, certainly it is. With my 10-year career in
the IG community, that is all I know.
Senator Tester. OK. So if somebody--let me go to a previous
question here. If you guys were following a course that found
that folks at HUD were not applying the rules on flood
insurance, what would you do?
Ms. Davis. Flood insurance.
Senator Tester. Flood insurance on loans, if they were
required and they were not being followed after the fact, do
you have the ability to do that?
Ms. Davis. Senator, I am going to have to study the flood
insurance issue a bit. I will tell you we are always looking
for FHA in particular with their practices to make sure they
are benefiting borrowers. We are always looking at the risk
management aspect of things, too, to make sure that HUD is
being a good steward of the funds. But I do not have as much
familiarity with flood insurance.
Senator Tester. It is OK. I think the basic question here
is that, if Senator Kennedy is correct, and we have lenders out
there that are required to have flood insurance and they do
not, there ought to be some sort of watchdog. And it would seem
to me it would be the IG.
Ms. Davis. I would be happy to look into that, sir, and be
a resource to the Committee on this. If there is something that
is not benefiting borrowers, something that is not being done
correctly, or if it is not good for the platform, we certainly
want to know about it.
Senator Tester. OK, good. I just want to say thank you all
very, very much. My time is up. Thank you.
Chairman Crapo. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman. And thank you to
the nominees for being here today.
Mr. Bright, I want to thank you for your work over the last
year at Ginnie Mae on VA loan refinancing. I sent you a letter
last September expressing my concern that certain lenders were
pressuring veterans to refinance their VA loans over and over,
which generates lucrative fees for the lenders but hurts both
the veterans and the taxpayers who help back up these loans.
And in response, you set up a task force with the VA. You took
quick action to hold some of the worst offenders accountable.
You also worked with me and with Senator Tillis on our
bipartisan bill to address this problem. I appreciate that, and
I think that is exactly the kind of leadership we need at
Ginnie Mae over the long term. And I look forward to supporting
your nomination. So thank you for your work. I hope you see
that it pays off here.
Mr. Bright. Thank you, Senator.
Senator Warren. You bet.
Mr. Roisman, in my remaining time, I want to ask you about
the conflicts of interest in the brokerage industry. As you
know, these conflicts cost American families billions of
dollars every year, draining their hard-earned savings.
Now, in April the SEC proposed a rule that is supposed to
address this problem. I have some serious concerns with the
proposal, and I think it will not come close to eliminating the
conflicts that hurt American families. I suspect that if I ask
you to weigh in on the proposal, you are going to do what you
just did with Senator Tester, and you are going to say you do
not want to prejudge the issue. So what I am going to do is I
am going to ask you some general questions that will help us
all get a sense of your views on the issue, and I hope we can
get some real answers unlike the ridiculous and insulting
performance we saw from the CFPB nominee last week.
So let me start here. In certain fields we simply prohibit
conflicts of interest. If you are on Medicare, your doctor
cannot get kickbacks from drug manufacturers in exchange for
prescribing their drugs. Your lawyer cannot represent the
opposing part in a lawsuit. So why should your broker be able
to have serious conflicts of interest like receiving monetary
rewards or other perks for recommending certain investments,
even if those investments are not in the customer's best
interest?
Mr. Roisman. So I think I view this through the lens of--
well, first of all, I think the SEC has traditionally been a
disclosure agency, and one of the things that you try to do is
provide information to investors so they can make informed
decisions. And I think it is important for them to have
adequate disclosure and understand the nature of the
relationship, including how conflicts of interest exist and how
they can be addressed.
Senator Warren. Mr. Roisman, that is not my question. My
question is--it does not make any difference what disclosure
you give. Your doctor cannot prescribe drugs in order to get
kickbacks from drug companies. Your lawyer cannot represent a
party on the other side in order to get double payments. The
question I am asking is: Why should your investment adviser be
able to get a kickback from a company for recommending a
particular product that is not the best product for you? I just
want to understand why that should ever be permitted.
Mr. Roisman. So I would have concerns if someone is
providing you a product that incentivizes themselves over that
of the customer.
Senator Warren. You would be concerned. So do you think
sometimes they should be able to do it and sometimes not?
Mr. Roisman. I would have to--I would like to speak to the
people who, A, receive advice as well as provide it to have a
better sense of what is actually happening in this space.
Senator Warren. Well, we know what is happening in this
space. We know that American families are losing more than $17
billion a year because they are put into products that were not
in their best interest. That $17 billion kind of sounds like a
good starting point, and I am still not hearing an argument
from you about why that should ever be permitted.
You know, in 2013 the SEC put out a study on investment
advice that said, ``In the interest of increasing investor
protection and reducing investor confusion, the staff
recommends that both broker-dealers and investment advisers
should be held to a uniform fiduciary standard.'' A fiduciary
standard, as you know, would require brokers to owe a duty of
loyalty to their clients, meaning they do not get to put
themselves first, no conflicts of interest.
Do you agree or disagree with that recommendation of the
SEC staff?
Mr. Roisman. So I am familiar with the recommendation. I am
also familiar with some of the--it was not an universally
agreed upon view regarding that report or recommendation by the
SEC Commissioners at the time. In fact, I think the----
Senator Warren. I am not asking you how many other people
agreed or disagreed. I am asking if you agree or disagree.
Mr. Roisman. Sure.
Senator Warren. You are the one who is trying to get this
job.
Mr. Roisman. Agreed, and I am going to try to answer again.
This does kind of feed into the proposed rulemaking, and I am
keeping an open mind. But what I do think is important is part
of what the SEC staff even acknowledged in the report was that
there was investor confusion, and it is important to maintain
access to financial advice for most people.
I know this is something you care passionately about, and
you have talked about raising the bar so everyone has the same
obligations to it. The concern I have had is, you know, first
of all, I think the system currently works where we can all
acknowledge--at least I hope we can acknowledge the amount of
people who are doing wrong is small. We need to get them out,
but it is not an entire industry.
Senator Warren. The dollar damage we can also acknowledge
is somewhere north of $17 billion every single year. I think
there are a lot of American consumers who would not call that
``small.''
Your witness is going long here, Mr. Chairman. I just--
look, I just want to make the point here. The SEC has a
proposal that is not tackling the central problem, and the
central problem is nobody should be allowed when they are a
broker to put their own interests ahead of the interests of the
client. That is bad, and it is bad for American consumers. And
the notion that somehow, oh, there will be a disclosure back on
page 5 buried in fine print and tangled up in legalese and
somehow people waived it does not work. And we know it does not
work. And in other areas, we just say, ``You do not get to do
that.'' We do not get to say, ``If you have got good lawyers,
you can do it.'' We say you flatly do not get to do it. That is
the position I want to see the SEC in. Your job is not to take
care of the cheaters. It is supposed to be to take care of
American investors.
Chairman Crapo. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
First, I want to thank Mr. Roisman for his service to this
Committee. When I was Chairman of the Committee, he came on. He
served the Committee, I thought, and the Nation well. Under the
chairmanship of Senator Crapo, he has now become the Chief
Counsel of this Committee, which is an honor in itself and
shows a lot of respect and also a lot of confidence by the
Chairman and other Members of the Committee. You have a
wonderful background, education, and experience before you came
here.
I am here to support all of the nominees. I have some
questions, Mr. Roisman, and I will start with you. I have
believed always that our financial regulators should conduct
thorough cost-benefit analysis when writing rules. What is your
view on that, not just the Securities and Exchange Commission
but the Federal Reserve, the FDIC, and so forth? What is your
view?
Mr. Roisman. Thank you, Senator. I think cost-benefit
analysis is a critical tool for all agencies. It enables them
to determine what the costs and benefits of every rule are and
then hopefully tailor to maximize benefits and minimize costs.
It also provides an ability for the general public to have an
understanding of how the agency came to its conclusion,
thereby, you know, able to question the assumptions or
conclusions and improving the overall rule. In many ways this
is just what we were asked in math class to do, which is show
our work.
Senator Shelby. What ways could some of these rules, cost-
benefit rules, be implemented by the Securities and Exchange
Commission, assuming you are confirmed and a member of the
Commission?
Mr. Roisman. So if confirmed, I look forward to working
with the Division of Economic Analysis to see what could be
improved. There are several Commissioners, Commissioners Peirce
and Jackson, who have already talked about the importance of
that division and the data that it provides, and I think as the
SEC goes forward on rulemakings, it is important for them to
continue to have a robust economic analysis.
Senator Shelby. Your background, Mr. Roisman, you are an
expert in securities law. Once confirmed, what will your
priorities be as a Commissioner? And in what ways do you
believe our capital markets can be strengthened to make it
better and access to everybody?
Mr. Roisman. I would say some of the priorities would be
furthering the SEC's mission, promoting investor confidence
both in the markets and in the SEC. In terms of capital
formation, I would look to see how we can promote responsible
capital formation and improving the secondary market liquidity
for smaller companies and less liquid stocks. And what I said,
I think a little inarticulately, previously what I tried to say
was it is important for the SEC to hear from folks that may not
make it to Washington, and they provide a valuable perspective
on what the SEC is doing right and what could be improved. And
things like the Small Business Advocate, which, you know,
Congress passed and I hope will be filled very soon, will serve
a critical role in that.
Senator Shelby. Have you thought about what ways the SEC
could make it easier for small- and medium-size business to
access capital? Which I think is so important for job growth in
this country.
Mr. Roisman. I think it is important--so there have been a
few studies and roundtables that the SEC has conducted about
this, and I think it is important for the SEC to actually, as I
said, go out there to States and talk to the folks who are
trying to build their businesses. But I think, you know,
potentially looking at things like reviewing crowdfunding and
Reg A offerings and things that, you know, lend themselves to
smaller companies would be very helpful.
Senator Shelby. I will shift a little bit to Mr. Bright.
Mr. Bright, you also have great experience in the private
sector as well as the Government. What do you think will be
your biggest challenge as President of Ginnie Mae?
Mr. Bright. Thank you for the question. I think that it is
possible that--you know, this credit cycle objectively has been
running for a long time. Credit cycles do not run forever. So
since I am paid to worry, the thing that I worry about is that
the credit cycle run its course at a time when interest rates
have already bottomed out and hit historical lows and so
interest rates start to creep up. If both of those things
happen at the same time, it could put a substantial amount of
liquidity stress on our issuer base, especially nonbank
issuers. I think nonbanks----
Senator Shelby. Explain what you mean by this.
Mr. Bright. In the Ginnie program, the issuer is a nonbank
company. They are responsible for making principal and interest
even if the borrower does not until they file a claim with the
FHA. There is a multiple-year lag sometimes there. In that case
they have to have liquidity to refund the P&I, and if they
cannot, Ginnie has to step in on their behalf.
Historically, when delinquencies go up, interest rates come
down, and so you have a little bit of stress on the servicing
side as a company. But you make up for it with some revenue
from new originations, because you have kind of a refi boom. I
think we could be entering a period where that is not the
dynamic that we have, where you could have a little bit of
stress in the rate in the form of higher delinquencies, but you
do not have this refinance opportunity to generate a bunch of
revenue. And we need to make sure that our issuers can
withstand that type of stress.
