>> perhaps it's because that would be a revenue source cut off if you kick someone out of your pharmacy. >> it might be working the opposite. >> i can't say that. it's something we saw.

it was pretty striking. you would think someone would have noticed. >> good point. >> i think some of the doctors even though they got the letters, their patients were going to numerous other doctors for the same drug, they kept prescribing and he didn't do anything about it. that was just another observation. i don't know what their incentives are, what their malpractice liability is but that was another observation. >> we're getting close to the end, and, but i think before you ask you just to give the closing, i want each of you, start with you, mr. saccoccio, you bring a whole lot of knowledge with great insight into these issues. but just tell us where you think there's a consensus. what i like to do is try to develop consensus. where do you think is consensus

in next steps forward. >> i think there's consensus there is an enormous problem. i think the problem may be even greater than what the gao reports revealed. especially if you look at some national perspective, certainly medicare part d looking at that peace. from a national perspective, prescription drug fraud and aversion is an enormous issue. i think there's consensus the. i think there's consensus on the concept you can go after this problem just one solution. you have to be monitoring closely. you have to have a frontal solutions -- up front solutions. then you have to notify the prescribers. you need to notify the patient. you need to try to get the patient if you think there's an addiction problem into the treatment that patient needs. and then you need to do

something to control it. and i think the lock-in programs, recipient programs is probably begin what cms is going to hear a lot of from the part d sponsors. so, you know, i think you could do those lock-in programs in such a way that it does not interfere with the receiving of drugs that are needed by patients who actually need them. >> great. what do you think the consensus lies? feel free to repeat almost verbatim what mr. saccoccio said. or add to that or take away. >> i do agree with the prior statement. i think there is consensus that we have a growing problem within the part d program of misuse and abuse. i think there's consensus within cms and i think at this table that we need stronger responses. i think there's consensus when

you to work with a plan sponsors to work at the best strategies to put in place so we are not cutting off access to those beneficiaries who have need. i think there is consensus that we need to explore some of the recommendations from the geomorphology, but from cms's perspective there is no lack of concern that this is a growing problem for the medicare part d program and hopefully, mr. chairman, there is no concern that we are not going to do everything we can to ensure that we are stopping the program while permitting those in need to have access to the drugs they need. >> mr. kutz, where do you think the consensus lies? >> this is a nationwide problem. you pointed out very quite clearly. this goes beyond that. we saw evidence of that that the sources of the drugs people are getting were not just medicare part d. a comprehensive approach is necessary that includes more than just one type of activity.

the importance of data mining and data to this entry down the silos we have in our government within health care systems and data can more freely be shared. and then with respect to the restricted recipient program, we have agreement if we have a program in place you need to make sure you have a safety net for the individuals that have legitimate needs to make sure they don't get shut out of the program. >> give us an example of the. >> well, you wouldn't want to put someone in our program if they're going to five or more doctors for legitimate reasons. you've got to have proven the case that they are, in fact, a doctor shopping and an abusive way. i think that's what we're talking about. we all agree on that. >> all right. you all are welcome to take a minute or two to help me with the benediction, a closing, a summary of what you are taking out of here and what you have us take away from the scene. it's been a quite good hearing i

think. mr. saccoccio? >> again, i think that a hard look should be taken at restricted recipient programs and i think they could be done in such a way that they take into account the valid needs of folks that need those pain medications. i think we've come a long way with respect to treating folks that recognizing pain as a major issue and to be able to manage pain for patients with certain conditions. but at the same time i think we could do it in such a way that cuts down significantly, significantly on the abuse. obviously, not going to take away all the abuse but you could cut down on. i think these types of programs have a lot of promise. >> mr. blum? >> just in closing just to thank you and the committee for having this hearing. i think of art perspective is seen that oversight helps us understand vulnerabilities and what we can approve the part d program. i think the part d program to

are believed to stronger for beneficiaries. there has been during the five or six year history, but at the same time there are vulnerabilities. we have to make sure those vulnerabilities are not close down while also maintaining the goals that we have with the part d program to ensure the beneficiaries have drug benefits that will improve their health and to provide access. so in closing, thank you for the attention, thank you for commissioning the gao report. it was hopeful for us and there are definite to do for us to follow up on, follow this conversation. looking forward to working with you and your staff to report back on that follow-up. >> we will welcome that. >> i thank you for inviting us to this, and we enjoyed working in a bipartisan fashion with yours and senator brown staff. i appreciate the constructive nature of the. >> thanks. in closing, let me again thank each of you for joining us today for your testimony and for your responses, a special thanks to

gao for helping us with our oversight responsibilities. you're a great partner and we are grateful to you and your colleagues on a broad range of issues. it's hard to believe 10, 11 years ago we had a balanced budget in this country. three or four of them in a row at the end of the 1990s. it's hard to believe we find ourselves instead of a sea of black ink, looking at a sea of red ink. and i think this year we expect to come in around $1.3 trillion. there's red ink for just about as far as the eye can see. some folks may think is to wait reduce deficits. one ways to cut spending. and another is to raise taxes, raise revenues but i think there's at least two more and one of them is to -- we will do some good thought for legislation next week or two what you think will help in that arena. another way is to look at every

nook and cranny of the federal government. i like to say everything i do i know i can do better. the same is true of all of us and the same is true of the federal programs. everything we do we can do better and we have to take that attitude almost a culture change from a culture of almost spendthrift to a culture of thrift. this is just one more piece of that. my boys are 21 and 23. they are pretty sure that medicare or social security are going to be there for them when they are 65, 67 or 69 years old. and, frankly, a lot of young people in their generation feel the same way. i think part of my responsibility is to make sure those benefits are there.

and are more cost effective and providing a safety net that we need as we advance in our years. so i think there's a bit of a moral imperative here for us to get better results for less money. and we can't continue to spend $1.3 trillion we don't have. the rest of the world will stop giving us money. and their funding that out in places like greece. so, i appreciate the opportuni opportunity, and we applaud those efforts. we want to do a whole lot better and want to help you do a whole lot better, and take a look at humana and wellpoint and some of the other to see what we can learn from them. and i've never been very good at holding got you hearings. we always like to hold hearings in this subcommittee, always bipartisan. we like to hold hearings we're

looking for an answer or a series of answers, looking for a way to get better results for less money. and today i think we have taken some good progress in that direction. we thank you all, and i think, let me ask our staff, i think our colleagues have a couple of weeks. our other colleagues, the committee has a couple of weeks they can still submit questions in writing. i just ask you respond to them probably. we're not going to go away on this issue. i'm encouraged to know that you will, too. and we look forward to making great progress on this. thank you very much, and with that this hearing is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations]

>> in a progressive policy institute forum on housing foreclosure.

>> nearly 80,000 households received foreclosure notices in august, up 33% from july. this week, members of congress and representatives of the real estate industry discuss the problem at an event hosted by the progressive policy institute. this is an hour. >> this group representing government, industry and

academia. and in a moment i will introduce each of the panelists to you. i was in china for several years, and i returned in 2009, actually in june of 2009, for some of the economists here, you know, may know that that was the month and year that was later determined to be the end of the recession. and my family and i repatriated. we thought well, what great timing, great time to buy. so in the summer of 2009, my wife and i took upon, and as you know the market in d.c. has outperformed most other major areas. and i don't think, you know, so we're still very fortunate. but i don't think many of us

figured that the housing slump would be with us for so long. and i'm still checking zillow for the line graph to turn out. [laughter] unit, we are approaching two and a half years since the economy began growing. and five years since housing prices nationally first began to decline. and yet some of the most recent data suggests that things still haven't bottomed. in the next hour or so i'm hopeful we will look at the factors that have been keeping the market down and what that's meant for the broader economy and jobs. and we also hope to explore some of the challenges and perspectives as we begin to think more about solutions. which will be taken up more fully in the next panel. so now for the panelists, representative dennis cardoza

represents california's 18th district, which is in the san joaquin valley of central california, includes fresno and madera. they were some of the hardest hit real estate regions in the country. as i'm sure you'll be hearing from him about. this is dennis is a fifth term in congress and he is keenly interested in agriculture and housing. is the author of a book and a champion efforts to help millions of underwater borrowers to refinance at lower rates. doctor stan humphries joins us from seattle where he is chief economist for zillow where he leads the team that is developing housing market data for metro areas. prior to zillow stands that several years at expedia and his broad experience includes peace corps service in west africa, nasa and the university of

virginia where he received his ph.d in government. mr. ronald phipps is president of the national association of realtors. i know we have many members from nar here. he has been a real estate broker for 31 years, practicing in rhode island, maine and vermont. he's been a national director at nar since 2000. and i'm told he is an triathlete. and, finally, doctor philip -- [inaudible] comes to us from universe of merrill school of public policy what he is professor of international economic policy. philip previously taught at georgetown, and he served at the treasury department in the second half of the bush administration as assistant secretary for economic policy. he also has served as an economist at the white house council of economic advisers, international monetary fund, and

