>> the confusion continues. so it is fitting we're here today in d.c. so we can be heard loud and clear. we are here to call and policy

makers collectively to recognize the collective impact of the rules, regulations, litigation and enforcement action because at the end of the day we are putting the american dream at risk. my hope is that maybe this time weekend strike a balance together, constructive, and it's up policy politics have to make. working-class towns, hispanic american african-americans, for some homebuyers, single parents trying to raise the kids who want to own a home, we end up creating a perfectly risk-free safe and sound system and that will be the system for those who need the help the least. there's no doubt there's conflict and rulemaking. this is hurting the return of private capital. policymakers quite frankly can give lipservice to the desire to bring back private capital because the actions clearly are working against that return.

so i'm asking one more time for policies and the administration to please pay attention. help us protect the american dream. let's get this right. first, act on our call for coordination and transparency and policymaking. let's create a national policy coordinator for brings the regulars together, identifies past overlaps that have been created by rules that have been introduced and work in a constructive basis to identify those going forward so that we don't create unintended negative consequences. number two, act on our call for greater transparency with fhfa, freddie mac and fannie mae the industry need seven opportunity to wait on major policies before they occur. drops in low limits, all that does is great affected and that leaves nothing but 43 independence in a queue. we need to make sure we get these ballots is right in coordination with each other. we ask this industry come together. support the five transition steps that we've laid out that's

available on our website, available here at the conference that will ensure a smooth transition to a sustainable, vibrant and inclusive secondary market. never been more important to work together. our time here this week to rally our influence been smart policies that will fuel the housing recovery instead of holding you back. we'll note the real estate finance system can be outlined if policymakers work with us rather than holding us back. it's time for leadership in washington, it's time for commonsense and cooperation to return to this government. it's time for policymakers to work with the experts in the industry to rebuild a system that works for the next century. but perhaps what's most important here is for us to stay together as an industry. if we don't say a line in our objections, if we splinter, the outcomes will only get worse. a loud, powerful voice speaking as one defending the american dream is what will make our

efforts more successful. we are working hard on your behalf every day at the mba. our energy never wanes in our efforts to fight the fight to protect the american dream of a safe and sustainable home. together, we are the mba. together, we are 100 years of strong and we have you, all of you out here, this diverse set of stakeholders all involved working to defend the opportunities for futures to come. let's not let them down. thank you. [applause] >> and now to lead off the next sense because the conference, a great pleasure to have my former boss and an absolutely amazing

individual, secretary shaun donovan. january 26, 2009, he was sworn in as the fifth u.s. secretary for housing and urban development. fifth? okay. in just over four years, shaun has had a variety of accomplishments. he is referred -- strong, sustainable communities, prior to his appointment by president obama and the senate, confirmed become secretary of housing, shaun was commission of new city department of housing preservation and development. he created and implemented hpd's housing marketplace plan, the largest permissible affordable housing plan in the nation's history. he also worked in the private sector. he was very involved in financing affordable housing. he was a visiting scholar at new york university. he wrote about the preservation of federally assisted housing. during the time he was an active member of the mba. he served on the multi-film

housing committee and the acted as fha commissioner during the clinton bush transition. i will tell you that having the opportunity to work with shaun was something that i will always cherish in my life. shawn is one of the most sincere, hard-working, committed activists for a good positive outcome and housing going forward and it is really greatly appreciated that he takes his time to come and address of his body at summit of our conferences and other events. so without further ado, let's please welcome with a loud applause secretary shaun donovan. [applause] ♪ >> first of all, let me thank secretary of state john kerry for that warm introduction --

[laughter] i mean, i'm sorry. let me thank dave for that incredibly warm introduction. as you just heard, they need is someone who tells it like it is, and he did remarkable work in service to his country at a time of great crisis. he continues to serve his country well by telling us in washington what's really happening, what we need to do, what we need to focus on, and he continues to be a tremendous partner and leader for all of you. let me also apologize that the real shaun donovan could not be here this morning, and so i, his father, will be filling in today shaun is still trying to find the easter egg roll over at the white house, has not been able to come and i'm sure he will get over here as quickly as you possibly can.

