tax rates. let me ask a couple of other questions if i could. you went through and i don't think there's any dispute that excessive debt has all kinds of negative implications. we all at knowledge that including the possibility we get to the point where we have the financial crisis, and economic freezing up. isn't it true that it is essentially impossible to know precisely when we get to that point? ..

that suggests to me it is very dangerous to delay in making meaningful reform. and there's some concern that curbing of the size of the deficit in the short run indeed economic growth i argue it is already happening. and if we -- if the future promised reductions in the deficit either weren't credible or at some point became less credible than we could discover we are already in that territory where the financial crisis could emerge. isn't that a danger we would run in delaying this? >> there are disadvantageds. as we sit in the written testimony as i repeated here. based on our analysis which is consistent with the consensus of professional opinion, immediate

increases in taxes or cuts in spending would slow economic recovery but that is not meant to imply there are not a variety of factors that can matter in different ways. not sure we have that right but that is the consensus of professional opinion. >> it might be but there's an alternative point of view about that especially with regard to spending a side. you and i might disagree on this debate somewhat i am sure you agree with that comes to the impact on economic growth not all government spending is equal. in your model it would generate more rather than less. similarly not all tax cuts are comparable. some encourage economic growth more than others. in fact prudently speaking and broadly speaking the spending and tax cuts may arithmetically have the same impact on the deficit if you assume they have no other implications. they do have other implications.

>> when we do economic modeling of the consequence of alternative fiscal policies and incorporate the level of marginal tax rates on labor and capital we're working on saving. >> on page 33 of your testimony you observe lower marginal rates enhance the incentive to work and save and invest and that has pro-growth feedback on the economy. one thing we haven't discussed that i would like your reflection on is the possibility of a revenue neutral tax reform to simplify the code and broaden the base and lower marginal rates. wouldn't that tend to enhance growth and therefore revenue to the government? >> that is right. the magnitude of that effect depends on specifics of the policies that would be enacted. >> i wonder if you have a rule of thumb to share with us. for instance for given incremental increase in the rate of growth on average what impact does that have on the deficit

over an extended period of time? >> we offer rules of thumb for that in back of annual budget and economic outlook. and the magnitude of that affect if i may offer you one moment. >> it comes to mind and you could confirm or refute is 0.1% of additional growth on average sustained over ten years roughly $300 billion in additional revenue? >> that is right. >> a full 1% may not be linear but it goes in the same direction. >> it is perfectly linear and we offer rules of thumb that we are not sure what else might happen. >> small sustain changing growth has a huge impact on the deficit or reducing deficit. >> that is right. >> thank you, madam chair.

>> we have gone through the first round and i appreciate everyone keeping it concise. i use the prerogative of my chair to make a small change at this time. the house will be holding votes at 1:00. there are 12 of us and the time is very short. unless somebody throw something at me i will limit each of us to two minutes in the final round and ask everybody to please keep to that time frame. dr. elmendorf, as you have been talking about long-term budget report, included an analysis on the impact of lower than expected economic growth on the federal budget. what does cbo estimate the impact on deficit projections in the near term and over the next ten years if gdp growth continues to weaken beyond what is reflected in the current estimate?

>> a weaker economy implies wursts budget outcome because tax revenues fall. also because extra spending in entitlement programs we talked about a moment ago. we have not done quantitative estimates for other scenarios beyond what is in the rules of thumb we have offered in january. the rules of thumb are rough because a lot of things can or may not rise and fall with the rest of the economy. we have been surprised the past few years that the outcomes of tax revenue given the state of the economy but there is no doubt a weaker economy is worse for the budget and a stronger economy is better for the budget. the challenge is how to move the economy and it is not easy to move a $15 trillion economy. >> i have a question about sequestration i will submit for the record because it is important as part of the choice is to look at the impact of that and i appreciate the information

you put on that but the significant impact to sequestration -- i will submit that for the record. i turn it over to ms. hensarling. >> i think it was senator kerry who brought revenues at 14% of gdp. doesn't your latest budget estimates under current policy baseline show that revenues go back to their historic norm of 18% of gdp in 2014? >> a little over 15% and the improvement in the economy and underlying factors in the tax code which pushed that up to 18%. >> concluding the fiscal policy also shows spending going from historic average of 20.5% up to

34% of gdp. >> that sounds right. >> with respect to revenue one is episodic related to lack of economic recovery and the other is structural. is that a fair assessment? >> both factors are at work right now. >> continuing on, those who advocated or brought up historically when the budget has been balanced taxes have gone beyond their historic norm of 18% of gdp. closer to 20% of gdp. this is your alternative fiscal scenario. shows that spending by 2035 goes up to 23.9% in the same alternative fiscal scenario showing taxes already on a path to increase from 18% of gdp to 18.4. following the analysis to advocated order to achieve a balanced budget that revenues have to come up from what you say they are already rising from

18.4 to 20% of gdp also suggests under a balanced approach that spending has to decrease essentially 14 percentage points under your alternative fiscal scenario. to reach its historic norm. >> i would rather not parse the word balance given its role in your discussion. but you are right if revenues were at 20% of gdp than balancing the budget given the assumption -- would require reductions pending. >> thank you. >> i think i am going to start calling you sergeant friday. you are essentially giving us your best interpretation of the facts and we appreciate that because you are not giving us -- telling us whether five years or ten years we should reduce the benefits we give to seniors in medicare or making a change to

our defense and security needs. you are simply telling us what the numbers show and leaving it to us as policymakers to come up with a good mix and i appreciate that. i suspect your mother and father and grandmother or grandfather also feed you are talking numbers and not saying what should be done with regard to medicare or social security or anything else. one quick point. with regard to the discussion of long-term costs you mentioned medicare and social security and medicaid. medicare and medicaid have to do with health care and health care costs in a different boat than social security in terms of long-term costs. >> that is right. increases in spending for those programs under current law accrue over time for social security. >> social security by 2028-30 starts to stabilize. it stays constant in terms of cost to the federal government.

>> roughly so. after the baby boom generation has retired that line has leveled out. >> because you're dealing with fact you are not here to tell us about how to make that fix to health care because the reality is medicare and medicaid are shipped to reimbursement for financing systems. if we were to cut benefits for a senior that doesn't necessarily mean their health care costs will drop. that shifts the cost to the pocket of the senior to pay for that care if medicare reduces what it reimburses. >> did depends on the policy of course. but there are some policies that shift costs and policies that reduce overall costs. >> appreciate it. >> senator kyl. >> thank you, dr. elmendorf. in the interests of time, i know you agree with senator toomey's observation there's another point of view regarding your argument that cuts in spending

now can harm economic growth or delay economic recovery that is true of defense spending as much as other spending. is that correct? >> it is true of all types of spending. the only difference is across types but that is a more subtle -- >> with defense for example you have high unemployment returning veterans to begin with. you have reduction in strength and more people potentially unemployed. you got people making radios and building ships and so on. if those cuts end up reducing the money in those areas could delay economic recovery. >> that is right. >> senator baucus. >> i want dr. elmendorf to discuss a little bit already what changes in the tax policy

will stimulate the economy. rank them somehow. >> in the tables we're looking get from our january of 2010 report, we considered the affects of alternative tax cuts. we have not updated the table since that point. the numbers would be slightly different but not fundamentally different. reductions in payroll taxes that we studied here were among the more powerful followed by investment costs and below that by a little bit by brodeur reduction in income taxes and the reason for that is principally that the money that is saved by employers and employees and payroll taxes we

see translates into comparatively large amount of incremental spending and in the cut to an employer's pay amounts to temporary discounts on the cost of hiring workers. >> we have revenue neutral tax reform corporate or individual and the tax reform on the individual side broadens the base lowering the rates, how much growth results from a very simplified -- >> tax code with a broader base at lower rates would spur economic growth but the magnitude is something we would have to take specific proposals from you back to our models and work hard on for a while before we hazard quantitative estimates. >> thank you. >> representative upton.

