Given at the Financial Services Subcommittee on Oversight and Investigations Hearing on Oversight of the Federal Deposit Insurance Corporation’s Structured Transaction Program

As Prepared for Delivery

Thank you for attending today’s hearing on the Federal Deposit Insurance Corporation’s (FDIC) Structured Transaction Program.

I want to thank Congressman Lynn Westmoreland and Congresswoman Jamie Herrera-Buetler for taking a leadership role in this issue. Both Mr. Westmoreland and Ms. Herrera-Buetler have seen a number of their constituents struggle as borrowers under the FDIC’s structured transactions program and we thank them for bringing this important matter to our attention.

The FDIC’s structured transaction program was initiated in 2008 out of a pressing need to resolve the large number of distressed assets of failed banks. Since that time the FDIC has transferred over 42,000 assets with an unpaid principal balance of $25.5 billion into 32 public-private partnerships.

While a public-private partnership to resolve distressed assets of failed banks is not a new theory, there are no set regulations governing the structured transaction program. As a consequence, there must be oversight conducted to guarantee a number of points: whether the program is performing properly, whether the limited liability corporations created by the program (LLCs) are utilizing proper internal controls, whether the program’s incentives are aligned with getting the best return for the Deposit Insurance Fund, and finally, whether borrower complaints are heard and understood.

As part of proper oversight, the FDIC Inspector General’s Office (OIG) recently completed audits of two structured transactions. In both audits, the OIG found numerous control deficiencies related to inadequate policies. In August, the OIG will issue a final report on an audit of Rialto Corporation, whose holding company Lennar Corporation is one of today’s witnesses. We look forward to hearing how the FDIC and its private-sector partners are responding to the OIG’s findings and whether they are implementing proposed changes to their internal controls.

Additionally, during our preparation for this hearing we have heard from a number of borrowers who have raised concerns related to the resolution strategies implemented by FDIC’s private sector partners - the most pressing of which is the decision to pursue personal deficiency judgments against borrowers. While we are not here to question the business decisions of private companies, we do want to explore the appropriateness of the FDIC partnering with companies that allegedly implement aggressive tactics that may bankrupt local developers and harm local communities.

I look forward to today’s testimony and thank the witnesses for their participation.

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