the federal reserve. so please welcome all of our panelists. [applause] >> and to get a start, let me turn to stand who will give us a brief presentation. >> sure. thank you very much. i apologize in the pants that the chart for homes is not moving out. but many in d.c. have. d.c. is whether the housing section fairly well. i was have to try to put three, five minute quick overview of where we stand right now in context and in light of senator merkley's great comments that give a little bit of overview i would even give it shorter. i wanted to get a few stats, where we are right now. then we'll move on to how we get out of where we are now. but generally home value trends have been somewhat improving over the first part of 2011, the

first half. that was after market deterioration in home value trends in 2010. once home fire tax credit declines. index put us down roughly almost 30% from where we were in jun june 2006. a more pessimistic view from where we were at the peak. as i said, after the tax credit expired in summer of 2010, we did see home value depreciation transfigure quite markedly we're really in november and december of last year we were falling again at almost 1% monthly, which is quite high monthly depreciation rate. we hadn't seen that richard depreciation sensually late 2008, 2009, the darkest days of the housing depression. depreciation rates start to go down. on our index start to show

appreciation, positive appreciation in may, june and july with july we were up slightly, 0.1% month over month. still down 5.1% year over year. case-shiller showing similar trend. generally we are still declining but we have seen some positive trends in the first half of 2011, and that's encouraging because that's positive trends in the midst of no external stimulus. were not paying people to buy homes and we're still seeing some stabilization of prices. that's the good news. unfortunately, we don't expect most economists don't expect that trendline to continue quite as bullish over the near-term. macro markets recently released consensus estimates of 111 economists across the country, and the consensus as it was across 2011 for the fort worth home values would fall 3.5% over the year. and some improvements we would

be seeing improving trends in 2012 and 2013, but mixed assessments were we'll see a bottom in 2012 or 2013, argue that the zillow is would see a bottom in home values which means we do foresee weakness in the back half of this year and continued weakness at first part of 2012. largely due to some factors involving negative equity and foreclosure fireplace. in terms of negative equity directly, by our estimates 2620% of single-family homes with mortgages were underwater. so remember that's just homes, single-family homes with mortgages. that's not all homes. and really if you look at the hard hit areas around the country, california and florida, a lot of parts of the central valley it's staggering the negative equity that you find there. you know, some areas of the country of 70%, 80% of homes

being in negative equity, which combined with high unemployment is a great catalyst for foreclosures in the future. and really, i think what's most, i think sobering about the current housing recession is really the breadth and depth of it, that we've had fairly severe housing recessions in regional context, southern california and early '90s, texas in the '80s, boston has had a few here and there. but really if you look at the number of markets, most markets have had a housing recession at this point. there are only a few who have not. and if you look at those that have had some type of recession, a lot of the very root severe recessions where just to pull a few, mattress out of the half, looking at central valley, down 70% from the peak. 64%, biggest 64% phoenix, 57% from their peak. most of those areas now have

home values that are back to the early 2000 period which is really a lost decade in housing market. so it's very staggering in terms of the breadth and depth of the home value declines. i mentioned negative equity, and that is unfortunately combined with unemployment continue to throw off foreclosures. we have a very high number of homes that occur in a foreclosure process. another one, one and half million seriously delinquent. during the oversight controversies we saw a sharp drop off in foreclosure activity. the consequence was we have seen market improvement in the delinquency rate of 90 plus days doing what he had been declining very fast. that slow down after the robo-signing because more homes were staying in the link which he. we expect that to change and start to pick up as the foreclosure pipeline regains its

be. so in short, you know, housing is, yeah, integrally interwoven into the broader economy. that housing market itself impacts the economy in number giveaways, just to name two or three, residential investment which is a key part of gdp growth. it's also housing impact household wealth and impacts the household wealth effects what they do with spinning. they tend to go out and spend less and consumer spending. and bank balance sheets are also important way that housing impact the broader market. to the extent that banks have their portfolio in the commercial and real estate side, that impairs their ability to lend credit elsewhere. and as i'm sure we're all aware, really the housing sector, particularly residential investment, has played a key part as part of the recovery. we're not seeing that same

contribution of residential investment during this recovery. and i don't think, i don't think we're going to see it in the near-term. we will have an economic recovery with essentially one of our engines out for a while, but i think we can recover with this conditions and, but certainly to the extent we can help housing on further and helped we get some ideas today i had to do that it would help the broader economy certainly. >> thank you. let me begin with ron. just got a quantitative picture of the housing market, and they wonder what, you know, you're picking up on the ground in your own business as well as from other in a our members about what's happening in the market now. are things as grim as the numbers suggest speakers i was a weird very sober. in the city prepare yourself for 24, 36 month cycles. and when the market turned it

wasn't a terrible surprise. but what's been particularly challenge is how long it is. and the aspect of it isn't stabilization with so many markets is particularly challenging for us. just in terms of rock confiden confidence. i'm struck by the adage that doctors have, just do no harm. and i feel that we are in an environment where government, capital g., continues to do harm. and unchallenged by the fact that homeownership has been part of our national agenda with purpose since our first breath. thomas jefferson started with life, liberty and the pursuit of happiness. but when you step back, and even after all the market corrections, the numbers suggest the average family that owns has become a net worth of $180,000, and the average family that rents house as a family net

worth of $4600. we believe that self-reliance and homeownership are woven together and should remain national priorities. we are frustrated by the fact that so many of the policies that are being engaged here in d.c. are corrosive to that confidence and the ability. i wore a tie today that is shards of glass. sometimes i feel like i have shards of glass in the housing industry, that we need to carefully pick up and re- pieced together so that families can see a light and see a future. i'm frustrated by the fact that my children and my grandchildren do not have the confidence of the future that i enjoyed. because homeownership is so much a part of that purpose and that agenda. i'm also very much aware of the fact we're not talking about housing. we are talking about

homeownership. it's got value way beyond its economic purpose. but if you just got back and analyze the economic purpose, -- step back. most of us have the majority of our and net worth in their homes. most of us rely upon that come as the best thermostat, barometer, gage of our own economic situation, and economic situation of our community and our country. it's frustrating that there has been a deafness of the importance of housing here in d.c. we spend a lot of time talking about who to blame for the problem in moments on options and solutions. we need to get to solutions. one of the particular frustrating things, when i started in the business 31 years ago, the top five list represent 5% of the market.

in d.c. you have a unique language. you talk about concentration. that means there's just not as many players and not as much competition. one of our challenges in the industry right now is we have let a lot of people actually would like to buy houses that simply can't step over the high threshold of qualification. for example, if you're self-employed you're in a really weak position to get any financing. you need a w-2 in order to get a mortgage right now. and 99 you need to be incredible. and the other thing is we talk about private sector money where average credit scores are in essence of 780, wait a minute, housing generates jobs, they are woven together and we continue to put more impediments. the adage, our message is do no harm. the market will self correct if we stopped doing hard. conversations about increasing down payments, about the conversation of the mortgage

interest deduction, you can list all of them. it continues to eat away at the average consumer's ability to purchase house and confidence in housing. we need to get it right. i frankly think we need to set a two-year cycle to say we're going to have the problem worked out within two years, here's our deadline. the next two years we will get through it. i'm also very frustrated about the inefficiency of the manufacturing process of financing. the fact it is so hard to get an approval, there are so many opportunities to challenge a family's ability to get the house, even when they are well-qualified. the inability for responses on short sales and foreclosure continue to look and say, you know what, we have a lot of great academic models going on, we have a lot of sweet rhetoric, we both have apple ply opt in but we need to roll up our sleeves and get this figured out

and engage. >> well, let me ask dennis, you were nodding your head while he was voicing his frustrations. i suspect you were back from california recently talking with your constituents are things getting any better there, and perhaps you can bond to what he said. >> thank you very much. i couldn't agree more with stan's characterization of the market, nor ron's characterization of what is causing the decline. jason opened the conference, or this panel, by saying that the housing market is too important to continue to ignore. and i couldn't agree more. i think the administration and the committees in congress are ignorant the most fundamental impediment to getting the economy back on track. i just did come back from my

district, where 70% of the homeowners are still in their homes are under water. 30% of my folks have lost their homes. when you get hit by a hurricane, you don't have loss ratios that high. in many cases. you have a situation where the federal regulators, ron was talking about first do no harm, such as take the community banks because the senator mentioned that earlier. they are faced with federal regulators to tell them on one hand to clean up the balance sheet, raise equity, raise capital within their institutions, and then you've got another administration program that was originally $30 billion at its own 25 billion, no, 5 billion spent and 25 billion returned, the federal regulators say don't spend the money, improve their balance sheet. the administration program cisco out there and lend new programs.

