>> we believe this will be a win-win for our hardest hit

communities and for our conservatorship objectives. we've also received a number of inquiries about changing the eligibility requirements. because the number of borrowers we could add by extending the eligibility date or by changing performance requirements is relatively small, we have decided not to alter eligibility parameters. fhfa is, however, working to retarget our h.a.r.p. outreach efforts to the approximately 750,000 of borrowers who already qualify and would financially benefit from refinancing under h.a.r.p. we are exploring outreach

efforts designed to gain the trust of these in the money borrowers so they will take action to refinance. it's already in their financial interest to do so. fhfa maintain strategical also stands to fannie and freddie's multi-family loan businesses. this is a critical part of the 2014 strategic plan, particularly in light of the increasing number of households who are renting instead of owning in recent years, and the fact that affordability continues to be a significant turn for many households. consequently, our 2014 strategic

plan does not require a reduction in fannie and freddie's multifamily production levels, and it provides additional capacity for affordable multifamily projects. consistent with safety and soundness, our affordability focus will include multifamily lending for small properties and manufactured housing rental communities, much of which takes place in world communities. -- rural communities. we expect market competition in 2014 to actually result in lower multifamily levels for the enterprises, but fhfa will not mandate that the enterprises prematurely shrink the multifamily footprint.

i'm on to the second. [laughter] strategic goal number two. reduce taxpayer risk through increasing the role of private capital in the mortgage market. reduce taxpayer risk through increasing the role of private capital in the mortgage market. fhfa's second strategic goal, reduce, is focused on ways to bring additional private capital

into the system in order to reduce taxpayer risk. we have reformulated this goal so that it no longer in falls specific steps to contract the enterprises market presence which could have an adverse impact on liquidity. instead, the reduced role focuses on ways to scale back fannie and freddie's overall risk exposure. this approach allows us to meet our mandates of upholding safety and soundness and ensuring broad market liquidity. while fhfa has reformulated this strategic goal, our strategies to reduce taxpayer risk, build

on much of fhfa's past work in this area. this includes having fannie and freddie conduct additional credit risk transfers for their single-family guaranteed business. these transactions have opened up private capital to share in credit losses which protects taxpayers from bearing all of the potential losses. our 2014 scorecard requires each enterprise to triple the amount of risk transfers in 2014. this will be an increase from $30 billion of unpaid principal balance transfers last year to

approximately $90 billion requiring ongoing reductions in the enterprises retained portfolios. the senior preferred stock purchase agreement with the treasury department require the enterprises to reduce their portfolios to know more than $250 billion each by 2018.

fannie and freddie must develop plans to meet this target even under adverse market conditions. we are also requiring them to prioritize selling their less liquid assets on to reduce risk and take advantage of current investor interests. as their portfolios continue to decline, the effect is to transfer interest rate risk and liquidity risk from these portfolios to the private sector. on multifamily purchases we are requiring the enterprises to continue sharing risk with the private sector, which freddie mac does through a capital market structure, and fannie mae does through a risk-sharing

model. both approaches transfer significant risk to the private market and have had strong performance, even through the economic crisis. we expect these models to continue. finally, another risk reduction priority in 2014 involves private mortgage insurance counterparties. this work will strengthen master policies and eligibility standards for private mortgage insurers. mortgage insurance is a critical source of private capital in the mortgage finance markets. however, as we all know, the crisis reveals severe weaknesses in this system.

fhfa's objective is to ensure that private mortgage insurers counterparties to fannie and freddie are able to provide adequate credit loss protection in times of market stress. onto strategic goal number three youthree. build a new single-family securitization infrastructure for use by the enterprises, and a battle for use by other participants in the secondary market in the future. build a new single-family securitization infrastructure

for use by the enterprises and adaptable for use by other participants in the secondary market in the future. fhfa's final strategic goal is to build a new infrastructure for the enterprises securitization functions. the core of this effort is the common seek a decision -- securitization by form and want to talk about two aspects of this debate. first, after extensive discussion within fhfa and with the enterprises, we have clarified that the agency's top objective for the common securitization platform is to make sure that it works for the benefit of fannie and freddie.