let me read his remarks though. and i want to begin by really focusing on how important this organization, the mortgage bankers association, has been in this time of crisis. you played a critically important role in our economy, our nation, and it is such an honor to be here this morning to kick off your annual conference, especially as you celebrate this milestone anniversary. i know that the members of this organization have seen some extraordinary things over the past 100 years, but it's hard to imagine any period quite like the last five years. back in the fall of 2008, we saw lehman brothers collapse. and i will never forget sitting in that famous the bullpen that

mike bloomberg set up at city hall in new york. we were watching the giant television screen that get set up, and usually on normal days, taking on that screen would be how many potholes have been filled in the city of new york, how many lights were out in various places, all the major metrics he would measure for how the city was doing. very, very bloomberg. but on that day the entire screen was focused on cnn, on the floor of the house of representatives, and we were watching as the vote was being taken on the first financial rescue package. and at the very moment it became clear that that vote was going to fail, mike bloomberg walked into the bullpen and said four words i'll never forget. the world is ending.

indeed, the events of that time led to the worst economic crisis that any of us have seen in our lifetime. when president obama took office in 2009, the housing market was in freefall. home prices had fallen nearly 20% from year before, the largest when you drop ever measured. roughly 3 million borrowers were seriously delinquent. construction projects and plans came to a halt. causing the industry to lose 100,000 jobs a month. across the board we saw dramatic declines. and, of course, these drops represented more than shifting numbers on a spreadsheet. they represented peoples lies, savings, and struggles. so when the president and i took office, we set in place the number of priorities which still guide us today. one, to provide immediate assistance to those in need. two, to work with public and private sector partners to strengthen the housing market and help fuel and overall

economic recovery. and three, to ensure that a crisis of this magnitude never happens again. so let me start with the first goal. providing immediate assistance to those in need. when i last spoke at your annual conference in 2011, i told you about a number of initiatives we had undertaken with your partnership to help families and heal the market. and although the crisis has eased, i'm proud to report that we together keep pushing for progress. back then i told you that we have help fight .1 million responsible families stay in their homes through mortgage modifications. today, that number is over 7 million. back then we had just launched hard to point out. and the time since a number of homeowners who refinanced through the efforts has soared from 400,000 a 2.8 million as of

july. i also mention our neighborhood stabilization program which addresses the foreclosed and abandoned properties that often hold back communities trying to rebuild. today i'm proud to say that $7 billion has gone to neighborhoods in all 50 states to refurbish those properties, turning the light into progress. in fact, in more than 70% of those neighborhoods vacancies are down and home prices are up compared to their surrounding neighborhoods. and during the most trying times, the federal housing administration stepped up to give capital flowing and stabilize the market. of course, taking on such a big role carried costs, and fha recently to committed toward appropriation of $1.7 billion to close out fiscal year 2013. but let's be clear. this does reflect the mmi fund's current health. this was an accounting transfer

that is not yet caught up with reality. it's based on the housing market more than a year ago and doesn't reflect policy changes we've made since then. in fact, fha's strength in underlying standards and its portfolio resulting in dramatic improvements since this time last year. a 15% drop in delinquency rates, a 20% drop in foreclosure starts, 26% improvement on recoveries, and more than a 90% improvement in early payment defaults. fha has nearly $50 billion in liquid assets, including more than 70 million added in the fiscal year that just ended. it continue to provide a wide variety of qualified buyers with the opportunity to become homeowners. through these efforts and more, we're sending a clear message, that even as the financial crisis becomes more distant in our nation's rearview mirror the obama administration's commitment to our recovery will never waiver.

