flew over the capitol. the notion that we cannot do that is kind of silly. [unintelligible] >> a report that president obama is the first president to refuse to address the gridiron club since grover cleveland. if that is accurate, why did he refuse? >> i do not know the history of this. i know that the president address the gridiron club before the president was president and before the president was a senator. i knew i should of laughed. i think the president -- look, i don't know what you have to get sarah palin. i thought she was quite funny. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] .

the national park service has been collecting stories. here is an expert excerpt. >> i took my you go and went to the bridge. i think it was a few minutes before 8:00 a.m. they came up and said, my god we are at war.

the next thing i remember there's a tremendous explosion on the tennessee year the number two gun turret. there was shrapnel all over the place. he had most -- he was almost torn in half. we made him as comfortable as we could. that was about eight or nine minutes after 8:00 a.m. all of a sudden i saw the arizona and explode. i tell you. i was never so scared in my whole life. you could feel the tremendous heat. the concussion louis back into the pilot house. the captain was laying there. -- the concussion pushed us back. the captain was still alive. he said, "captain, what are my

orders?" he said, "the ship is yours. i am not going to make it." we stayed up on the bridge. the commander said, "what are we doing up here? let's get below to help out." to watch more extended interviews with the pro harbor survivors, go to c-span.org -- pearl harbor survivors, go to c- span.org. >> what new rules as the internet needed? this week, two views on the neutrality and the future of the internet. that is tonight on c-span2. >> three original documentaries from c-span are now available on an dvd. a unique journey through the icon and cons of the three branches of american government.

see the exquisite detail of the american courts to the eyes of the justices. go beyond the velvet ropes of public tours and those were the scene is faces of the white house, america's most famous song. explore the history, art, and architecture of the capital, one of america's most symbolic structures. american icons, a three disk dvd said. it is $24.95 and you can order online at c-span.org/store. >> that reserve chairman is making news today after saying that he expects a slow recovery next year. he expects tight credit and a rise in interest rates. this is hosted by the economic club of washington and about 50 minutes. >> is nice to be here again at

the economic club of washington. thank you for the invitation and i am pleased to speak here. having faced the most serious financial crisis and the worst recession since the great depression, our economy has made important progress through the last year. although the economic stress faced by many families and businesses remains intense with job openings scarce and credit hard to come by, the financial system and the economy have moved back from the threat of collapse. economic growth has returned. the signs of recovery has become more widespread. understandably, in the situation as complex as this one, people have many questions about the current situation. accordingly, taking in spirit -- taking inspiration from the faq's, i would like to address four important questions about the federal reserve and economy.

first, where is the economy headed? second, what is the reserve doing to support the economy and the financial system? third, will the federal reserve's activity lead to higher inflation down the road? fourth, what can we do to avoid a similar crisis in the future? first, to understand where the economy might be headed we should take a look at where we have been. one year ago, our economy, indeed all of the world's major economies, were reeling from the effects of the devastating economic crisis. policy makers here and abroad undertook a series of actions aiming at stabilizing the financial system and pushing prices. critically, these interventions succeeded in preventing a meltdown that could have put the world into a second great depression. although a global cataclysm was

averted, the crisis and never left its consequences including the recessions in the world's economies. in the united states, the unemployment rate which was as low as 4.4% in march 2007 currently stands at 10% periods recently -- 10%. we have seen the weighting of some forces that have been straining the economy during the proceedings several quarters. the collapse of a final demand that accelerated in the latter part of 2008 left many firms with inventories of unsold goods which in turn led them to slowdown production. this phenomenon was evident in the motor vehicle industry where automobile makers who were facing severe economic pressures have temporarily suspended production in many plants. half by the middle of this year,

however, inventories have been reduced to encourage a wide range of industries to began increasing output again in trading to the nation's gdp. although the working out of inventories helped production, it requires a renewed growth and final sales. it is encouraging that we have begun to see some evidence of return of demand for homes. sales of new and existing homes have moved up appreciably over the course of one year and prices have firmed up a bit. meanwhile in the inventory of unsold new homes has been shrinking. homebuilders have someone increase to the rate of new construction which is a marked change. consumer spending has also been rising since mid year. part of this increase was from the temporary surge from the

cash for clunkers program. spending in categories other than motor vehicles has increased as well. in the business sector, outlays for new equipment and software are showing tentative signs of stabilizing and improving economic conditions abroad avoid the demand for u.s. exports. we have begun to see some improvement in economic activity, but we still have some way to go before we can be assured that the recovery will be self sustaining. another issue is whether the economy will be strong enough to create the large number of jobs to bring down the unemployment rate. the forecast is subject to great uncertainty. my best guess is that we will continue to see modest growth next year sufficient enough to bring down the unemployment rate but at a pace slower than we would like. a number of factors support the view that the recovery will continue next year. importantly, financial conditions continue to improve.