that banks are told to separate messages that are completely in contradiction to each other. they can't function in that kind of, i heard someone call it the other day, a constipated market. excuse the expression. some other committee members that i have talked to in the house and senate, and in the administration, say that we should be subsidizing rentals. i got today, i think that is a total log and copout strategy. it drives me crazy. because i've got today, coming from areas like mine, people who build communities don't live in rentals because they are anticipating moving in a few years. they don't belong to the rotary club. they don't get involved in the pga. the very fabric of our country. we are talk about economics but it's also about building our

communities back and making america strong. so i really have a serious problem with a lot of what's going on. as i was asked, i just got back from california, and things are not getting better. they are getting worse. and what i see as having is is almost a malaise, a depression coming in these hard hit areas like nevada, central california, florida. and i think it's made worse by our appraisal rules. comparable sales, well, there are no comparable sales in our area. there's no free market sales. they are all short sales or foreclosures. those just keep driving the price further and further and further down. i think at some point you have to say what is the cost of replacement, and that's going to be the floor. because right now comparable sales are half of what it costs to replace new.

you have to figure out some other strategy so that the federal government programs are continuing to drive down the market. i've introduced a bill called the whole what it would allow to refinance at current market rates. i keep a in home and stabilize the market. in my area people, i would say on the order of 10-15% are still frustrated, dishes hanging over the keys. they can't refinance. they see the neighbor next door being able to refinance potential to have a look at of equity. 75% of the folks with negative equity, according to core logic's, have a high market rates. had not been able to refinance at a rate of interest on the mortgage that is much greater than average. these are real fundamental problems. and its leading to market

fashionable, the challenge is ron talked about. >> sorry to interrupt, but we've heard about this staggering level of foreclosures and fellow confidence for job creation. starting with philip, what do you see as the number one challenge that needs to be addressed first, and why? >> why don't i take that one on first. you know, i will agree with what was said by the previous speakers, especially if the outlook stan gave were housed as many a reflect of weak economy rather than the traditional driver of recovery. and the problem is that means that there's lots of things to fix, both in the near term, ways to support the overall economy but also experiment with housing. i think we've learned that the

retail kind of one at a time let's help one family at a time, you know, the numbers i think are better than are commonly believed. but -- [inaudible] into we've learned these programs just aren't as successful as we would like. but it's hard, it's hard to imagine a huge wholesale program moving forward. so to me that's a problem is you have to experiment on housing, realistically though, and at the same time think about the broad economy, how can we boost the broad economy. and in the last piece i would add is long-term housing, that yeah, reform is now in the future or the security of collateral and all this, the attorney general's, and the like, but the sooner we can resolve that and know what the situation is, know what the system is for housing finance

and housing in general long-term, that should provide confidence in today as well. >> if i might, i guess i am casting the uncomfortable role of being the optimistic this morning. i guess i would just, i mean, point out a few things that are actually working in the housing market. personal, homeownership rate is currently 66%, 65 and change. that's historically pretty high. homeownership rates have generally been about 63, 64%. not homeownership rate is going to come down as the foreclosure crisis continues to play out. but homeownership rate is by no means at a historical low point. and also if you look at kind of what's working, natural market economies are strong reasserting themselves where you see we've got a lot of inventory on the

distressed side coming from the marketplace, and we got some people are uncertain and staying on offense and want to rent for a longer period of time. we have a lot of housing depression. adult children living in their parents basement, families doubling up. that's only going to come will only get that depression to unwind once we grow jobs. we get people feeling more confident about the economy and then they will move out, create households and housing demand. but we are seeing the private sector through primarily investors who made up almost a third of home sales in august stepping in and buying distressed sales and arbitrage over to the rental side. that's a very strong dynamic right now and it is creating good is on both sides of that market. is creating demand on the purchase i. they are snatching up properties and they see the opportunity for high returns on the rental side.

the foreclosure crisis is a fairly enormous conversion process. we need to serve that demand. that is the private sector stepping into. so i think, i also agree with the do no harm adage, if they think that we need to be aware of the fact that left to its own devices the market will try to heal itself. part of that, what we see now is the market doing it. >> the only thing that i would add in terms of we see as the biggest challenge, i think that in and of itself is part of the problem. we have a series of lines coming over the hill, simultaneous they want to take them on one at a time. that's just not reality. we are taking all sorts of challenges simultaneously. and that makes it very difficult to pick what's most important. for us as a core our number one strategic objective is the reliable flow of mortgage

capital. that needs to be available. it also has to be able to people who can get mortgages. when you go down the balance of the things, short-term, credit scores and credit ratings are real, real challenge. we are worried about what it's going to do to those people who have done short sales and foreclosures three-five years down the line, will we ever have access to the credit score that is enabling them to repurchase. so you've got a whole series. i don't want to recheck twice the assessment because i'm a pragmatist and i continue to the person to we work in the market as it took we're ready to roll as things happen. but we need policies that make commonsense. underwriting with a mean score of 760 is not in commonsense policy. the other thing i was distracted

by, we keep talking about jobs that housing is a beneficiary of jobs. they are woven together. if housing is dynamic and have jobs, you create jobs, he support housing. one is not a predicate of the other ticket and related. by dynamic housing market can help us lead us out of recovery. it will not be a beneficiary of jobs in of themselves. >> i fully agree with what roger said. i'm a former realtor myself. the construction industry and, as ron said, 20% of our economic growth has traditionally been even greater as well coming out of recession, has been in housing markets. you have pinned up demand. at the nightmare on him street where the kids have moved back into their parents basements. [laughter] a show of hands? >> not to mention grandma or grandpa. [laughter] the reality is that we have

plenty of demand. we don't have people who can qualify for the mortgages because the of third party impediments. people come in fact i did a radio talk shows went on this topic, and moderator of the talk show said, well, all these people are in the subprime loans but i'm telling you from my area, where we were subprime central, those people got washed out the first two years. this is mom and dad who's been there for 10 or 12 years. mom lost her part-time job at the schools, i got cut back or laid-off in his job, and the economy is allowing them to get back and have full employment. these things are also intertwined. the attitudes and the psychology of the country right now are affected by your neighbor and yourself being underwater in their mortgage, not feeling good

about the economy. is a great psychological impact here, not to mention political. >> it sounds to me that stan, you might be the most optimistic of this group, and it sounded like you thought that the economy, broader economy can still grow, and perhaps grow okay enough even without housing coming back. and i wonder if that is your thinking. and if so, let's say we didn't do anything and we just left things the way it is now, status quo, let things work themselves out. how long would it take and what with a broader economy look like? >> okay. in terms of the broader economy can recover without, without a v-shaped recovery in housing market. that means housing prices could remain, we could see performance

and would have an economic recovery. it is being towns on a number of other fronts right now which is due, cost problem. sovereign debt issues, certain dysfunction around deficit and debt discussion here in the us and other things are compounding our economic problems here. but put those aside it is possible for the economy, it will not go as fast as residential investment of 100%, that's for sure but i think it can have an economic recovery without residential investment being at 100%. in terms of what that would look like though, for the housing market, it is something that is a long-term, longer-term proposition. that means that by our outlook we think as a mentioned, a bottom at the earliest of 2012, at the earliest and we do believe most markets are going to see two to four years of pretty, of a long flat bottom after hitting bottom. that means that what we're

seeing appreciation rates of one to 2% annualized, and we think that our outlook there is really covered by negative equity foreclosures. we think it will take a while for these markets to clear. and we will not see much upward price appreciation during this period of time. so it is, it is a longer-term repair. it's not anything, you know, i love discussing policy ideas in ways we can speed that up, but the fundamental issue is that, is negative equity and employment growth. if we could grow employment faster and get rid of negative equity that would help. >> can it recover, if the market improves enough with appreciation, do you have the offset for the.