and in the larger picture, these actions combined with leadership like yours has helped write quite a comeback story since 2008. sales are up, prices are up, construction is up, and optimism is up. in short, so many critical trends are going in a positive direction, and i want to thank each and everyone of you for the role you played in this growth. you have to be creative and resilient in the face of incredible challenges, and i'm sure that you're going to continue to be as you face the challenges that lie ahead, worker a decline in rising -- t we have to together to make sure to all responsible americans. but through it all you have more than earned the right to highlight your strengths with your conference theme this year, 100 years strong. and we're determined to work with you to ensure that the best

years are ahead. there are, obviously, key building blocks to achieving this goal. empowering families with the tools they need to succeed in today's housing market, making it easier for single-family lenders to get your quality products to those ready to buy, and to multifamily lenders supporting your work to develop quality, affordable housing. we're doing this in a number of ways. first, hud is working to give families the tools and support they need to make the best choices in today's increasingly complex financial system. as we all know, a significant cause of the crisis was that many buyers simply didn't know what they were getting into. that's what in the last four years, hud approved housing counselors have worked with more than 9 million families oath in the prepurchase and post purchase faces by giving borrowers access to reliable and unbiased information. they will make better decisions

and the entire market will benefit. of course, knowledge is only one critical component to successful homeownership. another factor in perhaps the most obvious is putting more money in peoples pockets. and that means jobs. the good news is that american businesses have been growing for 43 consecutive months resulting in 7.6 million new jobs. and as budget talks evolve over the next few months the president will continue to fight for investments that will grow our economy and create economic opportunities. we need your help to make sure we get a sane resolution to our budget challenges in the coming months. while doing so, we are undertaking other efforts to relieve the financial pressures facing the american people. literally just a few thousand dollars can make a huge difference and helping families secure sustainable housing. that's what makes the affordable care act so important so all of

us -- to all of us in housing community. to particular reasons. one, the less the american people have to spend on health insurance, the more they'll have available for housing. two, we all know that a sudden surge in medical costs can lead the families missing payments and losing their homes. now, the good news is the first few weeks of enrollment has seen an enormous interest in affordable health insurance. 700,000 applications for health insurance have been submitted nationwide. but, unfortunately, as we've all seen, the website has not been prepared to handle that volume of interest. the president has said it will get fixed in the short term, and i know he means business. but in the long-term we know that families will have access to affordable health care and that the aca is paving a path that will save lives and money, and that's good for all of us. another effort that would be

good for our pocket book is immigration reform. on the most basic level we all know that the system is broken and needs to be fixed. that's why last week the president once again called on congress to pass comprehensive reform. it's good for our country and it's good for the housing market. homeownership has long been viewed as part of the american dream. one of the outcomes of fixing our broken system is a stronger housing marketplace. from 2000-2010, immigrants accounted for almost 40% of new homeowners nationwide. that's a lot of demand for your products and services. so expanding the circle of opportunity for those who are ready to own creates incredible benefits. the president stressed that it's in all of our interest to get this done. so let's do it now. it's also in our interest to shape an environment that encourages good lenders to get the quality products to credit where the families. unfortunately, as you know better than anyone, and as dave

talked about, one of the major obstacles that's 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've taken a lot of steps that were, in my view, necessary to restore confidence and ensure that many of the bad practices that caused the mess were eliminated. one of the outcomes is that too often the rules of the road were not clear enough, and that led to a tightening of credit. according to the federal reserve from 2007-2012, mortgage lending to borrowers with credit scores over 780 fell by a third. goes 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, this imply 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 received since the first proposal in 2011. you told us it needed to be refined and we listened. now i'll rule of which greater complexity and overly restrictive down payment requirements that could serve only to exclude creditworthy borrowers. some of our critics have called this a dilution of our world. but as you know, qm itself is a very strong measure, as i'm sure director cordray will confirm later in the conference. we are 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 are 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 1000 mortgage lenders, housing notices, and books and other materials, we couldn't agree more, and we are taking action. we commit 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 for your review tomorrow. the language will be more clear. you will be able to find what you need quicker. 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 the product that you can really use. that's why we are changing our process to support the 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 to hud.gov to check it out when it is released tomorrow. in the meantime, we have made real progress with you and other stakeholders on our perspective quality assurance framework. we want to ensure fha has a strong and consistent but also

