Transcripts For CSPAN3 Key Capitol Hill Hearings 20141120 :

like you were at some of these meetings where some of these things were discussed -- >> no, the nsa was there, i just got the tapes. i'm sorry. >> so we don't have a public listing, per se, but in the first phase of power africa, we did very carefully, through a rigorous interagency process, discuss which would be the six focus countries. and the factors that you describe are, indeed, many of the things that we looked at, to try to assess who would be the good partners. and we will go through a similar process as we think about the expansion. one of the ones that i -- there's plenty to say about all of them, but one of the ones that i'll just spend a moment on is the host country's commitment. because as some of the other testimony alluded to, if you're trying to have viable electric utilities, if you're trying to solve some of the problems that are private sector, investors have encountered, in trying to do viable deals, you've got to have a commitment to do things differently. so that was a very -- one of the many components, but it was one of the most important components, to make sure that we really had committed partners, who would does this in partnership with us and the private sector. >> well, congressman, i can't give you a ranking, but, obviously, i mentioned a number of the countrieies that we're working with on the oil and gas side, that are at different stages in their development. some are more gas prone, others look like they, you know, have good oil potential, like angola, et cetera. i think the companies are, you know, we have a range of companies, u.s. included, that are working in these areas, and that they're assessing the risk and they're assessing the commercial viability of these resources. there's a lot of exploratory drilling that is planned in some of these countries. so we'll have, i think, i think this is, over the last couple of years, there's been a lot of activity in this area, so i think it's going to be a couple of years before this sort of shakes out in terms of where are the biggest opportunities. but clearly, mozambique and tanzania in terms of the world scale gas resources are ones that everyone is looking at, both for export as well as for looking at the potential for east africa and the whole, and including in south africa, the potential for that gas to have, and develop the infrastructure. we recently had -- there was recently a seminar that we had as part of the ministerial that looked at the east africa gas infrastructure opportunities that was done by the columbian energy center, that there's a report on that i would be happy to send you on that issue. i think on terms of the issue of the investment climate, the question of the whether countries -- whether investors are willing to come in without sovereign guarantees is a key factor. and in some countries, i think, you know, investors are saying, well, in kenya, we'll do that, we're willing to come in without a sovereign guarantee. in other countries, you won't. so you then have to look to, are there, in a sense, partial risk guarantees and other mechanisms that the world bank or others can put in place that will, in a sense, mitigate some of the risks of the investments. >> thank you. answer my questions. i recognize mr. stockman. >> i thank you for the panel for coming out today on a friday. and according to your testimony, you've been in government for 40 years and you mentioned you're in bangladesh, so is that a good 40 years or -- >> my question is, when i was over there in nigerinigeria, the mentioning some policies, and you mentioned you had standards. are there any standards which prevents interaction by the state department, which is predicated on the government's social policies, or is it strictly a benign interpretation of their capabilities? in other words, when i was in nigeria, they were trying to free the girls that were kidnapped and the u.s. military said, we need to get permission from our government to give them and facilitate information. and it was denied because of the interpretation of the president's leadership in nigeria. i'm wondering, do you have similar restrictions on governments such as uganda and nigeria, and saying we don't get involved because of their social policies, or is that a separate issue? >> well, i think as we look at our overall engagement in the countries, we will work very closely with the ambassador and the embassies in assessing the political situation, the severity of the issues, if there are social or human rights issues, and make a decision on a case-by-case basis. i think it's hard to generalize, other than to say that since we're not just sort of pursuing energy for energy sake. i mean, it is part of our broader foreign policy interests, in that it takes into account a lot of these -- >> would you -- could you get me -- could you -- or maybe you know off the top of your head, is nigeria or uganda, are there restrictions that you have in terms of working with them on energy? >> i think right now, we started in uganda early on, in terms of the energy governance and capacity initiative, and we've done a lot of work on geophysical side and environmental land use planning, et cetera. i think the situation now, to the best of my understanding, is that we have put on hold any further work in uganda. >> and that's because of the social policies? >> well, i don't know. >> so we've scaled back our activities and looking about whether or not we can proceed. >> but is that because of social policies that you scaled back? >> i think it was a combination of things. but i will have to get back to you -- >> i was going to say, i'd appreciate that. i think that would be very helpful. i think, actually, congressman smith would be interested in that. so, i think, would be congressman webber. i think we'd all be interested in that. i have to tell you on a personal level, when i was in nigeria, and i think it actually was from mr. postel's administration or department who advocated that we not involve our military intelligence in helping nigeria, because of some of the interpretations of the current government's positions. to me, that was a little bit alarming, because i now found out today that the chinese have given nigeria some of the equipment that they've been requesting from the united states, and my fear is, because of our policies, that we may be driving, as you know, the continent of what is really being recolonized, not by the british, not by the americans, but by the chinese. and in the republic of congo and the drc, there's a whole mountain of copper, as you know, that was sold for pennies on the dollar. and the chinese have their workers there, and there's no kind of interplay or development with the host country. it's very much -- in fact, i would argue, worse than what the colonial governments ever did. and yet the chinese are continuously expanding their breadth of involvement. and my concern is that we're putting restrictions on ourselves to the degree that now we become less important to those host countries. so as you go forward, i would hope that you would see that the chinese are a serious player and that they are a -- in terms of competing with the united states, could be a very problematic down the line. and you're shaking your head yes. i hope you can tell me -- >> thank you, congressman. i will definitely take note of your comments and i will investigate further in discussion with the head of our office there. i'm not familiar with all the circumstances of this. but certainly, i fully recognize the point you're making about very active presence of china in africa. >> yeah, and i just say, i think sometimes we should do more pragmatic analysis, and not involve so much the -- i mean, i guess we need to balance it in order to compete with our chinese competitors. and it is a, in almost every country, whether it's chad or egypt or sub-sahara africa, i keep seeing the chinese in a heavy, heavy way. and privately, with i think it was the republic of congo, some of the administrators said they prefer americans, but the hurdles -- and for reasons in past history, they have -- some of those countries have embezzled and taken a lot of money from their own people. so in some ways, it's justified. but my more concern is the interpreting the internal social policies, i think are beyond the scope of what i think the united states should be doing. and i just want to express that. and also, i think in terms of the oil development, in particular, in sub-sahara africa, there are countries -- companies in my district, baker hughes and halliburton. i guess halliburton now technically is in abu dhabi or dubai, kind of moved, they would like to be in there, but there is, as you know, a foreign corruption act, and there can be some misinterpretation of that law being applied to our own companies. and to that extent, i think there's a great deal of frustration on our side, in houston, where we would like to see more cooperation, and i think in deference to our own corporations, if you could give them guidance, in what they can do to facilitate more involvement to those countries would be a great boom -- well, texas is already booming. we have no problem with fracking in our state, but i'm still saying, i think it would be beneficial to the united states, and maintaining that would keep our influence there. but i'm just alarmed at the rise, and you guys know i'm right, about the rise of china in there. and obviously, they have almost no restrictions whatsoever. and they have no compunction about paying leaders large sums of money in order to facilitate their advantages. and with that, i yield back to my chairman now. >> thank you very much. before we go to the second panel, i would just like to ask one final question. and that has to do with the -- obviously, the terrorist threats to many countries and people in africa. from boko haram to al shabaab are very significant. i wonder how you protect people against terrorist attacks, including cyberattacks. which we know could be devastating to an electrical power generating grant or any other that's out there. so if you could perhaps speak to that issue, protecting and hardening it to terrorism? >> thank you for the question, chairman smith. i will defer to my colleagues, specifically in relation to power africa and those engagements there. i can tell you that the recognition that we encounter from energy companies and energy agencies, ministries in our international engagements, to an ever-increasing degree recognize the importance of protecting infrastructure. one of the things that the department of energy does is to enter into cooperative engagements with key international partners and we do this at their expense, at the expense of the host country, to help them identify vulnerabilities, plan their systems so that they are resilient to any threat, it's an all-hazard approach. whether one is talking about