>> i am concerned about job creation. can you provide detailed explanation on the methodology used to calculate how many employers will drop their health care coverage for their employees? >> i can provide a brief summary. we have a model of health insurance coverage in which employees and employers are trying to obtain coverage at low cost but also getting quality coverage they receive. in our analysis the affordable care act in courages some employers to provide insurance coverage who would not have otherwise because of mandate for insurance coverage and subsidies. on the other hand it encourages other the employers who would have offered coverage not to offer it anymore and that affect out with the forum or a small reduction in employer sponsored insurance coverage. estimates are very consistent with estimates of other people with large scale models like

those at the urban institute. a tremendous amount of uncertainty around those estimates and there have been some surveys suggesting there would be more employer droppings. based on what we have seen since we did those estimates we are comfortable with those estimates that they make sense. but it is what we have been asked to explore the sensitivity of the budgetary effects to alternatives and we are working on those estimates. >> i don't know what your percentage is as low as 5% or less? >> that is a small percentage. >> provide an estimate if it was 10% or 20%. >> the challenge is it matters a lot for budgetary cost to ends up with or without health insurance coverage. we can't really do justice in that sense.

we have to understand -- there are ways to change the assumptions and the model to get different answers but we need to do that because it will affect the budgetary costs. it is not obvious the budgetary cost is as large as it may seem at first if people are not getting employer sponsored coverage and move to exchanges the government will pay more for their coverage. on the other hand employers will have extra money they were using to buy health insurance with. most economists think the money will turn up as wages for workers and pay tax on that. if it doesn't it will turn up as additional corporate profits and pay tax on that. overall budgetary effects will depend on combination of changes in exchange and medicaid costs and tax receipts. >> representative clyburn. >> let me look at revenue from a different perspective here. is it fair to say that the decrease or the increase in

unemployment has decreased revenue going into federal coffers? >> that is right. >> of the added decrease of unemployment of 1/have to 8.6 what would be the level of revenue increase? >> can't do that in my head. it would help but i don't know. it would help partly because we pay less unemployment insurance and because of people earning money would pay taxes on those earnings. >> it is a double whammy. >> both sides of the budget would be affected. >> i would like to see some computer printouts. >> i will ask my computer with that task. >> thank you. >> senator portman. >> congress and clyburn made a point that the economy plays a whole, how we got here.

i would love to hear may 12, 2011, report we talked about earlier. 32% of the difference between 5.6 trillion surplus and a 6.2 deficit which is $11.8 trillion swing, 32% is because of the economy. 33% is spending and a third of that is a war on terror. a third of that is iraq, afghanistan and other spending on the war on terror. it is 39% spending when you add 6% which is the stimulus. 15% is the bush tax cut. over 70% went to those making less than $150,000 a year and the rest is interest and rebates in 2008. it is a great point the economy can drive so much of this. we talk about this earlier but you said you thought increasing taxes at this point would have

negative impact that surge in spending cuts make an impact on economic growth and jobs but in response to senator baucus you said some tax reform particularly broadening the base would have a positive economic impact. can you briefly speak to that as it relates to the corporate tax code and the possibility also of lowering the rate to make the u.s. more competitive? >> in terms of individual income tax and corporate income tax comes widely agreed that lower tax rates and broader states would be good for the economy both because lower rates would reduce the disincentives to save and broadening the base done in certain ways could reduce incentives for miss allocating capital resources. to estimate the effect on the economy our colleagues would

need to have specific proposals and need to spend some time trying to model clothes. it is a complicated business. >> how long would it take? >> i will not commit to that of hand. if we have proposals from you we will work on them as fast as we can. i will promise you that. we are giving high priority to the work of this committee. >> senator kerry. >> there's a big distinction, almost obvious, 98% of america was getting a tax cut and 2% happened to be the wealthiest people whose decisions are very different his impact on the economy is very different. there's a big difference in that versus a blanket discussion of all of the tax cut for susan. >> in terms of economic effect we think that is right. >> that is part of the modeling that needs to be done because that distinction will be very

telling in a lot of ways. what i want to ask is it would be helpful to all of us -- i respect reinhard analysis. it is important. here is the but and i would like you to draw the distinction. urinalysis and much of our discussion centers around the public debt. the public debt is 62% gdp. we had a number of references to the gross debt which obviously includes the trust funds and so forth where there's a different impact because of printing and so forth. help us understand how that distinction might play out in our deliberations to with respect to the impact on interest rates. the public debt has far more impact on interest rates and economic judgments, does it not? maybe you can educate us a

little on that distinction. >> cbo focuses on debt held by the public. we think that is a better measure of the impact of federal borrowing on financial markets today than gross debt. any snapshot of what the government those that point in time would be incomplete without looking at where the fiscal trajectory is going and that is why we combine our reporting on current levels held by the public with projections of revenue expending and financial markets are very attentive not just at the current amount of debt but the amount they expect the government to be trying to get them to buy in years ahead. our view is the public together with these projections for the future offers you and your colleagues fairly complete -- by no means perfect but a fairly complete picture of the budget

situation. gross debt includes money -- bonds held by government trust funds. we think it does not measure is the amount of debt the private financial system has stored today nor is it a good measure what will happen in the future because for some programs the amount of debt held in trust funds is a lot less than the amount they will need to pay under current law and in other cases the amount of debt in the trust fund doesn't correspond to future spending. so we don't think that is the most useful measure. work rinehart and row of did view that as the best measure of for a period of time that they have done this analysis. i don't want to put words in their mouth but we discussed this issue with carmen. in our case because we do the elaborate projections on a detailed level of the budget, those projections held by the public gives you the best sense

of where the country stands today. >> representative camp. >> i want to point out as part of the fiscal commission i researched how often federal revenues exceeded 20% of gdp in the history of the country and it only does it three times in the history of our country. in 1944-45 and in 2000. and in 2000 they were 26% of gdp revenue. that was largely due to the threefold increase in capital gains from $40 billion in 1999 to twelve billion -- 1 20 one billion dollars in 2000. that drove that. >> i think that is right. >> in the 11 fiscal years since 1940, we have had a surplus

revenues for four of those years between 19%, and 20% and for seven of those years they were less than 19% of gdp. i have a letter that outlines this that i would like to submit for the record and i think it is important to point out that during the 12 years the budget was in surplus, it never exceeded 19.4% of gdp. it is important to keep those revenue levels in historical perspective. i would like to submit that for the record. >> i would check out the last time federal spending was around 18% of gdp or lower was 1967. we made a decision to provide

for security for seniors so we have to look at that period of times since then if we want to continue that commitment. dr. elmendorf, you have made a good point in your testimony. you are not making recommendations but your testimony was clear you can't address the deficit challenge without modernizing security programs. unless you have a large increases in taxes above current law. unless you change current tax policy, you can't address the policy without deep cuts in health security problems. you mentioned there is some tax policies that generate more economic activity and some generate less. dimension payroll tax holiday generated relatively more than some of the others because more people in people's pockets. more money in people's pockets. with respect to spending programs some generate more

activities and others in the economy and investments in the area of infrastructure and education provide for economic growth. isn't that also the case? >> yes. one moment to say i want to be careful about the pieces of the budget. there is revenue and social security and major health care programs and the rest of the budget. i don't disagree with this. the thing that is not possible is to maintain social security and major health care programs in their current state and maintain the rest of the federal government, the same sheriff has been in the past and maintain revenue. one could move one or two or three of those as you choose that is not possible as a matter of arithmetic given the rising health-care costs that all three of those pieces look like they looked historically. different policies on the spending side you have different effects of economic growth and

they do that different horizons so some policies might be more effective this year or next or over a longer periods of time. we can provide that information to you if you are interested. >> i appreciate that. just making the point that tax policies as well as investment spending policies can have positive economic impact. >> senator toomey. >> thanks. dr. elmendorf. one of the challenges we face is how we can address these challengess in a credible way. how for instance willing will future congresss be that we might try to impose. we might reflect on ways that we

could maximize chances that future spending restraints that we would hope to achieve would come to pass. .. if the specific changes are enacted into law this year, then i think there's a much greater chance that they will take effect when the time comes, then if it now goes into law this year, simply a set of object is

for total amounts of spending our total amount of taxes or other benchmarks. >> the structural reforms in a program are likely to have more enduring results in long-term caps designated, would you agree with that? >> i think that's right. we see that historically. the original than hauling legislation was cast aside because the overall target except for the deficit proved to be impossible to meet. whereas the provisions of the early 1990s, the potato provisions try to make it more difficult for the congress to make budget deficits worse seem to have been at least somewhat affect it during the period when the congress was concerned about budget deficit. so i think it's the important aspect of this for about the long-term effects on also for the shorter term effects come in