they're having a relative the the difficulty raising funds in the stocks and bonds market. other asset values have recover significantly from their lows and a variety of indicators show that the fears of systemic collapse have abated. monetary and fiscal policies are supported. i have mentioned would have appeared to be improving conditions in housing, business and that mrs. -- business investment. despite general improvement in financial conditions, credit remains tight for many borrowers particularly bank depend and borrowers such as household and small businesses. in a job market that no longer contracts in the pace we sought in 2008, it still remains weak. household spending is unlikely to grow rapidly when people remain worried about job security and have limited access to credit.

inflation is affected by a number of crosscurrents, high rates of collapse, increasing price pressures, and pressures are still there. commodity prices have risen likely reflecting the pickup in global activity and the depreciation of the dollar. although we will continue to monitor inflation closely, it remains subdued for some time most likely. the discussion of where the economy is headed brings us to our second question. what has the federal reserve been doing to support the economy and the financial system? the federal reserve has been doing a great deal to foster stability and spur recovery in jobs and economic activity. notably, we begin the process of easing monetary policy in september 2007 shortly before it -- shortly after the crisis began. by mid september to thousand eight our rate was effectively as low as it would go with the

range compared with 5.25% in of maintained that a rate for the past year. our efforts to support the economy have gone well beyond conventional monetary policy, however. i have alluded to are close cooperation to the treasurer, fdic, and other domestic and foreign authorities in a concerned and successful effort to stabilize the global banking system. this version on collapse following the extraordinary events of september and october 2008. we subsequently took strong measures, independent -- independently or in conjunction with others, to help mark is disrupted by the crisis. among these were the money market mutual fund industry's which a large amount bridge large numbers of american households make short-term investments and the commercial paper market which many firms

use day today. we also established special arrangements with other banks but to provide money for dollar- based markets. more recently, we have played an important part and hoping -- in helping to start other markets -- by working together to provide these markets which help them finance their lending we have helped the banks balance their credit sheets to take on new credit. in addition we have supported the overall functioning of the private credit markets and help lower interest rates for loans and mortgages by purchasing unprecedented volumes of the mortgage related securities and treasury debt. in all of these efforts, our objective has not been to

support specific institutions rather recognizing that a healthy economy requires a well functioning financial markets. we have moved always with the single aim of promoting economic recovery and economic opportunity. in that respect, our goals have been fully consistent with the traditional functions of a central bank. with the mandate given to the reserve by the congress to promote stability and maximum employment. in addition to easing monetary policy and helping to stabilize the markets, we have also worked as a bank supervisor to encourage lending. in november 2008, we joined with other regulators to urge banks to continue lending to creditworthy borrowers to the benefit of both the economy and the banks. we recently provided guidelines to banks for working constructively with troubled real estate loans. this spring, we led a coordinated examination of 19 of

this country's largest banks known as the supervisory capital investment program or more formally known as the stress test. it's designed to make sure these banks would remain well- capitalized and able to lend to creditworthy borrowers even as conditions turned out to be worse than expected. the release of these successful results in may provided clarity about the banks' conditions and marked a turning point in confidence of our banking system. in the months since then, under the strong encouragement of the bank supervisors, many of these institutions have raised billions of dollars in new capital which include -- which improves their ability to extend loans as the demand for credit recovers. meanwhile, we have also continued our efforts to ensure fair treatment of customers treated during the past year and a half with a conference of the

overhauled -- we have been aided by the regional structures established by the congress. the more than 2 minutes 70 business people, bankers, nonprofit executives, academics, and community labor leaders to serve on the board for the 12 reserve banks and their 24 branches provide valuable insight on conditions that statistics alone cannot. thus the structure of the federal reserve ensures that our policy making is informed not just by washington or by a wall street perspective bought by a mean streak perspective. indeed, our reserve banks and branches have deep roots in the nation's communities and do much good there. to just give a few examples come at this disorganizations dealing