Senator Shelby. Would you just explain to the Committee and
the people the difference, if any, between Freddie Mac, Fannie
Mae, and Ginnie Mae? And are you competing in the market for
similar stuff?
Mr. Bright. I do not look at it as a competition for market
share at all, to be clear on that. Ginnie is an explicit
Government agency that actually has a complementary but
different role in some ways than what Fannie and Freddie do.
Fannie and Freddie are master servicers. They are issuers of
their own security. They do bond administration for their own
security. And they do not have an explicit guarantee. They have
a PSPA with Treasury. We oversee with an explicit backing of
the Federal Government the process of making sure that P&I
moves where----
Senator Shelby. Explicit backing, isn't it?
Mr. Bright. Explicit backing.
Senator Shelby. As opposed to implicit.
Mr. Bright. That is correct.
Senator Shelby. And what is the size of your portfolio?
Mr. Bright. Two trillion dollars.
Senator Shelby. Two trillion dollars. Do you feel confident
that the portfolio is in pretty good shape right now?
Mr. Bright. Well, I never let myself feel confident about
anything. I am supposed to worry, so I do. But we are building
a lot of infrastructure right now to keep up with the pace of
growth, and I know that these are the right tools to be
building. So we are doing a lot of monitoring on all of our
issuer base. We are doing a lot of technology modernization. We
are doing a lot of outreach. We are instituting stress testing;
we are instituting living will requirements. These are a little
bit different than the banks, but similar analogy. We are
instituted a new risk committee. We are after this as much as
we can.
Senator Shelby. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Heitkamp.
Senator Heitkamp. Thank you. Michael, there is no way
denying that that is your son, by the way.
[Laughter.]
Senator Heitkamp. He looks just like you. He is even more
handsome because he has red hair.
[Laughter.]
Mr. Bright. Has he been quiet?
Senator Heitkamp. But you are boring him, I have to tell
you. He has been rolling his eyes and putting his head down.
But I just want your son to know what an important job his Dad
is applying for and what a good job he has done so far.
I want to build on Senator Shelby's line of reasoning on
nonbank mortgages. Obviously the IG has issued a report that
concludes that Ginnie has not done enough to respond to the
changes in its issuer base. Just to give the context of this,
in 2013 banks originated 70 percent of all new mortgages. This
year nonbanks issued 60 percent, and you see the ads over and
over and over again.
Mr. Bright. Yes.
Senator Heitkamp. So we are really concerned about how
that--you talk about things that you should worry about. I
think this is something you should worry about.
So I just have a couple questions, maybe more open-ended
than what they should be, but, number one, do you have enough
resources to conduct oversight? In terms of volume, do you feel
confident that you are properly equipped to handle a portfolio
that is three times larger than it was in 2007? And what
additional resources, if any, would you recommend in order for
Ginnie to more effectively carry out its oversight, especially
in the context that Senator Shelby just talked about, which is
that this is an explicit guarantee?
Mr. Bright. That is right. Thank you very much. So the
number one challenge that I have in managing these employees is
that we have a pay scale and a hiring process that is different
than similar regulators and different than Fannie and Freddie.
Senator Heitkamp. How do you fix that?
Mr. Bright. We need a legislative solution. So we are in
law required to--you know, we have limitations on compensation.
Our funds are appropriated, but we can work with that. It is
just that we have very talented, technically skilled employees
who can go three blocks down to the street to the FHFA for
$40,000, $50,000 more, and that has happened three times since
I was senior manager, since I got here. They can go to Fannie
or Freddie, which is a totally different set of compensation
scales. They can go to the OCC, they can go to the Fed, who
also has MSR risk management oversight.
So these are technical skills, and I have no ability to
kind of reward and retain that type of talent.
Senator Heitkamp. So that is one thing that we could do, is
help you retain talent. What else are you going to do to
buildup the expertise in the agency?
Mr. Bright. So we procured a few contracts to begin the
process of stress testing our issuers. The procurement process
is lengthy. Again, other regulators with similar challenges
have some freedoms that we do not have. I am talking about, you
know, just getting all the approvals and that process itself.
It takes a little bit longer as a pure Government agency to do
that. So there are some legislative solutions, if you are
interested, that I would be happy to share on that.
I do want to say that the Ginnie folks are incredibly
talented and dedicated.
Senator Heitkamp. I do not think anyone should take any of
your comments here to mean that you are working with people who
are subpar.
Mr. Bright. Thank you.
Senator Heitkamp. I want to just share Elizabeth's support.
I think you have done a great job since you have been there. We
are grateful that you are willing to take this on.
Mr. Roisman, one of the things that we have worked on over
the years has been small business, and you know that I feel
very strongly about small business advisory within that
securities frame. And I think you mentioned in your comments
the Small Business Advocacy Act. We have yet to get a nominee.
What can you do to help us to make that happen, assuming you
are confirmed?
Mr. Roisman. Thank you, Senator. I think it is a critically
important position at the SEC, and you have said it before and
I agree with it. There is a potential for them to be too small
to succeed. I personally hope that the position will be filled
by the time I am confirmed. But if it is not, I would be happy
to work to try to get that filled as expeditiously as possible.
Senator Heitkamp. In Fargo, for example, about a third of
our startups identify accessing early stage funding as the
greatest hurdle. We have a bill that hopefully within SBA would
help get that done. But I think it is critical that you look
not only at small business, but you look at small rural
business. And so can I have your commitment that when you move
over there, this will be a particular interest of yours and
that we can call on you to make sure small businesses are being
heard within the SEC?
Mr. Roisman. I am happy to commit to that.
Senator Heitkamp. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you. And you made it under time, too.
Senator Heitkamp. That can make up for last week.
Chairman Crapo. Senator Tillis. You should not have
reminded me.
[Laughter.]
Senator Tillis. Thank you, Mr. Chairman. I may add that you
can tell that these folks have experience on the Hill because,
because of you all, I am getting to ask my questions 4 minutes
early. I counted about 4 minutes that you all yielded back in
your opening statements, so I appreciate that.
Before I get started, Mr. Chair, I want to thank my staff,
Tyler Williams here, who is moving on to a new job in the
Department of Treasury, the domestic finance team. He has been
great to work with. I know he has developed a great
relationship with the Committee staff, working with Senator
Warren on the bill that she mentioned earlier. So I just want
to personally thank him for his contribution. Thank you.
Chairman Crapo. Congratulations.
[Applause.]
Senator Tillis. Mr. Roisman, it looked like you wanted to
finish the answer to Senator Warren on a sort of concept that
everybody is a bad actor versus what I think you were trying to
get at, is you want to go after the ones that we need to focus
on most so we get the resources, get the lead on target, so to
speak. Do you want to finish your thought on that?
Mr. Roisman. I think you encapsulate it perfectly. I also
think what I think is important is this all does tie in, you
know, toward the proposed rulemaking that the SEC is doing. And
I think it is important for the public to comment on this
issue. She raises an important issue, which is: Do people think
that the current differentiation of standards is appropriate?
And this is one where the SEC needs to look at the comment file
and meet with people and see what they got right and what could
be improved. I think it is a good first step, but I look
forward, if confirmed, to keeping an open mind and seeing if
there are any changes that are necessary. But I appreciate the
opportunity.
Senator Tillis. Thank you, and I also thank you for the
work that you have done on the Committee. You have got a great
reputation, and I know you are going to serve us well in a new
capacity.
Mr. Bright, you may be one of the calmest worriers I have
ever seen. But I thank you for the time that you spent in our
office talking about how we could address a portion of your
portfolio that was worrisome to you. With the passage of the
bill, can you tell me a little bit about any of the immediate
positive impacts it has had or what it is going to look like a
year from now?
Mr. Bright. Well, so strictly speaking from a purely
antiseptic perspective, the securities are trading better in
price, which means lower rates for FHA, VA, and USDA borrowers.
And so our securities have improved about a point in price,
which means a 25-basis-point, all else equal, lower borrowing
rate for all the programs that Ginnie supports. So that is
obviously a win.
In the nonantiseptic space, my hope is that it is a signal
that, you know, these borrowers are not, you know, there to be
refinanced when they do not need it. That is not going to be
tolerated. It is going to show up in the data somewhere, and we
are not going to be OK with that.
Senator Tillis. This was a pretty narrowly crafted bill. I
always wonder anytime you pass a bill if you see any potential
unintended consequences or other things we should look at or
maybe a follow-on phase. Do you have any opinions on whether or
not there are any areas that industry has expressed a concern?
Mr. Bright. I think it was very--first of all, I think the
provisions were exceptionally helpful. I think saying that
Congress stands with us leads us so that we are not kind of
hanging out on a limb. We know we have the political support we
need to go after this problem.
There was a slight difference, I think, in some of the
wording that ended up meaning that we had put in place a reg in
December that was a 6-month seasoning requirement, and the bill
codified that reg. The way the bill was written, the
codification I think ended up being a little bit more like a 7-
month seasoning. So if you wanted to perfectly align the
language with the reg that we have, that would be a quick sort
of technical fix. But it is working, writ large, at a macro
level for sure.
Senator Tillis. What about other priorities moving forward
in terms of congressional priorities?
Mr. Bright. A few folks have asked me, you know, what
hamstrings Ginnie Mae, what resources we need, and as I have
pointed out, we do lost talented employees to agencies in
Washington, DC, that can compensate on a different scale. So
that would require a legislative fix. If there is interest on
that, as Ginnie has gotten very, very big, I would have great
interest in working with you on looking for something that
works.
Senator Tillis. Thank you. We look forward to working with
you.
I am going to yield back the remainder of my time. I
congratulate all the nominees and their families for the great
job you have done on the Hill and the great job you will do in
your new roles. Thank you.
Chairman Crapo. Senator Cortez Masto.
Senator Cortez Masto. Thank you. Welcome and
congratulations to all of you as well, and welcome to your
families.
Mr. Bright, let me start with you. I understand from 2002
to 2006 that you were a senior financial analyst and trader at
Countrywide where you were responsible for modeling the value
of mortgage servicing rights and hedging interest rate risk. Is
that correct?
Mr. Bright. That is correct.
Senator Cortez Masto. And then from 2006 to 2008, you
worked as an associate at Wachovia, where you worked in MBS
trading. Is that correct?
Mr. Bright. That is correct.
Senator Cortez Masto. So can I ask you--I represent the
State of Nevada, and obviously in 2007 we had the worst crisis
we had ever seen and the recession. Can I ask you that during
your time at Countrywide or Wachovia, during that time or
after, did you raise any alarm bells about risky and abusive
practices?
Mr. Bright. Yes. And, in fact, I quit Countrywide in 2006
because my wife and I decided that this was going to go under,
that the behavior that we were seeing was unethical,
unsustainable, that this was a bubble that was going to
collapse. We wanted to get as far away from it as we could.