terms of the people believing that deficits will be smaller in the future comes from specificity and putting provisions into law today, even if they are taking a fix for various different reasons at different points in the future. >> thank you very much. i want to thank our committee members for being so accommodating. certainly for your input and your staff input as well. i watch reminder members save three business days to submit questions for the record and i hope the witness can respond quickly to that. >> yes, we will. >> thank you. member should submit questions at the end of friday, september 16. without objection, the committee stands adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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>> nearly 50 million americans lack health insurance according to u.s. census bureau report released this week. earlier today comeau spoke about the new figures for charles thec nelson, assistant division chief at the social economic and housing division.report >> mr. nelson, what did you find about uninsured in america today?ni >> guest: well,nsured we found n 201068.3% of all people didn't have health insurance, which is actually about the same percentage as 2009, but that thd millionof uninsured rose from 49 million do you doubt why the number rose? -- to you know why the number

rose? guest: to put the number in context, tis a year and the percentages poverty ros, percentage rose from 14. three to six -- point whatrose -- r ose from 14.3 to 15.1% th%. health insurance is a reflection of people's economic well-being. host: demographically, how does that uninsured 16.3% break down? guest: there are groups with higher rates than that. one of thing to look at is children. children have a lower rate of uninsured that the overall population. their rate was 9.8% in 2010, not different than 22009. children actually have a higher poverty rate than the overall

poverty rate. their poverty rate is around at 22%. but they have a lower uninsured rate, and we think it is because there is a safety net out there, programs like medicaid and children's health insurance program, that keep the rate relatively low compared to the working age population. host: does that rate changed geographically? guest: there is certainly a regional element to the uninsured in the u.s. for example, in the south region, the uninsured rate is around 19.1%, and in the west, 17.9%, both higher than the national average. in the northeast, 12.4%. below the national average. host: mr. nelson, you also

reported on the type of health insurance people are getting. we have a chart from the u.s. census bureau that compares 1987 and runs through the grass to 2010 -- through the graphs to 2010. 1987, 75.5% at private coverage of some type. today, 64%. 1987, 62% had employment-based coverage. today, 55% have that trade government coverage has gone from 23% to 31% of those who are insured. by their any trends behind these numbers that you want to speak to? guest: certainly that has been the big trend in health insurance coverage, and certainly over the last decade that has been true that we have at dropped in employer coverage,

private coverage, partially offset by this increase in government coverage, particularly medicaid. meditate between 1999 -- 2010 medi -- medicaid between 1999 and 2010 rose to 15.9%. the children's health insurance program has been the one that has grown particularly fast over the last decade. host: two more charts i want to quickly point out. you divide it by race and income. what didou find bys? the other thing to point out is that since 1999, both the rates

for whites and blacks have increased in this country. : the >> if enacted, would help struggling homeowners refinance their loans. they were followed by several panels of witnesses who spoke about the current state of the housing and rental markets. this is about an hour and 45 minutes. >> the banking subcommittee on housing transportation will come to order. i was trying to give a little time to my colleagues who will be in our first panel. i'm sure they are on their way. i will start off with their opening statements and hopefully by then they will have arrived and we'll recognize them. we've got a very robust agenda

here. want to hear from all the expertise that we've assembled and try to move it along. so, the ceiling of the subcommittee on housing transportation and community development will focus on both the state of the housing market as well as ideas for refinancing and restructuring mortgage loans. this is a very important hearing, not only for me, but a thing for those of us who work in there and because the housing market is often what angers the broader economy. we need to fix the housing market to get the broader economy moving again and to create jobs as well as meet the challenges of present homeowners as well as keep in the aspirations alive for future homeowners. on a regular basis, you are from new jersey homeowners who have trouble with their home loans, whether it's been denied the opportunity to refinance at today's lower interest rates because they are underwater or banks not willing to do a

principal reduction for them when they have had hard times. it's hard to be optimistic about economic growth as the housing market remains at its present status. for most families in americana, their home is their single largest asset in their source of appreciated while spirits of the hearing today is divided into three panels. the first panel consists of my two distinguished senate colleagues to discuss their bill, which i am proud to cosponsor the helping responsible homeowners that, which will help homeowners underwater to refinance more easily. the second panel will discuss the state of the housing market and specifically the state of home sales, home prices, consumer demands, short sales and foreclosures, rents and rental availability and whether these problems continue to be nationwide in scope or are they becoming more regionalized? the third panel will discuss

ideas to refinance or restructure existing home loans come including shared appreciation, mortgage modification, refinance existing loans to take advantage of historically low interest rates and the barriers to doing so and allowing the fha short refinance programs to be used on the gse inventory. it is my hope to this hearing and a subsequent one that we will follow up by next week that we will develop a housing policy and promote initiatives that gets our housing market moving again. with no other members they see wishing to make an opening statement, let me call upon my two distinguished colleagues for their statements. senator boxer of california, senator isakson of georgia, i'm happy to welcome them. they both have strong records and housing policy and they'll talk about it though they've introduced to jumpstart the housing market and help millions of homeowners refinance their

mortgages. with that, senator boxer. >> thank you so much, mr. chairman. i'm proud to be here with senator isakson and he is a long, long profession come a long time in this profession, which was before he came here he was in the real estate business. i'm very proud he is on this bill. just to say this before he beat any of my statements, our bill is based on a very simple premise. if you have paid your mortgage all along, throughout these difficult times and it is at a high interest rate, but you never missed a payment and the value of your home went down and down and down come you find yourself underwater, mr. chairman and you're still stuck at the 7%, 6% rate. you should be rewarded with a program like this. you should have a chance if you

want to refinance at the current level. this is such a win win. number one comest danny and because these would all be home mortgages backed by fannie and freddie, fannie and freddie make money on this. as we look at the cbo analysis, about $100 million because of its stock many people from defaulting right away. secondly, if you're the homeowner you have thousands of dollars in your pocket because you refinanced. i remember the years when bill clinton was president, one of the reasons there was such a prosperity there is the tremendous number of refinance team. if the best way to get money into our economy quickly. so essentially, this is what our bill does and says. if you have a loan that is that by fannie and freddie and if you have a high interest rate on your plate to take advantage at

the school were, then you should have a chance to do that, not be disqualified because you are underwater and how those ridiculous fees they have in place now wave so you can take advantage of these rates. we call it the helping responsible homeowners act. we are heartened that the president mentioned something like this in his address to the congress. we are heartened that you are on our bill. we are thrilled with that, that our bill has been introduced by mark zandi, the chief economist by william gross, managing your encode cio of them cohousing and then thomas lawler has been endorsed by the national association law center, the national association of mortgage brokers and many others. so it's a win-win for fannie and

freddie. but they can do this without her legislation. senator isakson and i are saying today, please come if they are listening somewhere are out there somewhere, please do this. this will save you money. you know, this will save fannie and freddie $100 million. this will help, by the way cbo says after 2 million homeowners. when they made that estimate, that's an interest rate or higher and we believe you're looking at perhaps three to 4 million homeowners, 5 million actually close to 5 million eligible for this. that's their story and we're sticking to it. we are strong in this. the fha say we hope will follow through on some of the many statements they've been making recently, but this is going to help our economy. it's going to keep people in their homes and for once, mr. chairman, i beg you, let's

get out in front of this crisis. we are a dime late and a dollar short. we've been following this alone. let's get in front of these folks. these are the good folks who've never missed a payment. let's help them stay in their homes and i think you help america when you do it. i thank you very much. >> thank you, senator boxer. senator isakson. >> thank you, mr. chairman. i ask unanimous consent might prepare statement be submitted to the record or >> without objection it shall be. >> thank you for calling this hearing in a particular pleased to join the senator boxer from california and this piece of legislation, which addresses a new phenomenon that has taken place in the most protracted housing recession in america since the great depression. that is called strategic foreclosure. there's 10 million -- 10,900,000 american homeowners underwater right now today as estimated. as 10,900,000 people make payments on mortgages, the

payoff is more than the houses were. a new phenomenon something called strategic foreclosure, were homeowners underwater by looking at the future of real estate, looking at the future values and walking away from their mouths and going off in buying a foreclosed house down the street, thinking they'll be better off. this is me the marketplace wares, but more foreclosures in place continue to contribute to the downward pressure on home values. what this will basically does is that the 10,900,000 people who are underwater, up to 2 million the senator boxer stated maybe more since rates have gone down, can make a strategic the strategic decision is walking away from about underwater to refinance the existing balance at the current lower rates, put more money in their pocket amid the maintenance better for them in the long run when housing the covers. that's all it does. it's not a boost to the housing market from the standpoint of creating sales, but it is a depressing to more foreclosures

and does make it less likely people you strategic foreclosure is a mechanism to do his financial situation and it should help to stabilize home values in the long run and in the short run. i commend senator boxer on her leadership. she originated this thought. i'm proud to work with her and i think it's something fannie and freddie ought to do. if they'll do it tomorrow by policy, were ready for them to do it. it does make good sense and the cbo scores outstanding. let me address the second subject if i might dealing with housing. her second panel is terrific and i'm not going to be up to stay for all of it, but i want to commend to you in particular i'm a mr. richard smith and i'd ivy zelman are the best in the industry that i know of. has about 25% marking an outstanding consortium of companies that deal with residential brokerage. ivy zelman i've attended seminars.