over the last four months we've identified risk involved in transitioning to a common securitization platform and reviewed how to manage those risks. who we found that the cost of many variables involved, the main danger to the csp efforts would be pursuing too many objectives at the same time. since any stumbles along the way could have ripple effects in the $10 trillion housing finance market, there's a lot at stake in getting this right. as a result, our decision has been to the risk this project. moving forward we will focus our efforts on creating a common

securitization platform that can undertake fannie and freddie's current securitization operations. a successful outcome will be a seamless transition from the current in house system that issue new securities for each enterprise to a future joint venture owned i fannie and freddie that operates one system with updated technology. defining the scope in this way acknowledges that building a csp for a future housing finance system that is not yet defined is extremely risky and could add needless cost. this is scope does not mean that

our csp efforts will be at odds with the future housing finance system, or that our process will take place in a vacuum. to the contrary, we are requiring that the csp leverage the systems, software and standard used in the private sector whenever possible. this will ensure that the csp will be adaptable for use by other secondary market actors, including private label security issuers when the future state is more defined. our second objective for the common securitization platform is to move the enterprises towards a single common security, which we believe will

improve liquidity in the housing finance markets. it would also reduce costs to the enterprises, particularly freddie mac, since friday's securities have historically traded at a disadvantage compared to fannie mae's. -- since friday's. adding a comment single security component to the csp scope will require a pitch in a and the enterprises to define the securities of parameters along with a shared contractual and disclosure requirements. fha fa, along with fannie and freddie, have made great progress on developing the common securitization platform, but all the components of the csp, including the common single

security, will require a multiyear effort before final implementation. having defined the csp's parameters as i've described today, we are well-positioned to move forward. throughout this process we will provide opportunities for stakeholder input about our decisions along the way. in releasing fhfa's 2014 strategic plan, my goal today has been to provide a clear sense of direction for the enterprises ongoing conservatorships. implementing these objectives will require ongoing analysis, evaluation and input.

fhfa will proceed with these steps in a transparent way that incorporates feedback and input of the public and stakeholder groups whenever possible. one example of this approach is our upcoming request for input on the guarantee fees charged by fannie and freddie, which we will release very soon. as many of you know on my second day as director of fhfa, i issued a directive to fannie and freddie that they delay the increase announced in december of last year. in our request for input, we will pose a number of questions the agency is considering. and we solicit and encourage

your feedback will review your responses, and will announce a decision later this year that is consistent with the goals that we have outlined in our strategic plans. this concludes my remarks. i want to thank you for your time today, and i look forward to working with all of you as we implement our strategic plan, and as fannie and freddie and fhfa implement the 2014 scorecard. thank you. [applause]

>> [inaudible conversations] >> thank you again, director watt your that was a terrific speech and there's lots in there. i feel we could spend hours on each goal but we'll do our best and take some questions from the crowd as well. i want to start by first saying i'm going to respect -- you don't want to start by legislation which i can understand. something you said that intriguing but after that but you said conservatorship should never be viewed as permanent. i guess my question is i think increasingly likely we might not have a housing finance legislation or at least not for a number of years, and so my question is what happens to

conservatorship where it's now approaching six years, you say it shouldn't be permanent. do you have the authority to into conservatorship? if so, what does that look like? at what point do we say it's over and what conditions have to be met? >> clearly we have the authority to end the conservatorship. it's in the statute. the statute give us the authority to start it, and i think it goes with that, the authority to end it. but the alternatives would not be desirable alternatives, so i think our role and the reason we worked so hard in the current space is to make sure that we have a solid plan for continuing the operations of fannie and freddie, and the federal home loan banks, so that there will be liquidity and deficiencies in the housing market and that we

continue to operate as we have operated without interrupting housing finance in this country because housing finance is such a critical part of the economy to stop or stand in place just simply is not an option. so we will continue it, and i think our goals are consistent with continuing the operation of fannie and freddie in the here and the now. and we will do that and tell there is legislation passed. >> so i guess i think maybe you've already after this. at the end of conservatorship you can see the different things being debated on the hill. but to outcomes, if it happens, if it's not going to be indefinite, to outcomes, one,

fannie and freddie get wound down. another is they simply get, they exist as they currently are, as, they become private entities outside of the conservatorship which is a -- a large share. that kind of final outcome, at this point you don't see how the end of conservatorship looks, or do you? >> i haven't contemplated that. i think all of my focus for the last four months has been in the present and doing what we are doing in the short term, lighting the congress run its course their. and we'll see what happens after that. >> there was a lot in his speech but unless i missed it there was one thing you didn't mention, and i don't know, i would love to get to feeling on that and that is principal reduction. i think everybody here knows fhfa previously said that principal reduction, potential benefit was too small relative