Senator Cortez Masto. Were you vocal about it to others as
well, or regulators, to let them know about the risky practices
and things----
Mr. Bright. Well, there was nothing to whistleblow in the
sense of something illegal being done, but, yes, I was very
vocal internally at Countrywide that I thought these ``Pick-a-
Pay's'' were a terrible, terrible product.
Senator Cortez Masto. Then you went to work at PennyMac. Is
that right?
Mr. Bright. After.
Senator Cortez Masto. And correct me if I am wrong. Was
PennyMac a reincarnated version of Countrywide run by the same
management?
Mr. Bright. The managers there were managers who were also
pushed out in 2006 and 2007.
Senator Cortez Masto. They were pushed out of Countrywide?
Mr. Bright. That is correct. There was a total split in
the--first of all, I was an analyst. I spent my first couple
years doing analyst type work. By the time I was, you know,
smart enough to understand what was going on and realized that
this thing was wrong, you could see that the company was
splitting. You know, I am not in the C-suite. I am down in the,
you know, bowels there. But the rumors are trickling. And you
could see that the senior management was splitting, and some
people were saying, ``This cannot go on. We have got to stop.''
And a lot of those folks were pushed out by the folks who won
the day at the institution, at Countrywide, that said that is
not right, keep going, keep hitting your EPS targets, keep
going after more and more. And, you know, Stan, who was the CEO
of PennyMac, was absolutely one of those folks. I was one of
those people. And so there was a little bit of internal kind of
tension. If I had seen anything illegal, of course, I would
have flagged it. It was more the subjective, ``Do people know
what this Pick-a-Pay thing means?'' You know, the sales folks
were saying yes, and I was saying no, and so I left.
I went to Wachovia, and the very first meeting I had at
Wachovia, I told them, ``This is a terrible product. Stay away
from it.'' Because they kind of wanted this Countrywide
download, because everybody was trying to be as big as
possible.
A month after I was there, they bought Golden West, and
that was it. That was the beginning of the end. The stock price
went down. I lost my job in 2008. I did not lose any money. I
did not get a golden parachute. I had been saying, ``Do not do
it.'' But it was just a failing on every level.
Senator Cortez Masto. So what have you learned that you
carry with you today? And what will you carry with you from
that as President of Ginnie Mae?
Mr. Bright. That if you--a lot of things. If you make T-
shirts and you are very ambitious and you are greedy and you
make T-shirts and your T-shirts do not work out, then the world
is stuck with a bunch of bad T-shirts. If you are in the
housing market and you are greedy and you are irrational with
your ambition and you are not thinking about the fact that you
are operating in an ecosystem where the Government is playing a
large public policy role because we have deemed it as important
to play this policy role--you do not take that serious, then
the ramifications of the mistakes are catastrophic and they
float around the globe, both economically and politically, and
we are still living with that now.
And so everybody in this market, in that mortgage market,
needs to take seriously, in my view, the fact that they have
signed up for something where this body has created a large
role for Government, for public policy achievement, and we have
to take that seriously. And so I want to fulfill that mission
in my role at Ginnie, and I think that the industry needs to
consistently do that introspection and self-reflection.
Senator Cortez Masto. Thank you. And so can I get your
commitment that lenders participating in the programs through
Ginnie Mae will be appropriately scrutinized under your
leadership?
Mr. Bright. Absolutely.
Senator Cortez Masto. Thank you.
I notice my time is up. I have got about 20 seconds left,
not enough time to go into further discussion. But, Mr.
Roisman, thank you for meeting with me and our discussion on
cryptocurrencies. I look forward to having conversation on my
concerns, your concerns, in addressing these issues as well.
Congratulations to the rest of you. Thank you.
Mr. Roisman. Thank you, Senator.
Chairman Crapo. Thank you very much, and that concludes our
questioning. I want to again thank each of you for coming and
participating today in our hearing and for your willingness to
serve this country. Some of you got more questions than others,
but you should take that as a positive. Mr. Roisman and Mr.
Bright took most of the incoming today. But we are concluded
with the hearing.
For Senators, all questions for the record need to be
submitted by Thursday, July 26th, the close of business. And
for our witnesses, responses to those questions are due by
Tuesday morning. So please respond quickly to the questions
that you receive.
With that, this hearing is adjourned.
[Whereupon, at 11:50 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
responses to written questions, and additional material
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
This morning we will consider the nominations of four more
individuals to serve in key leadership posts in the Administration:
Mr. Elad Roisman, to be a Member of the Securities and Exchange
Commission; Mr. Michael Bright, to be President of the Government
National Mortgage Association, or ``Ginnie Mae''; Ms. Rae Oliver Davis,
to be Inspector General of the U.S. Department of Housing and Urban
Development; and Dr. Dino Falaschetti, to be Director of the Office of
Financial Research.
Welcome to all of you this morning, and congratulations on your
nominations to these very important offices.
I see friends and family behind you, and welcome them here today as
well.
Each of these nominees, if confirmed, will play an important role
in supporting our financial system, ensuring it remains vibrant, safe,
and sound for all Americans.
I will start by recognizing Mr. Roisman, in particular, who
continues to do outstanding work for this Committee as Chief Counsel.
I can personally attest to Elad's impressive command of securities
law, his keen intellect and work ethic, and his commitment to doing
what is right.
As many on this committee know, Elad is intimately familiar with
the inner-workings of the SEC, having previously served as Counsel to
Commissioner Daniel Gallagher, and as Chief Counsel at the NYSE
Euronext.
Elad--thank you for being a trusted advisor and resource to me, and
to others on this Committee.
If confirmed, I am confident that you will successfully execute the
SEC's mission of protecting investors, maintaining fair, orderly, and
efficient markets, and facilitating capital formation.
We will be sad to see you go, but the SEC will have gained a
tremendous asset from which our whole country will benefit.
Michael Bright also has a distinguished record as a Senate staffer,
and is no stranger to many in this room.
Over the last decade, Mr. Bright has established himself as a
leading voice on housing finance policy.
Most recently, over the past year-and-a-half, he has overseen all
aspects of Ginnie Mae, including its nearly $2 Trillion portfolio of
mortgage-backed securities, and has already taken significant action to
protect taxpayers and help consumers.
If confirmed, I know Mr. Bright will continue this important work,
and I look forward to working with him on opportunities to address the
last piece of unfinished business from the Financial Crisis:
comprehensive housing finance reform.
Rae Oliver Davis has dedicated her entire career to holding others
accountable.
As a former Assistant U.S. Attorney, Ms. Davis spent years
investigating and prosecuting financial criminals, among other crimes.
Over the past decade, she has turned her focus to holding the
Government accountable, working for various Inspectors General within
the United States Postal Service, the Troubled Asset Relief Program, or
``TARP'', and HUD.
If confirmed as HUD Inspector General, Ms. Davis will draw from
this deep experience, working on behalf of taxpayers to eliminate
fraud, waste and abuse in our housing programs, and to make sure that
those programs run as efficiently and effectively as possible.
Dino Falaschetti has had a distinguished career in economics that
spans academia, the private sector, and public service--most recently
as Chief Economist for the House Financial Services Committee.
For many years, Dr. Falaschetti's expertise on finance, corporate
law, business strategy, and economic policy has been widely sought out.
In addition to holding faculty appointments at 8 different
universities, Dr. Falaschetti served as Senior Economist for the
President's Council of Economic Advisors during the second Bush
administration, where he worked directly under future Fed Chairman Ben
Bernanke.
At the Office of Financial Research, or OFR, Dr. Falaschetti will
be charged with overseeing much of the research and data analysis that
supports the work of Financial Stability Oversight Council.
If confirmed, he will be a trusted and valued resource for FSOC and
the Treasury Department as he has been for Congress and many others.
We have four highly qualified nominees before us, and I urge my
colleagues to support them so that they can quickly get to work for the
American people.
Congratulations, once again, on your nominations, and thank you for
your willingness to serve.
______
PREPARED STATEMENT OF ELAD ROISMAN
To be a Member, Securities and Exchange Commission
July 24, 2018
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
I am honored to appear before you today as the President's nominee to
serve as a Commissioner of the U.S. Securities and Exchange Commission.
My professional experience as a securities lawyer at a global law firm,
a chief counsel at NYSE Euronext, counsel to an SEC commissioner, and
now chief counsel on this Committee have afforded me a broad spectrum
of experiences that would enable me to effectively serve the public and
carry out the SEC's mission should I be confirmed.
Mr. Chairman, I would like to introduce members of my family that
are here with me today. My wife, Helaina Roisman, a social worker at
George Washington University Hospital and, without question, my far
better half. My parents, Hanna and Yossi Roisman, who taught me at an
early age the importance of integrity and having the courage to do the
right thing. My brother, Shalev Roisman, who showed me the importance
of trying to understand the other side of every issue. My father- and
mother-in-law, Larry and Laurie Bernstein, and my brother-in-law, Jacob
Bernstein, who have all been incredibly supportive over the years.
Lastly, my daughters, Talia and Yael, are too young to come today, but
remind me daily of what is most important in this life.
As the child of two immigrants who moved to this country determined
to pursue a better life for themselves and their children, I have a
strong appreciation for the stability and security that our form of
Government and financial markets provide. My parents did not have much
when they came here. But, what they did have was confidence--confidence
in America, and confidence in a financial system that would enable them
to save and invest so that they could raise their family and help
provide for their children's education. When I think about what gave
them such confidence in a system that they barely knew, one thing
stands out--public trust. While they may not have understood or
appreciated the complex system of oversight and regulation that govern
the conduct of market participants in our financial markets, they
believed and expected that our markets were regulated in a fair and
orderly manner with requisite investor protection, transparency, and
accountability.
While serving as a chief counsel at NYSE Euronext, I saw firsthand
the excitement and pride of entrepreneurs and innovators when they rung
the opening bell as their companies went public, enabling them to grow
their companies, invest in communities, and allow investors to share in
their success. My belief in the importance of fair markets and the role
they play in our country is what motivated me to move from New York to
Washington, DC, and join the SEC. I wanted to utilize my insights and
experiences from the private sector and passion for the securities
markets to help further the SEC's important mission. As counsel to an
SEC commissioner, I worked with the SEC's expert staff and witnessed
their dedication and determination to protect investors and enforce the
law. And, as a chief counsel on this committee, I have developed the
utmost respect for this institution and the critical role of
congressional oversight. I believe my personal and professional
experiences have prepared me well for the role for which I am being
considered. I fully recognize and appreciate the critical role the SEC
serves in the lives of investors so that families like mine can save
for their children's education, pay for unexpected expenses, and retire
with confidence.