i know people whom she consults with issues as good as anybody had ever heard them both to make a significant contribution. secondly, i appreciate your leadership in the film in that situation from which is confronting us at the end of this month. we don't need to do things that make them first in the housing market. we need to do things that make better. what senator boxer is proposing along with me is good for weight enough foreclosures, but keep the loan limits and expanding after the end of this month is important to maintain the housing market we do have. it's not the time for the government to constrict mortgage capital for people qualified to buy houses because of a limitation on the loan limits and i commend you and your leadership on and look forward to answering any questions you are senator merkley may have. >> well, let me thank you vote for your initiatives and insights. i think -- i hope our friends at the age of easier to wait for us to have legislative action, but

we will if we have to. i appreciate your observation, senator isakson and proud to have you with me on the efforts of assuring the present moment as i retain before the end of the year. i think it's a critical part of the things we have to do in the market, so i appreciate your long-term leadership in this field and joining with me and others in trying to preserve it. i have no questions for either one of you, but senator merkley. >> thank you, mr. chairman. i want to express my appreciation for the work you've done on this, helping homeowners stay in their homes, decreasing number of foreclosures is absolutely essential. i would ask a sure question regards to the cbo score. my understanding is this what save money for the gst is, but because the fed holds a number of securities that might diminish in value with a lower interest rates, but there is some cost estimated.

could either one of you kind of clarify what cbo was pointing to? [inaudible] >> fannie and freddie actually can come as we said before, from the changes in the bill to a 200 melon because the savings realized by date reduction in foreclosures would outweigh any revenue due to the elimination of the risk ac and to reduce portfolio income. because of large holdings, cne and freddie mortgage-backed securities would experience reduced investment income of 2.6 billion over 10 years. so this means there is a net cost. so although this means there is a net cost to these changes come in the federal government should not be profiting. this is my feeling, from

borrowing -- borrowers paying higher interest rates than they should have to. the fact that the fed holds the security should not create a perverse incentive for the government to keep borrowers trapped in higher loans. so that is the answer. >> that's excellent and i appreciate the work you all done on this. >> thank you. >> if i could just add to that. you know, you're doing what we refer to an business is inside baseball. he's got conservatorship control freddie mac and fannie mae. you've got the federal reserve bank paper and yes, if you lower the rates for the yield on a mortgage, you will lower the value financially abundant commit. but if on the other hand you are stabilizing alone that would otherwise have been defaulted not under any form of dynamic scoring, this is a net gain to the u.s. housing economy in the united states government. there's no question about it. >> what's the interest rate of walking away?

>> i'm sorry. >> what's the interest rate of walking away your obligations? >> that's a great question. you probably would not build up our money for seven years at best and richard smith can address that subject, but that would be my guest. if you walk away from your margin of faulconer credit score does in the tank and never interest rate you pay on credit cards, car finance, student loan, whatever else will go up. you won't build to get a home mortgage for seven years and the destruction against your financial statement credibility as a homeowner goes away, so the cost is far greater to the country for somebody to default on a loan and have it foreclosed another would be a help them stay in the house. >> thanks to you both. >> let me ask our next panel to come up to the cable and i'll introduce them as they come up in b.c. date. let me welcome my fellow new jersey and, richard smith.

president and ceo of a global provider of real estate and communications service which is in parsippany, new jersey. mr. smith oversees the reality franchise group, consisting of many well-known companies such as better homes & gardens, century 21, caldwell banker in international ability among others as a member of the business roundtable and the committee looks forward to his testimony today. before that come he was a senior member of the professional staff of this committee. in a position he worked on issues relating to housing mortgage finance, economics and the banking and insurance for ranking member shall be. he's appeared before this committee many times and we thank him for his presence this afternoon as well. ivy zelman is the ceo of zelman

and associates and has over 19 years of experience in the housing and related industries. zelman and associates, which he founded 2007 delivers research on the housing market and has been repeatedly recognized for his expertise. prior to that she worked for eight years as managing director are pleased to have you today to discuss the state of the housing market. with that, mr. smith, welcome and we look forward to your testimony. i'd ask you each to synthesize your testimony to about five minutes or so. we are going to include your full statement for the record and we look forward to having a discussion with you, mr. smith. >> afternoon, chairman menendez undistinguished member of that committee in thank you for this kind introduction. as to the current state of housing, we'll make a bold statement that existing home sales in our view has stabilized on a unit basis in the range of 4.925.1 million units on an

annual basis. however, average price for continued to move in a range of down 4% to up 2%. new home should see a slight improvement in year-over-year growth for new homes in price between close and move in that range. among the positive side from flat to up about 2%. we think the high end of the first time buyers make up the majority of the market. the middle market with a move for buyers noticeably absent. high-end buyers are typically paying all crash. first-time buyers financing with fha in less than 20% down. it's importunate 25% 27% of all homeowners have little to no equity, which is a point you made earlier in the chairman's opening comments. when tina certainly invoked. it's a popular talk it untrue topic immediate the state. it certainly more cost effective today to calm and most market. rent 25% to 7% annually.

new york% is 10% year-over-year. but holds back housing? high unemployment, low consumer confidence and marginally successful intervention programs. we will recommend remedies. we'll start with jobs. the unemployment number that concerns us in housing is not the 9.1 or 9.2. the u.s. bureau of labour statistics standard, which is currently 16.2, underemployed or temporary employees do not buy homes. foreclosure is a major issue for us. it is depressing prices nationally, but most foreclosures occur in 10 states predominantly inside it's nevertheless an overhang and needs to be addressed. the continued delay in the foreclosure process is harmful to housing. the sooner the foreclosures are permitted to continue and accelerate, the sooner we will see some balance in the average sales price and that's the

equity that is in homes owned by taxpayers. we are very much in favor of effort to mitigate or prevent foreclosure. we are strong proponents. we like to debt for equity program that has been recommended by a number of people were both the lender and homeowner share in the equity of the home. we also like his inability. we think in the current environment, some measure of loans could be assumed or have an assumable loan characteristics of some future date the new buyer could be in a position to assume low interest rates that we enjoy today. we're strongly in favor of refinance programs. we got is an effort to mitigate them for close to the expansion of harboring a program makes it possible for homeowners to refinance at the current rate of 4%, 4.5% mercury much in favor of peter barrasso in favor favor of not permitting loans today

gse loan limits to expire in october. we think that's damaging to a fragile market. we are strongly in favor of the chairman and senator isakson's effort to extend those for at least two years. this is not the time to run the risk of upsetting the market. national flood insurance program needs to be extended and will put about 500,000 homes at risk. we encourage that very strongly and i'd be remiss to not mentioning for the benefit of this committee and others who may be watching very substantial concerns we have with respect to dodd-frank, the mortgage component of dodd-frank from which we think is particularly punitive to go to moderate income homebuyers. gse reform is not something that should be retained and too uncertain. reform can be certainly conformed. we know there are fundamental reasons for focus on gse reform.