transparent and timely enforcement process. our primary objective is to ensure that fha has a quality assurance approach that doesn't hinder or discourage lenders -- lending the targeted population and to promote a review, our business partners. reducing uncertainty will enable access to credit to prospective homeowners underserved by private capital. and we will 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 credits 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 presidents 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 and accelerating our housing market's growth. but we all know that in addition to recovery, we've also got to ensure that a crisis of this magnitude never happens again. all of us in the administration have already been working towards this important goal, and the president is eager to take the next step towards reform. naturally this is going to require action from congress. add-on know what you all are thinking, after the recent shutdown, what makes shaun donovan crazy enough to think that there can be movement in this area? when you look at the shutdown and set your sights past all the politics, nobody one. it's clear that while the

brinksmanship doesn't pay. so moving forward, i'm hopeful that partisanship will give way 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 housing act of 1949. ed brooke and walter mondale worked together to produce a landmark housing legislation decades later. and similar bipartisan efforts have sprung up in 2013. earlier this year, a 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 of us 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 i why steps like i proposed to her in rule are so important t. they will go along with anything 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. by putting private capital and a

first loss position, we can also ensure that taxpayers are never again on the hook for bailouts, which is the presidents 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 will do this by making a smooth transition of assets, the people, their ideas, their infrastructure as part of governments new limited and targeted role. it's a role that should be explicit, not the implicit role that fannie and freddie have before. and as we make this transition, we remain firmly focus 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 ensuring access to safe and responsible financing like a 30 year fixed rate mortgage. doing so will increase

confidence of long-term investors in mortgage-backed securities so that 30 are products will be offered in both good and bad times. this also means shaping a competitive marketplace by giving community banks and smaller vendors the same access to the capital markets as the big banks. i just 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 audit the extraordinary contributions that mba has made over the past 100 years. you've made lasting contributions to communities and our nation, and i commend everyone of you. now, we also in addition to

looking back need to look forward. in so many ways the next 100 years will be built on the foundations that we shape today. so we've got to work together to ensure that this foundation embodies all of our greatest hopes and ideals. that means continue to help struggling homeowners turn the page 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. that means eliminating uncertainty so that credit and go to millions of buyers who are ready to own. it means finally getting housing finance reform done to ensure 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 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 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 100 year anniversary. thank you. [applause] ♪ >> thank you, secretary donovan. good morning, everyone.

we at transixteen are pleased to sponsor this morning session and help kick off india is 100 anniversary annual convention. indecomm global services is a leading business process outsourcing consulting, learning and technology solutions provider to clients around the world. these firms access deb's 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 specially challenged by greater regulatory compliance and quality control. they need ways to try new, tough, dynamic environment, and indecomm is helping mortgage companies do just that. our quality control solutions mitigate risk, a top management solutions, and enhance efficiencies. our mortgage learning solutions developed through the acquisition of mortgages you, helps manage clients and our

sourcing solutions create a very will cost model for firms of all sizes. these four pillars, quality control, document management, mortgage learning and outsourcing are the cornerstones of a business model to deliver relevant solutions to the mortgage industry. our guests this morning is no stranger to the financial services field. many people within the mortgage industry look at lew ranieri for guidance and insight into the marketplace today. he serves as chairman and president of the lew ranieri company and incorporated, an adviser a measure of private investment. and he is the founder and chairman of rendering partners focus on financial service opportunities. he previously was the prime originated 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 roundtable 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 of society, and was subsequently conducted into the 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 a distinguished industry service award from the american securitization forum. ladies and gentlemen, please welcome mr. lew ranieri.