severe weather or cyberattack or physical attack. and we have found that this is an area where the united states is in a position to add a tremendous amount of value from our experience. i'll have to defer to my colleagues as to whether that is being done in the power africa case, i simply don't know the answer myself. >> thank you for the question, mr. chairman. i will double check, but i believe that some of these changes, depending on the topics that are of interest to the energy regulators, the power pull operators, or the utilities, i believe some of these exchanges that i will be sending you details of have included those kinds of topics. the other important thing is just the involvement of the private sector, because a lot of the private sector investors have a lot of experience in thinking through these risks, and when they're investing from offshore, i think they're looking at all risks, and that's another avenue in on this topic, which is, they stand to lose a lot of money if they don't pay attention to these topics. and so we also count on them to be very involved working with local folks to look at that. >> but just to be certain, it is integrated into planning, development, and the like, as well as implementation? >> i want to double check on that, sir. because i don't know if it's been always demand driven or whether it's integrated to also. i will come back to you with a specific -- >> i appreciate that, thank you. >> i would just say that in a sense, the early stage of really developing the electricity grid systems in africa. we have the three power pulls, east, west, and south, at different stages. i think that in that process, and working with the international financial institutions like the world bank and african development bank, there is a lot of consideration about the security and reliability issues that are going into the development of the lone programs and specifications for what kind of systems they can put in place. but, clearly, it is, it's going to be an issue that is going to be, you know, be with us, especially as they begin to invest more and more in developing, you know, high-voltage transmission systems. >> now, would the expertise of homeland security or the pentagon be -- or state department, diplomatic security, be incorporated? i say that, because after we got hit in nairobi, i chaired the hearings for the accountability review board, after 1998 terrorist attack. and i'll never forget when assistant secretary carpenter said that they will look for any vulnerability, that nothing is off-limits -- i'm paraphrasing, of course. but he sat right where you sat in 1999, when i chaired the hearings. and out of that, i wrote the embassy security act, which became law, and it added much -- the setbacks that bobby inman had talked about were all finally implemented, because they had not been implemented for years. and they're still in the process, of course, in some of our missions abroad, but it was a lesson i learned that, you know, that people just thought it wouldn't happen here. and you know, let the guard down, and of course, you know, those who wish us well -- ill, i should say, these nefarious networks, will look for any vulnerability, the usual world, which i think is the right word. if you could get back to us, if you would, how that whole process of protecting, and i'm glad you elaborated, as well, that it's not just against terrorism, it's against earthquakes and natural disasters as well. just so the subcommittee, and in any way we could be helpful in promoting even more of that, because i think going forward, they will be increasingly at risk. i mean, the terrorists are not foolish. they will look for anything which will do maximum damage. so if you could get back, but i thank you for your answers as well. miss bass, anything? anything you'd like to say before we conclude? >> i think i could speak on behalf of my colleagues, both at the table and in our agencies, that we just reiterate our thanks to all of you for your leadership and your interest. we are not going to collectively solve this challenge without your help and we very much appreciate it. >> well, thank you. it is a partnership. thank you for taking the lead and doing it so effectively. the subcommittee, i know members of both sides are greatly appreciative of what you have accomplished and will accomplish going forward. thank you. i would like to now welcome our second panel, beginning first with mr. walker williams, who is president and cio of leadership africa usa, an alternative marketing access. mr. williams is a management consultant with more than three decades of experience, working with governments, corporations, ngos and multi-lateral institutions. his areas of expertise and strategic advice include energy, infrastructure, development, finance, management, and communications. he has worked with the u.s. department of energy on the first u.s. africa ministerial in morocco and another this past year in ethiopia. i would note, as well, mr. williams was also instrumental in bringing house and senate together, in the african diplomatic core for an historic and now ongoing set of meetings that we have had to meet with the african ambassadors and dcms and others, from all of the african countries, and i want to thank you for your leadership in making that happen. then we'll hear from miss diane sutherland, who has been working within africa for the past 17 years. 13 of those years as a resident of egypt. miss sutherland entered the oil and gas publishing business in 2001, and by late 2002 launched what is known as petroleum africa magazine. in january of 2008, she also launched alternative energy africa magazine. additionally, miss sutherland offers her services as a research consultants of ghana. we will be hooking up with her by way of video. but if you would, mr. williams, begin with your testimony. >> thank you, chairman smith, ranking member bass, member stockman. i appreciate, greatly, this opportunity to come before you this afternoon to talk about energy. it's something that is of criminal importance, not only to africa, it's important to the u.s. economy and i've got some prepared remarks i'm going to refer to and i've also submitted testimony. i'm going to start, i'm going to take a different take than the first panel, because i'm coming from the civil society side of the ledger and i wanted to take a few moments and talk about leadership africa. we do programs throughout africa. and before that, i was very instrumental in working in the caribbean, on the caribbean basin initiative. and we worked on angola. and i want to say you, any ngo or civil society organization working in africa can only implement programs if there is energy and power and electricity. and we're kidding ourselves. my emphasis has always been on education, and if we don't have electricity in the schools or we don't have computers, the kids aren't getting an education. so by necessity, we have adopted and started to work and move into the energy sector in order to ensure that the programs that we put together can be leveraged and can be sustainable. now, chairman smith referred to some meetings that we did several years ago, but the little background on that was, the african ambassadors have an african ambassadors group, and they meet regularly once a month. but they were not involved in the deliberations around agoa. so two, three years ago, we took it upon ourselves to start meeting with them informally, and we wanted to hear from the african ambassadors. we wanted to hear from the beneficiaries of these programs that we talked about earlier this morning, what their take was, what thoughts they had about solutions to some of the challenges that are affecting them and that they're confronting. and with that in mind, we spent some time working on agoa. now, agoa is up for reauthorization, between now and september 15th. and it's a very important initiative. but i'm going to say here this afternoon that we, as the ngo community, we as civil society, we link actigoa to energy. if you don't have energy, you're not going to make the kinds of changes and have the kind of productivity that you want through agoa, because you can't industrialize. you don't have the energy and the power to meet the metrics and solve the solutions. so i'm saying to you, we lick, like the african ambassadors link, and like the hegs did at the leader summit, they link agoa and they link energy. they're too key, key priorities for them. and i want to suggest that when i mentioned in my prepared remarks, references to agoa, it's because they see agoa linked to energy. we don't do it quite that way, but that's how the african ambassadors and that's how the african heads look at that, those two issues. there was reference earlier to the u.s. africa ministerial. u.s. africa had the privilege of coordinating that meeting in ethiopia on behalf of the u.s. department of energy. so i was happy to hear that the u.s. department of energy and those who attended felt it was successful, and yes, we did have 500 participants. we had about 120 cooperations, both u.s. and african companies participate, and it was successful enough that when i came back and what i'd heard in ethiopia, i've been pushing, and this is the point i want to make, that we need follow-up. we need consistent intentional follow-up. we didn't get into it to coordinate with the u.s. department of energy, and we had 13 u.s. energies participating without there being follow up. and the focus of that was power africa, they announced beyond the grid at that session in ethiopia, and it is going forward, but i'm going to suggest, and pick up on what the ranking member basset earlier, that we also need to bring additional players to the table. and in my prepared remarks, i talk about small minority and women-owned businesses. and i talk about that in linking them with their counterparts in africa. now, why do i say that? if you look at what's going on in the continent, there is a policy which the african governments call localization. they are saying to our u.s. companies that if you really want to work in our country and if you're looking for business opportunities in our country, you need to find a way to train our local citizens, you need to find a way to participate. so it's in our self-interest, and i think there is a nice marriage between our small business community and the african business community to share, to twin, to work together, around and under power africa and, of course, mcc's program, because there's what we would refer to in the private sector, a money sock. and where there's money, you know you're going to get paid. now we just need to make sure that these programs encourage those programs, our u.s. companies and others, reaching out to their smaller business community to make sure there are opportunities for them to participate. i also in my prepared remarks talk about something that i think needs to be better, more