better than anyone and as dave talked about, one of the major obstacles blocking a full housing recovery is regulatory uncertainty, and i understand. having been a lender, i can't imagine what it's like sitting at your desk back in your home state as you've watched the federal government respond to the crisis. we take -- we've taken a lot of steps that were, in my view, necessary to restore confidence and insure that many of the bad practices that caused the mess were eliminated. but one of the outcomes is that too often the rules of the road weren't clear enough, and that led to a tightening of credit. according to the federal reserve from 2007 to 2012, mortgage lending to borrowers with credit scores over 780 fell by a third. lows to those with scores between 620 and 680 fell by 90%. there are a lot of qualified buyers out there who are being

rejected. so my colleagues and i have been working with a wide variety of stakeholders, including many of you, to simplify things moving forward. case in point is the qualified residential mortgage rule. as all of you know in august, six federal agencies -- including hud -- proposed a revised version of qrm to make it equal, qm. this is a direct result of the feedback we've received since the first proposal in 2011. you told us it needed to be refinded, and we listened. refined, and we listened. now our rule -- now some of our critics have called this a dilution of our rule. but as you know, qm itself is a very strong measure, as i'm sure director cordray will confirm later in the conference. and we're confident that this will find the right balance between responsibility and opportunity moving forward.

another example of proper coordination is hud's qualified mortgage rule which builds off the qualified mortgage definition set forth in cfpb's final rule. it extends the cfpb patch defining loans that meet fha policies as qualified mortgages. and it increases the safe harbor and rebuttable presumption boundary to account for fha mortgage insurance premiums. i thank you for your engagement on this issue. we very much look forward to continuing to listen to stakeholders like you so we get these rules right. now, another area where we're eliminating confusion is in the way fha does business. partners like you have told us that we need single family documents that are easier to understand and navigate. with over a thousand mortgage letters, housing notices, handbooks and other materials, we couldn't agree more, and we're taking action. we've committed ourselves to having a single, reliable source

of policy. that source is the new single-family housing policy handbook, the first draft section of the handbook will be available more your review tomorrow. the language had been clearer. you'll be able to find what you need quicker. and the process will cause you fewer headaches. we want to make it easier for you to do your good work, and we also want to hear your feedback on the handbook as we shape it into a product that you can really use. that's why we're changing our process to support a review period for each draft section before formal publication. once we've got it right, you'll be given sufficient implementation time to incorporate it into your business. i urge you to go go to hud.gov to check it out when it's released tomorrow. in the meantime, we've made real progress with you and other stakeholders on our prospective quality assurance framework. we want to insure that fha has a

strong and consistent, but also transparent and timely enforcement process. we want to insure fha has a quality assurance approach that doesn't hinder or discourage lending to populations. promoting alignment and reducing uncertainty will enable access to credit to prospective homeowners underserved by private capital. and we'll work diligently and urgently to get this done with you. finally, for multifamily lenders, i want you to know that the administration remains firmly behind the low income housing tax credit as the country begins to discuss tax reform. all of us know how important the tax credit's been in increasing the supply of affordable housing. that's why the president and i have championed it time and again, most recently calling on congress to continue to support this tool as part of the president's housing plan. and i urge you to continue to do

the same by letting congress know that not only do we need to keep the tax credit, we need to expand it in order to better address the needs out there and provide more flexibility for the credit. together all these steps to improve conditions for multifamily lenders, single family lenders and buyers will go a long way in accelerating our housing market's growth. but we all know that in addition to recovery, we've also got to insure that a crisis of this magnitude never happens again. all of us in the administration have already billion working towards this -- been working towards this important goal, and the president's eager to take the next steps towards reform. naturally, this is going to require action from congress, and i know what you all are thinking: after the recent shutdown, what makes shaun donovan crazy enough to think there can be movement in this area? well, when you look at the shutdown and set your sights past all the politics, nobody won.

it's clear that wild brinksmanship doesn't pay. so moving forward i'm hopeful that partisanship will give way to partnership and that there's a chance to do big things over the next few months. historically, housing has been a source of common ground. president truman and senator taft worked together on the housing act of 1949. ed brook and walter mondale worked together to produce landmark housing legislation decades later. and similar bipartisan efforts have sprung up in 2013. earlier the this year the bipartisan policy center came out with a report that helps set the stage for a grown-up conversation in washington, d.c. about housing finance reform. i'm also encouraged by the bipartisan progress we've seen in congress on this issue already. so it's time for all parties to finally make reform a reality. in august the president outlined a series of principles that he

believes should be at the core of housing finance, our housing finance system in the future, three of which i want to highlight today. the first is that private capital should be at the center of the system. we all know that current conditions where government guarantees more than 80% of mortgages through fannie, freddie and fha is simply unsustainable. the risks and rewards of mortgage lending have historically been in your hands, the private sector, and should continue to be in the future. so how do we attract private capital back? as i said before, one crucial step is undressing the uncertainty in the marketplace. that's why steps like our proposed qrm rule are so important. they'll go a long way in ending the uncertainty out there and increasing your participation in the market. to help ease this transition, reform legislation should have flexibilities that will allow for private capital to be creative and innovative, leading to a more efficient market for all. and by putting private capital

in a first loss position, we can also insure that taxpayers are never again on the hook for bailouts, which is the president's second principle of housing finance reform. that means winding down fannie and freddie. as the president said, for too long their model was heads they win, tails we, the taxpayers, lose. he'll do this by making a smooth transition of assets, the people, their ideas, their infrastructure as part of government's new limited and targeted role. it's a role that should be explicit, not the implicit role that fannie and freddie had before. and as we make this transition, we remain firmly focused on doing it in a way that doesn't disrupt the credit market in the short term so that our recovery can continue. the third principle reform outlined by the president is insuring access to safe, responsible financing like the 0-year fixed -- 30-year fixed rate mortgage. doing so will increase

confidence of long-term investor in mortgage-backed securities so that 30-year products will be offered in both good and bad times. this also means shaping a competitive marketplace by giving community banks and smaller lenders the same access to the capital markets as the big banks. five years after the financial collapse it's time to get this and other critical aspects of housing finance reform done. let's all make our voices heard with the goal of getting a bipartisan bill through the senate this year. it's time to put the politics aside and put housing finance reform at the top of the nation's agenda where it belongs. so as we gather here today, i think it's important that we look back and honor the extraordinary contributions that mba has made over the past hundred years. you've made lasting contributions to communities and our nation, and i commend every one of you. now, we also in addition to

looking back need to look forward. in so many ways, the next hundred years will be built on the foundation that we shape today. so we've got to work together to insure that this foundation embodies all of our greatest hopes and ideals. that means continuing to help struggling homeowners turn the page on in this painful chapter. -- on this painful chapter. that means giving families the knowledge they need to be successful homeowners. that means giving families access to affordable health insurance and reforming our immigration system. and that means eliminating uncertainty so that credit can go to millions of buyers who are ready to own. it means finally getting housing finance reform done to insure that a crisis like this never happens again. all of these components can help shape a solid foundation for the future. now we've got to make it happen. despite all that's occurred here if many washington recently and

in -- in washington recently and in our economy over the past five years, i still believe we can get big things done in this country. we can make the housing market work for both the industry and consumers. we can shape a better and stronger america for all. and i look forward to working with the mortgage bankers association to make these goals a reality. thank you. thank you, mba, and congratulations on your hundred-year anniversary. thank you. [applause] >> please give a warm welcome to indiecom's president of financial services, rajan nehr. [applause] ♪ ♪ >> thank you, secretary donovan. good morning, everyone.

we are pleased to sponsor this morning's session and help kick off mba's anniversary and annual convention. we are a leading business process of consulting, learning and technology solutions provider to clients around the world. these firms access indiecom's outsourcing solutions and consulting services to improve profitability, gain time to market advantage and achieve immediate return on investment. in the mortgage business today, companies are especially challenged by greater regulatory compliance and quality control. they need ways to thrive in this new, tough, dynamic environment, and indiecom is helping mortgage companies do just that. our quality control solutions mitigate risk, adopt management solutions, enhance efficiencies, our mortgage learning solutions developed through the acquisition of mortgage-u helps

manage clients, and our sourcing solutions create -- [inaudible] variable cost models for firms of all sizes. these four pillars are the cornerstones of a business model that delivers relevant solutions to the mortgage industry. our guest this morning is no stranger to the financial services field. many people within the mortgage with industry look at lou for guy dance and insight into the marketplace today. he serves as chairman and president of his company, an adviser and manager of private investments, and he is the founder and chairman of -- [inaudible] partners management llc and its investment management companies focused on financial service opportunities. he previously was a prime originator and founder of hyperion partners. regarded as an expert, an innovator in both the mortgage and capital markets, he has

served on the national association of home builders mortgage round table continuously since 1989. in recognition of his dedication and lifelong achievement in the mortgage industry, he was inducted into the national housing hall of fame. he is also a recipient of the lifetime achievement award given by the fixed income analyst society and was subsequently inducted into the fiasi hall of fame for outstanding practitioners in the advancement of the analysis of fixed income securities and portfolios. in november 2004 "businessweek" magazine named him one of the greatest innovators of the past 75 years. and in 2005 he achieved the distinguished industry service award from the american securitization forum. ladies and gentlemen, please welcome mr. lou aneary.