with foreclosures and dealing with nonprofit groups to help neighborhoods hit by high rates of foreclosure. they come as well as the board, are involved in financial education, helping people to make better financial decisions, and to better understand how the economy works. the federal reserve's actions in combination with those of other policy makers both here and abroad have helped restore financial stability and pull the economy back from the brink. because of our programs, car buyers have obtained loans they otherwise would not have been able to, students are being able to finance their educations, and you have been able to get better terms than otherwise on your homes. these improvements in credit conditions are supporting a broader economic recovery. the scope and scale of our actions are necessary and have left some uneasy. in all, our asset purchases and

lending has caused the balance sheet for the reserve to more than doubled. we are not to $20 cents trillion today. -- we are now at $2.20 trillion. will your actions lead to higher inflation down the road? the answer is no. the federal reserve is committed to keeping inflation low and will be able to do so. in the near term, elevated unemployment and stable expectations to keep inflation subdued and in the inflation could move lower from here. -- and indeed inflation could move lower. the unprecedented stimulus is helping to support economic activity. for that reason, we have been giving careful thought to our strategy. we are, but then we have all the tools necessary to withdraw our stimulus in a timely and effective way.

indeed, our balance sheet is already beginning to adjust because of improving financial conditions leading to a reduced use of our facilities. our balance sheet will also shrink over time as the mortgage-backed securities and other assets that we hold mature or are repaid. however, even if our balance sheet this is large for a while we will be able to break interest rates and thus tighten financial positions appropriately. operationally, inappropriate -- an important tool will be the authority granted to us by congress last year to pay banks interest on balances they hold to the federal reserve. when the times, to raise short- term interest rates and thereby tighten policy, we can do so by raising the rates that we offer banks that hold balances with us. banks will be on willing to make loans to each other at a lower rate, so the interest rate they

pay on their balances will set a floor on other short-term interest rates. additional upward pressure on the short-term interest rate can be achieved by the supply of funds that banks have to loaned to each other. we have a number of tools to accomplish this. by paying a slightly higher rate of interest we can make banks long up their balances and longer term accounts with us making the balance is unavailable for lending in the overnight market. if necessary, we also have the option to reducing the size of our balance sheet by selling some of our securities on the open market. as always, the most difficult decision for the committee will not be devising the technical means of on winding -- on

winding stimulus, but rather what faces all of the banks which is correctly judging the right time to tighten policy. monetary policy affects the economy with a lag. we need to base our decision on the best forecast on how the economy will develop. as i said a few months ago, we expect inflation to remain subdued for some time. it is reassuring that longer- term inflation expectations remain stable. nevertheless, we will keep an eye on inflation risk and do whatever is necessary to foster price stability and a maximum employment. as we at the federal reserve and others work to build on the progress already made to secure and sustain an economic recovery, we must also address the reasons that led to the current crisis. our final question this afternoon is, how can we avoid a similar crisis in the future? although the sources of the crisis were to corner the complex and numerous, a

fundamental cause has been that many financial firms did not appreciate the risks they were taking. their risk management systems were inaccurate and their liquidity buffers were insufficient. unfortunately, neither the firms or the regulators identified or remedied these weaknesses soon enough. thus, all financial regulators, including the federal reserve, must undertake self assessments. at the federal reserve, we have reviewed our performance and moved to strengthening the oversight of banks. working quarterly with other agencies we are toughening up banking regulations to help enhance the ability of banks to withstand financial stress. we have been one of the leaders of the international efforts on banking supervision to increase the quantity of the capital and liquidity that banks must hold. at home, we are implementing standards to require banking organizations to adopt

compensation policies that link pay to the institutions a long term performance and avoid encouraging excessive risk taking. i mentioned the stress test. we are applying the lessons learned in that exercise to reorient our approach in the supervision of large interconnected banking organizations that are critical to the national system. we are taking a more macro- provincial support. wheat -- this scrutinizes the interrelationship between firms and markets to better anticipate possible sources of finance or contagion -- financial contagion. we are expanding our types of cross firm of bridge across firm examinations that we used in the stress test. the federal reserve's ability to use economists, experts, accountants, and lawyers in addition to bank examiners was