>> speak what you did offset meaning space is about as and the market gets better, it's with one or hundred and two people are worth more, will that make the market it better? >> i think it is exposed to organic appreciation in a market. i think unfortunate term that appreciation as i said is going to be one to 2% a year in a lot of markets to divorce after the bottom which means yes, it will slowly work down but it will take a while for people to get back into positive equity. >> is also we see in the automobile sector. you see a lot of pent-up demand. you see that in the car price. equation is when will it come. and i think certainly there's about the industry, including the loan standards, collateral, all these things, there is a possibly of unleashing the demand. i don't think it will be a tidal wave but adding a little bit should help recovery. >> can i just add though, i

think where you guys don't quite see it from our perspective is when you've got a market that has lost 70% of equity and there are big markets in this country, big states, florida, ohio, california, nevada, where there's been these kind of similar problems, that the cancer is so profound that are at it will keep rolling one or 2% doesn't fix that kind of a market. and it will keep just pulled everything down and suck it in like a big vortex. and that's what i'm concerned about. because a greater market, the frustration i have my talk to the administration they said there's a lot of places that are doing well. well, yes, but they may not continue to do well in this cancer spreads. >> i wonder, i wonder if they regret, if they badly regret back in february of '09 not doing a massive principle right down. they had the t.a.r.p. most of what the user and endless profits from it.

they spend it on autos. they didn't spend on housing. i'm not saying -- >> but again, the amount of principal right off back then, we did cash for clunkers, we get about $30 billion into. i think cash for clunkers was 15-20 been. we're talking trade for dollars for negative equity. >> at the end of the day it's monthly payments. i think that would've been a less expensive way to achieve the same and instantly be. >> i'm skeptical just as the experience of hamp. that people don't know that the babel. we say have and, it's just not, financial there's is a problem to begin with. and you couple the fact that but in the end rather than simply a way to reduce your rate which the consumer might understand

spent so what what would've been a type of modification do you think would've worked early? >> just reducing monthly payment, how you structure i don't think -- accounting people can figure out to do that but if the payment right now is $2000 a month and a person can't handle that, you bring the pain to under 1200 they can stay in the house and that's better, it's essentially half. >> here's where i explain, if i could. i'm sorry. basically you just allow people to refinance without a new appraisal. we've already got an appraisal. we know we are under water. the government guarantees those mortgages and basically reestablished a new floor, refinancing at current interest-rate. will allow people extending the terms from 20 years to maybe 30 or 40 years, allowing people longer period of time. it's the equipment steam is the economy been told of $85 billion a year tax cut. and it really doesn't cost the

federal government that much money. >> that's essentially chris and hubbard's plan? i think that something there is consensus about but the more i think about it, i think the number of people that will keep out of default is going to be relatively low but it is a great economic stimulus. it could be as much as $70 billion spent 20 million more children have have a rate in excess of 5%. the majority of them can't refinance for equity reasons. so at least we have a great reduction option have been bills in congress to do that but don't seem to come forward. one can reduce the payments key people in the houses, keep the thread huge number of foreclosures in the markup and a widely, stimulate the economy in an innate sense. >> i think that time, the fact that it would help anyone and do so relatively lightweight cost to taxpayers, and to provide

economic stimulus for a lot of other people, i think that's a good idea. the reality is a lot the people in negative equity are making up names and continue making their payments are only helping the people in a smaller slice. but if it helps them and if it's relatively neutral, i'm okay with that spent i'm somewhat skeptical on the idea. and again, you know, the proposal, the tail wagging the dog. it's driven mainly by, it can be done without a vote by the so-called -- in a process sense it seems unusual. again i'm just skeptical that even if we get the refi standards, relax and open the doors, i'm not sure the industry has the ability to process the refinance is. and maybe that's the industries faults.

get them private again. well, this one time. you know, so i can if you like him and in a second, you are essentially writing checks, let me put it gently but if we're going to write checks we just write checks. i'm not sure if this is the right selection mechanism to write checks. so i totally get the idea, you know, great respect for hubbard and mayor and people in morgan stanley and others, but, in the come i'm the one that's not -- >> let me interject here. i want to leave some time for q&a, but before you move on to that, i wonder, i wanted to ask, so president obama a month ago outlined a half billion dollars package of tax cuts in spending to spur job growth and economic recovery. and as mentioned he made only a brief mention of housing, saying his administration would help

responsible homeowners so more of them could refinance their homes. i'm going to ask dennis, and maybe others can join in, but why hasn't the administration done more to fix housing? and you know, i've already abdicated the whole, but what else do you see coming? >> well, that's a real problem. the president of the democratic caucus when we went to the white house that there was going to be a new program put forward in september. he announced in a joint session of congress that is going to be a new program coming forward. a number of us called mr. demarco to come and tell us what is new programs were going to be. and she didn't show up for the first meeting. he was supposed to be there on thursday when we have a second meeting with him, scheduled. but we were told privately that there are no new programs.

there is no new proposal. i think that the administration is dealing with a situation where the economy is having challenges on many fronts, and don't know how to deal with them all at the same time. and it's not, it's not unique to this administration. i think the previous administration had the same situation. i had very difficult discussions and very conversational discussion with senator paulsen when he was there about the same kind of issues. but three years, or five years into this crisis, better, it really start in my area in 2007 and that's what i saw it happening early. is we still have not come to grips as a country without keep this challenges. and i think fundamentally going back to jason's opening comment, this crisis is too important to

ignore. >> philip, do you want to -- >> i wholeheartedly agree with what was you said. especially the end. in 2007 when he started talking about it, even before that, that as a nation we didn't come to grips. i'm sure people were talking about it but in some sense, as a nation we which is sent what's needed to avoid the problem. back then and not waited until september to that in a. i guess yesterday was the three-year anniversary of the enactment. we would have been better off. but, you know, that's, to a lot of policies. we would be better off and the present world out. that was a random political jab. [laughter] >> ron, did you want to weigh in? >> it's been disappointing to us that we haven't been able to engage in the real problem solving. we still continue to be focused

as stakeholders on blaming rather than problem solving. there's so much that's been done to correct underwriting. when we corrective underwriting, i worried that we rely heavily upon academic models, and we do things strictly from a business school approach rather than a reality of mainstream. these families, these families, real families are trying to do what's right. with a syndicated talk show host says look, if your 20% upside down, give the keys back. that's up from. and i really believe it ignores the pride of ownership and what housing did represent and should represent again. and i guess my reaction is, i would like to take fdr's approach and make some mistakes. we are 3.3 million people that work in a conversation core in

the great depression and they built lots of infrastructure for this country. we have great wpa project. i look at 4 million people but virtually no money down and were able to qualify for va mortgages but you look at the succession rate and they're saying we have a long history of success, let's look at those lessons of success and apply those programs. we need to spend a little bit of money but a little bit of money has a huge dividend, at least in the near-term would be awesome. >> well, let me just open this up to the floor here and take your questions. address it to one or all of the panelists. if we have a mic. >> my name is mike malaska, i'm with the general risk of financial. and my question is the stand of trees. you are talking about the index

and how it has gone down and was really in part a function of the short sales, et cetera. i worked a lot with the recovery value on foreclosed properties and converted to various indexes during good times. and one of the things that i noticed is that the loans that go into foreclosure or homes that did not keep up with the general appreciation in the markets that they were in. and i'm wondering if your index that you are using includes short sales and foreclosures? and if it does, we may be helpful to have two separate indexes, one that was just a free market sales index and one that may include everything? >> yes, i think that's a great question. i think a key to the issue, i guess at least that we have within indices is what goes into making them. and we, given where zell is focused which is consumer value propositions as opposed to helping banks, our approach was

to be an index that help consumers understand what's happened with home values and, therefore, we constructed based on known valuation. those that he wishes models. our index does not look at foreclosure sales. that's in contrast of course with zillow which includes foreclosed sales. which oddly enough for reasons that it won't go into right now have both a depressive effect on case-shiller during that period when foreclosures were really starting to occur, but also has an upward effect on foreclosures as well because homes that sold into foreclosure discount, that subsequently resells, you know, is shown positive appreciation. we think a home buffer $100,000, sold in distress $50,000 in our you and result i do for $70,000, we don't think that one of thousand exactly a market

transaction, nor do we think the 50,000-70,000 is appreciation, and case-shiller does. .. >> the command side. we also know what you mentioned for the underwater, you know, it's a two-tier approach. but it has not been approached and not been addressed. >> one of the serious challenges to dealing with this crisis is that there are no bipartisan

consensuses on anything. i don't think you could repaint parts of the capitol and get a bipartisan consensus on what color it should be. that's how bad things are right now. but that's exactly why in this vacuum of leadership it requires statesmen to stand up and talk about what is needed. i think the president needs to start talking about housing. we've gone through two or three, um, states of the unions where hardly anything was mentioned. the last speech was two lines talking about the economy, and i think this is one of the leading reasons why the economy hasn't started to improve. you have a collapse in europe that, sure, it's caused by greece and other things, but the banks in europe would be a whole lot better off if europe didn't have very similar contagion on housingic issues that we have.