[applause] ♪ ♪ >> good morning. it's a pleasure to be back to help celebrate the 100th year anniversary of the mba. i've been a proud member of organization for a very long time, and i'm happy to share my thoughts about where we've been and where we need to go in the future. and despite what some of you have been chuckling about, no, it's not true i've been a member for a hundred years and, no, didn't attend the first meeting. close but not quite. being serious, i've had the good fortune to be active in this i have for more than 40 years, and in that time it's been my privilege to know and work with some of the great leaders of this organization. past presidents such as claude

pope, felix beck, they define ard work and the leadership that build this organization. i'd obviously be remiss if i didn't mention my very good friend david stevens who's done a terrific job in very difficult circumstances. while so many industries and professions have been replaced or displaced over the last hundred years, this industry remains vitally important despite the challenges of the few years. housing remains critically important. it's important to stable communities for formulating and accumulating wealth and propelling our national economy. even though the crisis ended in 2009, we are still very much in the midst of redesigning the housing and mortgage finance system of the future. and you heard david's comments,

getting it right will require experience, insight and vision. almost seven years ago, i participated in a housing forum sponsored by what was then the author of thrift supervision and expressed some concerns about what i saw taking place. i said at that time that the transparency of the past was being obscured by a massive proliferation of new products and as a consequence, it was very difficult for investors -- institutional or otherwise -- to accurately quantify the value and the risk of the opportunities available to them. while those concerns turned out to be correct, i would be the first to tell you i did not imagine the depth and severity of the meltdown that followed or the legacies it's left us. the most profound of those legacies was the loss of $16 trillion by both individuals and investors. and despite the fact that we are

supposedly have recouped that 16 billion, little of it has accrued to the same individuals with four and a half million foreclosures and still counting, the damage is deep and severe. but the most truly unacceptable legacy of the market collapse is what i consider to be the irrational restriction and contraction of credit that we have today. and if this legacy persists, the consequences could long term be more profound to the country than the economic losses i just mentioned. i think we have to pause and ask ourselves two simple questions; who qualified for the housing finance system of the future and who will be excluded? i recognize that home ownership is not a right and that home ownership is not for everyone. that's a very rational proposition. but denying credit by arbitrary means to millions of aspiring

and capable home buyers is simply not rational. i find this credit legacy particularly frustrating because it's fear and not fact that is making credit tighter than it should be. as i listen to the debate, i'm not sure that the parties advocating for arbitrary credit standards fully appreciate what the consequences could be not only for the individuals affected, but for the entire fabric of this country. the impact of the current credit restrictions ripple far beyond individuals -- excuse me, individuals and neighborhoods and adversely impact the entire economy as housing and its multiplier effect has stalled unnecessarily. when you read the papers and you look back over the last 12 months, we've had a great re-fi boom, and so much of what people think of as housing is just refinancing over and over and

over again. if you put that aside and look at the real process of housing, it is slow and painful and frequently unfair. today's mortgage products and mortgage upside writing bear virtually no resemblance to what was taking place during the bubble, yet we seem trapped like deer in the headlights because of those abuses. we shouldn't do and we can't do -- what we shouldn't do and what we can't do is to allow unfounded fear of the bad practices which are now largely statutorily prohibited to drive either current market decisions or policy makings. we've done what is necessary for prohibiting both bad practices and bad products. now we must move forward encouraging lenders to utilize proven underwriting techniques along with, by the way, good judgment. as i stated at the outset of my remarks, i think that's critical

that we keep asking those two simple questions; who will qualify for the housing finance system of the future, and who will be excluded? over the past 20 years, we readily made loans to people with 620 fico scores, 650, 700 who had both the million and credit history to successfully fulfill their loan obligations and who demonstrated a willingness and ability to pay back their loans. but we never relied on fico scores alone to underwrite a loan. or try to predict how a loan would perform. yet somehow today fico has become almost the sole metric, and i for one do not see this as positive or constructive. prior to the economic downturn, a 620 fico with a 5% down was an insurable loan. today 680 has become the next 620 and might require 5% down to get -- more than 5% down to get

approved by the lender of the mi. we need to ask how do we utilize underwriting knowledge such as compensating factors such as residual income, such as using shorter amortizing loan products. and as i will develop later, programs that get individuals home-ready. fear should not be the driver for excluding millions of potential home buyers. another part of this credit restriction is credit overlays. to explain credit overlays, i've sort of developed this notion of an analogy for the credit boss. think about a picture frame whether it be 11x14 or 8x10, then think of the matte that's put inside the frame to make it smaller. for example, the fha overlays are fundamentally shifting the program. guidance permits as low as a 580

fico score. now, true, very few loans are made at scores that low, but many were made between 600 and 620. today because of the -- [inaudible] many lenders have an imposed number of 640 and some as high as 660. the simple truth is that overreliance on credit scores and credit overlays by lenders and investors is severely truncating any meaningful examination by those actually doing the underwriting and adversely impacting a very large segment of the population. excuse me, i have a head cold. it's sometimes hard to talk and breathe at once. although -- [laughter] in large part credit overlays are being driven by lender concern, and as you've heard david talk about, of agency putbacks. historically, reps and warrantees allowed for problems to be handled and solved most

often without loans being put back. today the economics of lending is being impacted by aggressive enforcement by fannie and freddie and fha and indemnifications. the results of this are so severe that the discussion is taking place among regulators, members of congress and the white house. i'm not advocating for not enforcing rules, but what i am advocating for is that we come up with a rational standard, some equilibrium, and that the rules are clear. it's not up to somebody's interpretation of what's going to happen. because if everybody is afraid that they will be drawn into this black hole, even's going to stay very safe and very far away from the edges. the combination of factors are far too many, are pushing far too many families into higher cost loans and many into no loan at all.

let me discuss some really basic facts. each when credit was more -- even when credit was more available to lower income and first-time home buyers, it was not available to everyone. home ownership was more accessible to white, higher income, traditional family households than minority family households. according to recent hmda data, the historical pattern of white families receiving homes continues, but the gap is much wider. the federal reserve paper just released by neil buddha and glenn cannon, the percentage troth and purchase originations between 2011 and 2012 was three times higher for whites than for african-americans and two times higher for whites than hispanic-americans. but the most revealing, in my opinion -- and it's another version of what was said -- the raw loan numbers are sobering.

in 2012 there were 38,000, rather, 38,702 conventional loan purchases to african-americans and 82,400 to hispanic-americans and a slightly more than 1.6 million. let me say that again. 38,702 to african-americans, 8 84,400 to hispanic-americans out of 1.6 million. ladies and gentlemen, today's mortgage system cannot simply serve an economically well-off or single demographic. we live in a diverse society with a range of incomes and common desires to achieve home ownership, and we must build a mortgage finance system. you know, housing finance was always what we called a virtuous cycle starting with new marriage or young people buying a house,

more mature families trading up and senior citizens in retirements trading down. it was that virtuous cycle. well, the studies clearly show that the vast majority of new family formations and first-time home buyers over the next decade are families of color, women, young people. and it is that very group that is being most disadvantaged. if you cut off the front end of the cycle, eventually the whole system collapses. regulators are aware of this. the consumer financial protection board diligently is working on difficult statutory language to write rules. the consumer financial protection board continues to listen, they have meetings, we talk to them, others do. but there's still so much that has to get done. for example, director cordray

has said on more than one occasion that if lenders had demonstrated an ability to successfully originate nonsafe harbor loans, they should. i wholeheartedly agree. but that's not what is happening or likely to happen. today the market environment is, this environment of fear of litigation, fear of name reputation means that the vast majority of originations are and will be safe harbor qualified loans. while there will be rebuttable presumption mortgages, most lenders will stay very clearly within the safe harbor, inside the map. this is why it is critical that we get qualified mortgage box correct. the bigger the safe harbor segment, the more robust the market. which translate toss a stronger and -- translates to a stronger and more vibrant economy. the new normal is the safe harbor, so we should avoid