focused on. and that is what i call reachlization. i believe and i have put forward and made suggestions that the way to really deal effectively with energy, electricity, and power is on a regional strategy, working with the regional groupings that are already in place in africa. because in some sense, you might find it's easier to take electricity from ghana and ship it into a neighboring country than it is to use it internally. so i've urged, and i've been in conversations with doe, and i think that's a strategy that if they can find a way to do that, it starts to lead to some other things, which we call trade utilization. see, electricity is so powerful, if you came to me and said we're going to have a regional approach on electricity, it starts to get to trade utilization among the leaders, because it's something they all share a need for. you get them talking and they start to break down some of the barriers around working across borders in terms of these priorities. i didn't, as you notice, repeat the statistics. we know that over 600 million people in africa are without electricity. we know that africa needs resources, but the other thing that africa does need, it needs training and capacity development. and that is something that the u.s. government and our agencies are very capable of providing and doing. we just need to make sure that they continue to work together, like they're doing with the power africa working group, which is an excellent program. i'm pushing very hard for the eaa program, the electrify africa program, because it sort of stabilizes and puts in place a long-term solution. and i'm also saying that we need to encourage and listen to our african partners. we need to hear from them and we need to look at more partnering relationships to maintain our competitive advantage. you know, when the agencies talk, and i'm a little bit involved in the industry, the agencies don't control any energy. you know, they don't control any oil. and so you really do need to find a way to create public/private partnerships and be supportive of those entities in the u.s. that do have access to these resources and hear from them, like i'm listening to the african ambassadors and the african heads on what they think will help them do a better job and create employment opportunities, not only here in the u.s., but in africa. and i think with that, i will defer to my other counterpart, if she's here. >> mr. williams, thank you very much for your testimony, and without objection, your full statement will be made a part of the record. i would like to welcome from houston, texas, diane sutherland, and you're recognized. please proceed. >> i would like to convey my appreciation to the subcommittee for the invitation to testify at this hearing today on africa's energy future. since entering the african energy industry over 14 years ago, i have witnessed a vast transformation in both the continent's fossil fuel and alternative energy sector sectors and in parallel, significant growth in international investment. although africa holds an abundance of fossil fuels and renewable energy resources, the continent is sorely underpowered in access to clean, affordable energy is a luxury to most of its over $1 billion population and despite the continent possessing 6% of global oil reserves and being responsible for about 10% of global production, the majority of africans do not reap the benefits of the resources. many of these underpowered countries earn incredible sums of revenue from their hydrocarbon, agricultural, and mining sectors, but very little is, in turn, invested into power infrastructure. the companies opening up africa's oil and gas potential are primarily small to mid-sized independent firms with limited capital. they secure the exploration licenses, conduct the geophysical work, and then market their findings to larger, multi-national firms to secure funding and minimize their risk when it comes time for drilling. this trend has been chiefly responsible for the major discoveries over the past two decades, and the opening up of new frontier basins. in the past ten years, i can't oil and gas discoveries have been discovered in countries such ghana, kenya, mozambique, tanzania, uganda, and others. improved technology deployment has also played a large role in enabling these discoveries, with some of africa's developments in the deep offshore rivaling that of those in the gulf of mexico. and while natural gas was not too long ago considered a nuisance by-product in subsahara africa, the resources increasingly utilized in large-scale operations, such as lng, power generation, and trans-border pipelines, and also in smaller gas applications, such as lpg, and cng. with the known natural gas reserves across north africa and new discoveries in sub-sahara, the continent is a natural gas player to be reckoned with in the future. in mozambique and tanzania alone, there is reasonable confidence that the two areas together hold a resource of at least 190 trillion cubic feet. both are expectations that proven reserves could more than double with future exploration. and the shale boom is not exclusive to north america. africa, too, as her share of unconventional resources. shale oil, shale gas, and coal bed methane are all now reserving attention from both governments and the private sector and a number of projects are afoot. as for alternative energy, there are literally hundreds of small-scale projects established and in the works, not to mention the dozens of larger scale projects on the drawing board. these translate into billions of dollars of investment for the continent. the sector is making progress with new renewable specific legislation emerging in many countries, facilitating development of the industry. in addition to the major wind farm and solar projects online or under construction in egypt, ethiopia, kenya, morocco, and south africa, the continent is tied to a power resource is enormous, but some estimates have it accounting for 12% of the world's potential. the chinese are already heavily invested in africa's hydropower and they are funding 500 million. ethiopia is looking to develop six gigawatts of power with its grand renaissance and the in the democratic republic of congo will be the world's largest if plans are implemented as envisioned. not to be left out is geothermal. kenya is said to construct new geothermal power plants by december 2015. and in fact, its strategy would make it the number one geothermal producer by the year 2033 if executed accordingly. and having a near-term tangible impact in improving the lives of africans or the many small-scale offgrid rural projects. these projects are varied and include household solar projects, community waste solar -- waste energy, sorry, rooftop solar and wind, and biofuel and biogas applications. and perhaps the greatest achievement over the decades has been seen in the manufacturing sector of the solar factories emerging to meet growing regional demand. this trend has led to a technology transfer with africans wanting to provide services to their communities. in addition, other small projects have allowed typical low-income villagers to become small business owners and in turn pass on technology to their communities. this development is certainly a success story for the continent by any measure. and in closing, the hydrocarbon and renewable initiative set forth by african governments, as well as by their global partners, are paying huge dividends, while much progress has been made, there is a long road ahead to bring africans up to a first world standard of living. american know-how and investment can play a major role in making that happen. thank you. >> thank you very much for your testimony and your insights and expertise. i would like to now yield to miss bass. >> thank you. i appreciate you going out of sequence for a minute. i wanted to ask a couple of questions. but i first want to address my colleague, representative stockman. you know, the concerns you were raising about china, and i think one of the first things that we can do, hopefully before lame duck is over, is take care of two things. power africa that's over in the senate and also agoa. because to the extent we can increase our participation, because i know i've heard from many, many of the african countries, how much they do want to do business with us, but, you know, sometimes we put our own road blocks up. exactly. so, mr. williams, i just wanted to ask. i was asking the first panel about power africa and its reach into urban areas in the residential areas, not the commercial, and also in the rural areas. and you, you know, representing civil society. i just wanted to know your take on the same question i had asked the first panel. >> well, i believe, and it's anecdotal to some extent, but i do believe, having come out of the u.s./africa ministerial, and looking at the effective role and the amount of discussion that we talked about with grids, many grids, and getting electricity into rural areas. and then, at the leader summit, i attended a session that ge put on called africa rising, and there were many, many entrepreneurial-type things. by entrepreneurial, i mean, they're sustainable. in other words, they were going into rural communities and creating opportunities for young people to supply electricity and make a little bit of money to keep it going and keep their incentives up. so it's happening. and it could be expedited, but it is happening, and it is part of, when you get beyond the grid, part of the power africa agenda to expand this. >> thank you. and maybe miss sutherland? you would like to respond to that as well? >> i'm sorry. i thought the question was addressed to my colleague. can you repeat that again, please? >> oh, yeah, it was, but it was to you too. i was just wondering your opinions on how power africa and our efforts of reaching beyond commercial areas and going into urban, residential, and rural areas. >> i'm not that familiarized with that aspect of the industry, as my focus is on the petroleum industry. however, i do know that the african communities do appreciate american investment. there is absolutely other investment available to them from the likes of china. but they do like dealing with the americans better. and i know that there are several small-scale projects emanating from the united states, supplying offgrid solutions, such as, you know, the solar lanterns, replacing the kerosene, the clean-cooking stoves, and they are really quite receptive. >> i'll go out of order and i'll recognize mr. stockman and then i'll bat cleanup. >> yeah, i'm glad you're from houston. i represent houston. so -- and as you know, fracking was a critical part of george mitchell's portfolio, and i think that he really changed and revolutionized the world, when he developed the advanced fracking. and -- i think we lost her. that's okay. i would like mr. williams, in terms of, on our side, you're