[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 this 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 100 years, and no, i didn't attend the first meeting in 1914. close but not quite. being serious, i've had the good fortune to be active in this industry 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. as was our former president deb still. they define hard work, leadership and the leadership that built this organization. i've obviously be remiss if i didn't mention my very good friend david stevens who has done a terrific job in very difficult circumstances. while so many industries and professions have been replaced or displaced over the last 100 years, this industry remains vitally important despite the challenges of the last few years. housing remains critically important. it's important to stable communities for formulating and vacuum leading 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 require experience, insight and vision to almost seven years ago i participated in a housing forum sponsored by what was then the office 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, institution or otherwise, to actually quantify the value and the risk of the opportunities available to them. while of 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 its leftist. 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 an and a half million foreclosures and still counting, the damage is deep and severe. 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 to simple questions. who will qualify for the housing finance system of the future? and, who will be excluded? i recognize that homeownership is not a right and that homeownership is not for everyone. that's a very rational proposition. but denied credit by arbitrary means to millions of aspiring and capable homebuyers 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 individuals affected, but for the entire social fabric of this country. the impact of the current credit restrictions will go far beyond individuals and neighborhoods, and adversely impact the entire economy as housing and its multiplier effect has installed a necessary. when you read the papers and you look back over the last 12 months, we've had a great we find them, if 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 underwriting bear virtually no resemblance to what was taking place during the bubble. yet we seem trapped like they're 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 do is to allow unfounded fear of the that practices which are now largely statutory prohibited to drive into current market decisions or policymaking. we've done what is necessary for prohibiting both bad practices and products. now we must move forward encouraging letters to utilize proven underwriting techniques along with, by the way, good judgment. as i stated at the outset of my remarks, i think it's critical

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 scores, six and 50, 700, with both income and credit history to successfully fill the loan obligations and to 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 six under 20 fico with a 5% and was and ensure below. today, 680 is the new 20 and that might require 5% down to get more than -- more than 5%

down to get approved by the lender. we need to ask how to 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 give individuals home ready. fear should not be the driver or exclude millions of potential homebuyers. another part of this credit restriction is credit overlays. ..

the result 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 everybody is afraid that they will be drawn into this black hole, everybody'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 a

sick facts. even when credit was more available to low income and first time home buyers, it was not available to everyone. even then homeownership was more accessible to wide, higher income traditional housing , households than minority households. according to recent data, the same data that david spoke of, the historical pattern of white americans having more success in all of -- all of the races apply for receiving homes continues but the gap is much wider. in a paper just released by the federal reserve paper just released, the percentage growth and purchase originations between 2011-2012 was three times higher for whites than for african-americans, and two times higher for whites and hispanics americans. but the most revealing, in my opinion, and it's another version of what was said, the

raw low numbers are sobering. in 2012, they were 38,702 conventional loans purchases to african-americans, and 82400 hispanic americans and a slightly more than 1.6 million. let me say that again. 38,702, to african-americans, 84,400 hispanic americans, out of 1.6 million. ladies and gentlemen, today's mortgage system cannot simply serve and economically well off or single demographic. we live in a diverse society with a range of incomes and common desires to achieve homeownership, and we must build a mortgage finance system. you know, housing finance was always what we called a virtuous cycle, starting with the new marriage or young people buying a house, more mature families

trading up, and senior citizens and 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 our families of color, women, young people. and it is that very group that is the most disadvantaged. if you cut off the front end of the cycle, eventually the whole system collapses. regulators are aware of this year the consumer financial protection board diligently is working on this difficult statutory language to write rules. that cfpb 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, erect a quarter has

said on more than one occasion that if lenders have demonstrated an ability to successfully originate not safe harbor loans, they should. i wholeheartedly agree. but that's not what is happening or likely to happen. today, the market environment, this environment of fear of litigation, fear of name reputation means that the best we could 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 the qualified mortgage box correct. the bigger the safe harbor segment, the more robust the market. which translates to a stronger and more vibrant economy. the new normal is safe harbor. so we should avoid unnecessarily restricting 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 non-agency execution. for a first lien transaction the annual percentage rate allows for safe harbor is 1.5% over 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 loans in many 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 exceeds 3% over the apo our and becomes non-qm and don't get made at all.