to the known or unknown cost and risk. is there a sense, is this something that fhfa is still considering? what we stand on this? >> i don't know it's past. we have evaluated in the short term and found that there are other things that we need to focus on at the present. we continue to study not only that issue but a number of other issues that i did not talk about in today's speech. told one of the reporters earlier that it would be interesting that all of the things we talked about today, the focus would be on the things we didn't talk about. >> that's my second question. >> i keep this running list of issues that i call my water hose issues. they started out coming at me as one big firehose, and we've separated them into the individual water hoses.

there are a bunch of them on the list that i didn't talk about today, and principal reduction is one of those. does it mean that we are not considering it. just means that we are not ready to talk about it at this point. and that's the same category that a lot of other issues fall into. >> let me take you back to something to talk about which is multi-family cap. i'd like to get your sense of this seems to me like you started your speech by acknowledging her predecessor and mentioning a shift in focus or maybe priorities. does this constitute one of the shifts in focus? not lowering the cap and giving additional flexibility works if so, what is your thinking on the role that fannie and freddie play in affordable housing? >> i haven't thought about this whole focus issue. i think we've tried to make good

reasoned decisions. we tried to understand the history about every decision was made and why it was made. and so i'm not focusing on whether we shifted focus or didn't shift focus. everything that has taken place in the past has created a foundation that allows us the flexibility to make good decisions in the present. we actually think that competition in the multifamily sector will decrease the role of fannie and freddie in that space over time. and we think it will mean that they won't reach the caps, possibly this year. the more important part of it is that there seems to be a lot

less competition in the affordable space, and we want to incentivize fannie and freddie to continue to play that role in the affordable space because people need housing, and they have played the role successfully and with a minimal risk to a very difficult time in the economy. so it's not as if we are increasing the risk, but for us to arbitrarily say, decrease your footprint without knowing that somebody is stepping in to this space, was not something that we thought was a prudent thing to do. >> in your strategic plan to lay out a lot of your statutory responsibilities, and there are many. some don't envy the task.

one of them is that you are responsible to ensure fannie and freddie maintain adequate capital. that's a little bit of a challenge given all the profits are being swept into the treasury. i'm curious what your thoughts on that, is that something you spoken to treasury about or is this going to be current policy? how do they build their capital space? >> i can't control that i don't think. but taxpayers in effect providing significant capital to back to fannie and freddie at this point. so capital has not been an issue that we've had to focus on for a period of time obvious it was a major issue because both fannie and freddie were making withdrawals. their financial conditions have

stabilized, and while a lot of the income in the last two or three years has been big recoveries, financial recoveries, tax adjustments that won't be sustainable in the future, we want them to continue to operate in a sound way. and we are focused on that. we don't spend time about things we cannot control. i'm sure, i would think that treasury would feel the same way, but i haven't had any discussions about that with th them. >> and so another thing you said that intrigued me, i think i'm going to get the code correct, or at least close enough, you said that you goal is to quote

reduce taxpayer risk their increasing the role of private capital. but then right after that you rejected the goal of contracting the enterprises market presence. you want to increase the role of private capital but not contract enterprises. i'm trying to forget how you square those two, and maybe, and then said this is a decision to come so i know you're not announce it now but in my view you could look at an increase in the guarantee fees as either of those, as a contracting of the market presence or entering private capital. how does that fit in those two criteria? >> we are balancing in a number of instances, sometimes what appear to be contradictory mandates. you know, but i don't think it's fhfa's role to contract the footprint of fannie and freddie.

our role is to maintain an efficient credit market. and as private capital demonstrates that it will, into this market, i think you'll be clear that fannie and freddie will step back. but to arbitrarily say that the footprint should be reduced without assuring that there's a responsible way to make the transition to private capital stepping into the space would do serious damage potentially to the housing finance part of our economy. and i think that would be irresponsible. so we are not into doing anything that's a responsible. i hope everybody picked that up -- irresponsible.