unnecessarily constricting that segment unless we really want to further burden the housing recovery. now, all the rules go into effect in january. let me tell you about three problems i have with those rules which i think will further elucidate the point i'm making. the first is that the government guaranteed loans are advantaged over nonagency executions. for a first lien transaction, the annual percentage rate allowed for a safe harbor is 1.5% on the average prime offer rate. while this does work for government-guaranteed loans, it disadvantages nonagency loans which have a higher cost of capital. the result is the nonagency loan in circumstances is pushed out of the safe harbor and into the rebuttable presumption for no other reason than the higher cost of capital. or even worse, the nonagency loans exceed 3% over the apor and become non-qm and don't get

made at all. so while we keep talking about less government, we keep writing rules that tremendously disadvantages anything but a government loan. the second problem is the 3% point cap on fees if a loan is deemed to be a of qualified mortgage is too limiting, in my opinion. additionally, the rule as written disadvantages mortgage bankers who utilize affiliated title relationships in their business model which particularly hurts small loans, pushing those loans outside of the safe harbor. and third and most important is the patch that was provided in the qualified mortgage rule to further extend credit, and -- but it was limited, again, only to the agency loans. loans submitted through one of the agency automated underwriting system are not subject to the back end, to the 43 dti. the same loan if nonagency would not be a safe harbor. i would argue nonagency loans

should receive the exact same treatment, end the so-called patch which, as you know, was only temporary. neil buddha and glenn cantor in that same fed report noted we cannot overstate the importance of the patch given the fact that 33% of african-americans had back end dtis over 43 while whites had 20% over 43%. although the patch affects african-americans, the issue is true for the front end of the housing reduction system. women, women don't earn as much as men, and where the cut always comes tends to disadvantage more women than men. young people. newly married people. with this much disparity, i think we need to consider extending the so-called patch to

the nonagency marketwe're going to have a nonagency -- if we're going to have a nonagency market. further, there's no justification to push loans outside safe harbor. loan limits are going to be reduced, we believe, in may. well, what are we going to do with these loans we're now pushing out of the system with the drop in loan limits for fannie, freddie and fha? what are we going -- banks? banks don't find funding 30-year loans at these low loan rates very easy to do. and increasingly, banks are finding it difficult regulatorily to do. so are we going to the mortgage securities market, the rmbs market? well, let me clue you in about the mortgage securities market. it's amazingly fragile, and it's amazingly thin. we're probably going to do about $13 billion of securities this

year, and the volatility market is extreme. while there were very good times, recently they've been trading as wide as 450 over comparable agencies. and in truth there are, in my opinion, five consistent buyers of the aaa piece. somebody said, no, you're wrong, there's ten. okay, i give up, there's ten. it used to be hundreds. so whether it's five or ten for the aaa, you don't have much of a market if somebody sneezes and the spread's widened by hundreds of basis points at a time. so what are we going to do? we're going to keep taking these loans that are now agency, and we're going to put them where? you know, if we're going to have a nonagency market, i think we need to pay a lot of attention to bringing back those

institutional investors who made up the nonagency market. now, you know, it's true, i recognize there are a lot of reasons for the lack of investor confidence. except when the government puts its money at risk. rating agencies are still developing new rules, and frequently the rules they develop make no sense. i mean, if you take the problems of the bubble period negame, balloon loans, and you take the experience of that period and you put it in your rating model, it's almost impossible to make the elevations work. by the way, all of that stuff is now illegal, so what's the point of putting it in the model? when we did the qrm and qm for congress, i ran a report for them when we were developing the qrm, and i did a very simple thing. in the worst periods in the '6, '7, '8 period, i took all the

loans that were done traditionally, fully underwritten, fully appraised, 30-year loans. no strangeness. and everything else. lo and behold, the traditional loans in the worst periods of the bubble never experienced -- never exceeded third quarter 1986 which was the base mark for all mortgage security ratings. of course, that makes no sense. it'll never happen if you take all that other stuff and put it in the model. you can't get elevations thick enough to cover what isn't going to happen anymore. another item, while i was not around at the time of the first mba meeting, i really was right around when we developed the first mortgage security. and while we certainly, obviously, didn't get everything right in our initial design, one thing we did get right was the utilizing of pooling of risk to

achieve a more balanced system that can serve a wider cross-section of americans. i'm, obviously, here taking a pot shot at risk-based pricing because of where logically it brings you. pooling risk is widely utilized in health care and property protection as well as mortgage finance by creating a large pool of stronger credit, they can carry a subversive pool of loans including weaker loans. meanwhile, creating a single pool that has very low delinquencies and very good performance. now, if in the new system we're creating new government securities, who creates the pool? if individuals are creating the pool and bringing it to the government as a guarantee, i'll bet you a nickel to a dollar that it's going to be a much cleaner pool. less losses, therefore, less

insurance risk. but wait a minute, i said the government is guaranteeing the pool. government, all of the people not just some of the people. unless the government creates or at least guards with this creating superclean stuff, what you're doing is creating another privileged class with the government's credit. and in addition -- it's telling me i'm out of time, so i'll go as quick as i can. in addition to creating more lending opportunities, we need to do a better job of preparing the next generation for home ownership as well as a better job of keeping people in the homes they already have. as i've said, home ownership is not for everyone, but everyone who aspires to own a home, for everyone that aspires to own a home there ought to be a pathway with helps and guideposts a along the pathaway.

let me suggest three things that we should be doing. the first thing is we should experiment with a rent-to-own financing product. this is something i've been talking about for, in fact, martin's reminding we talked about in this seven years ago. some of you will remember at a treasury-held function i said part of the solution had to be a -- [inaudible] and we gave birth to a whole new industry. well, the other part of that product was single-family rental with an option to purchase. because when you have single-family rental with an option to purchase, the rent-to-own provides the renter, the prospective home buyer, the ability to accumulate a down payment, work to rebuild damaged credit or obtain credit counseling and learn budgeting. i truly believe that three agencies knowing the power of this product should be looking at how to employ it, not simply how to take single-family stock and rent it to a group of people

who tend not to use it. for long periods of time. but when you make it rent with an option to purchase, you get a very different outcome. next, i'd like to see us design a very row was program -- robust program that puts individuals and families on a pathway to successful home ownership. home ownership programs, obviously, cost money. so how do we pay for a high-tech ownership program? most argue that should be paid for by lenders or the government or charitable organizations. i myself argue that it should be paid for by those using it, but because it would be so important to have a robust home ownership program, that transaction should be paid for by the system broadly such as adding a couple of basis points to the mortgage servicing contract. and there's justification for doing that. we have, we have of a very large disadvantaged group of potential

home ownership buyers. unless we help them through a process, they're going to lose the opportunity to ever join the system. so the system creating a program that spoon feeds them, that helps them, i think, is in everybody's best interest. now, i've cut this down dramatically, and i'm just going to run right to my, right to my summation. here's my vision. one, to create a credit framework that is not based on fear of the past reoccurring, but that creates a qualified mortgage that provides appropriate access. two, a qualified mortgage that is equally appropriate whether the loan is government or nonagency. it's -- we can't talk about 90 plus percent loan guarantee, you heard shaun. well, yeah, we're going to have all these conversations.

great. tell me where the rest of the stuff is going to go. a mortgage finance system and structure that utilizes pooling to expand opportunity and imposes a structure that is so risk-based price that we again create privileged classes. four, a system that builds and pays for a pipeline for future home buyers that are willing to save, improve their credit and qualify for home ownership. and, yes, i want a system that accesses home ownership without losses. i realize many of you call me dr. frankenstein, the guy who helped create the mortgage security market that blew up the world. it wasn't my intent, and i tend to think it was more about how we did it than what it was. but, no, i don't want to do it again. but what i don't want to do is as a by-product take -- there's a harvard study for those of you who haven't seen it, the harvard research, they calculate 60% of

americans cannot qualify for a mortgage. 80% of the more likely first-time home buyers cannot qualify for a mortgage. it's just bad business, it's bad social engineering, and it's bad politics. thank you. [applause] >> thank you, lew. it's always a great pleasure having lew here. he will be in the expo area taking questions and having a more informal conversation, but we do have some great speakers lined up here with director dimarco and director richard

cordray and others lined up behind this. i want to take one morning and thank all the great sponsors who helped this morning's session come alive. before we move on, i'd like to show one short video that really represents for many what home ownership means. so let's, please, go to the video. >> when i was a kid, i remember we moved when i was very young and how exciting that was. >> my parents owned a home, and i grew up in the same home my whole life. >> my parents built a house in a very normal neighborhood in hillsborough, oregon. >> it's one of the greatest parts of america. it's just american to own a home. i absolutely relate it back to my family. i relate it back to my dad. the house was really important to him. >> my parents were just so thrilled with moving into this brand new neighborhood with, you know, new neighbors, new friends

around us. >> it's the home that my father still lives in. it's one of the places that i go when i feel completely safe, you know? i grew up there. ♪ ♪ >> when i graduated from college and graduate school, it was a goal for me to buy my first house as soon as possible. i actually can remember when i took interviews with people that were buying their first home, i said someday that's going to be me. >> i went and bought my own very first home, the amount of energy and effort my wife and i put into it to change all the landscaping and painting and all of that kind of stuff that comes with home ownership, you know? those memories will stay with me for a hong, long time. >> dad really had a ninth grade education. fought in world war ii, came back from world war ii, got a job, stayed in that job for the next 40 years. in that process, he bought a house. and that house was extremely

important to him. he took care of that house. he was a force within his community, a leader within his church, and that house was a central part of his focus. >> communities are stronger when people are able to afford a home, you know, sustain that home ownership throughout their lives. it gives them some permanence or some roots. ..