so there are some economic realities here, and i'm not an economist, i'm not so good i can tell you what needs to be done to overcome it. but with all things we've done, all the money we've spent, we still have not dealt with what caused the initial crisis. and my wife's a family doctor, and i've got to tell you, she would never try and treat a patient that was ill and not get to that original illness first because she knows that the other issues are just side issues. the real problem is what caused the initial problem. >> thanks for being here, gentlemen. my name's adam berkman from americans for prosperity, and i just want to -- the panel, i was

hoping we could address the issue of the weak housing crisis, you know, ce spite weak demand for falling prices. and, representative cardoza, you mentioned that, you know, there is a pent-up demand, but people aren't able to get credit to be able to pick up some of this housing demand. and you mentioned that was because of third-party impediments. i'm wondering if you could put a finer point on what is standing in the way right now of picking up some of this pent-up demand. >> i guess we'll just take turns. i guess, in general, i would -- i guess i'm interested in seeing more metrics around it as well around mortgage -- because, i guess, the high level metrics that i look at in term of mortgage access, you know, i hear all these an anecdotes as l about tight lending standards,

everything else. but if you look at down payment requirements, yes, they're a lot tighter than they were in 2005, but they're pretty in line with what was prevail anything the '99s 0. we're missing subprime which we took that out, yes, but we also ramped up fha which is now about 30 percent of the marketplace. and that doesn't entirely fill this that gap, but it does address some of that similar segment. so we've kind of offset a little bit with fha. so it's not, it's like a silver, you know -- richard smith and i were at a conference last week at harvard's joint center -- [inaudible] and larry summers was speaking there. he made quite an impassioned plea. not from 2005, but from how it prevailed before, please, bring it to me and policymakers

because we haven't seen i. -- seen i. >> when i talk to the realtors in my area, they talk about numerous impediments. they can't figure out who owns the home, the servicers are a problem. you have a legitimate buyer that can qualify for a loan, but thebacks oftentimes -- the banks oftentimes would rather sell it to someone who can buy it in a short sale or on the county steps because it's a quicker process than going through the loan process. ron can probably talk about this in more detail because he's talking to his pokes and living -- folk folks and living it every day. but in the distressed markets we hardly have a sign-up because the banks are holding 10, sometimes 20% inventory waiting for piece appreciation because they think that things have gotten so bad that they just

aren't putting the homes on the market. my realtors talk about lack of inventory even though the cities tell me that upwards of 10-15% of the water services and the utility it services are turned f in -- [inaudible] >> there's a lot to do with confidence fundamentally, and people pause if they don't think that the property and the market is stable. if they think it's going to continue to correct and they're going to wait, so that's going to further aggravate the problem of price. the other, um, observation is the credit piece is real. when mean credit score goes from 720 to 760, that disenfranchises at least 15% of the market. we expected, we've been running about phi million sales every year -- five million in sales every year. by the way, that would generate somewhere around 350,000 jobs. the other piece i need to share with you is everybody hears about how hard it is to get the

mortgage. we just had a client who was buying a short sale. we could not get an answer on the sale for months and months and months. he was a really good first-time home buyer. he foolishly paid off his credit cards because he had some money on hand. his credit score went down which meant that he had to reapply, get the credit score back up so we could, ultimately, close on the transaction. and he made a powerful observation. he said, you know, this seventh grade i was taught how to cop sue kids -- conceive kids and how to build birdhouses. i wasn't taught about financial literacy, in some ways it became more important than my s.a.t. score and my cholesterol. [laughter] and i think a problem that this score is deciding for most people, and they don't see it or know it. so when i go back to the 30,000-foot level and say access to credit and being able to get mortgages is important, but it

directly relates to price. you need confidence, and you need access. and right now both of them are challenged. >> any additional questions out there? [inaudible] honest knox. [laughter] >> this question is to phillip. my name is lawrence with the realtors' association. since the treasury has been looking into the gse retomorrow be issues dub reform issues, what is your understanding about the current business operating of the fannie and freddie which are right now effectively nationalized in them reasons of their long performance of recently originated loans, say in 2009, 2010?

of course, the mistakes were made in the past, in the bubble year, but is fannie and freddie's strategy somehow to regain their profit status to say they are able to work this thing out on its own and push off the reform, or what is your hint given your extensive background in the issue? >> sure, i'll say a few words. we met back in the fall of 2008, we had a meeting at treasury to discuss the possibility of using the hera legislative authorities to push mortgage interest rates down to, say, 4.5, something crazy. [laughter] that has gone beyond that. so, you know, fannie and freddie, obviously, the -- all the positives just been discussed with the origination quality which is the polite way of saying fico scores being restrictive for boarer -- borrowers to get access to

financing and, sure, the new lending is doing well. there's no realistic chance the two companies will do what aig did and become profitable and aback the federal government. that was never the intent, right? the way a cob serve to haveship was designed was precisely to never allow that to happen. the common shares have zero value. you know, for accounting reasons it wasn't done exactly in the cleanest way, but that, i think that's the reality. and to me, it only drives the importance of returning them to the private sector to allow for innovation. with the caution that we see both on the part of banks and also on the part of fannie and freddie in, um, restricting the access to mortgage financing to some extent. and i think we put private capital back in front of taxpayers. i'd rather have the private

capital at risk and hopefully that would relax some of these constraints on lending. >> can i ask a question about that though? how do you stabilize a market when you're, you know, when private capital won't really jump in front where historically we had the cheapest mortgage you could get was a 20% down prior to the great depression, i think it was 50% down. in seven years. if you go back to those kind of standards and we look at the administration's -- others are talking about reducing the mortgage interest deduction, i see those as such con straibts on the market that it just exacerbates the problem. >> i absolutely agree that that is a big challenge, getting private capital to come back. i think addressing long-term issues going forward, and some of what i maybe cryptically refer to as the value of collateral or the sanctity or

quality of collateral, you know, is this private capital, we put private capital against collateralized lending, the person supplying the collateral wants to make sure the collateral is really there so, you know, all the lawsuits, the possibility of cram down. is it near term or long term? it helps in the near term and possibly has the opposite effect over timement i'm not saying this is the right solution, but i think having clarity on that, i think, will help provide more confidence for private capital to come back. but i agree, it's going to be a slow process. >> okay. any final remarks from our possiblists -- panelists? >> just a plea. [laughter] we have some real talent coming up and at the table. we really need leadership. we also need ideas that are actively engaged in conversation. um, we as an organization are

are holding the hands of these homeowners that need help. these people want to buy be houses. we are wiping away tears. this is real human cost, and really what we are fighting for in our opinion is not just for homeownership in housing, but really for the future of this country. we need to set the example and lead. so i congratulate you for meeting here. i thank you for meeting here, and i look forward to great recommendations that we can take forward. >> okay. on that note, let's thank our panelists. [applause] >> okay, that was wonderful. thank you, all. we're going to take a few minutes to switch out the panels, and we'll get right back to the second panel. [inaudible conversations] >> the progressive policy institute forum on housing

included a panel with representatives of the housing department and the center for responsibility lending -- responsible lending. this portion is a little more than a an hour. [inaudible conversations] [inaudible conversations] >> okay. i hope everybody had a chance to grab a bagel and a cup of coffee, and i want to thank again the first panel. that was really, really a fantastic panel. and an interesting conversation, a great way to set the tone for the day. as we begin to get to the next panel and we actually start to talk about ideas ask solution -- and solutions, move this conversation forward which is the entire premise of today's conference, um, i just want to say looking at the panelists there the last one and the

panelists, mr. smith, mr. stevens, ellen, mr. schneider, everybody, it's really, really an impressive collection. and i think it should be noted that it really speaks to the, um, underlying need and want for this conversation. and i'm personally appreciative of this, as i know everybody is. and i think it's about time to bring them together for this conversation. and for that, i want to bring up the economic correspondent from the national journal, jim tankersley. [applause] >> hi there. thank you all so much for coming. this could not be a more important panel, and i'm just thrilled with both the quality of the panelists that we have here and with the amazing turnout. um, the housing market, as we all know, has been a huge sore spot in the recovery. i'm one of the economics writers

who's of the persuasion that it is the most important sore spot in the recovery, that until we can figure out a way forward and really to stabilize the market and stabilize the wealth of middle class americans, that we will not be able to really claw our way out of the anemic recovery that we're in. good news is we have four very smart people here who are going to tell us how to do that, and is maybe we can get some good advice that we can send on up to the hill and over to the white house. so without further ado, i'd like to introduce the panel. ellen is the executive vice president for the center for responsible lending. richard smith is the president and ceo of realogy association. and david stevens is the president and ceo of the mortgage bankers association. we'll start with ellen, come back this way and take it away. >> wow. i get to go first. guess there's some privilege in being the only woman on a panel. so i think that i want to start

off by saying i hope we all remember that the housing crisis was really not about housing, it was about money or is about money. it's about a lot of capital looking for an outlet and getting sucked into very bad financial products, ones that were toxic for consumers and equally toxic for mortgage investors. but when you get back down to it, the fundamentals of housing have not changed. you have a population, it ages slightly, and people form houses. if they have enough income and assets, and it doesn't have to be a hot, but they have some, they can become homeowners. and because it's a leveraged investment and sort of a forced savings mortgage that they're in, they basically can build home equity and wealth, and they often times pass it on to other generation, use it to finance their retirement, send their kids to college, all the thicks that -- things that have a big societal benefit. that has really not changed. and while i think it's really