free market. can you be blunt enough to tell me, how is it that we're impeding, and in what ways can we un-do something to make it more beneficial for both sides? i mean, how is the government to -- you know, a lot of times, we have past laws here that have very well-intended meaning, but ultimately, it ends up impacting your industry or other industries, quite frankly, in a negative way. and i would look to know, what laws we passed that were meant to be for good that are not. >> well, in response, and to be undiplomatic, i mean, i don't think anyone ever passes a law that they don't think it's going to work the way they intend it to work. so we will start with that premise. the thing that i feel that we miss out on is that we don't really listen to the beneficiaries. i'm talking about in the u.s. the u.s. has great reach. if i was to ask an african energy minister to pick up your conversation about china, where would they like -- who would they like to work with? unanimously, it would be with the united states. but we do put in place, not the law, but then it is the policy, how the law is going to be implemented, that creates obstacles and the obstacles, and then in a global economy -- now, remember, oil is a global economy. supply and demand. so no one country really can control that whole industry. but if -- so if we put up -- if we put obstacles up, it goes to where there are less obstacles or they can get what they consider to be a fairer shot. but the preference, for instance, if an energy minister comes here and they want to work on something, and they would prefer to work with the u.s. department of energy, oftentimes they have to go to the state department. and then that means they have to involve their administer of foreign affairs. and they would prefer to keep it in the energy house. so some of the things that we do create obstacles for us going forward and then there are issues within some of our agencies where we can't be as supportive as the private sector would like, because of regulations that are in place, and the industries -- thingses a themselves don't want to necessarily show favoritism, to company a over company b. and so in some respects, the playing field is not level. and we -- our industries don't get the benefit of what we could do. >> yeah, i can -- we can just look at -- and no offense to the state department or the previous panel, but you can look at the time and length it's taken just to discuss a pipeline here in the united states. and it's unfortunate that the state department is interceding in free commerce, but i see it repeatedly. as you know, i met with -- this is years ago. i met with the drc's foreign -- not foreign minister, but energy minister, and that was a complaint back 15, 18 years ago, and it hasn't been resolved. and i'm not going to be here in january. i'm going to work as an intern for congressman smith, but my hope is that we can do some kind of legislation to where we step back and allow companies to work together. and it's absolutely true, by the way. they do want to work with american companies. they feel like we get a fair shake from americans. they also, americans do something that the chinese don't. the americans will employ local labor and train them in the technologies and the skills and they even invest in infrastructure. they love that. but the chinese are more parochial. they'll bring in their own labor, as you know, and their own labor is almost, in itself, they're locked up, and they don't even get to intermingle. so, i would request, if you have time or if you can administratively get us back some of the policies you think -- and you don't have to be diplomatic. it's just you, me, and connie chung. we'll keep it secret. if you can get us some of the things that congressman smith down the road can facilitate, where we're doing a better job of trying to help our industries, i'd appreciate that. i think some frankness would be in order here. >> yeah, well, you take power africa again. you just don't say, i want to turn on a switch. it takes years to develop some of these infrastructure projects. but the country needs the electricity now. >> yep. >> and we have a lot of technology we can come in and drop almost significant generators and tie it right into the grid and start to feed it while we're building out the more permanent, sustainable power supply. so there are a lot of things, and i'm happy to respond to you with some of those kind of shortcut thoughts that i have about how we can be more effective. >> i'm so on your side on this. i go nuts when i go visit there, because i really want to help them. i have great compassion for them. and they want, they want what the rest of the world wants. and yet i see, time and time, our government is interceding in a way that is disruptive and harmful for the very people we claim to want to help. and i just -- i'm thrilled that you've dedicated your life to this. and i really appreciate the sacrifices you've made and that the -- and i apologize for the bureaucracy and the inconsistency from our side. >> well, i appreciate that, but i also want to say, i got a lot of help from the u.s. side. don't get me wrong. >> well, i know that -- >> i have come and knocked on the door and i've received some help. >> but we can do better. when i go there and hear privately, some of the conversations i hear from their side, their government officials, it is, excuse my expression, but i'll use a profanity there, consider it used, i'm really upset that we are time and time again shooting ourselves in the foot. and with that i yield back to the chairman. >> just a few final questions. and mr. williams, thank you very much for your testimony and again for your leadership. can you tell us, do you have any insight as to how the participants, especially non-government actors were selected for the ministerial? you made a very good point about the importance of power africa, you know, having women-owned businesses involved. and i'm wondering, who does the selection? is it self-selection, people know they're coming and they get themselves on to a list and then have access, or is it by invitation only? secondly, the issue and i'll ask this of miss sutherland when she gets back on, but you might want to speak to it as well if for most of my career in congress, i've been in congress for 34 years now, i have been an ardent proponent of wasted energy initiatives, believing that, obviously, it takes caper of municipal garbage while it also produces clean energy and with modern technology being what it is, what comes out of that smokestack at the end of the day is assist pristine as it can possibly be. it's not always perfect, obviously, but with the right controls and the right environmental safeguards, it is cleaner. and we know as a continent and countries matriculate to an industrialized nation or continent, there's going to be, people want to cut corners, there's going to be much waste, industrial waste is one thing, but municipal waste will grow in number. and what do you do with it? and i'm wondering how well you think power africa is incorporating the waste energy initiatives as a way of powering up africa as part of a mix. and let me also ask you, you know, i did ask the earlier panel, and i think they will get back with some insights, but i am very worried about cybersecurity issues, and about terrorism. it doesn't take much if improper safeguards are not followed, whereby a whole infrastructure can be demolished very, very quickly. and miss sutherland, i guess she's still not on, but she had spoken about china. and we all know that china demands a great deal of repayment, usually, i mean, ghana, they get the oil and have access to that oil. we know that countries like sudan and others very often weapons are in the mix, in exchange for their raw materials, especially oil there. and i'm wondering if you feel we have competed well enough with the people's republic of china to say, as both my good friend mr. stockman and others have said, you know, the africans want to deal with the united states of america and with our private sector as well. but if it's not in the game, who do can they turn to? they turn to the chinese. have we turned that corner, or are the chinese still outcompeting us on the subcontinent? >> thank you, mr. chairman. your first question on the u.s.-african energy ministerial. leadership africa was responsible for the outreach in the marketing of that event that took place in ethiopia. the u.s. department of energy handled the government agency participation. those agencies who did come to ethiopia to participate. now, i can tell you, intentionally, we reached out to everybody. we went to commerce department, we got lists from all of the agencies, and we, small business, large businesses. so we made it inclusive. and then we made it easy for even the african businessmen to attend and we had african businessmen to attend and we had different price differentials so that it was a pittance, if there was complaints about who could not come or get there, it's on leadership africa usa. your second question was waste to energy. we have seen over the years, because we're an ngo, a number of waste to energy projects that work in rural communities. where there is the collection now of waste and it's the co-generation of waste to turning it into energy. if they're very effective, particularly with plastic, you'll find it in egypt, there's a huge project going on, in fact we were working with another ngo and they had a competition on an annualized basis and a lot of those people were dealing with removing waste and it was at the university level. so it's attractive to young people, attractive to young people in rural communities if they can clean up their communities and have some money coming from that and it generates electricity, it's a win-win for everybody. >> the competition with china, if you could touch on that one. finally, how do we measure success? we'll know it when we see it, or are there metrics that can be ememployed to say we have now seen such and such number of municipalities and people get access to electricity, does anybody have a backdrop in mind to determine whether or not we are succeeding in this effort? >> picking up on the china question, it's the glass is half empty half full type of thing. china has a different system than we have. they go at it differently. when you're talking to a company that says they're a chinese country, you don't know if it's partially owned by the government, representing the government. when you put our companies into that mix, it's hard to compete. and there was reference earlier to the foreign practices act and clarification and clarity on what, when you're working within the bounds, and everyone wants to work within the bounds, so that you're very clear. we can overcome what i think is china's vast amount of financing that they have available because we really make better partners. we're there