i think it's very important, at the heart of what we do, it's just that. we serve customers and make homeownership possible. i can't think of anything more important than that. ♪ [applause] ♪ ♪

>> a break now in the mortgage bankers association conference this morning, and we went back with more when the session resumes in a few moments. with richard cordray, head of the consumer financial protection bureau, among others. in the meantime the house and senate return this week to begin conferences on a budget, farm bill and possibly water resource. negotiations open wednesday the first attempting for years to develop a spending blueprint for the two chambers. floor action today in the house and senate is relatively light. following a weeklong recess. the house will begin at 2 p.m. eastern. they will pick up a six minute of state with veterans issues and in those will be postponed until 6:30 p.m. the senate will also start at 2 p.m. with general speeches and then at 4:30 p.m. they will take up the nomination of robert griffin to be general counsel of the national labor relations board with a vote expected at

5:30 p.m. eastern. president obama nominate mr. griffin for a spot on the board but withdrew it as part of an agreement to end the senate standoff overlays with executive branch nominations. his original nomination also helped spark a supreme court case over the constitutionality of recess appointments. the senate is expected to barely meet the 60 the procedure requirement. we have more from our reporter covering capitol hill who joined us on this morning's "washington journal." >> host: we start with a discussion on the week in congress to a lot of activity going on this weekend to reporters join us to help us break down not only what happens but what it means politically. jennifer of the "huffington post" joins us. she serves the white house or list reports on white house and also reports on progress as well. we're also joined by neil of cq

quarterly call who is a staff writer for that publication. thanks for coming on. like i said, a big week as far as agenda is concerned. but so some of the high points. what are expecting this week in congress. >> guest: one of the sort of things we will see this week that we haven't seen nearly enough of a lot of people say is music to conference committees start to contain at least. without formal meetings midweek of a joint house-senate conference committee on the budget resolution trying to hammer out some sort of a deal on how much money will be spent going forward. and we'll also see a farm bill conference take off. as a part of that, that's another attempt for negotiators to get a deal done between both the two chambers on house for programs and food stamps and other benefits work going forward. and it's been a long time since we've seen the conference

process really work and both of these conferences have been blocked from happening over the last several months. so we'll see how that goes but that's one of the big items of the week. >> host: both sides as shelter issues and differences. jennifer come when it comes to the budget discussions, what are the main issues? >> guest: the budget talks it's the same old stuff. you've got republicans want to make cuts to employment and then you democrats who want to close tax loopholes and go after the wealthy, try to bring in some new revenue to pay down our spending bills. i'm not -- hundreds of this is going to play a. whenever the conference, conference meetings an in more t everybody just makes a lot of noise on the house floor and nothing happens. it is the exciting candidacy things get back to the regular process. this is how it is supposed to work.

something more normal to happen finally back in congress after a 16 day government shutdown. >> host: to either you expect to happen from these conferences? >> guest: the thing that came up last week, senate majority leader harry reid did a local radio interview with a public radio affiliate in nevada in which he said there was not going to be a grand bargain out of this round of talks, and we've heard that also in a bunch of interviews with print publications that paul ryan, the chairman of the house budget committee, gave last week, basic or both sides are looking at a narrower agreement to hash out a topline spending level to fund the government through september of 2014, and not a whole lot else, at least in this round. so yeah, there might be a few but it's not going to be a deal that's going to do much for us

really. >> host: what's the blue coal valley of lowered expectations, if i'm reading between the lines transferred realistically speaking, they can, now that they're finally coming together they can tackle a smaller bargain and fund the government through the end of september. you can have an appropriations process where we find the government until the end of the fiscal year. remember those days? we haven't had those in so long. so that until itself would be a successor congress at this point. the grand bargain talk which takes far more concessions, far more fighting, much more dragged out fiery debate that i think this point we've already had so much fighting in congress, if they could even get a small ball deal just to fund the government to the end of the fiscal year, that would be a win for everybody. >> host: both the guest with us until 8:30 a.m. to talk about. numbers are on the screen.

because of the shutdown, does that overarching thing that happens as far as the specific conference committee talks transit i think if anything the mood has changed somewhat. it was so tense around here and so hostile and they were fighting and the government was close can we almost defaulted on our debt. now that that's behind us i think there is at least hope -- under the president certainly hopes that now that we've kind of moved past that major showdown, let's try to get back to normal. so he saw obama right after this is all over, first thing he said, okay, congress, let's do a budget, a farm bill and immigration reform. let's do it now this year.

we just got passed a major showdown in congress. so mayb maybe people are warned. maybe they're ready to get something done. >> host: niels lesniewski, what does it do to the topic of sequestration as the current effect and we're supposed to go more into the next year? >> guest: that's the key of this whole deal, you know, the house and senate spending numbers that they been working off of so far are different in large part because the republicans in the house are working off a number that sort of accounts for the sequester cuts happening. the democrats in the senate not so. and as result of that, what you have is that they're looking for sequester replacement. they are trying to find savings elsewhere in the budget. not the savings can be to be spending cuts or this sort of closing of tax loopholes, tax

expenditures. either way you're looking for someone to bridge the gap which is about a $90 billion gap, and so it's not easy, but there might be some way to find ground in the middle. the idea would be not to have the sequester kick into effect again come january. >> host: again, our guests joining us for discussion this morning. let's start off with a rich, and rich joining us from springfield, oregon, on our democrats line. you are on. go ahead. >> caller: hi. boy, i'm happy to get him. hey, i know congress has got approval ratings way down, just down there. i think they were talking about all the relatives and close friends -- >> we will leave this conversation now but you can watch the rest of it online. go to c-span.org. back to the mortgage bankers association conference. will be hearing from richard cordray, ahead of the consumer financial protection bureau.

>> service links surfers culture, successful process is an advanced technology allow us to deliver outstanding service and solutions to our clients and their customers. we absolutely are proud of the mba and the real estate financial industry because one of the reason we chose to sponsor this morning general session and hope to provide you with vital information. it is not my post introduce our host for this morning's session. bill emerson is chief executive officer of quicken loans, the nation's largest online loan lender and fourth largest retail lender. bill is responsive for the leadership and the growth of quicken loans. he joined the company in 1993 as a mortgage banker. he pioneered dan gilbert's mortgage and a box concept, we've doing business over the phone which led to a business publicly blood utilizes so effectively today. bills leadership ability afforded him the opportunity to run several business at quick

known as was laid all mortgage applications and operations for the company. he was responsible for driving performance within all of quicken loans businesses. bill is an active spokesperson on housing industry. it's testified before the united states senate committee on banking, housing and urban affairs. and was just yesterday elected to serve as the vice-chairman of the mortgage bankers association. in addition, bill is former vice chairman of the mbas residential board of governors. ladies and gentlemen, mba 2014 vice-chairman, bill emerson. [applause] >> oh, yeah. u.s.a. springsteen fan? i know i am. we are close to but anyway, thank you. good morning, everyone. welcome to the second general session. it's an honor and privilege to be here this morning to begin my

mba and executive service during the year of the mba's 100th anniversary. i'm excited be serving our membership with such a great team of professionals. now all as interim know too well, 2013 has been a year of regulatory implementation. many of the new rules we're incorporating agribusiness operations were a direct result of 2010 dodd-frank act. 'since were celebrate our anniversary right here in washington, d.c., the birthplace of the historic change of real estate finance in america, we thought it would be appropriate data directly from the policy leaders at the forefront of that change. their jobs and responsive those are challenging, protecting consumers and the real estate finance market from mistakes in the past, but somewhat it is a great an environment of economic growth and stability within the marketplace. we applaud them for their inclusiveness bachelor industry during the regulatory rulemaking