spent just so i understand, it enterprises market presence contract due to market forces and revitalize private sector, that's fine but as a regulator speed is exactly what i said in the multifamily space. we didn't arbitrarily contracted them but actually we think this year the private sector will step into the multifamily space, at least in the non-affordable multi-family space in a big way. they are already doing it, and there's no reason for us to think that they will stop, but there's something so we could do arbitrarily that i think we are not intending to do. >> i am getting a signal. i will take questions from the crowd. if you guys need help, i've got plenty more but i'll take questions from the ground. why don't i start in the back

corner. wait for the mic. the rules of the game, wait for the mic, so your name and affiliation and keep it to a question. >> clia vincent with bloomberg news. following up a little on the discussion of the role of fhfa, how does the fact that fannie mae and freddie mac are now posting record profits factor into your thinking about how much they should be helping troubled borrowers and undertaking initiatives to stabilize the market -- mortgage market? is that something that is guiding some of your policy decisions no? >> i haven't looked a lot of profits as a driving force in any of our decisions. i think as i've indicated already the record level of

profits that you have seen are not sustainable. it's clear, and we've said that over and over, they made substantial tax adjustments and they are releasing those now, and we've had substantial major recoveries in litigation that won't be repeated over time. in fact, we are nearing the end of those kinds of recoveries. so i don't think we should let profits drive decisions that we make. we are trying to make responsible decisions. we are trying to increase the availability of credit to credit worthy borrowers. we are trying to do it in a safe and sound way, and not be irresponsible.

and i just, i don't think looking at the bottom line is a productive way to try to evaluate how we proceed. >> while in the back, also in the back over here. wait for the mic again. >> jimmy canducci, affordable housing lives. a.q. so much for the focus on alternative rental and small rental properties because that's the 90% of the market that fannie and freddie haven't been present in. i wanted to follow up on one thing you didn't talk about, the same law in 2008 that enabled the conservatorship also tried to focus fannie and freddie on a portable rental housing in a meaningful way. that just hasn't happened, whether it's fannie mae trying to count the blanket loans on the decoder property on central park west, as affordable

housing, or other devices that they've developed. so i'd like you to speak to how you intend to change or maybe better enforce the mission related part of the economic recovery act. >> i think the first step you just heard this morning is changing our focus to pay some more attention to it. the of for -- the affordable housing goals we are looking at aggressively. they already in place for 2014. will be issuing new affordable housing goals for 2015. so there's a lot of focus on that issue, and it is part of the statutory mandate and the charter mandate, of both fannie and freddie. so we take those mandates

seriously, and, obviously, we think that congress took them seriously, otherwise they wouldn't have written into the law. so we're going to treat them as seriously as we treat every other aspect of fannie and freddie and fhfa's statutory mandates. >> director watt, had a question about servicing. one of the issues we hear a lot from our bridges about contraction in credit not vote on credit but when you service the loan. recently gave -- jpmorgan ceo jamie dimon said he would never want to service a defaulted loan. we've seen a lot of servicing transfers, out of fannie and freddie overton non-bank

servicers, and in recent months we've seen a lot of scrutiny on those servicers. i was wondering if you could comment on some of those transfers, what we might be able to expect in terms of regulation on the non-bank servicers and what can be done to give originators and servicers some certainty that if the loan defaults are going to be able to appropriately service that product? >> this has been a topical and difficult issue for us because there are multiple things that are at play here. jamie dimon is right when he says it's difficult to service a defaulted mortgage. it's easy to service a current mortgage because all that is is collecting and remitting, but when somebody defaults, it gets to be a lot more complicated and there is a growing industry that isn't built up around him that

some of have more expertise in this area than the lenders themselves who tend to focus more on the lending side than on the servicing side. and basel iii has taken a lot of the capital requirements that may be led to some of the lenders actually wanting to get out of this space. so servicers are not regulated by fhfa. they are regulated by cfpb, but not on a capital basis. so there's a shortcoming there. we can control their relationships with fannie and freddie, right? that's the space in which we

operate. and we have looked very carefully, in some cases much, much longer and more carefully than a lot of people would like for us to look, at evaluating when these requests for transfers are made to see, are these people responsible to whom, are the companies responsible to whom the transferring servicing rights are being transferred. what is their expertise? what is their history in this space? what kind of capital do they have these things start going bad? what kind of backup will the lender provide to take the servicing back, if necessary, if