important and i feel deeply about all the problems with people in foreclosures and underwater borrowers, i think we also have to think about that in jump-starting the housing market, go where the borrowers are, and as we alluded to in the first panel, they are people who are, for lack of a better term, people 25-4 years old -- 34 years old. those are 41 million people by the last census with a home ownership rate of about 42% compared to for the total population 65% and for people who are aged 55-64, they have a 77% homeownership rate. and this is even after home ownership rates came down. so there's a huge gap there of potential home buyers. by the way, 35% of those people are african-american or latino, so just because those populations tend to be younger than in demographics than white non-hispanic populations, but this is 9-14 million new households that these a place to

live. now, there are renters right now, or they're living, as we said, this their parents' basement. but the question is how can we help those people become home buyers. and there's some real obstacles to that. a very big one right now is the fact that a many of them carry high student loan debt. it's more in total than total credit card debt in the united states, almost a trillion dollars, up 30% in the last -- well, from the last time i had statistics, went up 30% in a four-year period, and it's probably even higher now. and many of those -- some of those loans are not federal, you know, guaranteed student lobes lobes -- loan, they're private loans with interest rates of up to 18%. now, if you're making a payment on a student loan which may have a 15-year term at 18%, you're paying almost $600 a honest for your student loan. how are you going to -- i mean, that is money that you could be using to help, some of it

anyway, to pay for a mortgage. in addition, this population has credit card debt, probably more like $4 or $5,000. but, again, that's up about 30% in the past several years. and there's a much be higher proportion of people who are underemployed and unemployed, and there is probably the likelihood that they will have over their lifetimes lower real income. so i'm not saying that, great, there's these people, and let's just put them in homes right now. there's some real obstacles we need to be cognizant of. we heard that housing prices are going to stay low for a while, and there's a lot of houses out there that are available to be purchased. what i think needs to happen, though, to make this happen is that i hate to use the words, and i'm going to use them once, and i'm going to change -- i'm going to rename them, rebrand them, i guess. we really need to focus again on affordable housing opportunities. now that has such a bad rap in

the world because somehow people can confused that with subprime lending chen, in fact -- when, in fact, they had a reasonable debt to income ratio bear no resemblance to the subprime loans that got made and that crashed our market. so i'm going to rebrand those affordable housing loans as maybe housing opportunity loans because there's an opportunity both for the borrowers and for the lenders and for the brokers and everyone else involved in housing. oh, and by the way, the broader community. those loans actually work. and i want to just give you a little bit of experience to prove that. my organization, center for responsible lending, is part of a larger credit union called self-help credit union, and we had a program called the community advantage program. we still have it, but it ran for about a decade where we made loans to very low-income home buyers, these are people with maybe 80-100 percent of median income, but typically people had maybe $30,000 a year of annual

income often times on average. we made 46,000 loans to these people. all fixed rate loans, well underwritten loans. they had low down payments, often as low as $500 or the boar wroters had a high debt to income ratio or credit scores below 640. 640. today still 95% of the people we made those loans to continue to pay their mortgage, and even after the financial meltdown with people losing a significant amount of wealth, the average wealth gain for those families was $21,000. so they're $21,000 richer today than they were before they bought their home, even after the crisis. and today still only make 30-$40,000 a year, so that's a huge, huge benefit. it works, it points to the fact that products rather than credit are really important in getting people into homes, and we really need people to focus on it. and i think people need to just show some courage about this. banks need to lend, the gses

need to finance this stuff, and we need our political, our policymakers to step up and show some political will and say this is the right thing to do because it's right for our communities. there's a lot of debate about fairness and what should we do about that, but this is really an issue of not necessarily treating everyone in the country equally as much as doing what's best for us as a common good. so i have some ideas for how we might help some of those people get into homes, but i think i'll leave that to the discussion. >> great, thank you. >> do thanks. >> i want to thank everybody from ppi, the e21 group and the rell to haves for -- realtors for pulling together this conference. you know, in washington you rarely agree with everyone all the time, but i can tell you that the realtors, dave stephens at the mba, alan with crl and richard smith have all been terrific partners the coalition for housing policy which focuses on a reasoned approach to

qualify residential mortgage or qrf. unfortunately, the overall political environment in washington continues to be corrosive to the housing economy. policymakers, i believe, have overcorrect today the point where housingly quitty -- liquidity has largely dried up. and i think all the leaders involved in lending in this room would agree we need common sense policies, and we need them now to get this thing going again. just starting the housing market requires that we stay open to all well-qualified and first-time and low-down payment buyers. we need lower barriers like excessively high low down payment requirements and other costs to keep creditworthy home buyers locked out of the market. so we're asking to restart the housing market, i've got two proposals, two solutions, one near term and one longer term. and in the near term solution, i believe we need to end the loan level pricing adjustments that

are charged by frank ney and freddie -- fannie and freddie on low down payment buyers. there is little justification for the up front levies on low down payment borrowers. and independent risk able sis shows these pricing adjustments are excessive relative to the observed risk in the market today. the gses current average fico score is 760, and their average ltv is 69%. and we all recognize that the fhfa has a difficult job as conservator and a tough balance to strike. but with the state of today's housing economy, i think it's time to take advantage of the gses traditional role of providing liquidity for creditworthy borrowers. by raising the cost of conventional financing, these llpas push home buyers to finance their loans primarily through the fha. more to the point, the llpas

crowd out private sector capital and drive even more volume to a federal ram that puts taxpayers at risk for 100% of the losses if a loan defaults which is completely counter to the administration's stated objectives. senator isaacson of georgia who will be here later today and senator boxer of california have authored a bill to eliminate llpas on the harp reprogram, and i think this is a good first step, but we should further to eliminate all conservatorships. focusing on harp alone doesn't get a single new borrower into a home, so we need the broader stimulative impact on our housing economy. a long-term solution, we need to stop federal regulators from putting into place a flawed qrm risk retention rule that could shut the door on a large pool of qualified potential home buyers. this rule is too important to the future of mortgage securitization.

a qrm standard that requires 20% down without any flexibility for higher ltd loans with mortgage insurance or other forms of credit enhancement is short-sighted, it's unnecessary, and it will continue to be damaging to the capital markets. a narrower rule that is -- a narrow rule means that responsible families including those who have maintained excellent credit will be forced to save and pay more for their mortgage. when senators isaacson, hagen and lan drew proposed the qrm, they specifically warned against basing it on a high down payment requirement. instead, it was intended to provide incentive for lenders to originate lower risk -- not no-risk loans -- based on a more rigorous underwriting standard that insures the borrower has the ability to pay their mortgage bill. if this is not changed, the

proposed rule would put financing out of the reach of americans and drive more business to the government-backed fha, and clearly right now these are the same type of borrowers we need to help us remove some of the excess inventory. the housing crisis wasn't caused by low down payment loans, but by risky underwriting and nontraditional mortgage products. at the center for responsible lending, between 1990 and 2009 more than 27 million mortgages were made with low down payments. these loans doesn't carry the risk features found in most subprime loans. they're much better indicators of how a loan will perform than the size of down payment such as the type of the loan, the amount of the borrower's income available to make their mortgage debt payment. in closing, i think the private sector is willing and, in fact, it is very eager to help. and to do our part. but we do think it's time for the federal government to do

their part. the federal government and policymakers need to provide greater clarity in the policy and regulatory arena. we need policies in place that strike a more appropriate balance between private sector and government participation. and we need policies where consumers will be encouraged to purchase homes with safe mortgage products with sustainable loans they have the ability to pay. and i think qrm, my second suggestion, was intended to be just that mechanism. thank you. >> thanks much, kevin. david? >> so great to be here and, again, i think this is the right kind of to have mat. richard smith and i had a conversation some time ago, and richard was strongly advocating to find a platform to put a summit like this together, and these kinds of dialogues are critically important. and i also agree with the point about housing being an oversight

in terms of a critical component needed to get the economy back on its feet. i think what i'd like to do is just sort of complement some of the comments made. ellen talked about the echo boom generation. the reality is the olders echo boomer was born in 977, so they're in their early 30s. it's a generation that several million people larger than the baby boom generation, many of them this their early stages of their working career. many are still in college and will be entering the work force. this is going to be the demand cycle that's going to actually propel the housing market going forward, and, you know, if you read the study written by eric bell jsky out of harvard, it tells what we can expect a decade out particularly when you're not building housing stock in markets where concentrations of negative equity are concentrated this states like arizona, nevada, oregon, michigan and california and where we have local issues but that are affecting the