process, and our speakers understand the importance of coordination and input from policy leaders, consumer advocates, and industry professionals. so now it gives me great pleasure to introduce our first honored guest. on august 25, 2009, president obama designated in the marco the acting director, the regular for fannie mae, freddie mac and the federal home loan bank. previously, mr. demarco service faq the opera an officer and senior deputy director for housing mission and goals since fhfa's succession in 2008. a career double certain, he joined office of federal housing enterprise oversight, the predecessor agency to fhfa on october 2006. as its chief operating officer and deputy director. finally during the past four years under the direction of

acting director demarco, andy and its members have enjoyed an open and collaborative relationship with fhfa. so for this were truly appreciated and help this president continues into the future. ladies and gentlemen, please welcome fhfa acting director ed demarco. [applause] ♪ >> good morning, everyone. thank you for inviting me to speak this morning. i'd like to start by congratulating the mortgage papers association on this 100th annual convention. that is quite a history. when it traces from a much different and limited housing finance system to one that creates our greater access to credit but that is recovering from a nationwide trauma in

housing. the good news is that the recovery is taking hold. the opportunity for rebuilding our housing finance system to a stronger, more competitive and more resilient market is before us. yet challenges are all around us. implementing an array of new mortgage rose, many developed in response to the recent market and regulatory failures creates uncertainty of the cost and impact. we have an opportunity to rebuild the secondary mortgage market of the political and policy challenges of that legislation. over the past five years in which fannie mae and freddie mac, the enterprises as i work for to them, have been in conservatorships. much as been accomplished. the nation secondary mortgage market has continued to function. enterprises financial positions have stabilized. we've made significant progress,

the enterprises have played an important role in providing foreclosure prevention and refinancing options to borrowers. and through a fhfa's strategic plan for the enterprise conservatorships, we've begun the process of building for a future housing finance system. however, even with those accomplishments much remains to be done. the single-family mortgage market remains heavily supported by taxpayers while there was progress on the legislative front, the timing the broader housing finance reform remains uncertain. in 2008 the conservatorships were established, the immediate objective or initial phase was to stabilize the enterprises operations and ensure that the secondary mortgage market continued to function. as market stabilize the second phase of the conservatorships focused on developing tools to assist troubled homeowners while reducing credit losses.

the next phase is determining our responsibility to direct the conservatorships going forward. the law establishes the appointment of the conservator or receiver for the enterprises, for the quota purpose of reorganizing, rehabilitating or winding up the affairs of a regulated entity. in fact, they are doing all three of these things, reorganizing, rehabilitating and winding up the affairs at fannie mae and freddie mac. this is exactly the path we set forth last year when we issued the strategic plan or conservatorships. more specifically we set forth three strategic goals in that plan. the first is to build. build a new infrastructure of a secondary mortgage market. the second is contract, gradually contract their dominant presence in the marketplace while simplifying and shrinking their operation. and a third goal is to maintain foreclosure prevention activities and credit

availability and newly refinanced mortgages. we identified specific activities to achieve these goals in a conservatives scorecard in 2012 and again in 2013 and much progress on those goals has been achieved. but as time moves on, the scale of the enterprises operations in conservatorships cannot remain static. as the end of lester the announce meant of -- announcement of support for outstanding debt and mortgage backed securities became fixed. limiting risk exposure is vital to maintain the adequacy of the remaining capital support in the treasury support agreement. it seems clear that cheney and freddie mac will cease to operate in the current corporate form at some future date hi a de to be set by congress. fh passionate fhfa's conservatconservat orships strategic plan is designed to prepare the companies and the

market for that date while maintaining market stability and liquidity from now to them. the strategic plan aims to move forward with a transition to a post-conservatorships market, thereby making the final transition from the conservatorships as simple and as quick as possible. more clearly define this process, fhfa will soon a stylish multiyear targets for fannie and freddie to further achieve these three strategic goals of building for the future, contracting the footprint, and maintaining market stability and liquidity. in this next phase of the conservatorships come we intend to build upon the accomplishments of the past two years while accelerating progress towards achieving each of the three strategic goals. i provide some thoughts on each line of the enterprises business last week. today my limited time i would like to focus on the single-family guaranteed business. with an uncertain future and a

general desire for private capital to reenter the market, the overarching goal is that the enterprises market presence should be reduced gradually over time, and we have three main tools to accomplish this objective. first, risk-sharing transactions are important for reducing the taxpayers long-term risk exposure. in 2013 we set a target for each enterprise to achieve $30 billion in risk-sharing transactions using multiple types of structures. both companies are on track to meet this target, and the transactions completed to date have been well received in the market. we are planning for the scope and depth of risk-sharing transactions to continue to expand. while these transactions and structures are very positive, they do rely on the underlying infrastructure of any and freddie. going forward i expect to see work done on other types of transactions such as senior subordinated structures for

certain portions of the enterprises mortgage guarantees. these alternative approaches will contribute to our efforts to build for the future by helping to build a securitization infrastructure that is less reliant on the enterprises traditional gse securitization model. second, guaranteed fees are about double what they were prior to conservatorships, atvs and increase guarantee fees is to bring the pricing for credit risk closer to what would be required by private sector participants. while that level is difficult to evaluate with precision, i believe we're getting closer to the level that would encourage more private sector participation and we plan to continue pursuing gradual guarantee fee increases in the near future. third, one of the most direct ways to increase private sector participation and reduced taxpayer exposure is through a reduction in the maximum size of loans the enterprises guarantee.

this summer the president's -- the present specifically endorsed maximum size. since then there's been much discussion about a near-term reduction in loan limits. as you probably know, last week i made clear that i understood the potential timing issues associated with such a change given the other regulatory changes that are scheduled to take place in the mortgage market. i sit fhfa will follow its practice of announcing the 2014 conforming loan limits in late november at which time for the information will provided on the potential reductions in the size of loans the enterprises will guarantee going forward. any reduction will be across the board, not just in some parts of the country, and consistent with our practice with increasing

guarantee fees, any change would be measured and gradual so as not to disrupt the markets. while the steps are important and necessary to get out our conservatorships responsibilities, our efforts are also focused on building towards a future infrastructure to support the single-family mortgage market. fhfa is looking to reposition the enterprises activities in ways that would support the various housing finance reform options pending in congress. one of these efforts is the common securitization platform with a focus on functions that are routinely repeated across the secondary mortgage market thomas such as issuing securities, providing disclosures, paint investors and disseminating data. these are all functions where standardization could have clear benefits to market participants. we recently announced the formation of common securitization solutions as an equally owned subsidiary, fannie mae and freddie mac.

this to entity which will have its own independent location and leadership will manage the element of the platform and the associated data and legal infrastructure for future securitizations. next year, a key objective force will be to formalize a means for mba members and other market participants to participate in the development process of the common securitization platform. i am committed to ensuring broad industry input into this effort. i'm also committed to an outcome that strengthens, not weakens, the ability of small and midsized lenders to access the secondary mortgage market. fhfa wants to see competitive marketplace. competition and thus consumer opportunities is enhanced when large lenders and small effectively compete in offering mortgages the families and compete in servicing those mortgages. but to get there, we must be willing to envision the mortgage market working differently than

it has in the past. another example of where change is needed is in the put back risk longer would you space when selling mortgages. the business practices of the past must be improved in this area. as purchasers and guarantors of mortgages, reps and worked alongside as a key risk control mechanism for fannie mae and freddie mac, to ensure that the loans sold to the meet the requirements set forth in their cellar guides. reps and wars attracted less attention when times were good. the tremendous breakdown in loan origination quality during the boom period of the last decade led to unprecedented and liberties which has led to unprecedented long reviews and put backs. conservator, fa believes enforcement of long-standing contractual requirements is a necessary albeit painful process to protect taxpayers and

assigned losses were a contractual obligation exists. this experience demonstrated a need for improved quality control, including better use of technology to enhance the quality control on loan originations. and we've been working towards that end. earlier this year i committed that the enterprises would take to significant steps regarding reps and warrants. first, all reps and warrants claims to be made on pretty conservatorships loans need to be made i the end of this year. it is time for us to wrap up all open issues dealing with that period and move on. fan and think -- and every are on track. i'm pleased with the mutual cooperation of many counterparties to resolve these challenging business matters in a professional way, and i look forward to a speedy resolution of remaining claims in the coming months. second, since the start of each year for all new production, the

reps and warrants model has been changed to rely upon the quality control review process taking place near the time of purchase rather than waiting until much later, such as what they mortgage becomes delinquent. the period for which the rep and warrant remains active, except for limited issues such as fraud, is not limited to years for performing loans. for the future we will continue to refine and improve upon this new rep and warrant framework. important strides have been implemented in this year but they're still a learning process going on. further developments and improvements should emerge over time. in particular i anticipate improved data systems and technological development is to contribute to faster and more reliable long reviews that can lead to further rep and warrant relief in the future. still this will take time but i hope that constructive dialogue between you as mortgage originators and fannie mae,