for the long run. and i think that the african governments understand that and we need to work to pick up on your second question, we need to move it out of the leadership in the heads of the ministries and the government fiofficials, and move it into a level where we're talking to the business people, who like business people here can go talk to the government, but they need the support and the help and the assistance that we can provide them. >> i see ms. southerland is back, so a more general question would be, how well are we hitting in your opinion with chinese entities. how widespread are those projects which obviously do two great things at one time, produce energy, but also take care of a municipal waste problem. land fills as we all know are ticking time bombs. because of what they do to act whi which furs and water systems when they leak. if you could respond to that too. >> in reference to china, we're competing pretty well with china, however, as others have mentioned, the transparency issue is very big in africa, but there's only i believe 17 or 18 countries who have signed up to the eiti so those who have not yet signed up for it, or have not met the requirements to be approved, chinese money is very attractive. it comes with very little strings attached to it. that's just a fact. it's very attractive to some african governments. on the other hand, chinese technology, while it has vastly improved over the last decade, is still lagging behind american technology and many of the savvier national oil companies in africa would much rather prefer to work with american services firms and oil and gas exploration companies. as regards to waste to energy, projects are popping up all over the continent, they are small scale and medium scale. i know of one project that it's waste to energy that comes from a prison facility and that waste to energy powers that facility. there's also animal waste to energies well as municipal waste to energy. so municipal waste to energy has very high potential in the continent and i believe you will see many more projects cropping up as investment comes along and the technology transfer is made to these countries. >> thank you very much for coming back on line. >> sorry about that, technology fails us sometimes. >> let me just ask you, hydro power is still a major factor in african planning, but major projects like ethiopia's grand renaissance dam make it difficult. how do countries like ethiopia and egypt -- >> it's basically a governmental power play. i don't think that the ethiopia project would have made it as far as it has if it weren't for the arab spring and the resu resulting multiple governments in disarray in egypt. generally i think you would not seen that project advance as far as it has if egypt is not -- that having been said, you may find egypt in the not too distance future going in to circumvent the progress that has been made. >> ten years from now, can you make any kind of projection how many people on the continuing innocent will have access to electricity? >> in the next decade? >> yes. >> i don't see a huge increase, i think maybe a 15% increase in the next deck indicaade if the come to fruition like the hydropower. >> i have to share her assessment that there is not going to be a substantial number of people who will have access to electricity in africa if we stay on the current level that we are on right now. it's estimated that you may have 500 million people throughout the country that don't have elect tris. >> and it's -- it means we need to ingaccelerate and beef up ou efforts on that point. >> i appreciate the privilege to be here and testify, i'm hopeful that some of the things that i said, and i will be back here and applaud your leadership as you and congressman bachmann. >> thank you very much. >> i would like to -- any further comments? >> the hearing is adjourned and thank you very much. >> thank you. coming up tonight on cspan 3, a banking committee hearing on fannie mae and fred yay mack and the mortgage industry. and allison mcfar lane. later a look at the international response to the ebola outbreak in west africa. wednesday the senate banking committee held a hearing on freddie mac, fannie mae and the state of the housing mortgage industry. congressman mel watt took the -- updated members on new efforts to assist homeowners. this is 90 minutes. i call this hearing, your honor, welcome back to the committee. since this is likely my last hearing regarding gses i would like to encourage my colleagues to -- for the past three years, we and our staff have spent count less hours wrestling with the possible solutions and pittal falls. some options are not practical, while others are too it logical, yet we still need to find a solution. the enterprises remain trapped today. fhfa continues to perform the dual role of both regulating and rating the business of the largest entities in the mortgage market. this is not sustainable. and there is no consensus in congress regarding how to move forward. all the while, the credit box remains extremely narrow, locking out many potential borrowers with good credit including first-time home buyers who are needed to expand and sustain our recovery. while i oppose returning to products with confusing terms, we need to find a way to bring the pendulum back to rational underwriting, unfortunately, the tight credit conditions will remain a challenge while the future structure of the mortgage market is uncertain. fhfa, under director watts guidance has taken steps to p provide for certainty in the market and protections for buyers. these initiatives include expanding the loan to value requirements from 95 ltv to 97 ltv, updating mortgage frame works. i applaud director watts and his team at fhfa for taking steps to stabilize the enterprises and the household market, focussing on the common securitization platform on the enterprises, exploring a single security to increase liquidity and developing stronger counter party oversight are all efforts that will help stabilize the market for the future. however, there is only so much that can be accomplished while the enterprises are in limbo. everyone agrees that the conservatorship cannot continue forever. so i hope my colleagues will keep working towards a more certain future for the housing market. however, if congress cannot agree on a smooth or certain path forward, i urge you, director watt, to engage the treasury department in talk to end the conservatorship. before i finish, i want to thanning my colleagues on this committee as well as their staff and my staff for all their hard work in housingne reform. with that i turn to the senator for his opening statement. >> u thank you very much, mr. chairman, i appreciate those kind words and i also appreciate the tenor of your remarks. today is an important hearing. this is the first time that director watt has been before this committee for an oversight hearing since he has become the director of the fhfa and it is also as you indicated mr. chairman, probably the last housing hearing of the senate banking committee that you will be chairing. mr. chairman, i want to take this opportunity right now to tell you it's been a pleasure working with you. both in the capacities that we have had as the chairman and the rangi ranking member and also in the capacity that you and i have held as chairman and ranking members through the year. i have truly appreciated our working relationship. i have especially enjoyed working on election to address housing reform, fha reform, improving the terrorism risk program and other important topics. we have had a productive collaboration over the years and i wish you the best and thank you for being a great partner. as director watts primary roles are fannie mae and freddie mac and regulator of the home loan system, this is what i want to address 25i. these are separate and distinct tasks that are incredibly possibility. -- until congress acts to reform our housing finance market. i wish that we were sitting here today to hear director watt describe his plan for the implementation of the phase in to the next housing finance system. i suspect director watt may wish this were the case as much as anyone else. while we were successful in passing a bipartisan path forward out of this committee, the ultimate goal of enacting legislation is not going to be achieved in this congress. this being the case, director watts job of protecting these companies is even more important. since taking over as conserva r conservator, director watt has been action tiff. such as a change in the strategic -- reducing their dominance in the market, a shift in the focus of the common securitization platform to focus solely on fanny and freddie as opposed to it's original -- and expanding fannie and freddie's business by expangding home borrower equity. home secretary castro is u now making statements that the fhfa will soon start setting aside money for trust funds. if this were to occur, it would happen despite the fact that these companies would that little or no capital. while i have serious concerns with some of these ideas individually. perhaps my largest concern is that collectively they appear to -- over the course of the last two years, this committee held a series of in depth hearings that examined the failures of our broken housing market and various -- while there was -- one of the areas of consensus was that the status quo had failed us and we should not return to that in the fight. we cannot allow fannie and freddie back to toxic mortgages with little or no capital. our path forward should be on sustainable homeowner ship, facilitated by a strongly capitalized private sector. while i understand that some individuals and entities have been pressuring director watt to institute changing they favor via the conservatorship, we all understand that that is not the proper role of the conserve for. as director watt floated in his confirmation hearing, the conservator's role is to build a solid bridge from where we now are to wherever the congress decides the future of the housing finance system will be. i look forward to hearing from director watt as he tells us how he plans to build that bridge. i also look forward to him hopefully dispelling any notion that fannie and freddie are somehow being re-established as the long-term secondary market -- in his role as conservator will address their dominance in the market, renounce any demands or outside pressures to divert the revenue of fannie and freddie to any sources other than the taxpayer and maintain sustainable, safe underwriting at these institutions. thank you for joining us today mr. watt and thank you mr. chairman again for holding this hearing. >> are there any other members that wish to make a brief opening statement? >> thank you. i want to remind my colleagues that the record will be open for the next seven days, for opening statements and any other materials you would like to