N.C. Rep. McHenry will lead TARP probe

McClatchy NewspapersJanuary 17, 2011 

WASHINGTON — Republicans on the top congressional investigations panel will launch hundreds of hearings on the Obama administration in the coming year — and one of the chief oversight agents will be U.S. Rep. Patrick McHenry.

McHenry, 35, is no stranger to partisan politics on the national stage, establishing himself over the past three terms as a solid conservative and eager irritant to Democrats when they were in charge.

But with Republicans now in charge of the House, McHenry will take the lead role on the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs. That puts him in charge of probing some of the key concerns of U.S. Rep. Darrell Issa, the California Republican who chairs the full House Committee on Oversight and Government Reform.

"There's plenty of oversight that needs to be done," McHenry said in an interview last week. "There's plenty to look at in terms of government inefficiency, duplicative programs, how decisions will be made."

This week, McHenry is finally expected to learn which members will sit on his subcommittee. He's still hiring staff for the panel, and doesn't yet know when the first hearing will take place, or what it might be about.

But he knows some of the priorities, both for his panel and the full committee. They include taking another look at the roles of Fannie Mae and Freddie Mac in the financial meltdown of 2008 - "It was a contagion for this crisis," he says.

He's worried about cash-strapped states such as Illinois and California coming to the federal government seeking bailouts for their vacuous budgets.

And he thinks the government's Home Affordable Modification Program - HAMP - is in dire straits.

For all these issues, McHenry expects his staff will visit with the inspector generals of the various federal financial agencies.

Just Thursday, the special inspector general for TARP issued a report on the $20 billion taxpayer bailout paid to Citigroup in November 2008 to keep it afloat. The deal worked, the probe found, but investigators criticized federal regulators for working on "gut instinct" without objective criteria.

That follows another of McHenry's concerns: whether the Treasury Department implemented federal policy by inconsistent deal-making and pushed an ill-conceived purchase of Wachovia by Wells Fargo in 2008, rather than bailing out the N.C.-based bank.

"Why did Wachovia not meet the threshold of being saved?" he asked.

McHenry has close ties to the workings of the housing and financial industries. His district covers 10 Western North Carolina counties, including parts of Gaston, Lincoln and Iredell counties.

He also serves on the financial services committee. And in the past campaign cycle, he took in nearly $275,000 from financial, insurance and real estate companies - more than a fourth of his total contributions, according to the Center for Responsive Politics.

Asked what those companies expect of McHenry in his new role, he said, "I haven't asked them.

"Any contributions to my campaign are a representation that they buy into my way of thinking - not the other way around," McHenry said.

Consumer groups say they're watching McHenry's investigations closely.

Barry Zigas, director of housing policy for the Consumer Federation of America, pointed out that Democrats already have delved into Fannie and Freddie's role in the financial crisis.

"We look forward to working with new leadership, but I hope the work will move things forward rather than covering ground that others have covered," Zigas said.

Still, McHenry said he's going to start by looking back to get a "holistic view" of the meltdown.

"We need to better understand the direct and individual causes of the financial crisis," he said. "That book has not been completely written."

The government-sponsored enterprises of Fannie Mae and Freddie Mac played a significant role in Americans' house-buying for years, offering a secondary market for big banks and other lenders to package mortgages as securities. When those toxic mortgages went sour in 2008, the government took over the agencies to keep them and the rest of the financial system from failing.

"Fannie and Freddie, in my opinion, have a very serious amount of responsibility placed on them," McHenry said. "The structure was independent when times were good, and there was a federal backstop when times were bad. It's bad regulatory policy."

Ultimately, he'd like to see private enterprise take back some of that securitization market.

Meanwhile, Fannie and Freddie is settling with banks for some of those toxic assets it purchased years ago. The agencies settled with Bank of America a week ago for $2.8 billion - a deal that drew criticism from U.S. Rep. Brad Miller of Raleigh, who wondered whether it was a good deal for taxpayers.

A report is expected this month from the bipartisan Financial Crisis Inquiry Commission that will shake out the responsibility for a variety of actors in the crisis. Also this month, President Barack Obama must give Congress his proposal on bringing Fannie and Freddie out of receivership.

McHenry said those documents will inform his investigations.

He'll also be looking at how the Obama administration is spending bailout money for the Home Affordable Modification Program.

The program was meant to encourage servicers to work with borrowers to create more affordable monthly payments so families could stay in their homes. But several iterations have stumbled, with homeowners strung along for months without help. "A failure," McHenry said.

"It's made things worse for thousands of Americans," he said. "You're paying (servicers) to do things they don't want to do. So they're taking the money and not getting the results."

Zigas, of the Consumer Federation of America, agrees that the HAMP program has significant shortcomings. He said McHenry's investigative focus should be on "what further work can be done to protect homeowners."

There is more to be done. A report released last week from the N.C. Justice Center in Raleigh found that one in 63 housing units in the state had foreclosures filed on them last year.

Mecklenburg and Union counties have the highest foreclosure rates, with one in 34 housing units facing foreclosure filings last year, the report said.

Even as McHenry wants to investigate the bailouts in the 2008 meltdown, he expects more requests for federal tax dollars from state governments - largely from blue states such as California, Illinois and New York - facing their own crises.

"We need to look at what states are doing," McHenry said. "Nothing surprises me right now."

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