freddie mac and fhfa will lead to further enhancements that result in both improved mortgage origination systems and greater confidence that loans sold into the second a market will not come back someday due to origination defects. another area of progress and routing of the past is resolving securities law claims on private labeled mortgage-backed securities. these issues are somewhat analogous to the rep and warrant issue, and they need to be resolved. fhfa is now settled for of the outstanding, four of the 18 outstanding lawsuits in this area and we hope to build upon these cases to resolve ending once. expeditious resolution of these remaining claims will allow the conservatorships and the companies involved to put past problems behind them am a devoted their energies and resources to improving the housing finance system for the future. as policymakers think about the

future, i would note that our current housing finance system has its roots in the great depression. as a nation we should look at this as an opportunity to build a new housing finance system, not for the next few years but a restructuring that could last for decades. this effort should not be about considering just what fannie mae and freddie mac do in housing finance, but to consider the entire market including the fhfa and other government programs that support housing finance. long-term continued operation and the government run conservatorship is not sustainable as each company lacks capital, cannot rebuild its capital base, and is operating on a remaining finite line of capital from taxpayers. furthermore, a taxpayer backed conservatorship provides a significant subsidy to the mortgage market that crowds out private capital and under prices risk in the market. it also places long-term decision-making in the hands of a government agency, decision that should be made by private

sector businesses based on reasonable returns on private capital. at some point lawmakers will need to decide on the appropriateness and level of government credit subsidy for housing, such a decision should include whether a government owned corporation should undertake some or all of the activities of fannie and freddie are whether some or all of those function should be repositioned in the private sector. in the meantime, fhfa will continue to carry out its mandate as conservator, accelerate its efforts to ease the transition to a post-conservatorship market, ultimately defined by lawmakers. the employees of fannie mae and freddie mac will continue to ensure that companies brings stability and liquidity to the market while they contribute directly to the building of that post-conservatorship market. thanks very much, and best of luck with the rest of your conference. [applause]

>> thank you, ed. we appreciate your kind introduction, and there we go. our next guest is director of consumer financial protection bureau, richard cordray. he was appointed by president obama in january 2012 and confirmed by the senate on jul july 16, 2013. director cordray previously led the era's enforcement division. prior to joining the bureau, director cordray served on the front lines of consumer protections as ohio's attorney general. he recovered more than $2 billion for ohio's retirees, investors and business owners and took a major step to protect its consumers as far as foreclosures and financial predators. director cordray also serve as ohio's treasurer and, frankly, county treasure, to elect a position to he led state and county banking, investment debt

and financing activity. earlier in his career he was an adjunct professor at the ohio state university college of law com,serve as a state representae for the 33rd oh house district, was the first solicitor general and ohio's history and and was a full practitioner and counsel at kirkland and ellis. director cordray has argued seven cases before the united states supreme court, including a special appointment of both clinton and bush justice clerk. ladies and gentlemen, please welcome cfpb director richard cordray. [applause] ♪

>> well, i'm not earth, wind and fire, but thank you for asked me to come and speak to the convention. those of you here today, as you know, represent the single biggest consumer financial market in our nation, and, in fact, in the history of the world with the mortgage market topping $10 trillion in value. you know firsthand how closely tied the mortgage market is to our over all economic stability and well being. just over five years ago we saw this all too clearly as disruptions in the housing market precipitated the financial crisis that cost so much damage to the people of this country. and the current economic recovery is occurring in large part because the housing market is showing increasing -- increasingly strong signs of recovery. the credit crunch, the financial collapse and the ensuing deep recession will likely stand as the most significant financial events of our generation.

they cost americans trillions of dollars in household wealth. many lost their jobs, many lost their homes. almost everyone saw the retirement savings shrivel. you had a graphic view from the front lines as history unfolded with the boom and bust in the housing market. severe dysfunctions in the loans supporting mortgage-backed securities said profound shocks reverberating throughout the financial system. the crumbling of the housing market destroyed jobs across every economic sector and in communities throughout the country. the dimensions of the failure were a standing. the american dream of homeownership was shaken to its foundations. people lost hope and confidence in the future. the housing collapse crippled our economy not ways in seen for generations. in the aftermath of the crisis congress passed the dodd-frank wall street reform and consumer protection act, and as you well know that a law covers a broad range of topics to address the problems that led to the crisis in that sure that you and judy wouldn't happen again.

the creation of a new consumer financial protection bureau. part of our mission and they're forced to ensure that the recent economic meltdown does not repeat itself. to develop and that led the financial crisis are inconsistent with the fair, transparent and competitive markets that we are directed to promote. the aftermath of the crisis severely compromise consumers access to credit which we will are also directed to promote. to accomplish these objectives congress give us a number of tools to assure evenhanded oversight of consumer financial markets and to prevent the bad practices from taking root. when honest and innovative businesses can succeed on the merits, it begets the kind of fair competition that drives growth and progress. appropriate market oversight and evenhanded enforcement empower consumers to make sound financial decisions they can live with over the long term. we kept all this in mind as best

we could as a work to develop and complete the mortgage was we've issued last january. as i'm sure you're well aware, two of our mortgage rules will be extremely important in addressing some of the most serious problems that it undermined the mortgage market. the ability to repay or so-called qualified mortgage will, is designed to and many irresponsible lending practices by making sure the simple proposition consumers are getting mortgages they can actually afford to pay back. our service and rules contain provisions designed to ensure among other objectives a fair and more effective process for troubled borrowers who face the potential loss of their homes. at the consumer bureau we are committed to open, inclusive, transparent decision-making before you finalize our rules we conduct research and solicit input from all stakeholders. consumers, advocates and industry members and public officials. the best decisions will be those that are best informed. there's no question that our

processes, including communities we took in the broad input we received, lead to better outcomes on the mortgage rules. throughout the process we heard overwhelmingly that the mortgage market in 2012 was vastly different from the mortgage market of 2006. and required much more focus on access to credit than would be true in more normal circumstances. the constraint of mortgage lending so prevalent today was quite critical to our thinking about how to call into our mortgage rules, especially the ability to repay human world. by paying close attention to this input, and by obtaining and analyzing more up-to-date data, we came to more balanced conclusions about how to define a so-called qualified mortgage and taylor is legal consequences. one further illustration of our approach is our treatment to smaller creditors under the rule. through extensive discussions with committee banks and credit unions, and analysis of performance data from loans originated during the boom years

we can to recognize that most of the traditional lending practices should not be put into question by the ability-to-repay rule. especially where smaller institutions make loans that they keep on their own portfolios, they have every incentive to pay close attention to the borrower's ability to repay the loan. they are more in italy subjected to community norms and their underlying standards did not deteriorate in the days before the financial crisis. indeed, the author lost market share to those engaged in the more irresponsible lending practices of that era. to the rules contain provisions that avoid a one size fits all approach by extending specific protections to meet the special circumstances of smaller mortgage lenders. qualified mortgages cover the vast majority of loans made in today's market. but they are by no means all of the mortgage market. this point is important and it should not be misunderstood your there are plenty of good loans made every year. for example, loans made to a borrower with considerable other

assets, or whose individual circumstances for repayment ability are carefully assessed, that are non-qm because they do not meet the 43% debt-to-income ratio or are not eligible for purchase by the gses. but nontheless, are based on sound underwriting standards and routinely perform well over time. lenders that have long upheld such standards have little to fear from the ability-to-repay rule, the strong performance other loans over time demonstrates the care they have taken and under and to ensure that borrowers have the ability to repay. nothing about the traditional lending model has changed and they should continue to offer the same kinds of mortgages to borrowers who may evaluate as posing reasonable credit risk, whether not they meet the criteria to be classified as qualified mortgages. last week we took another step to address industry concerns about their lending risks of cities with offering fully qualified mortgage mortgage. together with other agents of

explain our join joined viewpoit that we do not anticipate that a credit decision to offer only qualified mortgages would absent other factors elevated and institutions fair lending risk. another issue that some consulted lawyers have raised is whether the law and our role will develop, deliver the a shirt and predictable legal protections even for qm loans. we strongly believe that they will do so. there are two key points here, the size of the qm space and the effectiveness of the legal safe harbor. first, but expanding the definition of qualified mortgage for a period of years to include not only loans that satisfy the 43% debt to income task, but also loans that are eligible for purchase by the gses water in conservatorship, are eligible for guarantees or insurance from the fhfa, if he or the department of agriculture, the qm space has been drawn quite broadly. indeed the small creditor provision expands the rules coverage even more. and though no data is available