The U.S. capital markets are the envy of the world and the
importance of the SEC's role in this cannot be overstated. Throughout
its history, the dedicated commissioners and staff of the SEC have
worked to preserve confidence as our markets grew and evolved. To
continue this, the SEC must examine and reexamine its rules,
regulations and guidelines to ensure that they are still working as
intended to accomplish the SEC's mission. This is most recently
manifested in areas such as data protection and cybersecurity, as well
as the emergence of new investments and technologies such as initial
coin offerings and blockchain. It is essential that the SEC approach
these new challenges in a fair and transparent manner, provide clarity
and certainty to the markets and investors, and enforce the laws and
regulations that hold market participants accountable.
If confirmed, it would be an incredible privilege to rejoin the
ranks of the SEC's dedicated public servants and further its mission.
Thank you.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF MICHAEL R. BRIGHT
To be President, Government National Mortgage Association
July 24, 2018
Chairman Crapo, Ranking Member Brown, and distinguished Members of
this Committee, thank you for inviting me here today. It is an honor to
appear before you as the nominee to be the President of the Government
National Mortgage Association, or Ginnie Mae.
Let me take a moment to quickly thank my family who is here. I'm
joined by my wife, Maggie, and my son, Mac. My daughter Margaux, who is
5, is at her grandparent's house in Florida, probably watching on the
computer. All three of them have been incredibly supportive of me since
coming to Washington, and that comes despite the many nights of coming
home tired, grumpy, and distracted with work. I know that I ask a lot
of them, and I am always thankful for their love and support.
In addition to being a father, for the past 12 months it has been
my honor to serve as the Executive Vice President and Chief Operating
Officer of Ginnie Mae. I'd like to tell you a little about what I have
learned, and what I think still needs to be done.
Ginnie Mae was created in 1968 when Congress spun off Fannie Mae as
a Government-sponsored private company and retained Ginnie as a
complimentary Government corporation given the task of facilitating the
securitization of certain mortgages with an explicit, transparent, and
paid for Government guarantee. Ginnie Mae has since evolved into a $2
trillion Government security with a focus on facilitating lending to
low and moderate income, rural, urban, and veteran borrowers.
Today, Ginnie Mae's bond and Ginnie Mae's brand are globally
recognized as the most pristine mortgage security in the world. This is
because of Ginnie Mae's track record of success and our robust process
for ensuring the timely payment of principal and interest to security
holders. Ginnie Mae has never missed a payment in its 50 years of
existence, even during the financial crisis. That is exactly what an
explicit Government guarantee is meant to provide and delivering on
that mission is what we do every single day.
The day job of managing the roughly 150 employees of Ginnie Mae has
been an incredibly rewarding experience for me over the past year.
Ginnie has some of the most dedicated, knowledgeable, and mission-
focused professionals I have ever worked with. They are squarely
focused on the challenges of dealing with both Ginnie's growth and the
evolving nature of the U.S. mortgage market.
To address these challenges, over the past 12 months we have
launched a modernization campaign called ``Ginnie Mae 2020,'' a 3-year
strategic plan that will have our data centers running on cutting edge
technology, realign our counterparty risk management framework, help
bring in additional financing for mortgage servicing rights, and expand
our global investor base through outreach and education in dozens of
countries around the globe. All these efforts are well underway, some
are even nearing completion, and we are very excited about the promise
they hold for the future of our organization.
One issue I have worked with many of you on this past year is that
of so-called ``VA loan churning,'' or the rapid refinancing of VA loans
with little or no benefit to the borrower, as well as the making of VA
loans at interest rates higher than a veteran should be getting. I want
to specifically thank Senators Tillis and Warren for their leadership
on this issue. Between the work we have done administratively at Ginnie
as well as the language recently passed into law, we have taken a major
step towards rooting out behavior that was threatening the very
viability of the Ginnie security, and thereby threatening the viability
of the VA, USDA, and FHA programs we support. We will not tolerate this
behavior, and we now know that Congress stands with us. Collectively,
our efforts are working. We can already see that in the form of a
better security price, which directly translates into lower rates for
FHA, VA, and USDA borrowers.
I didn't begin my career in Washington. I came here after working
in my twenties on mortgage trading desks in Los Angeles and Charlotte,
including through the financial crisis. During that time, I learned
thousands of lessons that I place into two thematic buckets: First, I
learned that the mortgage market is incredibly technical and enormously
complex. I feel honored to be able to use the technical knowledge I
gained to serve a broader public policy mission that benefits all
Americans. Second, I learned that greed and unbridled ambition can be
dangerous realities, and if left unchecked in the housing market, the
consequences can be disastrous. I came to Washington in large part to
help ensure we never repeat the 2008 financial crisis, and I wake up
every day with that mindset still.
I also want to say thank you to the Members and staff that I have
been privileged to work with in the past, most especially Senator
Corker. Working with Senator Corker, Senator Warner, Senator Crapo, and
other Members of this Committee as a staffer was a tremendous honor and
an experience I still think about every single day.
Going forward, my main goals for Ginnie Mae are to ensure that the
agency is well run, and that the agency can continue to serve its
statutory obligations to help ensure a stable U.S. housing market.
There is much to be done, and I look forward to the task.
Thank you.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF RAE OLIVER DAVIS
To be Inspector General, Department of Housing and Urban Development
July 24, 2018
Thank you, Chairman Crapo, Ranking Member Brown, and Members of the
Committee. It is an honor to appear before you as the nominee to serve
as the Inspector General (IG) of the United States Department of
Housing and Urban Development (HUD). I would like to thank my family,
friends, and colleagues for their support. In particular, I would like
to recognize my parents, Charles and Jerry, and my husband, Chris, for
their love and support. I would like to thank my three stepchildren,
Graham, Addy, and Liam, for inviting me into their lives and
guaranteeing that I would never suffer a dull moment.
I am proud to have made a career in public service and oversight.
As a young staff attorney, I cut my teeth working on the then-Senate
Governmental Affairs Committee and the House Government Reform and
Oversight Committee. I then joined the Tennessee Office of the Attorney
General where I led consumer protection investigations that resulted in
nationwide settlements with Fortune 500 companies. I aspired to be a
Federal prosecutor and was fortunate to receive an offer with the U.S.
Attorney's Office for the Western District of Tennessee in Memphis. I
prosecuted a wide variety of cases in that office, including everything
from false tax claims and investment schemes to firearms and drug
violations.
After deciding to return to our Nation's capital, I landed in the
IG community, where I have spent the last decade of my career. I have
worked in three unique and challenging agencies--the Postal Service,
the Special Inspector General for the Troubled Asset Relief Program
(SIGTARP), and most recently HUD. I have been boots-on-the-ground
conducting and leading investigations. I have also served in two senior
level positons where I gained an appreciation for the tough decisions
IGs must make every day.
In my most recent position with HUD OIG's Office of Special
Inquiry, our efforts have focused on senior official misconduct and
enterprise-level risk to the Department. We have created a
multidisciplinary team of attorneys, investigators, and auditors to
address complex issues in a comprehensive manner.
I would like to share with the Committee my personal constitution
with respect to IG work and my vision for HUD OIG, if confirmed as
Inspector General.
The foundation of IG work is independence. It is the principle that
protects our ability to shed light on the truth about Government. An
independent IG cannot allow the department or agency it oversees to
direct its work in any way. And an independent IG cannot accept
obstruction or delay in gaining access to agency records.
I also believe the best IGs are strong communicators. IGs must have
solid relationships with their authorizing and appropriating committees
to ensure they prioritize the right work and keep Congress informed. In
my rounds with Senators and your staffs, I committed to ensuring that
we conduct comprehensive investigations and deliver thorough reporting.
I am aware that our work is also of significant interest to American
taxpayers. Shedding light on Government mismanagement and misconduct
through our reports can be as effective as prosecutions and financial
recoveries.
To remain current in our efforts, we must communicate well with
HUD. We can be independent in the direction of our work and reporting
while maintaining strong lines of communication about HUD's priorities,
initiatives, and planning. I believe strongly that we must also be
active in the IG community, through cross-cutting initiatives, training
programs, and development of best practices.
My vision and goal-setting for HUD OIG will focus on effectiveness.
We can spark positive change by making hard-hitting recommendations
relating to HUD's top management challenges.
HUD's mission is far-reaching and there are many pressing issues in
HUD programs that require attention. I am honored to be considered as
the nominee for this important oversight position.
I appreciate the opportunity to come before this Committee and to
answer your questions. Thank you for your time today.
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PREPARED STATEMENT OF DINO FALASCHETTI
To be Director, Office of Financial Research, Department of the
Treasury
July 24, 2018
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
it is an honor to appear before you as the President's nominee to serve
as Director of the Office of Financial Research.
I want to introduce my wife, Suzanne, and want to acknowledge other
incredible people who cannot be with us today.
Betty, Suzanne's mom, is packing up her home in Chicago for a move
to Montana. She will be a great constituent for what many call ``the
last best place.'' My brother Dominic and his partner Greg are watching
on the Committee's website; work in Chicago did not allow them to join
us today.
I also want to acknowledge several people who are no longer here,
but continue to be a great source of love and wisdom--Suzanne's dad,
Rich, as well as my mom and dad, Myrna and Dominic.
My parents are the reason I am here. Growing up in South Chicago,
my grade school was a tough place. Tough enough that my mom--a
substitute teacher--and my dad--a high school teacher--saw early on
that I was headed toward a dead end. Unfortunately, a better school
district looked beyond my parents' reach.
Mom and Dad stretched their budget to the end, and then more, so
that my brother and I could grow up in a much safer neighborhood and
attend much better schools. They could not have pulled it off without
the confidence of local bankers who provided the support necessary to
enable my parents to do what was right for their family.
My high school brought together kids from very different
backgrounds. I sat between two young men--one would graduate and go on
to Yale, while the other was already in a gang.
My experience growing up is a powerful illustration of the
importance of a loving family and access to financial services. Absent
either one, I easily could have have continued down a dead end. With
them, I was able to earn a business degree and a doctorate in economics
that gave me access to a rewarding career.
My career in business, academia, and Government has prepared me to
lead the Office of Financial Research, and to ensure that it
efficiently and effectively provides the high-quality financial data
and analysis that Congress intended. However, it is my upbringing that
taught me why this mission is so important.
If confirmed, I look forward to working with this Committee and
with the other members of the Financial Stability Oversight Council to
promote a more resilient financial sector so that all Americans,
wherever they might have started, have reliable access to the kind of
financial hand up that helped my parents realize their dreams.
I am honored to be here today and look forward to addressing your
questions.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM ELAD ROISMAN
Q.1. You stated in your testimony that, ``Throughout its
history, the dedicated Commissioners and staff of the SEC have
worked to preserve confidence as our markets grew and evolved.
To continue this, the SEC must examine and reexamine its rules,
regulations, and guidelines to ensure that they are still
working as intended to accomplish the SEC's mission.''
SEC Rule 10b-18, which provides publicly traded companies a
safe harbor when repurchasing their shares, was issued in 1982,
and the practice of stock buybacks has evolved considerably
since then. For example, for the 248 companies in the S&P 500
continuously since 1981, share buybacks have gone from
consuming 2 percent of their net income that year to nearly
half of it in the period from 2004 to 2013. Moreover, in recent
years, many of the large publicly traded companies have
returned more than their net income to shareholders, in large
part through significant stock buybacks.