overall confidence levels of a broad national marketplace. so, but that is -- i think if you study the echo boom generation, i think there is a telling sign about, um, potential optimism as we look forward. it'll be a different kind of home buyer, but there will be a demand for housing that's going to exist. so i start with the premise that this isn't the end. there is a future, and there will be demand for housing. the second thing is if you look at home ownership rates, i prefer to look at the studies of desire to own a home, and the echo boom generation young, younger generations as well as older generations still maintain the same desire to own a home as they have over past generations. so that enthusiasm hasn't subsided, the question i think comes down to question -- timing, confidence, concerns about economic conditions. so i'll talk about that in just a moment. the third piece i think is

critically important as we think about this demand cycle is that we need to be thinking about the impact of policy, regulation, legislation, litigation, all the legal at tickets -- attributes, all of this uncertainty is causing an impact to the financial institutions' willingness to participate in this marketplace. look, i'm going to start first and foremost by saying when i served as assistant secretary of housing and in my role today the thing i constantly state and i stated to my own industry is that there's plenty of blame to be focused on to all the participants in the industry including many of our membership who put loans into the marketplace that weren't sustainable. that's a fact. there's blame to go to investors, blame to go to policymakers, consumers made bad decisions, everybody who participated in this thing that ultimately collapsed have some culpability in this process, and

my membership's part of that. so we know all that. put culpability aside, the one thing i can tell you with absolute certainty having spent three decades in the financial services industry and sat in the seat as head of a single-family business at freddie way back in the early '80s is that today the concern about originating mortgages for lenders in this country has never been higher. the concern about whether if they originate a loan, 300-500-page document that ultimately gets recorded in some county across the country where there'll be a repurchase demand seven or eight years later during the next correction and questions about what's the serbty about a government -- certainty about a government guarantee. if you want to look at credit curtailment, credit access curtailment in the marketplace even loans that are offered by fannie may, freddie mac, even fha, the push for higher fico scores, policies have been overlaid even beyond what the fha requires.

a lot of that is done as a defense mechanism to protect against uncertainty, litigation risk as i would call it that could occur years down the road. for better or for worse, and we can say, look, they deserve it, someone has to pay the bill, i am just laying this out as a framework to say that we've got a real crisis of liquidity that's going to perpetuate until we get some confidence measures in the marketplace. and confidence is going to come in three different areas. one, consumer confidence. we know the desire to own a home exists, the home builders petitioned a great study that was done last year, and they surveyed people of all age brackets, desire to own a home still remains very high. people aren't buying because there's uncertainty about income stability, the unemployment, there's also uncertainty about home prices, um, and there's uncertainty about ability to qualify. and as long as those remain for the consumer, we're going to have a gap that's going to effect demand, and when we think ultimately about what's going to

get the housing market back on track, we have got to be thinking about both supply, how do we get the overhang cleared in collective markets, how do we deal with negative equity? that's going to be the supply side. but the demand side is going to be who's going to buy the homes, what log jams a in place, what are the barriers to entry particularly for home ownership or rental markets, and how do we deal with that side? is that's the consumer. for the lenders to begin to originate to a broader audience, they need confidence. they need to have confidence in knowing that the mistakes of the past, this piling-on effect as it were is going to somehow get resolved. and we can take the servicing debate that's going on nationally, we read it every day in the news, we hear it in the form of servicing settlements, in the form of selective attorneys generals' views, we hear it in the form of regulations being applied in select cities around the country by mayors that are, and their governments that are implementing new standards.

all of that's created a level of uncertainty that's going to create trepidation for lenders to reengage in the marketplace. and the third level is investors. you know, i've spent a lot of time in my last job talking to banks in china and around the world, and, you know, the bottom line was most banks i talked to internationally and most investors would not invest in anything less than aaa, that's one. and, two, in this country did not want to buy mbs unless it had an explicit guarantee. so when you look at mortgage prices today, it's no surprise than a ginny may mortgage-backed start against a freddie or fannie trades 200 basis points or so wider, better simply because of the value of that explicit guarantee. so we've got a broad set of confidence factors that we need to reengage in. today if you read any headline in the paper, there's a significant amount of finger pointing. there's an extraordinary level of what i call knew slow expertise in this town in the

mortgage business. [laughter] people who have never done mortgages in their life who have to deal with enormous challenges across a variety of issues in their role in government, and somehow we're looking for one single, sweeping change that's going to get the housing market back on track. it isn't that easy. so as i engage and collectively we all engage, i think having a loud, aggressive voice about single solutions on a national scale to resolve some of these critical lenders that are increasing demand on the consumer side by creating confidence that will bring these borrowers, these potential borrowers who want to own homes back into the marketplace are two critical components. unprime aside because that is the single biggest driver right now, but those two variables are key. a lot of other points we could talk to, but given the point, let me start with those thoughts. thanks. >> great. richard? is. >> let me begin my comments by framing the discussion and, first, i i want to applaud pbi

and e21 for having the thoughtful approach to make this an issue of national importance. so here we are today. let me begin by stating the macroeconomics are particularly powerful and formidable. there's no silver bullet, and there's not going to be one. in spite of that, i do not have as gloomy a view of housing together as, perhaps, some in the audience or some panelists. we believe that existing home sales have, for the most part, stabilized, and that 4.9 to 5.1 range. if you think about the headwinds of the past almost six years now, to be able to achieve that which is about four, four and a half percent of the existing stock in this country, is an incredible accomplishment given the difficulties. so we these to frame it in that context. from a price standpoint, we will continue to be under pressure

although it's trade anything a much narrower band than the past six years, down four, up two depending on who you're listening to, east fannie mae or the national association of realtors, a number of folks. but if you look at that range, it's far better. peak to trough is down 32, 33%. so we're getting on the price point to a narrow band as well. now, think homes are probably going to see a little more downside pressure on units and price simply because there's a gap between the average price of a new home and the average price of an existing home. that gap will narrow a bit more, and then i think they will stabilize as well, perhaps as early as next year. so given that backdrop we should think just a moment about what's next. even though we may have stabilized, these were at depressed levels, and it's very fragile. one of the greatest inhibitors to a housing recovery in our

view, and bear in mind we're in all 50 states and virtually every market in 100 countries, is the government's incessant desire to be this middle of the fore -- foreclosure process. this constant belief that there's another silver spoon out there, there's another solution, another program has made this a far more protracted recovery than it needs to be. the government needs to refine its focus on how and when it will be involved in mediating or serving as an intervention in the foreclosure process but refine the message and actually create a cohesive policy as to exactly what the government's role is going to be going forward as to the foreclosure process. the attorney general lawsuit is an example, virtually every state is now facing these lengthy discussions with the major lenders. and that is a major hurdle to

housing recovery. government needs to step in, get involved, get this behind us so the correction can begin. so the government intervention programs need to be rethought, condensed perhaps from six to one and just refine the focus. i think it would be most helpful. now, don't get me wrong, we're most in favor of any measure to prevent a foreclosure. but once reasonable efforts have failed and just to put that in context, it takes up to two years in many states to begin and close the foreclosure process. and that two-year period there's a lot of uncertainty in the marketplace. that's not healthy for housing, it's not healthy for the macro economic process either. the smallest myth that exists in the media as to the foreclosure process and the end product which is a foreclosed asset,

non-performing home. we're the largest reseller, dependent reseller of reos in the united states. the myth that they do not sell is just not correct. it's patently false. we go from list to contracting close within 80 days. 60% of all of our inventory goes to small investors, this is literally mom and pop, small investors purchasing for cash and then renting that property at market rates with about an 8% cash from cash return. that's much better than treasuries. the balance is going to first-time buyers who are using fha financing, typically, 3.5-5% down, and that is a very robust market. there is an enormous appetite for reo assets in the united states and virtually every market. the good news is the majority of those assets are in ten states. it's not as significant a problem as everybody thinks unless, of course, you're in

those ten states. but they sell, they sell quickly, and the sooner we get rid of that inventory, the sooner price is going to correct and the marketplace will begin to correct. so our message on, as to the foreclosure process is refine the government's involvement, become marley proficient -- particularly proficient in executing against that which will be difficult for the government but try, and then let the private sector, let the private market deal with the remedy which they have done historically for decades. um, let's talk about the things that will work. um, and are working now if there were not the impediments, the difficulties that are put up in the process by regulators and by various different government agencies. the short sale process is an extremely efficient way of correcting and making it possible for that family to move on without the credit issues.