submit. now i would like to briefly introduce our witnesses. melvin l. watt is the first director of the federal housing finance agency. prior to his confirmation, director watt served for two decades as the u.s. representative for north carolina's 12th congressional district. director watt, please begin your testimony. >> chairman johnson, ranking member and members of the committee, thank you for inviting me to discuss the work we are doing at the federal housing finance agency. it's a privilege to participate in chairman johnson's last hearing and all of us at fhf ara appreciate his hard work and accomplishment on housing issues. i also want to share my personal best wishes as you enter the new role of full-time grand parent. fhfa's statutory mandates require us to -- safety and soundness of the home loan banks, fannie mae and freddie mac and that they provide liquidity in the national housingness market. fhfa works to balance these obligations across all of our activities 89. because fannie mae and freddie mack are under conservatorship, we're also main dated to preserve and conserve their assets. in may, fhfa issued a strategic plan and score carda outlined three strategic goals for -- each of these strategic goals is fully aligned with fhfa's statutory man dates and fully aligned with the commitments i made to this committee during my confirmation hearing. the first goal is to maintain the credit availability and foreclosure prevention activities supported by the enterprises and to do so in a safe and sound way. we have worked with the enterprises to update and clarify their representation and warranty frame work to encourage responsible lending to credit worthy borrowers and to enhance their outreach to small and rural lenders. our objective here has been to normalize the availability of credit within the enterprises approved credit box for borrowers who have the ability to repay a loan. the second goal is to reduce taxpayer risk by increasing the role of private capital in the mortgage market. fhfa required the enterprises to triple their credit risk transfers in 2014 and they have already exceeded this goal by substantial margins. our third goal is to build a new securitization infrastructure for use by the enterprises and adaptable for use in the future mortgage market, wherever that might be. we have defined the governance vuk chur of the common -- recently announced a ceo for their joint venture and we are making much progress toward our multiyear goal of developing a single security. our strategic plan and score card also have affordable rental housing priorities for the enterprises. the focus is not to compete where there is private sector coverage of the multifamily market, but to even sure that affordable housing is available and that the housing needs of people in rural and under served areas are met including areas that rely heavily on manufactured housing. fhfa has also focused on regulating the federal home loan banks, and our efforts include a proposed rule that would clarify their membership requirements. we propose this rule because fhfa has a responsibility to ensure that the banks fulfill their statutory mission to support housing finance in a safe and sound manner. i want to emphasize that getting feedback from stake holders is a crucial part of our policy making process. we will strongly consider comments made by members of this committee, and the public in determining our final rule on the bank membership standards as well as our other proposals including guaranty fees, single security and enterprise housing goals. i thank you and i look forward to answering your questions. >> excuse me, director watt, but we have a quorum present so i move the committee to executive session to vote on the -- florida's to be assistant secreta secretary of florida's housing and you are bang developmeurban. ms. ramirez has been nominated to leads the huds office. she's courage the president and ceo of san antonio housing authority and would bring nearly 20 years of experience, ranging from affordable housing and community development programs to this position. ms. mcmillan has been nominated to serve as administrative and fte. she has served as deputy administrator as fte since 2009 and she became acting administrator in july of this year. as stepi ideputy administrators has played a key role of the implementations of the reforms. senator, would you like to make an opening statement? >> no, thank you, mr. chairman, i don't have an opening same to make. i understand we're going to do this on a voice vote. and we would be supportive of doing so. >> mr. chairman? >> yes. >> could i just have a statement included in the reported at there point? >> you may. >> in the interest of mainta maintaining a quorum, i ask other senators to withhold -- statements may also be entered into the record. without objection, we will now vote on the nominations of ms. ramirez to be assistant secretary of housing and urban development and ms. mcmillan to be the federal transit administrator at the u.s. department of transportation. those in favor say aye. those opposed say they. the eyes have it. the results are here reported verbally to the full senate. >> director watt, thank you very much for your testimony, we will now begin asking questions of our witness. will the clerk please put five minutes on the clock for each member. director watts, first i would like to thank you for extending the comment for the federal home loan bank membership role. how many home loan bank members would not meet the ongoing mortgage participation requirements that have been proposed? >> our review indicates preliminarily that less than 100 would be in that category. there are some that are close to the categories that we proposed, or the percentages that we proposed. and of course, we are still taking comments on that proposed rule and taking those comments into account to minimize any adverse consequences, and will continue to do that through the comment period and through the evaluation. overall, there are like approximately 7,500 member entities in the federal home loan bank system. so less than 100 would be a very small amount that would be adversely or could be adversely impacted, even if we adopted the rule in its current form. >> what would be the interaction with and impact on the cost to powers of the proposed frame work and the proposed eligibility requirements? >> we're evaluating those. one of the reasons we ultimately ended up coordinating the comment period for the gc input and the mortgage insurance eligibility standards is because there is a very, very strong relationship between those. we're not trying to adversely affect the availability of credit by either one of those things, but we have spo responsibility to make sure that not only in normal circumstances, but in distressed circumstances. mortgage insurers have enough capital to perform the role that they are in the system designed to play. and they were not able, some of them were not able to perform that role in the distress situation that we went through. we are also not trying to control overall the entire mortgage insurance industry, but these are counter parties to fannie mae and freddie mac and all of our counter parties need to be strong to make the testimony work effectively. and if they can't play the role that they are mandated to play, or called upon to play, or contractually obligated to play in a distressed situation, then the system falls back on fannie and freddie and ultimately as fannie and freddie are now in conservatorsh conservatorship, it would fall back on the taxpayer. again, this is one of those areas that we are constantly walking a balance between not adversely affecting access to credit, but making sure that the players in the system are responsible and able to fulfill the responsibilities they have in the housing finance system. >> as i mentioned in my opening statement, the credit box continues to be extremeliary owe. what steps can fhfa take administratively to improve access to credit without protecting current and future stability in the mortgage market? >> well, we are trying to normalize expectations of the parties who participate in this market. that's really what the representation and warranty clarifications have been about. because to the extent that there's uncertainty, lenders increase the cost of credit as a result of that uncertainty, and so as we have fried to smooth out and clarify the representation and warranty system, and give lenders greater certainty, we have asked them to go back and evaluate the credit overlays that they have imposed as a result of the uncertainty, as we move to a more certain system. so we have done that, we have tried to make sure that the relationships that fannie and freddie and the federal home loan banks with small lenders, as effective and efficient and cost effective as they are with big lenders, so we have tried to smooth out that relationship. there are a number of steps that we have taken to try to bring certainty and clarity to the market because any time there is uncertainty and lack of clarity, lenders tech s tend to increase cost of credit to take that uncertainty into account. >> senator? >> thank you, mr. chairman, director watt, as i noted in my opening statement, i'm concerned that collectively some of the steps that you have taken are creating a perception that a path is being charted toward a long-term return to the old failed status quo. and this may not necessarily be your intention. and i acknowledge that some simply wish for this to happen, they would like to see us have a situation permanently in which we have the federal government in conserve frship with fannie e and freddie mac. i have a concern that we not move in that direction and that we continue to recognize the need for reforming this housing market. with your position comes a great responsibility to make extraordinarily clear that through all of your words and actions, it's congress who will create the next housing finance system and the next housing finance system is not the conservatorship of the fhfa, could you do that and make it crystal clear to the public as you said that the role of -- confirmation hearing and that it is for congress to determine the role for a housing market in the united states? >> i can certainly confirm that. and not only did i say it in my nomination hearings, i have said it consistently since that in every speech i have given. we have made it clear that conservatorship should not be a permanent state. and that it is the role of congress to define what the future state is. so i don't think there's any uncertainty of this being created as a result of my comments now. as you say, there are people who have different potentially have different motivationleativation there. but i don't think there's any ambiguity in anything i have said. >> thank you for saying that and i believe that's the correct message to be sent. one action