essential to the success and a multi disciplinary approach will be a part of our supervision in the future. we are complementing our on-site examinations with enhanced offsites surveillance programs under which multi-disciplinary teams will supervise the information and find indicators that may affect one or more banking institutions. all the regulators can do a great deal on their own to improve financial oversight, the congress must also act to fix gaps and weaknesses in the structure of the regulatory system. in so doing, they must address the problem of the firm's being "too big to fail." no firm should be able to all the financial system, the economy, or the taxpayer hostage. to eliminate that possibility, a

number of steps are required. first, all systemically important financial institutions, not only banks, should be subject to strong and comprehensive supervision on a consolidated or firm wide basis. such institutions should be risk-management and liquidity requirements. that will reduce the chance of failing or growing too big. neither a.i.g. or restaurants where cedric to strong supervision. -- peter a.i.g. or bear stearns were healld to strong supervision. this makes as well suited to serve as the consolidated supervisor for all of the nonbanking institutions as well. in addition, our involvement in the supervision is critical for ensuring we have the necessary

expertise, a 32. as an essential functions of promoting financial stability and of making monetary policy. second, when a systemically importance to should does approach failure, government policy makers must have an option other than a bailout or confidence shattering bankruptcy. they should greet a new resolution regime currently used by the fdic that will permit the government to wind down systemically important firms in a way that protect financial stability and also imposes losses on shareholders and creditors of the failed firm without cost to the taxpayer. imposing losses and creditors -- to systemically important firms by restoring market discipline and levels the playing field for smaller firms while minimizing the destructive effect of the failure of the financial system and the economy.

third, our regulatory structure requires a better mechanism for monitoring in addressing emerging risks to the financial system on a whole. because of the size, diversity, and complexity of our system, that task may be bigger than the capacity of anyone regulatory agency. the federal reserve, therefore, supports the creation of systemic oversight council made up of principal regulators to identify developments that may pose systemic risks, recommend approaches for dealing with them, and coordinate responses from the agencies. to close, i will again note that in the fall of last year, the united states, and indeed the world, confronted a crisis of a magnitude unseen for generations. concerted actions by the federal reserve and other policymakers here and abroad helped to avoid the worst outcomes. nevertheless, the turmoil dealt a severe blow to our economy to

which we have only recently begun to recover. the improvement of financial conditions this year are for the hope and expectation of continued recovery in the new year. however significant issues remain such as credit conditions in a weak job market. we have been aggressive in supporting economic activity. at some point, however, we need to unwind our policies in order to avoid higher inflation in the future. i am confident we have with the tools and the commitment to make that adjustment when it is needed in a manner consistent with our mandate to foster employment and price stability. in the meantime, financial firms must do a better time managing the risk of their businesses and regulators, federal reserve included, must overhaul their approach is a provision treated the congress should move forward

in making needed changes to financial regulation to avoid a similar crisis in the future. in particular, and importantly, we must solve the problem of him "too big doto fai." we have some distance to go -- -- "too big to fail." i said in a speech that i was confident that the american economy and its vitality would emerge with renewed vigor. i remain as confidence in a. thank you. -- i remain as confidence today. [applause] >> thank you. we have time for a few questions. i have some that have already been submitted. the first question would be, and the hands of between us on where interest rates might go?

[laughter] >> well, they cannot go much further down. [laughter] [laughter] ok. [laughter] obviously, the committee will continue to look at the economy and we will have to try to update our outlook, look at financial conditions, and moved on from there. right now, we are still looking at the extended. given -- the extended period given subdued inflation trends and stable expectations. we're going to continue to look at the economy. obviously there have been some signs of strength recently and we want to factor in has been talked about this next week. >> do you see any process of a double-dip recession? >> economic forecasting is very difficult. obviously, we cannot get any guarantees either about that or,

for that matter, for a stronger recovery for next year. however, as i said, and the the most likely outcome is a moderate pace of recovery. there do seem to be enough forces in place to sustain the recovery going into next year. and the same time, there are headwinds that may game and vigorous snapback seem less likely. again, we're going to have to keep following developments at adjusting policy accordingly. >> how would that have been resolved differently? would you have handled at lehman brothers differ the of the council would have been in place? >> as far as the council is concerned, the goal is to address systemic risks of emerging risks, before they become so critical. as systemic council with a macro-provincial perspective