short sales should be encouraged, it should be made very simple through a number of different types of regulations that could facilitate a faster short sale process. but it should be embraced by the administration and by regulators as a good alternative to foreclosure. timically, in a short -- timically, the lender will see about a 17% savings on the unpaid principal balance. that's far more impressive than the cost of foreclosing. so we've seen it work quite effectively. lenders have been slow to respond, the process is burdened, it's not as clean as it should be, but it is an extremely effective tool if used properly. we also like the debt for equity approach to solving some of these problems. and bear in mind a lot of these do not involve brokerage fees, so i'm not speaking out of my own self-interest. but on debt for equity it's a simple process. a $300,000 loan, it's

underwater. the market now is $150,000 for that house. the homeowner clearly can't meet the obligation of the $300,000 loan, and is otherwise a good credit risk. that loan is retired, a new loan is originated at 150, the bank shares in the equity. the bank or the lender in the case of the investor. so the homeowner now will continue to manage the property, continue to meet the obligation, the commitment on a new loan at $150,000, but he or she now has a partner in the bank. there would be some restrictions as to how you can sell and dispose of the asset. for some period of time the bank would, obviously v a lien on the property. in a subsequent period when the loan was sold, the bank would get its share of the appreciation assuming there will be appreciation. it creates stability, it doesn't create pressure on pricing in the marketplace. it's a fairly simple transaction to close, and it makes a lot of sense towards stabilizing an otherwise difficult housing

market. we also think that government-backed loans for some period of time should be assume bl. we're all taking for granted these rates that we enjoy today are going to be around for a while. well, we know they're not. some five, ten years from now these are going to be incredibly attractive assets to someone, namely those people who are then facing 7, 8, 9% or whatever the rates may be then. if for some period of time any government-backed loan to attract new buyers could be assumeable, that would be a very good asset to carry into the next decade. now, will that necessarily change anything about the environment today? perhaps. a lot of people are sitting on the fence, may bring them to the market, and this would not be a taxpayer expense like the housing tax credit although it would tell you if you really wanted to change things tomorrow, bring that back, and it would change housing rather dramatically, i think. i don't think there's an appetite for that, but it works

quite well. but making a loan assumeable so that these very low rates could be an asset at a future date i think makes it attractive to buy a hot in today -- a house in today's environment. i'll close with this simple comment which serve as sort of a backdrop, and i will say that i applaud the comment as to dodd-frank. we think dodd-frank is one of those land mines on the horizon that if not addressed properly, there's going to be a major obstacle to home ownership in this country. so i think in the context of dodd-frank gse reform, the gse loan limits that just expired, flood program that's going to expire, and i can give you a long list of decisions that must be made, these decisions have to be made in the context of a national housing policy. a coherent, simple-to-understand,

straightforward national housing policy. what is our administration's focus on housing? what does it mean to this country? what is the banner that we fly? and after that is achieved, then all these decisions become easier to make. but i think in the context of this meeting and many that are occurring around the country on this very same topic at the congressional level, the executive level and in the private sector, there's an absence of a national housing policy. and if we can encourage anything out of this administration, it is to create that very coherent policy that will then drive many of the decisions that have to be made to turn around housing and, thus, turn around the national economy. so i'll conclude my comments. >> all right. thanks, richard. okay. i want to drill down into each of your ideas. but first i want to ask a couple of macro questions because i think it's important if we're going to come up with some solutions here, we're really

explicit ant what the problems are -- about what the problems are. first, riffing a bit on what david said. which do you all think, what's the balance here between credit and demand as the problem for the market right now? how much of what's going on is people can't get the money to buy houses, even very cheap interest rates, and how much of what's going on is there just isn't demand for home buying? >> i'll take a first shot. i think a huge amount of it, to david's point, is just pure consumer fear in the marketplace whether they're going to have a job and whether the home they buy is going to decline in price before they get home and hang up the curtains. so i think those are the two big gears from the demand side. there's plenty of demand. there's plenty of interest out there. in today's home prices, i mean, which are lower than they've been in years and years and years and mortgage finance rates, it's the top level that are quite attractive, but there

do still remain some friction in terms outside of that demand level that get back to mortgage credit. and i think we just need to be very careful going forward that we don't exacerbate those. >> i mean, the interesting thing if you look at fha, you can still do a loan today at 96.5% loan to value at historically low interest rates. you know, this is more of an economist question, but if you think of as a piece of real estate collateral as somewhat of an elastic good, you couldn't put more favorable terms out there to impact the demand cycle, so something's overlaying that. you've got home prices at record lows, well towards the bottom end of this peak to trough that richard talked about, you've got interest rates at historical lows, you've got the rent to own curve showing the most favorable opportunity that we've ever seen since that was ever being tracked to buy a home today versus rent, so what's causing

that impact to the market? and i contend strongly that it's a confidence issue, and it may be doubts about my job, may be confidence about the direction of home prices. but that's something that is having a significant overlay. credit is definitely an impact, and just to add to the point, you know, when in the loan limits changed, to me that seemed like a very simple extension to provide at relatively limited cost. and it wasn't just about the 620-720 issue, it was also about that change in the calculation for the fha loan limits which affected a number of metropolitan markets that got impacted as a result of that. no matter how we all feel about government's role in housing, the price changed for that segment of borrowers. and if it's a few percentage points, let's just put it as a rounding error, somewhere around 5 percent of the market, 5 percent that no longer has access unless they have a 20%

down payment which is kind of the way a lot of these loans, the alternative is once you yet outside of the -- get outside of the loan limits. all of these things have impact, and they're marginal, perhaps, when you think about them as a solution and how they impact the market, but every couple of percentage points you can impact the market by even some of these policy changes, ultimately, have a profound impact on the extent by which the housing market's going to stay flat, delaying that curve that we need to see happen in the recovery cycle on hpi. >> but what's interesting about that, here we are talking about how to stimulate housing. at the same time, congress and the administration permits the gse loan limit to expire, exposing 669 counties in 42 states including the district of columbia. so about 4-5% of the market now is now priced -- could be -- priced out of the market. the spread is estimated to be about 76 basis points. that's going to make it

difficult in this environment for a percentage of the buying population to elect to sit on the sidelines in hopes that something will change in the near term. now, there's discussion about the gse loan limits will, new legislation will be introduced that will restore the loan limbs and extend them for a couple years, but the damage has been done. in anticipation of the change, housing started reflecting this two or three months ago. so it's now, it's now built into the marketplace. but again, to my point, here we are trying to figure out how to stimulate housing while the lack of a national housing policy's letting it deteriorate. makes no sense, but it's one of the practical issues we have to deal with. >> wanted to just address a point that dave made about sort of the lender confidence, because i do think the credit piece is still a big part of the concern about making loans. but i don't think that the piling on of settlements and litigation is -- i think that's

more a reflection of the lack of regulation that wasn't in place, that was not in place, regulation that was not in place earlier. and, um, sort of the fact that that has sort of led to some other alternative remedies rather -- so that having good standards, and i think dodd-frank, actually, does a good job in many ways for laying out good rules of the road about making sure a borrower can repay their loan and things like that. i think the consumer finance protection bureau's efforts to improve mortgage disclosure process information is a really good way as well. and those things that laying out those good roads make it clear for lenders what the rules are, and i agree it's not fair to come back seven years later and hit them with something when they did the best job they could, but it will also inspire consumer confidence as

>> home prices had essentially bottomed out, unemployment continued to show signs of growth, every month we were showing numbers, not the rate that's needed, but there was clear, deliberate growth, and something has changed. clearly, the market has changed. the conditions have changed. and that requires us to all regroup and come back with a national policy, and i think it was a good point that was made in the previous panel about the president's speech. there was an opportunity to really show leadership on the housing front. i think we need to demand that by all the policymakers as stakeholders in the outcome to get a policy in place. >> one of the, um, to get a little more specific, one of the things that's clear about here is we have maybe a little bit of disagreement on when and how and what the government should be doing in all of these parts of the market. so i'm wondering, can we maybe take these things in the turn? first off, let's talk about the qrm. how, what should we do about that, and what's the, what's

both from a risk standpoint, but also from a standpoint of trying to not shut off creditment. >> i just think that the qrm as originally proposed by the sponsors of the law were not trying to make it so narrow that it would keep and limit people from coming back into the market. we have, it was designed to make sure that if, if following proper underwriting standards, that if you follow that, a borrower would not have to put 20% down today. and i think, i think a 20% down requirement for a qualified residential mortgage is overly restrictive, and it's too tight. the sponsors weren't trying to make as tight a box as they could. they, in fact, were trying to make a broader box and return totraditional underwriting and the way this business used to be done in the years and years and years in that fashion that even

with low down payment, many folks were able to continue to make their payment. so the number one thing, i think, we have law that was passed that provided -- is now being promulgated by the regulators, and the regulators need to think what the intent was of the sponsorship of that law and follow that intent and not create a qrm standard that is so prescriptive and is so narrow that it continues to create more uncertainty for the consumer and, frankly, keep more consumers out of the market. >> if you just put that in context, we're one of the joint vepture, one of the largest originators in the united states, and if you took all of our loans that we originate inside '09, '10 and '11 which was during those years, that was very tight underwriting standards, 75% of our loans would not qualify under qrm. and the average fico score for the loans originated in that period of time was a 780. but they wouldn't have qualified because they didn't