the service or doesn't? to all of those are factors, and will look at them very carefully in making our evaluations. and then sometimes there's a short-term versus long-term competing considerations. short term, the service or might actually to the servicing better. the longer-term concern you are worried about can they sustain it over long periods of time. and we have to balance those. and i think we've been responsible in that space, and we are doing a lot of work to try to develop standards so it's clear the fannie and freddie what we expect when it comes to transferring servicing rights, and then they can communicate that to the lenders that they are dealing with so that they know what to expect when you're

transferring. so i think you will find that we will be doing a lot of work going forward in that area, trying to refine what the expectations and standards are. >> i just wanted to piggyback a quick question off of that, talk about a punchy title but these seem like significant changes. do you have an expectation of what impact it will have on credit over life? >> i have a hope that it will substantially reduce credit overlays and that lenders will stop operating more inside the credit box that fannie and freddie have said they will purchase loans in, or guaranteed loans in, in that space. and based on conversations that we have had with industry

participants, my hope is a positive hope. i don't know when you transfer from a hope to an expectation, but some of them have assured me that if we can smooth out some of these uncertainties that exist in their space, it would translate into reduction in overlays and it would translate into more availability of credit to people who can afford to repay the loans. and that's what we are very much interested in having happened. >> like i said, we have i'm sure both me and the crowd have a lot more questions we would love to ask but we are past our limits i would just like everybody to join me in thanking you once again for coming to join us today. [applause] and if i could ask everyone to

remain in their seats while director watt exits the auditorium, and then will have the other panel set up while he's doing so. >> thank you all so much. [inaudible conversations] [inaudible conversations] >> all right. can you guys hear me? how about now? i'll just talk loud. is that better? good. good morning, everybody. my name is nick timiraos. i cover housing and economic for "the wall street journal." pleased to get into this panel,

starting at the right it is phil swagel with the universe of maryland, work at the treasury department in the torch to the bush administration picnicked them with mike malloy come an executive in mortgage from banc of america. mike calhoun, president of the center for responsible lending. and, finally, mark fleming is chief economist of corelogic. i'm sure there he are very fun faces to all of you in this room. so with that will go ahead and get started. i want to get the panelists reaction to director watt's speech. there was a lot of pretty interesting meat on the bone, and mike malloy, i would ask you first what you think of the changes that were announced late yesterday. you think those changes on representations and warranties are going to make the lender like bank of america any more comfortable in moving credit

overly? >> while i won't comment on specifics of what we don't quite we are still reviewing those, the innocent but i think it's a very positive step. the director said two things about the reps and warrants. first announce three specific items that are announced yesterday for fannie and ready to deliver positive first steps. he also announced they will continue working on the things that have been issued that you mentioned particularly a life of loans, exceptions as those dispute resolutions. those are also very important steps. so i think of it and i think the director said these are the first steps towards this issue, and they are continue to work and i think that commitment from the director is a very, very positive step in this space. >> so we hear a lot much of the policymakers at the fed and senior loan officers have said credit overlays were a key contributor to tighten lending standards. would you agree or disagree with

that premise right now? >> at the bank of america we focus on making sustainable loans to credit worthy borrowe borrowers. and we are out there doing that in the market today. that's what we focus on. so i think, we talk about that, that's what we're looking at. the director talked as well, sustainable homeownership. that's what we're looking today. that's how we focus on lending on our customers, making it sustainable for them. i think as we have moved down this path, mark would be better to talk to the data on this than i would, but we are out there in the market with all of our loan officers making good loans to credit worthy borrowers today and we will continue doing that. >> mark, i will ask you to some people who will make credit easier and they will hear it coming from someone like director watt who was more liberal member of congress and my said oh, my gosh, we're going back to terrible -- is that the

wrong way to think about this? how do you walk through that balancing act, that policymakers are facing right now? >> i'll start by saying as an economist i have to start with a joke. on the one hand, and then on the other. we divide what the credit box requested he carefully in terms of we're looking at the loans that actually got originated. we divide what the credit box along with a number of dimensions. the problem is credit worthiness is defined by the simple things, the c. threes. collateral, capacity and credit worthiness. we look at them a lot of capacity and actually that's the dti calculation and the ltv calculations, actually at or beyond what we would consider more normal. there's an implied well to the point, relative to what? if anyone social to to to thousand six, run.