to model the precise impact of the 3% threshold for fees mandated by the statute cannot threshold is more than three times the average lender origination fees reported by bank rate.com in its most recent annual survey. and rules provide an even higher threshold for smaller loans. based on the other modes of the qm definition we estimate that more than 95% of the mortgage loans being made in the current market will be qm's. as mark zandi of moody's analytics recently confirmed. some such as core logic will put that much work to get but by their own admission those figures were not intended to take into account the expanded definition of qm that will take effect in january. but instead were offered its projections of a more distant future when the temperate expansion expires in a period of some years. indeed, core logic acknowledges that as long as the timber expansion remains in effect for gse qualified loans, which may

well be for several years, the impact of the regulations this is a quote, will be minor. second, our rule does apply the legal safe harbor to all prime qm loans which affords protection against legal challenges are loans that satisfy the qm criteria. a key point here is that we left little room for legal challenges to whether a given mortgage is qm. we purposefully drew bright and sharp lines to define the contours of a qualified mortgage such as the 43% debt-to-income ratio, or eligible for purchase by the gses while the ring -- everything in conservatorship, or portfolio loans made by small creditors as specifically defined. a large number of industry commenters asked for these bright lines, and we agreed that approach made sense. if those lines were not drawn as sharply as they had been, then much would've remained to be fought out in the courts for years and years before the

definitions were made clear. we crafted throw purposefully to avoid that result which is why critics are now forced to dream up hypothetical factual disputes about whether debts and incomes were correctly calculated in their efforts to criticize the rules were so anxiety about them. the main provision of our mortgage rules will take effect in january, and wit where the tm devoted to the regulatory implementation process. we are engaged in vigorous outreach and assistance to financial institutions. we do this as a joint enterprise and we are interested in learning how we can make things go more smoothly and achieve better results. we believe that the bureau's responsibility for the rules we promulgate does not end with simply finalizing a set of regulations. it's not good enough for us to take the view that once these new rules are published, our work is then done and we can say to financial institutions that your problem -- that it's your problem now. at the whole point of a

regulation is to protect consumers and promote fair, transparent and competitive markets, then we should care and we do care about how well the rules are understood and implement a. it. how operational issues can be more easily addressed, and the amount of effort required. we have shown that we do care deeply about these things. our regulatory intimidation project goes further than simply responding to industry increased because we're doing many times every day. we have also taken more of from the steps to help the industry understand our roles. we published plain language compliance guides that we will update as necessary. we launched a series of videos explaining our rules. ..

to determine how best to educate consumers with understandable the information about how the new rules will affect them. as we become aware of critical operational interpretive issues with our rules we have addressed them. we made a commitment to respond to a interpretive questions to affect implementation decisions in writing through amendments through the officials interpretations and if need be to the rules themselves. we issued various amendments over the course of the year with a single aim in mind. to ensure the effectiveness of rules by making it easier for

the industry to comply. bye addressing and clarifying industry questions we reduce the need for individual institutions to spend time reaching their own on certain judgments on these matters. we understand even though the beneficial amendments have responded to the request to remove obstacles to implementation they have required you to make further adjustments but we do not believe the regulatory implementation project should slow their readiness process of any lender or servicer. congress established a specific deadline for the effective date of the rules that direct us to white and we set the date to reflect the deadline. the ability has been broadly expected since the passage of the dodd-frank act in july of 2010 and requires a little more than the sum underwriting practices that have become standard in the years since the crisis. the general contours of the mortgage servicing rules track the problems that have been identified in this industry for more than five years most of

which were addressed in the standard set by the national servicing settlement adopted in 2011. we believe it's critical to move forward so the rules can deliver the new protections intended for consumers and the certainty that the industry has been seeking. that will encourage consumers to take part of the market with improved confidence about how the market will function even as responsible lenders will be able to conduct the mortgage businesses. we understand this poses a challenge for industry. just as the writing a substantial set of mortgage rules by last january posted a significant challenge for the new agency. had we failed to do so many steps towards the provision congress enacted in title 14 of the dodd-frank act would have taken effect in their own right which everyone recognizes would have been harder on the industry and worse for the mortgage market. we are all in this together and we appreciate the urgency and the resources of the mortgage industry is bringing to bear in

preparation for the date. the oversight of the mortgage for to become mortgage rules will be sensitive to the progress made by the lenders and servicers have been squarely focused on making good-faith efforts to come into compliance on time. a point that we've also been discussing with our regulators. it's designed to produce rules the deliver tangible value to consumers and make the financial markets work better. as we've shown over the past year we recognize without effective implementation this cannot happen. that is why we should focus on putting the rules in place successfully and why we have role of our sleeves and work alongside of you to get it done. when the rules can be understood consistently and applied effectively the will produce better outcomes for consumers, honest businesses and the economy as a whole. at the consumer bureau we envision a marketplace where

reasonable oversight promotes welfare enhancing innovation and consumer protections and business opportunities complement one another and where financial institutions lead by modeling responsible honest practices that benefit consumers and customers. we believe such a marketplace will be beneficial to all of those involved and lead a long-term sustainable financial condition that strengthen the future of the country. thank you. [applause] thanks to director cordray we appreciate his time here today now ladies and gentlemen we are going to move into the next general session. we are grateful to our sponsors and the industry. sponsoring the next session i am

pleased to introduce me to johnson a mortgage and capital market executives that offers over 15 years of progress of operations and sales leadership. he spent the majority of his career in the mortgage states holding high-level marketing positions at home-equity. century mortgage and bank of america. he managed a billion dollar portfolios for the recovery management international and the data exchange. with an executive of hpa software servicing platform that locates far worse for institutional banks come servicers and lenders. ladies and gentlemen, mr. need johnson. [applause] ♪

thank you. good morning. welcome to the third general session restructuring the government role in housing finance. we are pleased to be doubled to sponsor such an important session as this is the number one issue being debated right now in the halls of congress and within the obama administration. igate is the first firm with a global service model. we enable clients to optimize their business through a combination of process investment strategies, technology leverage and business process outsourcing. we have leverage there were deep understanding of diverse business challenges faced by global enterprises coupled with our leadership in i.t., process operations excellence in building the framework. it's now my pleasure to introduce the host for the

session, deborah. she still currently serves as the mba open-door foundation chairman and most recently held the position of the m.b.a. chairman. as a member for more than a decade, dead's service and the industry include servicing on one year as chairman, mba strategic planning committee, the origination task force, affordable housing committee and the secondary and the capital markets committee and cheering both the mba forward task force as was the council on the future of residential mortgage servicing in the 21st century. she is president and ceo had a nationwide lender in colorado. deb has more than three decades of experience in the mortgage industry during which time sheeran her certified mortgage banker or cmb designation.

please give a warm welcome to deb still, cmb. [applause] ♪ >> thanks to nate and igate for sponsoring the session today. welcome everyone, thanks for staying with us and sharing our discussion on restructuring the government will one housing. i'm pleased to introduce our panelists. carroll was confirmed as secretary for housing and commissioner of the fha at the u.s. to part of housing and urban development in december of 2012. she came in march of 2009 as the deputy assistant secretary for multifamily housing programs from bridge housing corporation, the largest nonprofit developer of mixed in, and mixed use development in california where

she was president and ceo. per decades of work and affordable housing development and managing fha multifamily programs and give her a unique perspective on the issues facing the mortgage market. mike is president of wells fargo home mortgage and executive vice president and operating committee member of wells fargo and company. mike is responsible for wells overall business and strategic direction. having joined wells fargo in 1988, might help a number of senior exit of positions before moving to his current role as the president in 2011. mike is a 20 year veteran of the mortgage business and is actively involved in legislation and regulatory policies conducting the mortgage industry. at present he is a member of the mta board of directors and has previously served as chairman of housing policy council and chairman of fannie mae's

national advisory council. the next panelist is william, the president and principal owner of the mchugh company a banking firm that originates and services, residential mortgage loans in the state of connecticut. the company was founded in 1949 by his father, william mchugh. bill has been president since 1977. the mchugh mortgage company originates about 500 million in production per year and has a servicing portfolio of approximately 1 billion. the company's focus is and always has been on lending to first-time buyers. in a market segment requires the company to participate in many government and government related programs. bill serves on the mta board of directors and the presidential order of governors. tom is the executive vice

president of home lending for ever bank. thomas joined ever bank in the spring of 2011 and brought with him extensive knowledge gained in 25 years of the financial and mortgage related experience. before joining ever think, tom led the restructuring of lehman brothers mortgage lending platform and private that come he was the ceo of the mortgage lending business at jpmorgan chase and also served as the ceo or president and ceo of city mortgage. at everbank, is responsible for the growth and fulfillment of residential and consumer lending. let's give our panelists a round of applause for being with us today. [applause] >> so that the date has begun and you heard the comments this morning the future of the government role in housing is the forefront of the discussion in washington, d.c. and throughout the lending community. five years after being placed in