it's not appropriate in this environment. we appreciate the opportunity to speak to the issues. we know we'll have an opportunity to elaborate on these items when we go to a panel discussion and i want to thank the chairman for his important issue and again we are available as a resource in any manner you think is appropriate. >> thank you very much. >> you have time left under five minutes. he's led the way here. >> all try to keep it and not. i went to start by saying there's actually a fair amount of consensus in term of what's going on and i think the differences would be the housing why and where. i want to emphasize i will not talk about we agree upon the most of my time on the attention of the disagreements and details is not to undermine. jobs is incredibly important and i think what the point where the labor market is driving the

housing market in the labor market. although obviously there's feedback between the two. i want to emphasize the point mr. smith made about the foreclosure process does need to be fixed, otherwise we continue to have these huge homes out there that's important. i want to touch on a couple facts. the first is despite the price declines, housing is still very expensive relative to income. nationally, we see median home prices fall to the historical average. overall, looks like housing us back to the affordability should be. it would look at places like san francisco can use to silicate house prices a-10s income. so what is important to keep in mind that different markets. lots of markets are still unaffordable by any stretch of the imagination. there's also a number of markets for new home prices still remain above production costs. over the long run the long run in a competitive market, prices will fall to meet the price of

production. but until 2003 that was the trend. as we see another markets to reassert itself, prices will continue to fall in those markets. it's also worth noting the total existing home sales in 2010 were only 5% below the 2007 level. if you look at new home sales, there were 60% below the 2007 level and the primary reason is that existing home prices have on considerably more than new home prices here to me is the economist illustrates markets work if you let prices fall, volumes were clear and we need to not be so concerned about any price declines. i recognize there are also costs of keeping prices against market levels. it's also worth noting for the first six months of this year, existing home sales was 12% above the last six months on a seasonally adjusted basis. sec price declines continue, you've seen sales start to go out. i want to echo something

mr. smith said, which is we are near the bottom in terms of volume of sales. i think we continue to slowly climb away. i want to emphasize we are years away from seeing anything that looks like the activity of 2005, 2006. i think it's going to be a slow climb getting there. i think there's also a fair amount of consensus about you got a number of you, about 2 million cannot demand that once you get to the point where people have confidence in the market, people still felt comfortable, but demand will start to come back. i think we're a ways away from it. borrowers still are burning much can you do if you buy today, but continue to see price declines. my recommendation is i believe we need to get the point where buyers believe prices go no further. it absolutely risks where we are in the town site, but the risk of overshooting on the upside outweigh the risk of shooting on the downside. i would emphasize a look at housing that one applies basic necessities, so i don't see it becoming cheaper is a bad thing.

in many markets, i would like to see house prices decline even further because they think that would open up opportunity for middle-class families to buy houses that it priced out of buying today. i'm also concerned about interactions between the unemployment and the mortgage policies we have. i like to use the example if you're a carpenter tampa, you're unlikely to find a job anytime in the next couple years. we need to encourage you, since do, help you to some place like boston why they might have jobs. we locked people in a place that assert the labor market. as a number of statistics and a testimony to show discrepancies and i want to emphasize to me it's really illustrative of san jose is a tight market cameras riverside is a loose market. it was in the same state you cannot housing markets that are very different than we need to target policies in a way to keep that in mind. let me talk briefly about the rental market, which is the study to see some minor

declines. but we also still have about 4 million think of rental units although that's down about 500,000 units from last year. again, the user tightness of markets tends to mirror the housing market we are in. money and emphasizing that sometimes we overlook why talk about housing market, which are those without homes. father of urdu statistics on his good as what we have on the other side, homelessness has increased over last year -- it has increased particularly among family homelessness and increased particularly in suburban areas. i think of rethinking of our current home programs to see the assist people in new areas in southern traditional focus is something that merits attention. >> thank you. ms. zelman. >> thank you, mr. chairman. as we enter the sixth year of the worst recession in the house

and senate great depression, many have suggested we become a renter nation and the american dream of homeownership instead. i do not believe this to be the case. we believe -- i should say i believe our great nation is still farming households, which is supported by population growth and we ask that by population growth in household permissions will even to nearly triple the activity from today's depressed levels. but that said, there's clearly been a disconnect between the longer-term demographics in near-term reality. i estimate currently 2.5 million excess vacancies need to be absorbed before a return to burma but in activity levels can be justified. this number has potential to move even higher given the current pipeline of 4.000000 mortgages that are either in the foreclosure process for 90 days to link win. i believe the most powerful tool that washington can provide is a rental program to dispose of

vacant reo and future foreclosures in an orderly manner. the most efficient and cost effective way to achieve the goal is for the gse two-piece financing terms and options to investors that would purchase properties that local tvs and pursue a single-family renter strategy. single-family rental is from the fastest-growing residential asset class. in 2005 to 2010 from the senate governmental skirt 21% versus just 4% increase versus total housing units. the hardest hit markets such as nevada, florida and arizona, single-family rental skirt approximately 40%, with apartment units basically flat or unchanged. facilitating an orderly transfer of these units should also be a favorable impact on pricing. given modest improvement in economy, record levels of affordability and reduction in inventory, for the first seven months of 2011, home price inflation has diminished the impact, prices of traditional homes in foreclosure so declined 1% year-over-year as of july

according to core logic. whereas total decline with approximately 5%, suggesting double-digit deflation for distress sales come which currently account for approximately one third of transactions. the second piece of the equation is demand, which remains an all-time record those measured by activity. despite favorable affordability with a historic low interest rates, this is not enough to drive home buyers off the sidelines. nevertheless, according to university of michigan, consumer surveys say 72% of respondents believe now is a good time to buy a home. furthermore, in a recent survey by our firm, 60s% of those surveyed want to become homeowners of the next five years. with 82% of renters in the key 25 to 34 age group expressing desire to buy a home. people want to purchase a home and think now is a good time to do so, why are they doing it?

the answer i answer i believe is twofold. first, we conditions of the consumers balance sheets, which are still plagued with high levels of net debt and negative equity. indicative of challenge consumers, renter's survey showed a third of respondents were able to come up with 3.5% down payment necessary to purchase a median priced home using fha financing. the second issue is uncertainty, which i believe is a nationwide problem negatively impacting home sale prices, given volatility created by prior tax credits, fear job loss and mixed messages sent by the government to run future housing policy. however, racial differences are significant with major dichotomies dependent on levels of unemployment, negative equity, delete cookies and vacancies. nationally one of the most significant problems prospective homebuyers percolate to strict credit overlays imposed by bank due to unknown risk related to put facts are at their an

expected government burdens. as a result, many qualified homebuyers are turned away, creating a business environment that would encourage banks to remove stringent overlays above and beyond already tight lending criteria would be a catalyst for housing activity. i believe given the still tender nature of the housing market, laughing to gse markets to lower levels on october 1st a significant mistake and should be put off until the market is a more solid footing. similarly, any legislation related to eliminating or reducing interest reduction should be carefully crafted and only considered with the longer-term implementation of mine. in closing, housing has historically been a significant driver of recessions and recoveries. investment represents 2.2% of gdp, representing an all-time drop and well below the long-term median of 4.4%. suggesting the industry has been a significant headwind of economic growth.

housing and recoveries essential to the overall success of a broad economic recovery and without it, the economy will continue to languish. thank you for the opportunity to testify today. >> thank you, all. you covered a lot of water here and we will continue to do a little bit more in our question-and-answer period we will start around and see our time goes. if i were to ask you, you have a magic wand, and outside the issue of jobs, which clearly the president was focused on came to the congress, laid out his vision and i would hope all of us are focused as our number one job for the country getting people to work, obviously an economy that 70% gdp is consumer demand. without a job there's no income and without income there is no demand. i think we can collectively grin that. the next question is setting

that aside for a moment as something we have a plan, there are different views how else we might do that. what specifically on the housing front, if you have one or two initiatives that could come from the governmental side to incentivize live in this marketplace, what would you say would be, mr. smith? >> well, i'll begin with, to make regarding foreclosure problem. its major overhang. it is in fact impacting values across the board. not only the 10 states i mentioned, but nationally. we need to accelerate and get it behind us. many nonperforming assets back in the marketplace is performing assets that generate true economic value. it's inevitable that they are going to be foreclosed assets at some point. accelerate and let the market correct. i agree with many comments at the market will correct itself and needs little help. in this case, the overhang needs

to be lifted permanently. >> what is the size of that? can you quantify it? been at the size of the foreclosure problem, depending you listen to is about 1.62 mike 1.000000 homes. the latest s&p is about 1.7 million homes at some say the foreclosure that need to be moved through the pipeline. that is probably a low estimate. i think i see another's need the view that it's much higher. not only those in foreclosure, but those likely to be in foreclosure. you'll see estimates as low as 13. you'll see estimates as high as 7 million units. the good news is the atari shaking a bit. the banks are hesitant to proceed on the foreclosure for the attorney general lawsuit reasons and other regulatory reasons, but it is definitely a major overhang. in fact, in many conversations with buyers and sellers, principally buyers, they have a few more often than not, certainly in those tense days

that if they just wait, the foreclosure inventory will be released, bringing pricing down even lower, creating better opportunities so they literally sat on the sidelines well-prepared, perfectly capable proceeding with the transaction, but they are waiting. and that is taking a lot of wind. getting a much lower price, yes. it's a common problem. >> so you search my question is dealing with the overhang issue. >> i don't know how we can move beyond that. i think that fundamentally must be put behind us. >> mr. calabria. >> onto after that. and to flesh out the numbers, my estimate is that you have about 1.6 million loans that are at least 90 days late. of that, my own estimate is you look at elected about between 400,000 to 500,000 that are over two years late. so does for you can start with a