we clearly know it was probably to lose them. have a hard time doing. when we look across the early 2000s, that celtic these are actually more lax in that dimension. we're at about the right space but the market has moved to the definition of 43. when you think about traditional underwriting practices, put it back in racial well below 43. that's actually a very loose standard by the lending practices. but it's in the credit score. we are such is really tight. in the early 2000s, about 12% of all origination loans in any given month had credit score of 620 or less. today, it's 23%. now the credit box as defined by the creative that fannie and freddie put out, and at least, they go down to 620. they will end at 620 but clearly we are not doing very much lending at that space or even

below it. the reason gets back to what we started with, if there is this uncertainty about repurchase risk one of the best ways to avoid a repurchase is to avoid a default the one of the best ways to avoid the default is make sure you have a credit worthy barware. there's that play that i think is natural tendency we're realizing this expansion of removal of uncertainty will create more comfort to delve further down that credit card. we have to be careful in terms of knowing what is or isn't the right level. and what's normal or not because that's a very complex question to answer. >> the one capacity and collateral we are tighter than even a pre-bubble era? >> we've evaluate and so we're about where report in the early 2000s. ltv we are looser. collateral is one come with lost all that equity. if we weren't losing collateral space, the credit box would be very, very tight. >> same question i posed to

mark. people here are some of these things and they think oh, no, here we go again. fhfa wants to try to reduce the market, you know, i've a feeling you say that's the wrong way to think about this. so why is that the wrong way to think about this? >> so for people who have not had that much contact with director watt before, i think what you saw today was vintage. he both don't remember as much, but through his time in congress his first real involvement with housing was try to tighten lending standards. and for that he was roundly criticized ironically for constricting credit too much. he was the first sponsor of legislation, for example, to impose predatory lending standards on some of the practices that ultimate led to the crisis. and then at the same time he has

been for brought access but only sustainable access. he very much believes that high rates of foreclosure are disastrous for families, communities and the overall economy. so i think one of the things that make him well-suited for this job is that kind of of the road approach that you heard here today, but i think you nailed it on the problem right now is it's hard to make economic sense for lenders to make loans that have a substantial risk of default if they are not only, uncertainty but, in fact, the practices of the gses to be quite frankly overly aggressive on buybacks. now, they were sold lots of junk that very much correctly was put back through the crisis. so let's distinguish between those. but mortgage underwriting is

challenging, and at times they have publicly taken the position that a lone file with any defect whatsoever, regardless of whether it has an impact at all on the performance of the loan is a legal basis for them to put the loan back on the lender and forced them to eat the whole cost of a default. and particularly it's a challenge for large lenders but it's a near impossibility for small lenders but if you're making 100 loans and you've got a risk that three or four of them can come back to you and you eat half of the loan amount, you've lost the entire profitability for that business. i think it is an appropriate place for him to focus at the outset. i think it was one of the main bottlenecks. it's not the only one but it was one of the main ones and every pleased to see him address that today. >> phil, i want to bring you in

here but one of the clips i found interesting in the speech was he took that build and maintain and contract framework that the fhfa has had before and preserve it but kind of changed, the contracted to reduce. contracting the footprint we're reducing the taxpayer risk. what do you think of that move given that over the past five years we really haven't seen any kind of resurgence of either private mortgage-backed securities in the jumbo market, you know, fairly limited to kind of the cream of the crop mortgages? >> i thought symbolically it was the most important thing he said was that change, the doubling emphasis on maintain. there's a sense in which the regulator was pushing the enterprises in a certain direction to get them ready for the future system an and a variy of ways we saw that is a slow down, my mental image it is shifting from fourth gear to

first or second gear or maybe into reverse, to use the card metaphor. so certainly the multifamily reversed formula but not reversed, but close to it. the gses of course arnold. symbolically that's what we are seeing much more of an emphasis. it means you see the indices and in the, securitization platform out in bethesda what is going to be to the benefit of an effort which, of course, makes sense as a joint venture but rather than setting the stage for future system with competition and entry. the second part, the resurgence of private label such a decision or balancing lenny i think i tht goes very well with the credit box issue that everyone has discussed. and tilda is a certainty on the warranties -- the reps and warrants and the fair housing, lawsuits and the state attorneys general, all the variety of factors that is inhibiting the