Given the dramatic increase in stock buybacks since Rule
10b-18 was implemented, do you believe the rule merits
reexamination to determine if it is still working as intended
to accomplish the SEC's mission? If not, why?
A.1. As a general matter, I believe it is important for the SEC
to review its rules to ensure that they are furthering the
SEC's mission. As you note, the rule was first promulgated in
1982 and was last updated in 2003. Stock buybacks have been
shown to be an efficient way to return profits to investors and
have been a tool used by companies for decades. One
justification often used to support stock buybacks is that
companies should return money to investors when they do not
have a better use for that money, thus enabling investors to
redeploy that capital into other investments. As you noted,
stock buybacks have increased over the past several decades and
some have argued that it has led to a decrease in a company's
ability to innovate and invest for the future and is
potentially also an area of abuse where executives
inappropriately benefit rather than stockholders. The debate
about the appropriate use of buybacks, whether it incentivizes
short-termism or needs more disclosure is currently ongoing and
robust.
Given the time since the rule was updated, the change in
the markets, additional data and research, as well as concerns
raised about the rule, I believe there is merit to reexamining
it. If confirmed, I would look forward to discussing this topic
with my fellow Commissioners, the SEC's expert staff, and
interested parties to see what, if any, changes they believe
are appropriate for review.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM ELAD ROISMAN
Q.1. In 2009 the SEC adopted a rule requiring publicly traded
companies to disclose more information on director selection
and diversity. However, because the rule failed to actually
define diversity, the disclosures are vague and provide little
information on actual board diversity. Last year, the SEC's
Advisory Committee on Small and Emerging Companies submitted
recommendations to then Acting Chair Piwowar recommending that
the Commission amend the rule to include ``disclosure regarding
race, gender, and ethnicity of each board member/nominee as
self-identified by the individual.'' In June, Chair Clayton
told the House Financial Services Committee that he expects the
SEC to move forward with a revised rule at some point in the
future.
Do you think the rule should be updated so that investors
have access to more meaningful disclosures such as the racial,
ethnic, and gender compositions as well as any efforts or
strategies to improve board diversity?
A.1. I believe that diversity is important and benefits
organizations. Without prejudging a potential rulemaking or
other Commission action, which the Chairman indicated the SEC
would move forward on in the future, I will note that I believe
it is important for the SEC to review its disclosure rules to
see whether they are providing material information to
investors. If confirmed, I would like to meet with Director
Pamela Gibbs, the head of the SEC's Office of Minority and
Women Inclusion, to get her perspective on the issue and what
she has seen as successful policies to promote diversity at the
SEC as well as what she has learned from SEC regulated
entities. I would also like to discuss this issue with the SEC
staff and all interested stakeholders to see what changes they
believe should be made to the existing diversity disclosure to
provide investors more meaningful information.
Q.2. If confirmed, will you commit to looking into this issue?
A.2. If confirmed, I commit to looking into this issue.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM ELAD ROISMAN
Q.1. Consolidated Audit Trail (CAT): I have been a strong
supporter of the SEC's creation of the Consolidated Audit Trail
(CAT). I believe that, in order to properly oversee markets, it
is vital that our regulators be able to reconstruct trading
activity and discover weaknesses and nefarious activity. I have
also been frustrated by the snail-like pace that this vital
tool has been implemented, a frustration that Chairman Clayton
recently echoed in March at a Securities Industry and Financial
Markets Association (SIFMA) conference in Orlando, Florida.
Chairman Clayton urged firms to comply with data sharing
requirements and told the audience of stockbrokers that, ``the
main markets regulator should have access to a forensic trail
that enables us to access what happened if a market event
occurred.''
Do you believe CAT is a vital tool for the SEC?
A.1. I appreciate your leadership on this topic and share your
belief that the SEC needs to have a tool to adequately oversee
the markets and promote investor confidence. I agree that the
CAT can be such a vital tool when it comes into existence. The
SEC should never be in a position like it was after the Flash
Crash where it took weeks, if not months, to ascertain the
cause of market disruptions.
Q.2. How can the SEC or policymakers encourage firms to comply
with the data sharing requirement of the CAT?
A.2. If confirmed, I would like to discuss this with the SEC
staff and fellow Commissioners to see what they think could
additionally be done to encourage firms to comply. I believe
that the SEC, or the self-regulatory organizations, which
submitted the CAT NMS Plan, have sufficient authority to
require the trading information from firms, but would want to
discuss further with the SEC staff if I am confirmed. I will
note that there have been concerns raised about the collection
of personally identifiable information as part of the data
sharing requirement. If confirmed, I would like to discuss this
topic with the staff and Commissioners to ensure that the CAT
does not require information that is not necessary to further
the SEC's mission and that the collected information can be
protected.
Q.3. Human Capital Disclosure: As the global economy continues
to transition to a 21st-century knowledge-based economy,
effective human capital management will be increasingly
critical to a firm's ability to innovate, adapt, and compete.
Chairman Clayton reflected on the importance of adequate human
capital disclosures in April 2018 at a House Appropriations
Subcommittee on Financial Services and General Government
hearing, where he stated that he ``would like to see more
disclosure from public companies on how they think about human
capital.'' Yet the SEC's Regulation SK requires few human
capital management disclosures from public.
Will you commit to working to increase human capital
management disclosure requirements?
A.3. I believe, as you have previously stated, that the
American workforce is one of the greatest assets in our
economy. The American workforce, the rule of law, and American
innovation are the reasons our markets are the greatest in the
world and our economy is the strongest. I believe that it is
important for the SEC to constantly review its disclosure
regime to see what needs to be improved to provide investors
with material information for them to make informed investment
decisions. There is a concept release on updating Regulation
SK, and I do not want to prejudge future Commission action with
respect to human capital management disclosure. However, if
confirmed, I would look forward to engaging with interested
parties on such disclosure as well as reading the public
comment suggestions on how to improve the existing disclosures
on human capital management and other important matters.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM ELAD ROISMAN
Q.1. Multiple rules mandated by Dodd-Frank remain incomplete,
including rules pertaining to executive compensation, employee
and director hedging, clawbacks, or incentive-based
compensation for large financial institutions.
If confirmed, will you support finishing rulemaking that is
mandated by Wall Street Reform for the SEC?
A.1. I will support finishing such rulemakings. I believe that
the SEC must complete all Congressional mandates including
those mandated by the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
Q.2. While cryptocurrencies offer an innovative way to conduct
transactions, I am concerned about the use of cryptocurrencies
as an investment vehicle.
Where do you foresee the SEC's involvement in overseeing
cryptocurrency, particularly in conjunction with the CFTC?
A.2. I believe that the SEC should continue to work with the
CFTC to help oversee the cryptocurrency markets. The SEC has
regulatory authority over assets (e.g., exchange traded funds
linked to cryptocurrencies) and initial coin offerings that are
deemed securities. Additionally, the SEC has authority over
market participants that transact in such securities (such as
brokers, dealers, and investment advisers), market
professionals that advise on such transactions, including
securities lawyers and accountants, as well as certain
platforms for trading digital assets. I believe it is important
for the SEC and CFTC to have a collaborative approach to
overseeing cryptocurrencies and related assets in order to
provide clarity to investors, market participants, innovators,
and the general public about the securities and commodities
laws and regulations covering these commodities and assets. To
date, the SEC and CFTC have (1) issued joint statements on
cryptocurrencies and related assets to bring transparency and
integrity to the markets, (2) highlighted the need to set and
enforce rules that foster innovation while promoting market
integrity and confidence, and (3) brought charges for
violations of the law to prevent and stop fraud in the offer
and sale of digital assets. Such work should continue,
especially with respect to educating the public and enforcing
the law. This ultimately furthers the SEC's mission to protect
investors, maintain fair, orderly and efficient markets, and
promote capital formation.
Q.3. Should cryptocurrencies have adequate disclosures and
investor protections?
A.3. It is important that a security overseen by the SEC has
adequate disclosures and investor protections, this includes
cryptocurrencies and related products that are securities.
The SEC has highlighted the importance of adequate
disclosure and investor protections for digital assets in its
DAO Report of Investigation Pursuant to Section 21(a) of the
Securities Exchange Act of 1934, recent SEC enforcement actions
involving digital assets, SEC investor alerts, and speeches and
statements by staff and members of the Commission to help
clarify what the SEC thinks are areas of concern. If confirmed,
I would look forward to working with my fellow Commissioners
and the SEC staff to continue to promote adequate disclosures
and investor protections with respect to digital assets and
cryptocurrencies. I would also work to continue to provide
clarity to market participants so that they understand the
rules that will be enforced, thus enabling innovation while
promoting market integrity and confidence.
Q.4. Should cryptocurrencies have the same protections and
rules against market manipulation and market fraud as bonds and
stocks?
A.4. I believe that if a cryptocurrency asset is deemed a
security, the investor protections and rules against market
manipulation and fraud should be consistent with the existing
rule set. I believe that it is important for the SEC to
recognize new innovations in the markets and try to adapt its
rules when appropriate. The SEC has been both educating the
public about the rules and regulations that govern digital
assets as well as bringing enforcement actions to ensure that
bad actors, market manipulation, and fraud are being rooted
out. It has also been working with state regulators and other
agencies to try and target fraudulent initial coin offerings
and crypto-asset investment products so that the public and
fraudsters know that this is an area the SEC is focused on and
takes seriously. This is important, and I would look forward to
continuing this, if confirmed.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM ELAD ROISMAN
Q.1. I introduced legislation earlier this year, the Expanding
Access to Capital for Rural Job Creators Act, with my
colleagues Senator Heller, Senator Heitkamp, and Senator
Kennedy, focusing on capital formation for rural small
businesses.
The bill would expand upon the work of my colleagues to
expand the work of the SEC's Small Business Advocate.
What do you see as the unique challenges, or opportunities,
for both small business owners and investors in rural
businesses?
A.1. I believe that small business owners and investors are the
backbone of this country, and I have been concerned about
impediments to their sustainability and growth. Unfortunately,
some of the challenges that these entrepreneurs and investors
face is that many of the rules that they must comply with have
a one-size fits all structure and do not take into account
their business model. Additionally, and in some cases it can be
more pronounced for rural businesses, access to capital can be
much more limited. Given these challenges, I believe it is
important for the SEC to review its rules to see whether they
are appropriately taking into account the size, type, and
resources of small businesses and see whether changes should be
made with respect to SEC matters such as capital raises and
debt financing, including as it relates to Crowdfunding and
Regulation A offerings. If confirmed, I would look forward to
meeting with rural business owners and investors, interested
parties, the SEC's expert staff including the SEC's Small
Business Advocate, once the position is filled, to hear their
ideas on how to address the challenges facing rural businesses.
This is a matter of particular interest to me, and I would be
happy to work with you and others on this issue to ensure that
the concerns about small businesses and in particular rural
businesses are heard.