good assumption that someone who hasn't been able to make a payment for two years is very, very unlikely to become current again. but i would say if they think you need a triage process. we need to decide who is favorable, who can we keep in the home? who can we help? who can we not? we have to be realistic about it because this is a triage. i would say for those segments in which the owner has not paid for very long time, we need to streamline the process and get those houses back into inventory quickly. so that would be my number one. number two, which might be echoed by iv, we need to find a way to get excess inventory held by freddie, fannie, back into the market, either the masters and some does make it to be in the rental. for instance, i go back to my carpenter intent argument. i would rather help pay that price meant in austin, where he can find a job, then encourage

them to stay in the house he is and because he is not going to pay the mortgage. we do need to change dynamics can help people adjust. those are my two, but i will emphasize it's important to keep in mind do no harm. we need to think through proposals and make sure we send the right angle to buyers and make sure to send the right signal to investors than all of that does need to be kept in mind. >> ms. zelman. >> first i would say we need to instill confidence in the way to do is mitigate deflation. have you mitigate inflation? who demand and supply back in balance. had he gets the buyback amounts? you absorb through rental program that the government has the ability to implement. the rental program is appropriate given consumers balance sheets are too weak for consumers to purchase homes today. households in the dwellings. single-family dwellings today by far outpace the magnitude of population living in 50 plus unit apartment buildings and these people have been displaced, if they were living

in the single-family rental with three kids and two cars in its outcome of the moving across the street to single-family rental. there would be orderly disposition. by doing so, we mitigate new cards on the market would put pressure on prices stabilize home prices which would take the consumer and allow him to be back in the market. that's a first response. my second response would be today, consumers that are qualified are being turned away because we have not taken under writing to an extreme. the stringent underwriting is important and needs to be sound. because they black-and-white underwriting process as well as incremental credit overlays, strong potential home buyers with a down payment exceeding 30% to 40% are turned away in some cases because of a situation where they're self-employed, for example. it's difficult for qualified buyers who credit scores that

fall below the 640, which by the fha will ensure mortgage iv or higher, but they will not underwrite enlisted 640 or higher. we've taken the pendulum has swung too far to bringing well-qualified buyers. i think really twofold, all of which would bring back confidence incompetence is the biggest impediment to recovery in the housing market. >> mrs. smith, what about the rental idea? >> well, with the chairman's permission, two points. there's the thought in the marketplace that foreclosed properties are not selling. i would dispute that. they are one of the largest sellers for foreclosures in the united states. 60% of individual investors, typically small, noninstitutional. the bouncer first-time buyers. the investors are paying cash in the first time buyers come in the 40% are generally fha

financing, with less than 5% down. so it's a very robust market from the list a to the close of the transaction has taken us 80 days. so we turn our inventory over every 80 days. it's a very robust market for this. we should not think that in a warehouse somewhere, they move rather briskly. it is an important point. as to the rental, we think rental programs can be effective to the extent it is not being used to create subsidized housing. subsidized rental programs in the cases we are familiar with, which in one case he managed was a dismal failure. they were taking a home that was a gse inventory, put into a market as the single-family marketplace and they were making the home is available at half the local market rate. that creative property value problems. he created significant problems with the local taxpayer in local homeowner. if that is the intent, that is a

unique a poor strategy and is not going to benefit anybody long-term. however, the intent is to put that the marketplace, i think that's perfectly acceptable. >> let me ask one final question. it's only senator merkley and i at this point and i'll yield to him in a moment. 20% down is a constant, is that a good apo? >> i think 20% is probably too high. i think we have found underwriting with 10% probably has a more reasonable level, along with fha financing today, which is critical to state the 3.5% down payment level. they think 20% is too high. >> i get the sense institutionally there's almost an adoption of the 20%, even though there hasn't been on the same regulations to that effect. ask turning because it takes a whole universe of responsible

borrowers of the marketplace. i think we kept telling me to deal with that. >> if i may, mr. chairman, the single-family winter is actually getting the unit made available to him by the purchase of the foreclosure that richard smith spoke of a investors. severe be having the homes and they are putting tenants into those homes for the process of disposition is happening. as the rental yields for investors need to be a certain level. today they ran 6% to 8%. with buzzwords like multifamily house provided government funding to do construction loans and development loans at very attractive financing. do you single-family renters have no financing available to them. only those multi-renter has government assistance funding. with leverage, the government can get a better return. if you provide the push to investors come under significant demand for this type of asset class. we would get a higher bid,

better return and everybody wins. >> senator merkley. >> thank you, mr. chairman. address the questions i'll have to head to the floor to preside. i'd be very interested in the second panel, but i won't be up to be here, so i apologize for that. i wanted to ask a little bit if anyone has a take on how the boxer isakson bill differs from what the president is proposing. i haven't seen details yet, so i'm not sure if you all have. if you have come it would be helpful to get some insight. >> i for one have not seen the president's bill. >> i have not seen the president still. i'm not sure there is a detailed plan, but it does seem to me to be the difference is, the concept is the same. you will try to refinance underwater borrowers.

there's certainly a couple important questions that go along with that. one, is a voluntary? to boxer-isakson bill seems like the bar has to come forth a request. what are the fees that will be waived? what is the ltv going to be? for instance, there is no ltv. you could hardly have a 300% loan to value ratio and still get refinanced. i have a hard time thinking that fha. there's current questions are to raise 125 under h.a.r.p. carter. i have a hard time seeing it removed. the core concept is basically the same. >> ms. zelman. >> thank you from senator merkley. i've not seen more specifics. the president mentioned a rebuilding america, which would take for closure units or some type of partnership with maybe investors and refurbish foreclosure units. that's the only thing that was

mentioned as far as i know in the president's create jobs bill. as it relates to senator boxer and senator isakson's bill, today the administration is more focused on improving upon the existing h.a.r.p. program and the challenges of executing implementation of a mass refinance could cause major unexpected consequences in support of helping consumers, but he also realized there could be unexpected consequences, one of which is breaking contract law by weeping appraisals are also the mortgage-backed security investors that to date a prepaid could have significant consequences on the secondary mortgage market as they would lose 700 be points of their portfolios. also right that we don't know for certain if these people who are going to be refinanced still don't walk away, they still have negative equity, even though you've reduce their payments.

so i'm not against it. i think would be difficult to excuse successfully with unexpected consequences. >> thank you. in that context from intuitive you want to share with the strengths or weaknesses are at the boxer-isakson approach? >> well, i will first reiterate some thing that senator isakson said of the witches this is not as much about the housing market as it is about trying to create consumption because you are just refinancing people in their existing home. i think there's some argument to be said or lowering the rate can you reduce the chance to buy another home in the future because if you take that into consideration five years from now when they might i cause that tonight at 6%%, 7%. i would reiterate that this is not about the housing market. it is about, are you creating increased consumption by lowering somebody's monthly payments of its money to spend on other things?

this is about getting the economy going into spending. the question i have in my mind, which essentially is an empirical question. at enough recently to answer without a fairly detailed study as a mortgage is one person at ability, another person's asset. so you increase the someone's wealth in your decrease in someone else's by reducing their bond payment. it is not clear to me as an economist at the effect on consumption will be any different than zero. so i think that is something that needs to be studied fairly significantly before we know there's a positive consumption impact. again, my read of senator isakson's statement as this is all about trying to created this to consumption and that's where the focus should be. i will preface, i'm not an economist, but that we support niche in the second leaves within the bill strikes me as coming very close and i certainly think somebody come and the investor out there who was second mortgages is likely to challenge that. i can almost guarantee that somebody will challenge that the

court. .. >> sir, i think senator isakson said it well in his statement that this was not going to impact sales. it would create stability where stability doesn't exist, and it is complex. it will run afoul of contract law in general i believe, but given the circumstances which

are unique and given the possibility of strategic default which is a real event happening on a daily basis, this is an attempt on the part of congress to get ahead of that is senator boxer said in to be more proactive than we have been in the past so i plugged that effort and i recognize there are a lot of details that will have to be worked out but the goal is to create stability where it does not exist. >> thank you all very much. >> let me take advantage of one more set of questions before a bring our next panel. would love having your expertise here. just so i understand in reference to getting an asset class that would be purchased and then rented, what is the incentive they are? is a just market incentive or is it something the government will do and what is the guarantee that person will move towards a rental along the way? >> first a strong demand for the