conservatorship, fannie mae and freddie mac continue to the central role for the u.s. mortgage market. fha continues to be the primary source of affordable loans for first-time and low to middle-income families. as the dalai lama of gains momentum there seems to be broad alignment in washington that now is the time to begin restructuring the federal government role in real-estate finance. our experts are here to discuss their views and perspectives on the government role in housing, the important assets of reform and the approach necessary to transition the marketplace from here to there. with that context i think i will start with a question on timing. hello, everybody. it's clearly the dialogue in washington picking up momentum and we heard comments this morning from the secretary

donovan and acting director d'marko. yet you still hear from members of the lending community why don't we just leave fannie and freddie alone clacks let's talk about is the war needed, is the time right, is now the right time and what's wrong with the status quo. >> i think it's important that we start on this journey now. reform is absolutely essential and i say that because and i sure secretary donna van mengin this this morning. we cannot continue with the system where we had privatized games and socialist losses and that has to change. i think the challenge for the industry is we need to figure out with that in the state is

and then we need to plan for it so there is a transition to get to eight but we have to get started and part of the reason i think the time is now is there actually is some very good progress in congress bipartisan interest finally coming together to tackle this issue and i think that we can get momentum on matt. estimate what about a business perspective? >> i think the important part is to think of it in two stages. there is the plan and then there is the process of transitioning. two very different things to read the piece of unfinished business for the crisis as far as transitioning whatever that new and state is that would be over a long period of time. you could break into that to see where the systems of the current gse he is need to be preserved

to allow the housing market to transition to a different in the state. not having a disruption of housing more credit to american families, that kind of thing. but clearly if you had a plan would think the transition to do something might be easier than the piecemeal approach that we are currently having to operate under. >> let me start by reminding myself i would be remiss if i didn't think you for the independent mortgage marketers. you have shown us that challenges can be increased and energy can be provided from an individual but can create a leadership example for all of us. so thank you for all of that. i know you will continue to make

an important contribution and your success after success will continue. to the subject at hand, i guess you start with status quo you don't have a status quo. what you have is a series of annual events that go back to 2007 and they have created a crisis we have reacted so the status quo is a defensive mode. we don't have a housing policy, so we don't need to reformat. that's not meant to be a criticism because i have been around a long time and i've watched a lot of administration's and this is the first administration that has ever had to face the possibility of coming up with a housing policy under the most stressed conditions the moment this president walked in the the

door. so it took a crisis that was once in a lifetime. so we need to have a housing policy pity the status quo is only a reaction. is it the right time? noeth the right time was three years ago but this is the best time to start and housing policy and enactment and address in all these issues is critical. if we don't do it now it will be even more critical next year. >> i think going back to the comments today to of the three primary legs on conservatorship on the status quo i don't think we can maintain so we do need to move forward. we also look at what we are going through today as an industry and clearly any kind of systemic change like that is going to take a long time to play out. we need to do it carefully and plan for it and the transitional

there is nothing to have here. we need to work our way through and i think that private capital is in the wings and if we have the right framework. >> why do you think some might be concerned about reform now? what is going on with their thinking? >> we are going through a tremendous amount of change right now. how can we handle any more change in the current environment? we need to look beyond that this will take time to play out so we need to start laying the groundwork for the transition to come. >> that has always created an opportunity to make a lot of money to do a lot of

transactions and make a lot of money and that has comforted us in a great time of stress but that seems to be behind us so now it's the new vehicle's ownership that needs to be put in place. >> you said there are pieces of the infrastructure that need to be observed. >> everybody has grown accustomed to the way the world operates. it is by far the best way for housing finance to operate and somebody needs to be in position of taking a credit risk. as we have seen men taking the risk in front of a tax payer is a butter delete a better model of moving forward on conservatorship which is a

definition of a kind of holding pattern. the taxpayer, every dime that is being taken. that isn't a sustainable way to operate in long haul. >> do you have anything to add to that? what do you believe needs to be preserved? >> the most and dramatic and permanent impact that the creation of the secondary market and moving to a leadership role in our country has been uniformity. when i started in the business and commercial banking 40 years ago there were 187 banks in connecticut that meant there were 187 notes and appraisals that has created a level of quality that did not exist prior to that. we didn't have as many crisis

but it created a quality and of course that uniformity has created a flexibility that addresses that whole concept of securitization and accommodates it. that's the most important thing to me that has occurred as someone in the field originating , but it also has helped us to altogether as a nation of lenders and that has got to be preserved. we can't go backwards on that. we have to preserve that and then of course the organizational structures and methods of doing things as well. >> if i could add to that there is a two page document that maps out the case for the gse reform and more importantly on the practical lessons it talks about

the elements that have to be there for the future and some of the transitional steps that could be their right now and most importantly it designs a mechanism that works for all the lenders large and small. if you think about with the lenders do to serve customers up front and what we rely upon on the different system is a different entity and a group of people in the management team that takes the loans that we are originated and moves them into the secondary market and takes the credit risk and all the process they pose with them. sometimes if you think about lenders to what we do. they are the conduit to achieve the movement and the securitization market preserving the basic structure and mechanism of how to operate and they can easily be done. >> they've described a couple things we could do. would you like to touch on a couple?

>> i think the point are bound up front is an important one and a model we already have taking a risk on the highest loans to begin with and moving further to the next step so the risk sharing that we have in place today that's been discussed will add to the front end to allow the lenders to create a more competitive environment and leverage platform that's already there. >> we were in the meeting and you are rich in immediately centered as a good step to take. any other steps that you put first? >> very short term they got the issue tactically we have the issue of fannie mae and freddie mac security and what that means for the marketplace. that moves itself into the solutions that are being talked about in congress to move towards a simple business model where we have a single security

and separate from a single security concept you have the securitizations platform as a technological means. the work towards solving the hearing problem of the differential security and what that means moving towards the notion of a single security that all issuers basically would deliver into. >> you think we could move into a single security without disrupting the market to match before the full reform? >> it needs to be a thoughtful design and certainly be fought through over a time horizon that accomplishes the disruption. i think that is all very possible. there is a variety of ideas that surfaced with some leadership shaping that such that the market can move in that direction. the biggest ingredient right now

is the leadership gush to shape the solution that needs to ocher and you can see freddie mac security issue continues to diminish so what is not getting done is largely already moving in the direction of single security of sorts through natural market forces. >> interesting. >> the one thing i wanted to add that can and should be done in the short term not transition is some work that we are doing and director d'marko mentioned this as well, creating an environment today for lenders to be able to feel more confident about the rules of the road with their it

is fha for gse so we are engaged in that process as you know with a group of lenders trying to work together to define the materiality and really put forth a new process moving forward. we are starting with announcing tomorrow a consolidation of a thousand mortgage letters into one single document we are putting out as a draft to get feedback. we are starting a new process that's just a chunk of it by the way, the origination process but those kind of steps can be taken today to create a little more certainty in these uncertain times. >> how do you think about deciding the role in housing finance as we think about the

second marketing entities that today we call fri and fanny? >> there is always going to be a role for fha for both traditionally underserved borrowers and that includes first-time home buyers as well as to play the countercyclical role that we did during this crisis. it is not clear how much the future entities since we don't know exactly what they will look like what kind of triggers the will be for their environment as well but i do think there is a role for fha and that going forward. so, should our general appetite in normal times be less than it is during this crisis? absolutely. and there are levers i think to create that situation in terms of the loan limits for fha verses the market in general

going forward. but i think we have to look at how long term this overall system will be but i think there is an ongoing roll. >> so the chicken or the egg do you define what these new entities to and then fha picks up what might not be covered or do you start by deciding fha's mission and decide around that? >> that is a good question. i would to say divided this way which is a little bit different than the way you suggested that chicken and egg might be. there are some things congress could do today that fha needs no matter what. some of these things we have been asking for for a number of years including clarifying indemnification authority for all lenders being able to terminate on a national basis and not just geographics so simple things that i think there

is full bipartisan agreement on. we think those things need to have been urgently no matter what is going on in the rest of the housing financing system around us. when you then talk about issues such as what the loan limit should be i don't think if fha goes first and you look at what the rest of the system looks like, i think the need to go together. >> any other thoughts on that? >> the idea of fha having to position itself into a newly developed secondary market to me would be a real disappointment and a disservice to the american people. the administration as with any needs to define what the fha is going to do and to whom it is going to provide service. we know we need that as a part of the bolstering of our middle class which has