Q.2. The SEC recently moved forward with a proposal to
potentially limit whistleblower payouts.
Can you tell me if you believe whistleblowers have been a
benefit to SEC enforcement?
A.2. Based on what I have reviewed from public SEC enforcement
actions, I believe that whistleblowers have provided the SEC
with important information which has led to cases against bad
actors. There is a proposed rulemaking on this subject, so I do
not want to prejudge the rulemaking. If confirmed, I would look
forward to discussing the benefits of whistleblowers to the
SEC's enforcement program with the SEC's staff, including the
head of the SEC's Office of the Whistleblower, as well as my
fellow Commissioners and all interested parties. Additionally,
I would look forward to reviewing the comment file on the
proposed whistleblower rule to learn from the public what
people believe the SEC got right and what could be improved.
Q.3. Do you believe that strong financial incentives have
helped entice whistleblowers in coming forward with highly
sensitive information?
A.3. I believe that strong financial rewards incentivize
whistleblowers to come forward, which can help root out fraud
and illegal activity. As you noted, there is a proposed
rulemaking on this subject, so I do not want to prejudge the
rulemaking. If confirmed, I would look forward to discussing
this topic with the SEC's staff, including the head of the
SEC's Office of the Whistleblower, as well as my fellow
Commissioners and all interested parties. I would also look
forward to reviewing the comment file on the proposed
whistleblower rule to learn from the public what people believe
the SEC got right and what could be improved.
Q.4. Can you broadly describe your priorities for the SEC's
investment advice rule will be?
A.4. Without prejudging the proposed Regulation Best Interest
and related rulemakings, I believe that it is important for the
SEC in finalizing a rule related to the provision of investment
advice to look at issues such as whether the rule:
Allows investors the ability to maintain and have
access to financial advice;
Provides appropriate disclosure so investors
understand their relationships with financial advice
providers, including conflicts of interest and how
those are addressed;
Is business model neutral, meaning that it permits
consumers to receive different types of services and
optionality, promoting investor choice and competition;
and
Promotes the SEC's three part mission, including
protecting investors.
Appropriately addressing these issues would be a priority
for me. If confirmed, I would look forward to discussing the
proposed rule with my fellow Commissioners, the SEC's staff,
and all interested parties. Additionally, I would look forward
to reviewing the comment file to see what the public believes
the SEC got right in the proposed rulemaking and what could be
improved.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM MICHAEL R. BRIGHT
Q.1. You served as a Senior Vice President at PennyMac from
2015 to 2016. In 2017, PennyMac was Ginnie Mae's largest
issuer, making up 11 percent of Ginnie Mae's total issuance.
You are also a former employee of BlackRock, an affiliate of
one of PennyMac's largest equity holders.
If confirmed, how can we be certain that your previous
employers will not unduly influence your decisions as President
of Ginnie Mae?
A.1. For the past year, as Chief Operating Officer of Ginnie
Mae, I have treated all issuers fairly and made decisions based
on the agency's statutory responsibilities and the facts before
me. My previous employers have never influenced my official
actions before and I assure you they never will. If confirmed,
that would continue to be my practice. I firmly understand that
any perceived favorability would be detrimental to my ability
to lead, and so I take great care to ensure that all issuers,
investors and other stakeholders are treated the same, both in
practice and in perception.
My ethics agreement--which I signed upon my nomination--
further spells out some precise steps I must take to avoid any
actual or apparent conflicts of interest if I am confirmed to
the position of President of Ginnie Mae.
Q.2. Following a March 22, 2018, hearing in this Committee, I
asked questions for the record of the Department of Housing and
Urban Development (HUD) Secretary that still have not been
answered more than 4 months later. I am concerned that this
lack of responsiveness to the Committee's requests could become
a pattern at HUD and throughout the Administration.
If confirmed, will you provide timely, substantive
responses to all Committee inquiries?
A.2. Yes, absolutely.
Q.3. In Ginnie Mae 2020, you outline three elements of your
strategic plan for Ginnie Mae. The final element, a ``Strong
Focus on Innovation'', states that Ginnie Mae is part of HUD
discussions about whether to develop a loan-level credit risk
transfer program or pilot. You state that any credit risk
transfer program would have to be ``economically, legally and
operationally feasible.''
Is Ginnie Mae still actively pursuing a program or pilot to
test new credit risk transfer options?
What metric would Ginnie Mae use to determine that a credit
risk transfer program is economically feasible?
What impact would any credit risk transfer proposal have
for homeowners and renters whose loans or rental units are
financed through Ginnie Mae?
Do you intend to engage with Members of Congress and
relevant stakeholders, including financial institutions,
investors, and consumer advocates, before you initiate a credit
risk transfer program or pilot?
A.3. Many private institutions have come to Ginnie Mae and
offered ideas for how some Federal programs in our security
could leverage private credit risk transfer (CRT) to improve
their financial risk conditions. Ginnie Mae itself collects
only a 6-basis point guarantee fee, which would not be enough
for Ginnie alone to engage in credit risk transfer. Other
partner Federal agencies, however, have expressed some interest
in concept, and Ginnie could conceivably play a facilitating
role.
For any CRT program to work, however, it would have to put
both the Federal insuring agency, Ginnie Mae, and the borrower
in a better financial condition and be equally available to
lenders of all sizes. It is possible that some structures could
meet these criteria, but we have not seen any yet.
Any credit risk transfer program--pilot or otherwise--would
follow a full regulatory rulemaking process and begin with
substantial engagement between Ginnie Mae and Members of
Congress.
Q.4. In your testimony before the Committee, you said that you
thought that the papers you coauthored with former Federal
Housing Finance Agency Acting Director Ed DeMarco were
``vague'' on whether to maintain Fannie Mae and Freddie Mac's
affordable housing goals. But in ``Affordable Rent and Access
to Homeownership'', published in May 2017, you wrote that the
affordable housing goals had ``shortcomings'' and proposed
``alternatives'' (see p. 12). You also wrote that whether
``those goals contributed to the financial crisis is
controversial'' and cited to Peter Wallison's dissent to the
Financial Crisis Inquiry Commission's report on the causes of
the financial crisis (see p. 12). The paper then goes on to
propose ``replacing the old regime and its many flaws'' (see p.
13), though it does not require that a new regime serve as many
households.
Do you still support replacing the affordable housing
goals?
A.4. Thank you for the follow up questions on the important
topic of affordable housing. In the paper I coauthored with Ed
DeMarco, we proposed some ways to improve upon the existing
goals. I think that it's important to regularly evaluate how we
can improve upon the programs we have to provide more effective
and efficient access to affordable housing.
I have never personally supported eliminating the
affordable housing goals--and I do not support their outright
elimination now.
In the paper I noted that there are some implementation
challenges with the current version of the housing goals that
make them less effective at achieving their desired outcomes.
Namely, Fannie Mae and Freddie Mac seller-servicers would often
hold back pools of loans they knew to be ``goals rich'' in
order to get premium pricing from the GSEs as the GSEs sought
to meet their goals. This favorable pricing was then not passed
on to borrowers, undermining the core purpose of the housing
goals.
While Ginnie Mae has no direct oversight of housing goals,
in my time at Ginnie Mae as COO I am and will remain squarely
focused on ensuring continued support for low-income access to
affordable housing. I do that primarily by protecting the
integrity of our program and the value of our security, which
translates directly into lower rates for FHA, VA, and USDA
borrowers.
I believe there is an affordable housing crisis in this
country and every Federal agency, including Ginnie Mae, should
be thinking constructively about ways to address that crisis.
Q.5. Do you believe that the affordable housing goals were a
primary cause of the financial crisis?
A.5. No, I do not believe that housing goals caused the
financial crisis.
Q.6. The recent Ginnie Mae 2020 report outlines a number of
steps that Ginnie Mae has taken or will take to manage evolving
counterparty risks that were outlined by the HUD Inspector
General and Ginnie Mae itself. However, Ginnie Mae 2020 does
not address the staffing challenges at Ginnie Mae that were
noted by a Ginnie Mae-commissioned KPMG audit, the Inspector
General, and the Government Accountability Office.
How many full-time equivalents (FTEs) does Ginnie Mae
currently employ? Of those FTEs, how many are contractors and
how many are staff?
Do you believe that Ginnie has sufficient staff to
adequately oversee its counterparty risks and daily operations?
As noted in Ginnie Mae's Annual Report, Ginnie Mae's issuer
base has changed significantly over the past 10 years. How will
changes in the type and number of Ginnie Mae issuers as you
continue to refine and strengthen Ginnie Mae's risk framework?
A.6. We have 150 full-time employees at Ginnie Mae, and
approximately 400 contractors. The vast majority of our
contractors are at two subservicers (Selene and Carrington)
that subservice loans for a runoff portfolio of loans Ginnie
Mae assumed during the financial crisis. That book of loans
began at about $35 billion in unpaid principal balance. It is
now at $4 billion and continues to decline. Our second largest
contracting presence comes from Deloitte, which supports Ginnie
Mae with data analytics. Additionally, Ginnie Mae relies on
Bank of New York Mellon for some aspects of bond
administration.
As I mentioned during the hearing, Ginnie Mae would benefit
from additional flexibility to reward highly technical staff,
who we have difficulty retaining and attracting due to the
differences in pay scale among Ginnie Mae, the Federal Housing
Finance Agency, Fannie Mae, Freddie Mac, and bank regulators.
Ginnie Mae is the only one of these institutions subject to the
General Schedule payscale. We have a reasonable number of
employees, but attracting and retaining technical talent is
critical, and we have lost some just in the one year I have
served as COO.
Additionally, as discussed during the hearing and
highlighted in a number of recent whitepapers, our shifting
issuer profile means we need even more of our resources
allocated to monitoring the financial health of our issuers
(e.g., their ability to remit principal and interest). This
includes keeping a close eye on the value of their mortgage
servicing rights, which serve as Ginnie Mae's collateral in the
event of an issuer default.
Q.7. Your current title at Ginnie Mae is Executive Vice
President and Chief Operating Officer.
Have you had any other title(s) while working at Ginnie
Mae? If so, on what dates were those titles held?
A.7. I also held the title of Acting President while the
Administration pursued candidates for the role of President. I
ceased to hold that title when the Administration began the
vetting process for me as a potential nominee. The dates I was
Acting President were July 11, 2017, to November 16, 2017.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM MICHAEL R. BRIGHT
Q.1. Thank you for addressing the IRRRL churn issue during the
hearing. Beyond your stated comments, does the VA mortgage
program have any unique risk characteristics that you are
paying particular interest to?
A.1. The VA program only covers 25 percent of the loan balance,
whereas FHA and USDA cover 100 percent. This additional risk,
however, is counteracted by the fact that VA loans tend to
demonstrate incredibly low delinquency rates, even during
economic downturns.
Q.2. The VA mortgage program as an earned benefit for
servicemembers, past and present, that has performed well over
the years. In your view, is Ginnie Mae a partner to the VA in
ensuring that our veterans and active-duty personnel are able
to take full advantage of this benefit?