rental with respect to occupancy right now, they are in the 90% range. the costs of holding reo every day is annually running about 12%, 1% per month to paper property, insurance, taxes, safeguarding a property. all of those are mitigating or increasing severities daily so we would stabilize the losses or reduce the losses of the government balance sheet and we would put people in homes that can't afford to buy them for investors purchasing them with provided leverage. >> finally, under the guise of do no harm, it seems to me that if we do not act and have the

mortgage loan limits at the end of this month expire on loan limited is going to further destabilize the mortgage market and certainly i hope that our legislation, the homeownership affordability act of 2011 which center isakson and i have introduced so that we can keep the maximum low limit right now for the next two years under fha and insured homes that will take effect. if it doesn't, what is the consequences of that briefly? >> you can substantially limit the availability of financing in certain markets to a point made earlier by one of the panelists. there are certain markets in the united states united states that are high-cost markets. they are going to suffer. principally the coastal markets. i think in an environment that is as fragile as this one further limiting the availability of credit, ivy's

point is not a good strategy. the unintended consequence will be a slowdown in sales and again the restriction of credit and i think that is a bad outcome given the environment. >> as an economist i am reluctant to generalize rum and anecdote particularly my own but it seems like a good place to start since i live here in the district of columbia and as you can imagine prices are kind of expensive here and it is a market in which it is going to go down. the options that are facing me are getting a loan just below that limit at a higher rate. looking at the rates i have been offered, before for my first one and 4.5 for the second doesn't strike me as particularly onerous to me. i'm not happy about it but i recognize we need to transition at some point sooner rather than later. i do remember in the past when many of us try to fix freddie and fannie in the past and we

were told the marker was too strong and now we are told it is two weeks of those who say we should not ever do anything about freddie and fannie maybe they can help me detail what are the market qualifications in which we are able to take reform so when i get there i can no. i do think that a if you look at the segment of the market that is there, there is tremendous amount of bank capacity to do that and i think so we are not talking a very large segment of the market. we are talking fairly high income, so i guess my point would be i think we need to start transitioning away from freddie and fannie and fha to the private market. i'm very open to ways to do that and say which parts should go first but maybe the progressive part of me says rich people are the place to start. >> mr. chairman in response we believe as well, believe the foreign law limits should not be allowed to roll back to their normal limits.

i'm looking at fha endorsements, the negative impact at lease for fha quantified for the nation would be approximately 3% and the hardest hit states would be connecticut and the district of washington, 8% with respect to fha. i would say when you look at the level of sales activity let me put it in perspective for you today. we are running at 300,000 annualized new home sales. this is an all-time record low. since records have been ever kept. we are at housing start levels approximately 600,000. that level of housing starts compared to 1982's trough for unemployment was 10.7% and mortgage rates for 16 to 18% grover in million. we are at such a depressed level of activity even though existing home sales have been increasing if you excluded foreclosures distressed sales which are deflationary we are at all-time record low traditional home sales so putting that in perspective anything they take away from housing today is going to be a negative and further eroding the level of sales and activity and putting further

pressure on home prices. >> i appreciate that. that is my concern. thanks to the panel. we appreciate your insight and hope to be able to continue to pick your brains as we move through this process and thank you very much. let me call up our next panel and asked them to come forward to the witness table. david stevens is the president ceo of the mortgage association washington and prior to this current position he was the federal housing administration fha commissioner appointed by president president obama and confirmed by the united states senate. many members of the committee have worked constructively with mr. stevens and i'm pleased to welcome him back to the committee one more time. marcia griffin is the president founder of palm pre-usa which is a nonprofit homeownership development foreclosure intervention and financial empowerment organization. ms. griffin was moved to found home for usa after working at a loan servicing center and witnessing first-hand the abuses that many families were subjected to. her experience will be

informative for the committee and i thank her for her presence today. mark is the chief economist at moody channel is where he conducts research and analytics. his recent show researchers look at the cause of mortgage foreclosure personal bankruptcy as well as appropriate policy response to bubbles in asset markets. he has been quoted widely by major media outlets and has appeared for many of the senate committees as well as this one and we are thankful to have his expertise with us again. dr. anthony sanchez is a professor at george mason university in this briefly taught at the university of chicago university of texas ohio state university and although he is from rumson new jersey, we wish he would come back and teach somewhere like france and. so, his research and teaching focus on financial institutions

capital markets real estate, finance and investment and we welcome him to the committee again and professor christopher mayer is the professor real estate and codirector of the richard paul richmond center for business law and public policy at columbia business school. i would like to see your business card. there must be a lot of room in a car to get all that on. is researching this topic some real estate in cycles, credit markets debt securitization mortgages and many other topics and as a vice many policymakers in the past we look forward to his expertise today. thank you all. we'll include your full statements for the record. we asked synthesize your statement to five minutes or so. mr. stevens welcome back and we look forward to your testimony. >> thank you chairman menendez for the opportunity to be here today to talk about ideas for refinancing and restructuring mortgage loans. i'm encouraged the focus of today's hearing is toward the future and the role of capital

driving our housing recovery. and vns member strongly believe the housing will be an acute factor towards our economic recovery. the mba recognize their ability to effect change depends on rebuilding badly shaken trust by restoring credibility, transparency and integrity to our industry. we all know there are many who are sharing the responsibility for the mistakes that led up to this including mortgage bankers and servicers however rather than pointing fingers today i will -- stakeholders need to work together to stabilize and revitalize the housing industry. mba's variety of relief efforts undertaken by congress and astray shins including hamp, and a variety of other efforts that have been implemented clearly the challenges greater than these programs could support on their own. mortgage services have already participated by completing or .8 million loan modifications in the last four years and any successful solution must include those entities is as part of the effort.

searching for solutions, mba members continued to be concerned about the ongoing conflict in policy objectives emanating from all stakeholders. the regulatory and legal ambiguity is causing consumers to pay and uncertainty premium in the form of increased costs and diminished access to credit. the mba recently convened a task force to develop new solutions to reinvigorate the housing market by bringing private capital back to absorb that supply. we believe any program to help spur the housing recovery should be prioritized in the following order and i elaborate on each of these in my written testimony. first lady to help a large number of borrowers unable to refinance a the today's director blanchard straits while policy members have rented his programs to help distressed borrowers eligibility criteria excludes a significant number of borrowers who would benefit from refinancing. some advocates have called for other types to large-scale mortgage refinance programs that would include principle forgiveness by lenders and new

mortgage rates below current market rates. although such programs could have a positive impact on the housing market and the economy the cbo and other analysts indicate the programs could also entail significantly higher cost. the mba believes the preferred approach is adjusting the guidelines of existing programs. policy make her should consider reducing the dfc low-level price adjusters on eligible loans which reduce costs to borrowers that are arguably unnecessary because the tfc has assumed a credit risk of the existing loan. other options include considering streamlining the appraisal process and closing requirements to reduce the time and expense of refinancing and raising ltd loan-to-value requirements to enable more otherwise qualified underwater borrowers to refinance into a lower mortgage rate. finally, fhfa should expand the loans eligible finance to loans originated after june of 2009. senator menendez and others have suggested a shared appreciation ward is where a lender agrees to reduce the principle balance of

troubled borrowers and exchange for the borrowers sharing in the future increase in the home's appreciation with a lender. we look forward to further discussions with you on this and other possible solutions to help our words. second we should encourage local investment in the existing housing inventory, local investors understand the local rental market and of a long-term stake in the community. existing government programs should be modified to support financing available to for local investment rental housing. individual cells and local investors cannot provide the economies of scale required to recover the housing markets of the mba supports also broke investor sales of properties to alleviate the aria inventory. in order for any large-scale program to be successful in these be simple and attractive to investors. safeguards need to include investor screening, ryan hold covenants revenue-sharing rehabilitation incentives though they should not be so restricted as to sabotage the program success. we also believe the tfc should consider a mechanism to allow investors to identify an

aggregate reo properties likely enhancing multiple property sales. mr. chairman thank you for the opportunity to testify and i look forward to working with you and other members of the committee to find great of solutions on these critical issues as we were to attract private capital back to the housing market and i ask you to pay attention to the relationship to housing in the overall economy as well as the importance of certainty for consumers lenders and investors. it is important or member and a part of the housing market operates in a vacuum. said the house market is a series of complex but interdependent systems and well-intentioned changes may result in unintended consequences that could result in increased costs and diminished access to credit for consumers. i look forward to taking our questions. >> thank you very much. ms. griffin. >> i appreciate the opportunity to be here with you today. in-home free usa, we represent the marriage between the interests of the mortgage servicers and the investors and