resurgence of private lending is going to be tough to restart that and is necessary to have a better system. >> mark? >> i just think to leverage the .1 of the most interesting things about what he presented tuesday was in that, when you can't reduce our contract. i think we always let the assumption that meant the gses would not be involved in the origination and take a decision of love, private-label market. he actually twisted or change that to mean i'm going to reduce the credit risk held by the government but that doesn't necessary mean that i'm still not going to participate heavily in the production of a lone. so you go back to the idea of the market maker on wall street, for every stock there's a market maker, just make sure there's liquidity in that stock and figure out how to buy that even when the bid-ask spread gets big. he's taken that approach now which is i'm going to reduce the credit risk held by the gses but i'm not necessary going to pull myself out of the market

and allow the private-label capital to participate in the securitization investor process. process. process. i think that's a change baby for the good, maybe for the better because at this point that doesn't seem to be a lot of private maple or private market interest participating in the old way. even if we thought about the sheer size and skill of the market and some suggested that may not be enough capital out there to do it. that's a big shift that we've seen is this concept of like the gses acting more like a liquidity market maker and the goal is to reduce credit risk through these processes. >> on the point and i want to ask you this, like calhoun, accused of there was an assumption that private-label would come back ugly. is also an assumption that some point down the road congress would perhaps more easily than what it's proven to be the case advance some kind of bipartisan legislation, senate banking committee looks like it's going to pass a bill this week but not with enough of a majority to propel it through the senate this year.

and so if that person is true that we're not seeing much of a return in the private-label market, we are also not seeing enough of a bipartisan consensus to push through a reform bill this year or even maybe in the next room of congress, where do you think that leaves the fhfa in terms of possibly advancing administratively some type of overall? i know director watt said he was going to address legislation but where do you think you could take this if congress chooses not to act? >> i think first of all, his remarks today were a little depressing. as you said, the vote is coming up on gse reform but it looks like that's going to be a longer process rather than shorter. and i think that's just part of the landscape that he's doing my job is not to kill but landscape to provide a stable landscape

while housing sorted out. is a creature of congress for more than two decades editing gives great deference to the rule of congress to make those policy decisions rather than himself. i think it also recognizes though, two things. one, the public role in housing finance has been large even through the peak of the private-label security. people think that while it's at normally high level now, it has even through normal market cycles then how most people get their home mortgages. private-label securities even at the peak were not dominant in the market compared to the role that government played in providing that foundation better system operates under. and for the more as people alluded to with the tightness of the credit market right now, the credit market is not just affecting some home buyers.

it's affecting the broad economic recovery here, holding it back as housing starts are still very much depressed compared to normal levels but not compared to the boom years of the mid-2000s. and credit is most constricted for those first-time homebuyers who would be buying those starter homes but are also essential to making the whole pipeline of the housing finance system work. if they are not those first-time homebuyers, people moving up or people trying to retire, don't have a good market to sell the houses into, and it impacts the whole economy. so i think this approach is spot on in terms of what is the role of fhfa and what is needed right now in the housing economy and our overall economy. >> mike malloy, i want to ask you about johnson crapo. we will replace many of the

functions currently performed by fannie and freddie with new privately capitalized guarantors or the kind of security's execution, some folks have suggested maybe you could do, get to the same place simply by restructuring and and freddie as a seller service or to the gses. how do you think about the benefits or disadvantages of one over the other? ..

>> is another principle that you have to say, okay, how does the government play there, what is that role, is that, you know, how does that role play itself out. i think those are the items that, you know, back to what the director's doing, back to, you know, johnson-crapo, what they were trying to do, back to any of the things. you know, rather than what is one insight or the other, you have to move back to those principles and say are we moving, you know, are we talking about the right principles. and that's where i think the debate has gone, but i think that concept of private capital coming back in is critical and so i think, you know, looking for what are the solutions that look like that. >> if, phil, i mean, you were involved initially i know in some of the discussions around the corker-warner bill. if that idea has kind of reached its maximum level of support, you know, is it worthwhile to say, all right, let's look at

how we can do this utilizing the gses, or are there reasons why you don't want to go down that roadsome. >> no, i think that is the natural next step. i'd say the next step is to let the firms build capital. jim and i have an op-ed in "the washington post" from a year and a half ago. i was making sure