A.2. Ginnie Mae is absolutely an enthusiastic partner of the VA
in helping to ensure veterans have access to this earned
benefit. We also believe strongly that the actions we,
Congress, and the VA have taken in recent months help ensure
the VA loan program remains viable for future veterans.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM MICHAEL R. BRIGHT
Q.1. In your 2017 paper entitled ``Affordable Rent and Access
to Homeownership'', you advocate for a 10-basis point user fee
on all mortgages securitized in the new system to generate
funding for affordable home ownership and rental options. \1\
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\1\ https://assets1c.milkeninstitute.org/assets/Publication/
Viewpoint/PDF/Affordable-Rent-and-Access-to-Homeownership2.pdf
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Is it true that under your proposal, the fee would not be
available to support access and affordability until a certain
reserve threshold has been met?
How long would it take to meet that threshold?
Wouldn't that actually make affordable rental housing worse
off in the short term while we are building the reserve and
during a crisis than the status quo, which at least gives 4.2
basis points to the Housing Trust Fund and the Capital Magnet
Fund?
In your proposal, you state this structure would create a
``natural countercyclical buffer'' where funding of affordable
homes and home ownership options would be curtailed in a
crisis. Please explain why we should wind down access and
affordability in an economic downturn? Didn't the last crisis
demonstrate that having a countercyclical source of affordable
loans and refinancing options was critical to keeping the
mortgage market afloat?
A.1. A great deal of research points to the fact that the
portion of American incomes spent on housing continues to rise
to what I believe are unsustainable levels. This is particulary
true for low- and moderate-income Americans. I believe every
Federal agency, including Ginnie Mae, has an obligation to
examine what it can do to address this problem. That is what I
have done for the past year at Ginnie Mae and that is what I am
committed to continuing if I am confirmed.
The paper I coauthored with Ed DeMarco included a 10-basis
point access fee as one of its proposals to help ensure access
to affordable home ownership and affordable rental housing for
lower-income Americans. In contrast to the current 4.2 basis
point fee in statute, which only applies one time at the
origination of a new loan, our proposed fee would be applied
annually. The larger fee and annual application of the fee
would generate roughly 10 times the total revenue of today's
one-time 4.2 basis point fee.
Under our proposal, this 10-basis point annual fee was
meant to augment a much-expanded duty to serve all markets at
all times. In some ways, the paper was suggesting that there
may be more robust ways of establishing rules for secondary
market actors operating in a Government-subsidized system--
rules that would be explicitly designed to ensure that the
focus on the system remained on low- and moderate-income
Americans. We proposed robust ``anti-creaming'' rules as well.
I have reread the paper since the hearing and I understand
how it could leave the impression that the 4.2 basis point up-
front fee would not accrue during the build-up of the new
system. That was never the intent, and I am happy to clarify
that, if there were to be reform, these funds should continue
to be available throughout the transition process.
As for the countercyclical buffer in our paper, the reserve
fund was intended to serve the function you describe--to keep
the mortgage market afloat during a downturn. The Government
could draw on the reserve fund during a downturn to stabilize
the market. The reserve fund is a better alternative to
increasing affordable housing fees or guarantee fees in a
crisis because increased fees could exacerbate the downturn and
reduce access to affordable housing.
Addressing the affordable housing crisis is a priority of
mine and I am ready to work as a partner with you to do all we
can to solve it.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM MICHAEL R. BRIGHT
Q.1. During your testimony during the Banking Committee, you
testified on your tenure at Countrywide and Wachovia. You also
testified that you would commit that lenders participating in
programs through Ginnie Mae would be appropriately scrutinized
under your leadership.
How will you ensure that lenders whose mortgages are
insured by Ginnie Mae are not engaging in predatory or abusive
loan practices, like dual tracking, loan churning, or
preventing refinancing?
A.1. Given Ginnie Mae's position in the value chain of mortgage
production (e.g., securitization and bond administration after
loans have been made) as well as the fact that we have no
direct oversight authority over consumer credit law (that is,
we cannot conduct on-site reviews of consumer protection
issues), Ginnie Mae relies to a great degree on our partner
Federal agencies to police bad behavior. However, when Ginnie
Mae sees data suggesting behavior that might be questionable at
best, we can and do make referrals to these partner agencies--
the Department of Agriculture (USDA), Veterans Administration
(VA), and Federal Housing Administration (FHA)--as well as the
Consumer Financial Protection Bureau (CFPB). Over the past
year, we have communicated directly with all these agencies on
matters that appear to imply a form of predatory behavior.
What Ginnie Mae can do, and has done in the past year, is
look at trailing data of the performance of loans in our
securities. When an issuer has performance that is materially
outside that of its peers and when that performance threatens
the health of our security, we can and have removed those
lenders from our so-called ``multi-issuer pools.'' When we did
this, we were proactive in making our concerns knows to the VA,
FHA, USDA, and CFPB and asked them for help.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM RAE OLIVER DAVIS
Q.1. The Administration is pursuing significant changes that
would limit the use of the False Claims Act. How does the HUD
Inspector General use the False Claims Act today and how would
any changes impact your work?
A.1. The False Claims Act is an important tool in combating
fraud against the Federal Government. The Department of Justice
(DOJ) is the agency vested with authority to bring suit under
the False Claims Act (FCA), but HUD OIG investigations may be
conducted jointly with DOJ or serve as the basis for suits and/
or settlements advanced under a theory of liability under the
FCA.
HUD OIG will continue to conduct its work and refer matters
to DOJ for appropriate action, regardless of any changes made
to the way the FCA is used. With that said, if confirmed, I
would seek a seat at the table with DOJ and HUD to discuss
future utilization of the FCA to ensure that HUD OIG's
perspective is represented adequately.
Q.2. There have been several allegations of ethics violations
by Trump administration political appointees, including some at
HUD under Secretary Carson's leadership. I am not asking for
you to comment on any of these allegations, but I am interested
in your willingness to act as an impartial investigator. Do you
pledge, if confirmed, to conduct investigations into
allegations of misconduct in an impartial manner, without
regard to whether the subject is an appointee of the
Administration?
A.2. Yes. If confirmed, I pledge to be an independent Inspector
General that is impartial, unbiased, and objective in fact-
finding and reporting. As I stated in my opening statement
before the Committee, if confirmed, I will not allow the
Department to direct or obstruct my investigations. It is my
firm belief that politics have no place in the decision making
of an Inspector General. I will be independent and impartial in
investigations of all HUD officials, including political
appointees.
Q.3. The Office of Inspector General serves an important role
in investigating allegations of misconduct and conducting
audits. Often, these reviews are retrospective. In your view,
can the Office of Inspector General play a role in proactively
assisting HUD and its grantees, participants, counterparties,
and partners to implement best practices? If so, how would you
go about that?
A.3. Yes. I believe that IGs can be extremely effective by
engaging proactively. Helping the Department avoid losses is
the most efficient way to achieve the purposes of an IG. We can
be effective proactively through communication and innovation.
Engaging with HUD to ensure we are up to speed on issues
arising in their programs is critical to doing meaningful,
proactive work. For example, HUD OIG has recently done capacity
reviews of grantees that will administer HUD CDBG-DR funds. If
confirmed, I will seek to do more of these type of reviews of
CDBG-DR grantees, but also in other HUD programs.
I also believe we must find new ways to do our work so that
we can effectuate change and push HUD forward towards success.
Utilizing data and cutting-edge technology can help IGs move
swiftly and focus our efforts. If confirmed, I will work to
make HUD OIG a data-driven workforce that plans our work in
areas where the data tells us we should be looking.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM RAE OLIVER DAVIS
Q.1. Since Secretary Carson was confirmed, there have been
multiple allegations of HUD employees facing retaliation and
reprisals for speaking out about various misconduct ranging
from spending decisions to overpayments to contractors. If
confirmed, will you commit to fully investigating and
addressing any allegations of retaliation or reprisal directed
at HUD employees?
A.1. I will. Whistleblowers are the life-blood of IGs. We rely
on their courage and dedication and, if confirmed, I pledge
that my office will be as dedicated and courageous in efforts
to defend and protect whistleblowers. We can achieve this
through thorough investigation of allegations of retaliation
and effective communication and collaboration with the Office
of Special Counsel. Equally important is our communication with
whistleblowers and HUD employees about the laws applicable to
whistleblower retaliation and the process available to report
potential retaliation.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM RAE OLIVER DAVIS
Q.1. DATA Act: In November 2017, the Office of Inspector
General completed a DATA Act Compliance Audit in accordance
with the statutory requirements of the Digital Accountability
and Transparency Act of 2014. That report made five
recommendations to improve HUD's compliance with DATA Act
requirements. While the Department has made progress in these
efforts, would you continue to devote appropriate resources to
fulfill your oversight responsibilities under the law?
A.1. Yes. If confirmed, I will ensure that our office has
sufficient resources devoted to monitoring HUD's compliance
with the DATA Act and all Federal laws. If confirmed, I plan to
coordinate with HUD's leadership early on to identify ways HUD
can implement open recommendations related to its top
management challenges, including the DATA Act recommendations
from our 2017 report.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM RAE OLIVER DAVIS
Q.1. During the Trump administration, we've seen a number of
Secretaries break ethics rules, including Secretary Carson. In
addition to overspending taxpayer funds on redecorating,
Secretary Carson has used his position to give his family
members undue influence over policy decisions, and unfettered
access to other Government officials, including those they have
business before. I, along with several of my colleagues, have
sent letters to the HUD OIG requesting investigation into
Secretary Carson's actions during his tenure as Secretary.
Given the important role you've been nominated to, can we
expect you to stand up to powerful political interests, like
Secretary Carson?
A.1. Absolutely. One of the priorities that I outlined to this
Committee in my confirmation hearing was conducting thorough
investigations of misconduct within, and affecting, HUD. This
applies to any HUD employee, appointee, and individual or
entity that is involved with or seeking involvement in HUD
programs or platforms.
Q.2. Will you commit to respond in a timely manner to requests
for information from Members of this Committee, and the Senate?
A.2. Yes. If confirmed, I will provide timely responses to
every request made of HUD OIG.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM DINO FALASCHETTI
Q.1. In 2017, the House of Representatives passed the Financial
CHOICE Act, H.R. 10. At the time, you served as Chief Economist
for the House Financial Services Committee. Section 151 of the
CHOICE Act repeals the Office of Financial Research. Do you
think the Office of Financial Research should exist? If so, was
Section 151 of the CHOICE Act a misguided provision in the
bill?
A.1. I believe the OFR should exist, and has a critically
important mission.
If confirmed, I will work to fulfill the OFR statutory
mission to support the Financial Stability Oversight Council in
fulfilling its purposes and duties, and promoting a more
resilient financial sector by providing the FSOC firmly
grounded, and data-driven, research it needs to evaluate and
address risks to financial stability.
Q.2. The Director of the Office of Financial Research has broad
authority to set the budget and staffing levels at the agency.