that has concerned me, your recent announced reduction in down payment from 5% to 3%. seemingly in recognition that this act is going to result in higher risk for both gses and ultimately the u.s. taxpayer, you have stated that these loans will need to carry additional risk mitt gants. i'm concerned that you would reduce borrower equity yet i'm even more concerned that there's been little by way of detail on which taxpayer protections you are going to require. could you elaborate on that. >> i can certainly, and i appreciate the question. the details will be coming out in the early. december. we announced that there will be a plan because we were working on the plan, we're working on the details. and some people heard that we were just doing this in a willie nilly fashion and didn't hear the second part of the sentence which was there would be compensating factors taken into account. the raeality is that down paymet by itself is not a necessarily a reliable indicator of whether somebody will pay alone. it is a factor, but the best illustration i can give you is that they are probably 75%, 80% of the people whose mortgages are under water now are still paying their mortgage. they have no equity. so down payment is not the most reliable indicator of whether a borrower will repay a loan. if they have good credit, if they have housing counseling, if they have ongoing housing counseling, post purchase housing counseling and know how to be responsible homeowners, those can mitigate the perceived increased krisk that -- >> but you are going to be establishing a set of mitigating factors? >> absolutely. >> would those include a higher guarantee fee to us at the risk of borrower equity? >> i don't know, we're working on the gc proposal, but understand that any loan that the gses make, they're required less than a 20% down payment. also requires mortgage insurance, or some other compensating factor to mitigate against the increased risk. so that will be true of these loans also. so you can be assured that we are not making credit available to people that we cannot reasonably predict with a high-degree of certainty that they will be able and willing to pay the mortgage. that's not what we are in the business to do. >> my time is up, i will probably submit some additional questions to you. one of them will be to just follow up to see that we get the details on this risk mitigation activity. >> and we'll be happy to come over and brief you as soon as those details, but they'll be u out there pretty vigorously in december. >> all right, thank you. >> senator? >> thank you, mr. chairman, and this being likely one of the last if not the last hearing, let me begin by thank you and the senator for your thoughtful, principled and bipartisan leadership, thank you both gentlemen, very, very much. director watt, the housing trust fund, the capital fund, payments out of the pses have been suspended and we have an affordable housing crisis, i don't have to tell you that. in june of this year, i joined 32 of my colleagues in writing a letter to you asking you to go ahead and begin payments back into the fund which i think would go a long way to rejuvenate or at least help a bit in the issue of housing. can you update us on that situation, what you intend to do, what you can do? >> happy to do so, senator. i have indicated that before the end of this year, we will address that issue directly. i think not only did we get a letter from you and a number of senators on the side of funding the housing trust fund, we also got letters from a number of senators on the opposite side, which illustrates that the walking the line between safety and soundness and access to credit, that's the space in which question operate, so there's not decision that i make or that we make at fhfa where there's not that kind of balancing going on. and there's always a constituency on one side or the other. on the housing trust funding, there are specific statutory provisions that indicate when the contributions to the housing trust fund can be suspended. those statutory provisions have not changed. they're the same statutory provisions, that doesn't mean that circumstances that triggered the termination may not have changed, and that's what we're evaluating at this point. and we're doing it responsibly, we're going through the process. but you can expect an announcement of some kind or another on one side or the other of that issue before the end of the year. >> well, i'm confident of your skill and agility of balancing all of these things and reaching the right side of the chasm. so good luck, but i think a decision sooner rather than later. i would also point out that there was a further indication of support for the housing trust fund. so i think the concept is something that we agree and if you can find a way to fund it it would be practically be helpful to thousands and thousands of people. let's turn to another issue which is the neighborhood stati stabilization initiative. in my state, we have a significant number of foreclosures and an unemployment situation after years and years of recession. and as you look at the pilot programs of the nsi, would you be willing to factor in unemployment to give states, not just rhode island, but other states that are suffering not just from housing problems but from employment problems? >> we'll certainly look at it, senator, but unemployment is kind of beyond the control of the space in which we operate. and the way we arrive that the target areas in which we would do the pilot programs, is we actually went to the map and identified the places that had -- that were basically the hardest hit in terms of home valuation declines. the places that had the most houses still under water, and we have tried to craft a program, the neighborhood stabilization initiative, to address those hardest hit areas, do it carefully, test some things in those areas and then try to replicate the things that work in those areas. so we started, obviously, detroit, probably the hardest hit place in the world, now unemployment was a component of that, obviously. but it was really what was driving our decision about putting them at the top was the number of loans and houses that were under water there. and that's something we can map, i mean we put it up on our website, every community now knows the number of distressed houses, the number of loans that are substantially behind in payment. so those are the factors that are more related to housing that we have taken into account to this point. they tan general shully relation to unemployment and we recognize that your state is among the highest unemployment situations. so we will try to figure out -- everybody now wants us to bring neighborhood stabilization initiative to their city, their county, their state because it's a very popular thing. it has more flexibility in the way we deal with borrowers and so i can understand why people want it. but we still have to do it responsibly and with the balance that i've talked about. >> i would unfortunately note that our housing statistics are just as unfortunate as our unemployment statistics. my sense is when rhode island app applies, you could find -- >> we will certainly look carefully at it. >> senator? >> thank you mr. chairman, and i too want to again thank both of you for your leadership and look forward to what the future holds for you and i'm pretty certain i know what the future holds for the senator. but thank you, and to our staff. and to the staffs, i just want to thank all of you, i know the election creates uncertainties and some of you will stay with us and some of you will move on, but i really appreciate the way the two staffs work so hard together to master housing finance and produce a product that had a lot of bipartisan support. so thank you. to jack reed, my former staffer, michael bright needs to get a life. he just e-mailed me to make sure that i knew that the housing -- was part of a compromise. so in any event, director watt, thank you for being here and i appreciate the genuine time we have had the our offices to talk about fhaf and the two entities that you oversee along with other responsibilities. and i know we talked about the kmorn securitization platform and i know you're moving fwards creating that. one of the concerns we expressed in meeting in our office was to ensure that as this platform was being created, it was something that was useful for any entity that it wasn't designed as part of some proprietary arrangement where only freddie and fannie benefitted from it. i think you maybe brought in a ceo to head that up. and i just wondered if you could give us assurances as to making sure that this common securitization platform is one that will be you can bick wit tus. >> at the time to have designed a common securitization platform for the future state, without knowing what that future state was going to be, would have been an extremely risky and costly venture. and so our feeling is that if we can design a system that works for the current, it will also work for the future. and we know what the current circumstances are. at the same time, every one of the modules that we are working on has a future component to it also. but understand that the taxpayers have at risk now about $5 trillion between fannie and freddie. that when the securitization platform is there will have to be dealt with in some way. and our objective is to roll those things into a single security so that they will be marketable, right? >> i don't want to raun out of time and i thank you for saying that, i just want you to reassure us that what is not happening is a securitization process that's going to be proprietary to fannie and freddie. >> i can assure you of that. >> and just moving on to the single tba market, which again i think is a very constructive step. as i understand it, you're working with sefma to create a single product, which again would work very well with a product, if you l that came out of this committee from the stand point of again allowing all types of garanors to be able to use this market. >> we are working closely with sefma, they are the most important player in the tba market, and without close consultation with them i think would be irresponsible. >> as you look into the future, you're dealing with the responsibilities that you've been given. you're always really clear, i think much of it coming from your background that you're going to carry out your operations in keeping with the laws that congress produces. what is the big elson risk that you see into the future if congress doesn't take action on housing finance and deal with the current status that we now have? what's the biggest risk to us? as a nation, as taxpayers, as people who oversee the integrity of government. >> i think at times uncertainty about the future will more and more have greater and greater cost to us. and i think really bringing certainty to the future of housing finance in