the borrowers. since this mortgage crisis began and 2008, among our 21 -- we fund 66 organizations but 21 of our nonprofit counseling organizations focused primarily on this foreclosure crisis. i am here to say that despite all that is said and heard and it is good to hear some great rings from the testimonies today, that the people, and many of the ball work that we interact with and have worked with over 30,000 today, many of these cannot afford to pay a mortgage. they perhaps can't afford to pay the mortgage that they have right now. but they can afford to pay something. these people are employed and trying to do the right thing. they want to be good citizens. we are here certainly on the ground, working with, working

between the servicers, investors and are here to say that this idea of the shared appreciation of modification is a sound one. we encourage and certainly would be honored to work with you in any way in the bill that senator boxer, the homeowner response -- responsibility because we want you to know that homeowners do want to be responsible. these bar words need an opportunity and you know it is really important too that through the work that you are doing it through the work that our government is doing, we have to really bring back a level of fairness. this is one of the advantages that the shared appreciation modification provides. so, you know you reduce the mortgage payment for the person

for a period of time so that they can afford to pay that mortgage, and at the backend when they sell the mortgage or they refinance, everyone would share. the investor which shares and the homeowner would share in the appreciation. it is really key as we move forward that these homeowners understand that this is a partnership here. we are trying to work together. i can tell you that the sentiment on, you know on the level of the borrower is simply that the lender is trying to take my home away from me. and every one that we work with -- everyone cannot keep their home, but there are a lot of people who can, came, and this particular shared appreciation modification program not only would minimize foreclosures, it would increase

property values because obviously people would not have to move out of their homes. it creates a sense of fairness. gives people an incentive to stay rather than just walking away because now, you know there is no incentive when their house is sold -- so underwater. we need to give more consideration to our borrowers and give them the sense that we are all working together. the government, the mortgage industry, you know the investor. we are all here and it is a win-win for each other and with that, think that is the only way that we are going to be able to turn around our mortgage crisis and really improve the economic condition of our country. i thank you very much. you have my much longer written testimony and i'm certainly open to any questions that you may have. >> thank you very much. mr. sandy. >> thank you senator menendez.

>> are technically a -- technologically advanced you have your eye pat. >> i have got one but i have gotten around do you know, working through it yet. i want to thank you for the opportunity. my remarks are my own views and not that of the moody's corp.. i will make three points in my for marks. the first is that housing and mortgage markets are under significant stress and as you pointed out, this is a significant impediment to the economic recovery. i think the housing market are rod lee speaking has hit bottom, but this is still very unusual at this point in the economic recovery. housing would be contributing significantly to economic growth so for example if you look at the economic recovery since world war ii, two years into the recovery we are now two years into this one -- housing would have contributed one fourth of gdp growth to overall economic activity and of course this

go-round it has not been a contributor at all. there is too fundamental problems. one is access inventory because of the overbuilding in the poem. we have way too many vacant homes. by my calculation, the excess units is close to 1.25 million current housing demand which is depressed it will be 2014 before he worked through that. another fundamental problem is we have been talking about the foreclosure issue, by my calculations there a 3rd million mortgage loans that are in foreclosure or 120 days delinquents and that is obviously close. the current rate of resolving these foreclosed properties that won't be until 2015, 2016 before we work through those properties. so, a long-haul. >> getting to point number two that is i think policymakers should consider a number of steps to help facilitate addressing the excess inventory and the foreclosure issue.

there a number of bishops -- initiatives underway that i are helpful. the neighborhood stabilization fund the president proposes more money for that in the american jobs act which was about $15 billion it is a very popular program and is very helpful for communities. the administration also propose trying to facilitate efforts by fannie and freddie to partner with private investors to move their reo to rental as opposed to selling it into the marketplace and dropping -- driving down prices and i think that is a laudable goal. you are on effort with regard to shared appreciation mortgages i think is a good initiative and i think it has a significant potential for helping in this regard. i would suggest to other two other things that could help quickly and meaningfully. first is, as has been propose already by many of the members of the group, that is i would

not allow the higher controlling loans to expire. i have a different view in the beginning of the year. understand the argument that it is important that government steps out of the market to see if we can't get the private market back up and running and stepping in. that is something we need to do and at the beginning of the housing market the economy looks better and this would be a good opportunity to take a crack at it. but given what is happening in the economy and the housing market i think that would be an error. at this point over the least extend limits for another year. the second thing i would do is, you do sell harp. harp is a reasonable program, about 850,000 folks have benefited from the program. the president when he proposed the program back in '09 had a goal of 45 million i think i should be the goal. there a few things that could be done to the program to get to that goal. the most obvious senator boxer and senator isakson and the key to their bill is rolling back

the loan level pricing adjustments. i think that meg's eminent sense to me and i think that should be done. i think efforts to streamline the underwriting process is very important with respect to appraisals and income verification. the gse's on credit risk and we can work through these underwriting issues more quickly and lower the cost so that closing costs are lower for borrowers. third, think it would be important for fannie and freddie to think about waving warrantees on harp loans. these are loans in the current program that had been originated more than several years ago in january of 2009 so i think it is perfectly prudent to allow but that the way. there a number of things that are in my testimony but i think i would do that. finally let me end by saying that it is going to be hard and there is no magic bullet here. all the things we are talking about her on the margin and we'll take a long time so i ruins expectation should be in the right place.

moreover, think it is important not to overreach. uncertainty is an issue in the mortgage market and i think what lenders, servers or's and everyone needs as policy clarity so that we can nail this thing down. thank you. >> or sanders. if you would just put your microphone. >> i will start over again. thank you for the opportunity to speak to you today and thank you for reminding me that i wish i was at princeton. according to the recent data household real estate fell around $7.4 trillion from the peak of the housing market to today. headline unemployment remains at 9.1% and real gdp is under 2% and real personal consumption expenditures fell in the second quarter of 2011. so you see we have a major problem still on our hands. one way to jumpstart the economy reduce mortgages default is to streamline mortgage financing. many of the additional savings

to our worst disposable income, they might spend in the economy are are reduced latency and that is a tempting thing to look at. we have discussed why borrowers haven't been able to refinance due to the degraded credit after the housing market collapse, negative equity and servicing industry conflicts. to be sure streamlining the mortgage financing process could help american households to reduce the. the cbo however using a stylus program estimated that 2.9 million mortgages would be refinanced and again this is not under any specific program and now would lead to 111,000 fewer loans. but 2.9 million mortgages being refinanced at 4% or so would generate about $7.4 billion to the economy in the first year depending on the assumptions and it could be higher or lower. in many the high ltv loans we are talking about some programs are located in florida arizona california so the stimulus effect would be more concentrated in those states.

the similar benefits of 7.41 billion year after refunds take place are actually relatively small compared with personal consumption expenditures, which in the second quarter of 2000 -- 2011 were $9.43 trillion. so again, 7.4 billion as a percentage of 9.43 trillion is much less than 1% added. i'm not sure it is going to have a stimulative effect that some would like to see him unless of course the program is much larger than the cbo is estimating. another way to stimulate the housing market is to raise conforming limits for one year or two years. as i said in previous testimony with regard to a drawdown plan for freddie and fannie, tell it was appropriate to reduce the conforming loan limit to allow the private sector back on the market however i stated if the housing market stalled, which it

has, alternative strategy should be considered regarding conforming loan limit such as lending to stay in place for an additional year or two until the housing market gets back on its feet and running. senator menendez has proposed that an interesting idea and a shared market solution to overcome the negative equity problem. this appreciation mortgage has been used in the united states for decades although in low volumes and has been tried in the united kingdom to permit our worst or pay down their principle for example 50% of their share of equity in return for say 50% of future gains in the house price. the menendez proposal has a semi-attention. the borrower receives a write-down of tim -- principle for exchange on waivers on its appreciation the profit lun the future. there are problems with this, to pull. capital marks have shown little interest in it as a product for investments of a generally, if you make idiot to keep it on your books but second there are

moral hazard problems related to incentive to maintain property when someone receives a capital gain. the third problem in the menendez proposal assault and that is getting independent appraisal so again it has some issues but also has tremendous potential and it is one thing i would like to see them do a trial program for sam's. now whether or not this is done by private financial institutions or the gse is a topic for later debate but again i think it is one of the most innovative ways to try to get out of the negative equity problem because as i said earlier, the program from isakson and boxer i think when i looked at the numbers and look at the cbo report i don't think that is going to get us much but i think this one has better legs on it. thank you for the opportunity to testify. >> thank you very much. i appreciate the opportunity to be here today.