The agency is funded through assessments on systemically
important financial institutions. The FY2018 and FY2019 OFR
budgets drastically reduce the annual funding and staffing
levels of the agency. Compared to FY2017 levels, the recent OFR
budgets have cut funding by 25 percent and staffing by over 35
percent. If confirmed, would you reverse these budget cuts?
A.2. I understand there are efforts underway to reorganize the
OFR. If confirmed, I will review these reorganization efforts
to ensure that the agency has the appropriate resources and
staff necessary to fulfill its statutory mission and support
the Financial Stability Oversight Council.
Q.3. In your confirmation hearing, you stated that the OFR
Director does not have independence when it comes to setting
the agency's budget and that the decision is a ``conversation
with the Treasury Secretary.'' Section 152(c) and (d) of Dodd-
Frank states that the Director must consult with the Treasury
Secretary when setting budget and staffing levels, but the
final decision rests with the Director. Per your reading of
Dodd-Frank, which official has final say over the OFR's budget?
If you disagree with the Treasury Secretary regarding the
agency's budget and staffing levels, will you defer to the
Treasury Secretary or will you implement budget and staffing
levels that you think are appropriate?
A.3. Section 152(c) of the Dodd-Frank Act states the
``Director, in consultation with the Chairperson, shall
establish the annual budget of the Office.'' Section 152(d)
states that the ``Director, in consultation with the
Chairperson, may fix the number of, and appoint and direct, all
employees of the Office.'' If confirmed, and in consultation
with the Chairperson--as directed by statute--I will implement
a budget and make staffing decisions that allow the agency to
fulfill its statutory mission and support the Financial
Stability Oversight Council.
Q.4. The Office of Financial Research recently published a
proposed rule to collect additional data on the repurchase
agreement (repo) market. According to the proposed rule,
regulators would only have access to data on roughly 50 percent
of the repo market after the new data is collected. This short-
term funding market played a central role in the 2007-2008
financial crisis, as a run on these liabilities helped bring
down investment banks Bear Stearns and Lehman Brothers--while
causing significant stress at countless other institutions. Ten
years after the financial crisis, it is troubling that
regulators do not have the data necessary to clearly evaluate
this market. Do you commit to implementing the proposed data
collection and expanding its scope to provide regulators with a
clear picture on 100 percent of this systemically important
funding market?
A.4. If confirmed, I will work with the other members of FSOC
to evaluate data needs in order to fulfill OFR's statutory
mission, including evaluating the potential need for additional
data collection in the short-term funding market.
I will also commit to reviewing the proposed rule to
determine if the size and scope of the information proposed to
be collected is appropriately calibrated, and allows the OFR to
fulfill its mission and support the Financial Stability
Oversight Council.
Q.5. One part of the OFR's mission is to conduct long-term
research on emerging risks to the broader financial sector. The
agency was designed to be an independent source of such
research--driven by data, not politics. How will you set the
agenda for OFR's research projects? Do you think OFR should
take requests for research from the financial services
industry? Do you commit to publishing rigorous, data-driven
research, even if you may personally disagree with some of the
conclusions?
A.5. OFR's core purpose is to serve FSOC and its member
agencies. I believe the OFR's mission is critically important
in promoting a more resilient financial sector by providing the
FSOC with firmly grounded, and data-driven, research it needs
to evaluate and address risks to financial stability. If
confirmed I will determine what research is needed based on an
assessment of what will best serve the FSOC in fulfilling this
mission in both the short-term and the long-term.
My academic career taught me the importance of not
pretending to know the answer to important questions before
seeing the facts. Instead one must apply rigorous empirical
analysis to see what the real world data show.
Q.6. What will be your research priorities for the OFR, if
confirmed?
A.6. If confirmed, my first goal is to provide FSOC and its
member agencies with the firmly grounded and data-driven
research they need to evaluate and address risks to financial
stability. Fulfilling this goal is important for robust
economic growth and taxpayer protections. My second goal is to
build out OFR's foundational work to strengthen market
discipline by increasing financial market transparency. Working
toward this goal promotes financial stability and strengthens
economic growth.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM DINO FALASCHETTI
Q.1. Do you agree that the recent rule proposal on cleared
transactions in the repurchase agreement market (RIN 1505-AC58)
is broader in scope and seeks data fields beyond what is
necessary to inform the FSOC according to the stated purpose
explained in the accompanying release to the proposal?
A.1. If confirmed, I will commit to reviewing the proposed rule
to determine if the size and scope of the information proposed
to be collected is appropriately calibrated, and allows the OFR
to fulfill its mission and support the Financial Stability
Oversight Council.
Q.2. Would you be open to industry comment on how this proposal
could be made less burdensome to the industry by revisiting
both the scope and implementation timing for the proposal?
A.2. According to the Federal Register, the OFR is receiving
public comment on the rule until September 10, 2018.
Q.3. If confirmed, how will you reconcile any future OFR
rulemakings with the Trump administration's efforts to
streamline regulation and regulatory burdens? Further, if the
OFR intends to collect additional data from the financial
services industry given all the recent Government data
breaches, how will you work to ensure privacy and appropriate
security controls are in place around the data once received by
OFR?
A.3. Data security is of the utmost importance to the mission
of the OFR. If I am confirmed, rest assured that I will take
this responsibility very seriously and will review the policies
and procedures that are in place in order to determine if they
are adequate to maintain the security of the data. Doing so is
important to maintain the confidence of the entities from which
the data are being collected and the confidence of the American
people in our broader financial markets.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM DINO FALASCHETTI
Q.1. As you know, OFR is designed not only to be an
independent, data driven, deeply analytical, and apolitical
research organization, but also to serve as an early warning
system to identify risks before they snowball into another
financial crisis.
In a June 11, 2018, Yahoo! Finance article, the Chief
Investment Officer of Global Fixed Income at Goldman Sachs
Asset Management was quoted as saying the following:
When the music stops I do think it's going to be pretty
ugly . . . We've sown the seeds for the next downturn
and there's a lot of similarities . . . After '08
everyone was like, `I can't believe we did all those
very stupid things.' But we're doing them all over
again.
What are the one or two risks that you already know should
be explored and will commit to explore comprehensively, if
confirmed?
A.1. First, I would want to learn more about how OFR's own
monitors and research rank such risks and the basis for those
rankings. OFR employs a number of very capable researchers and
support staff, and I would want to consult with the staff
before providing any ranking.
Second, we must always be vigilant about the potential
buildup of risks to the financial system, such as the risks
that could be posed by cybersecurity threats or overreliance on
short-term wholesale funding.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM DINO FALASCHETTI
Q.1. President Trump has supported cutting OFR's budget and
staff by nearly 38 percent. \1\
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\1\ Savransky, Rebecca. ``Trump Slashing Staff, Budget at Office
of Financial Research: Report''. The Hill. December 6, 2017. Available
at: http://thehill.com/homenews/administration/363493-trump-slashing-
staff-budget-at-office-of-financial-research-report.
---------------------------------------------------------------------------
Do you support these cuts?
A.1. I understand efforts are underway to reorganize the OFR.
If confirmed, I will review these reorganization efforts to
ensure that the agency has the appropriate resources and staff
necessary to fulfill its statutory mission and support the
Financial Stability Oversight Council.
Q.2. Since the beginning of the Trump administration, FSOC has
voted to deregulate, or backed down on systemically important
designations, including a designation for AIG and agreeing to
dismiss the SIFI designation of MetLife. The Office of
Financial Research is responsible for supporting FSOC in their
activities, including analyzing data and performing long term
research.
Do you believe there are any current risks in our financial
system that pose challenges to our short-term or long-term
economic health? If so, what are they?
A.2. If confirmed, I will review data, and work with FSOC
member agencies to identify possible sources of systemic risk
that could impact our economic health, including potential
cybersecurity risks and those related to overreliance on short-
term wholesale funding. I look forward to working with members
of this Committee and your staff to outline these issues,
including in OFR's Annual Report to Congress as required by
statute.
Q.3. A recent report by the Treasury Department advised FSOC to
make SIFI designations for nonbank financial institutions based
on complex activity analysis, as opposed to utilizing the $50
billion consolidated assets threshold. However, I am concerned
by a recent New York Times article that highlighted gaps in
regulators' awareness of the derivatives market, particularly
in regards to American banks' exposure to foreign markets. \2\
---------------------------------------------------------------------------
\2\ Flitter, Emily. ``Decade After Crisis, a $600 Trillion Market
Remains Murky to Regulators''. New York Times. July 22, 2018. Available
at: https://www.nytimes.com/2018/07/22/business/derivatives-banks-
regulation-dodd-frank.html.
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Do you support FSOC shifting away from asset threshold to
activities analysis to inform SIFI designations?
A.3. Examining institutions based on activities will allow the
FSOC to better understand the specific risks an institution may
pose to the financial system, thus improving the process for
monitoring risk to the financial system. If confirmed, I will
work to provide the FSOC with firmly grounded, data-driven
research that will aid in this process and allow them to
evaluate and address risks to financial stability.
Q.4. Do you believe that current data reported to regulators
accurately depicts nonbank financial institutions' risk
exposure?
A.4. While I cannot speak for the specific data collection
efforts of regulatory agencies, I believe the OFR's mission is
critically important in promoting a more resilient financial
sector by providing the FSOC with firmly grounded, data-driven
research it needs to evaluate and address risks to financial
stability. If confirmed I will determine what research is
needed based on an assessment of what will best serve the FSOC
in fulfilling this mission.
Q.5. Do you believe financial regulators have the staff and
resources needed to request and analyze data on derivatives
trades?
A.5. While I cannot speak for other regulatory agencies, if
confirmed I will work in consultation with the Chairperson of
FSOC to ensure that OFR has the appropriate resources and staff
necessary to fulfill its statutory mission and support the
Financial Stability Oversight Council.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM DINO FALASCHETTI
Q.1. The work conducted by the Office of Financial Research has
many audiences--academics, industry, policymakers, and the
public.
One of those critical roles is producing research that can
help inform legislators as we examine financial markets, now a
decade after the financial crisis.
Having experience in Congress, what are some areas of
opportunities you can see for OFR to expand its relationship
with lawmakers, while maintaining its independence?
A.1. If confirmed, I look forward to working with you, other
Members of Congress--especially those on the Senate Banking and
House Financial Services Committees--and the other FSOC members
to promote a more resilient financial sector. I sincerely look
forward to building and maintaining a constructive dialogue
with members of both chambers and both sides of the aisle while
respecting OFR's statutory mission. As a Congressional staffer,
I very much appreciate the role of Congress and the importance
of keeping Congress informed about these important issues
affecting Americans across the country.
Additional Material Supplied for the Record
LETTER SUBMITTED IN SUPPORT OF THE NOMINATION OF ELAD ROISMAN AND DINO
FALASCHETTI
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
LETTERS SUBMITTED IN SUPPORT OF THE NOMINATION OF MICHAEL R. BRIGHT
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]