so why we keep talking about less government we keep writing rules that tremendous it disadvantages anything but a government loan. the second problem is 3% cap on fee. additionally, the rule as written disadvantages mortgage bankers who utilize affiliated title relationships in the 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, but it was limited again only to the agency loan. loans submitted through one of the agency automated underwriting systems are not subject to the backend, to the 43 dti. the same loan of nonagency would not be safe harbor. i would argue nonagency loans

should receive the exact same treatment, and the so-called patch which was only temporary. neil budde and clinton can't in the same fed report noted we cannot overstate the importance of the patch given the fact that 33% of african-americans had backend dti's over 43, while whites have 20% above 43%. although the patch affects african-americans, the issue is true for the front end of the housing reduction. women, women don't earn as much as men. and whether cut always comes chance to disadvantage more women than men. young people, newly married people. with this much disparate i think we need to consider extending the so-called patch to the nonagency market, we're going to

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

this year, and the volatility in the market is extreme. while there were really good times with aaa credit at 100 basis points over agency, recently they've been trading as wide as 450 over comparable agencies. and in truth, there are, in my opinion, five consistent buyers, large buyers of the aaa peace. some recent, you're wrong, there's 10. okay, i give a. there's 10. it just to be hundreds. so whether it is five or 10 for the aaa, you don't have much of a market and some recent this and the spread is 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 were going to go put them where? 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. 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 a develop make no sense. i mean, if you take the problems of the bubble period, bald and loans, and to take the experience of that period and to put it in your rating model, it's almost impossible to make the elevations work. by the way, all of that stuff is now a legal, so what's the point of putting it in a model? when we did the qrm and qm, for congress, iran a report for them when we were developing the qrm and i did a very simple thing. in the worst spirited, in the six, seven, eight 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 of 1986, which was the benchmark for all mortgage security ratings. of course, that makes no sense. it will never make sense if you take all that other stuff and put it in the model. you can get elevations think 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 moving of risk to achieve a

more balanced system that can serve a wider cross-section of americans. i'm obviously are taking a pot shot at risk based pricing because of where logically it brings you. pooling of risk is a basic concept widely utilized in health care and property protection as will mortgage finance by grading a large pool of stronger credit, they can carry a broad universe of pool of loans including weaker limbs. meanwhile, creating a single pool that has very low delinquency's and very good performance. now, if in the new system we are 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 is 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. and less the government creates the pool or at least cards with this creating superclean stuff, what you're doing is creating another privileged class with the governments credit. in addition, i'm telling you i'm out of time, so i'll go as quick as i can. in addition to greg moore lending opportunities we need to do a better job of preparing the next generation for homeownership as well as a better job of keeping people in the homes they already have. as i said, homeownership 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 which helps and guideposts along the pathway.

let me suggest three things that we should be doing. the first thing is we should experiment with the rent to own financing product. this is something i've been talking about, in fact, we talked about this seven years ago. three years ago someone you remember after treasury help function, i said part of the solution had to be -- we gave birth to a whole new industry. the other part of that product was single-family rental with an option to purchase. because when you single-family rental with an option to purchase, the rent to own provides the renter, the prospective home buyer the ability to team led a down payment, worked 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 have to take single-family stock and rent it to a group of people who tend not to use it.

far longer to time. but when you make it red with an option to purchase, you get a very different outcome. next, i'd like to see his design a very robust program that puts individuals and families on a pathway to successful homeownership. homeownership programs cost money. so how do we pay for a high-tech homeownership program? most argued 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 homeownership program, that transaction should be paid for by the system broadly such as adding a couple of basis points to a mortgage servicing contract. there's justification for doing it. we have a very large disadvantaged group of potential homeownership 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 the spoon feeds them, that helps them, i think is in everybody's best interest. now, i've got this down dramatically and it is going to run 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. we can't talk about 90% plus loan guarantee. you heard shaun. well heard shaun. welcome yet the more good of all these conversations.

great. tell me where the rest of the stuff is going to go. a mortgage finance system and structure that utilizes fully to expand opportunity and impose a structure that is a risk-based price that we again create privileged classes. number four, a system that builds and pays for a pipeline for future homebuyers that are willing to save come improve the credit, and qualify for homeownership. and yes, i want a system that access is homeownership without losses. i realized 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 byproduct, 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. is bad social engineering, and it's bad politics. thank you. [applause] ..