this country is critically important because as i indicated in the answers to some of the earlier questions, uncertainty in this area causes costs to go up and those costs result in costs to borrowers. and that has an impact on the economy, because it slows down borrowers willingness to participate. and that's true whether it's a home buyer or a renter seeking affordable rental housing. >> listen, thank you for your testimony, and mr. chairman, thank you for the extra time. >> thank you, senator menendez. >> thank you, chairman, thank you director watt and i appreciate your service and i'm not surprised the type of commitment you have and the way in which you execute your responsibilities from our time in the house together. so i'm proud of what you're doing. i sent a later from other affected states commending you for your decision to reconsider the guaranty fae surcharge that -- in my state of nvj as well as others, a surcharge that would have penalized mortgage borrowers in states where foreclosures are taking longer even though that might be because of stronger consumer protections or overloaded courts. and that raised a lot of concerns that it would increase costs for new borrowers and would addition insentivize states from strong consumer protections, which we have seen a strong need in recent years for protection from foreclosure abuses and i think there's more structured and targeted ways to address the issue on backlogs. i know this is in the process. can you give me an update on the status of your review? >> the comment period on both gfes and mortgage insurance has expired. and we are now in the process of evaluating both of those things. they are connected to each other in some ways that is not always obvious to the public. and we're trying to sort through those connections and i would expect probably in the -- hopefully in the first quarter of next year, we'll bring greater clarity to that area. >> okay, well, i hope that clarity doesn't come at the cast of consumer protections, in terms there are better ways to deal with foreclosure backlog and we would be happy to share our views with you in that regard. >> i should say from my perspective, those costs would not be about consumer protarrant countiati countiation -- protections, they are cause to longer foreclosure timelines. >> what i'm saying is some of those longer foreclosure timelines because they are --- >> so we're trying to sort through what's related to consumer and what really exposes us to greater risk, not as a result of consumers. >> move to mortgage principal deductid deductions for homeowners who are distressed or under water. in the after math of our financial crisis, consumer debt burtds has been one of the biggest factors holding back our economy. and causing homeowners to cut back on other spending which has led investors to create fewer jobs. not with stafbding that, consumers have worked hard to reduce their debt, often at a great cost, but there are still 5 million homes that are still under water with under water mortgages, including in my state of new jersey. and despite the clear economic benefits, as exemplified by the fact that the private sector was doing this your predecessor refused to allow mortgage principal reduction by the gse as a policy response. and while certainly principal deduction would have had a greater impact if it would have been allowed to be done yearly, there are certain benefits to be gained by allowing it. with the benefits pretty clear to me, it's hard to understand why it was not allowed, especially in case where is the modification offers a positive net present value over the alternative of a foreclosure. so do you intend to to revisit your predecessor's policy on principle mortgage reduction and what's your views on that? >> we have not taken responsible reduction off the table as an option. we continue to look at whether there are ways to do it responsibly. but even with the private ones, it is seldom been done across the board. as i indicated in response to an earlier question mortgage we're trying to find a way that we can get to the net present value as you indicated, to be at least and i think we are getting closer to figure out what that connection is and i would tell you that this has perhaps been the most difficult issue that i have faced as director of the agents. >> two final comments. i appreciate how you're coming at it, i also would say that to the extent that this is going to have any value to try to keep homeowner's responsible homeown homeowner's in their homes, that time is of the essence. so i look forward to the calculus and what operational costs f any, you're calculating in that regard. finally, i just want to make a case, i think my colleague senator reed raised it, but the affordable housing trust fund, you received to receive revenues as a result of the law, it was temp rayly suspended and the reality is that now we now gses generating positive profits to the point they paid more to the treasury than they received, we don't see the allocation going back. and this is going to be critical, especially when i think about some of the gse reform that i'm hearing about and looked at and how do we still meet the mandate of opportunity, you know, and duty to serve. the affordable trust fund is clearly an important part of that. >> senator -- >> thank you, mr. chairman and thank you directly watt. i want to say that i share a concern that was first raised by senator crapo about the danger that we slide back into some variation of the status quo prior to the financial crisis. i'm concerned about the current overwhelming dominance of the mortgage market by the gses. i know that fhfa has addressed this as recently as earlier this year in both the conservatorship strategic plan and the conservatorship score card, one of the three strategic goals that's mentioned in both is to reduce taxpayer risk through increasing the role of private capital in the mortgage market, quite rightly so in my view. in its 2013 annual report, the fsock said -- and i quote, higher guarantee fees are expected to help facilitate increased participation by the private sector in mortgage markets. the council recommends they continue these efforts in order to help bring more private capital back into the mortgage finance, end quote. almost immediately upon being sworn into office, you suspended the planned increases. i guess my question is, do you disagree with the fsock's opinion that higher g-fees would help to bring private capital into the market? >> i'm not sure i disagree with it, but i can't tell you that i believe that that is the most important factor about bringing private capital into the market. we're trying to bring capital into the market through risk transfers, through providing certainty and we are looking at setting out a transparent and rational basis for setting g-fees. which is part of our on going process. so, all of those things have a role in this process and we're trying to look at every single one of them in a responsible, deliberative way, but to say that one, you know, raising g-fees is going to bring private capital flocking back into this space i think is probably a gross exaggeration. >> that does seem to be what the fsock says. fsock has recommended that for exactly that purpose and it seems to me that while there are definitely other steps that are important, i agree necessary to bring private capital in, if the government guaranteed piece is systematically underprice, no matter what else you do, you're not going to get private capital to come in in that context. so i think the g-fee piece is an important part of it. >> i think we're saying different things. i agree that it is one factor and i agree with fsock that sit a factor, but to elevate that above some of the other things we're doing and to approach that in a way that is different than the way we have approached other things i think would be inconsistent. we're looking at the impact that increase in g-fees will have on bringing back private capital. we're looking at providing certainty through the representation and warranties frame work. we're looking at all kinds of options that hopefully will bring private capital into the process, but to say that we should without a thorough analysis just increase g-fees without having evaluated i think would have -- was inconsistent with my responsibilities. so we're getting to it. we're going to get there. >> that's my followup question. i have to say, i don't believe that the fsock was suggesting that this be the only mechanism and that all other options be ignored. i think the fsock is very well aware of some other steps that need to be taken. in any case, it's been almost a full year since you suspended the planned -- the increases that were planned by your predecessor. so how much longer is it going to take to do this analysis? when do you expect to come to a conclusion? >> as i indicated in response to an earlier question, we expect to provide a framework and the rational for it sometime during the first quarter of this coming year. >> first quarter of next year we'll have -- >> 2015. >> yeah. okay. thank you, mr. chairman. >> senator brown. >> thank you, mr. chairman. it's been a real honor to serve on this committee with you and thank you for the public service for the last three decades to the people of south dakota and to our country. mr. watt, nice to see you. i echo the words of my colleague senator me men december that came to the house the same time and thank you for the work you're doing at fhfa. let me talk to you about putbacks. you announced the third round of changes negotiated with the mortgage industry to further restrict fhfa's ability to put back defaulted loans to the lenders that improperly certified they had complied with fanny and freddie guidelines. these changes are intended to give a greater certainty to mortgage lenders at least in theory they'll facilitate loans to credit worthy borrowers. some contend it lets irresponsible lenders off the hook, leaving borrowers and taxpayers with the tab. since the crisis fanny and freddie put back billions of defaulted mortgages that lenders tried to pass off as eligible for purchases as gfes, under these new putback policies, do you, does fhfa still have the tools it needs to hold lenders accountable if they don't follow the rules? >> yes. we've been very careful about retaining authority to put back when there's fraud or misrepresentation. but some of these elements were so uncertain about the conditions, it was paralyzing the lender community and that was stifling the availability of credit and it was increasing the cost of credit because they were imposing credit overlays to take into account that uncertainty. so, what we tried to do is move some of the review of the loans that fanny and freddy guarantee, move more of that up to the front end. don't wait until there is a default and then

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