would have worked long before things came to that path. certainly by the time of the crisis of september and october of last year, we were well beyond the point of arresting the risks before the became apparent. what would have made a great deal of difference last fall would have been having the resolution regime that i talked about. if we have -- if we had been able to wind down that firm and others in a way that would have allowed them to fail it would have avoided tax payer intervention but not have had all the adverse consequences on the financial institutions that we saw, that would have been a better outcome than what we had. >> do you have any views on the views of the congressman to audit the federal reserve? [laughter] >> my views are known.

let me make one point. the so-called "audit" is used by most of the people in this year -- in this room has to do with financial books, looking at numbers, financial reports, statements and so forth. that is not what this is about. the federal reserve a fully agrees that the congress should have access to all aspects of our financial transactions, operations, control. the congress has every right to make sure that the fed is using the taxpayers' money effectively and safely, and in fact we are. in this context, the word "audit" means a policy review. if this bill were passed, it would repeal an exemption passed by the congress in 1978 which protect monetary policy from an immediate review by the general accountability office to assess whether or not the policy is correct or not. every other aspect of our

policy-making, supervision, everything else is subject to review. all of our financial books are open to the congress and the gao. we are concerned about the monetary policy process. congress would, by ordering the audit of that action, would be signaling strongly to the markets and the public that it is approved in a putting pressure on the fed not to take that action. we believe reducing the independence of the fed to be able to take action would be bad for markets, bad for our credibility, bad for inflation expectations, and bad for the dollar. >> do you expect the reserve will get all the money back that it has injected into the system in terms of loans to corporations? >> yes, i do. i think we are in very good

shape. certainly, the actions we took were not affecting maximization, by any means. i believe we're going to get back all of the money. we're going to be showing to the taxpayer a fairly [no audio] >> did you ever have any thoughts about coming to washington what you are at princeton? [laughter] >> it has been a very interesting experience overall. [laughter] economics should be -- should aspire to be as useful as dentistry. [laughter] which he meant by that is that economics is not which is subject that should be studied in ivory towers but should be applied in a way to help the broader economy, that the public to make things better. it was my objective to bring my

knowledge, my research on the great depression, financial markets, on the economy to bring that to the akko policy-making arena. in that respect, i do not regret coming to washington. >> in your academic research, is there anything you have learned in washington would say -- that would say your research was what reason -- that your research was wrong or right? >> as mentioned, i studied the great depression. the world is much more complicated than in the 1930's. markets are much more complicated. we have a new institutions and markets. the nature of our markets are different. there are more interconnected, more complex than was the case in the 1930 proxy. nevertheless, the basic lessons of the 1930's still apply here.

there were essentially two. the first was that the federal reserve, in the 1930 proxy, -- 1930's, took no action. what happened was as the banks failed, the money supply contracted. the economy went through a severe, 10% falling prices. it gave people strong and sent to delay purchases. the first lesson was to provide support to the economy. i believe we took that and have cut interest rates and make sure we'd stay away from deflationary cycles and providing monetary support for the economy. the second major lesson of the great depression was do not let the financial system collapsed. in the 1930's, many people think about the depression as being

the result of the 1929 stock market crash. and that was a major event, but between 1929 and 1931 it was not all that different than any other recessions were very different than this recession. what changed the depression from a regular contraction to a great depression was the intense financial crisis which gathered steam in 1931, and particularly at the collapse of large banks in central europe which then spread around the world. the collapse of the financial system which destroyed credit creation in created huge amounts of instability was a major factor that rose the world economy into a great depression between 1931 and 1933. it was the stabilization of the banking system with a bank holidays and leaving the gold standard to become more supportive in 1933 were the measures that cost -- caused

economy to come back. in that respect, our actions to prevent the collapse of the system including the entire global system was, i believe, essential to avoiding a similar economic outcome in this decade. now, of course, a big problem was really did not have all the tools we needed to wind down the systemically critical institutions that would affected the economy. that is why is essential for congress to give tools, not to the federal reserve but to the fdic and the treasury, to avoid these kinds of situations in the future will not creating other hazards with providing the failure of larger firms. >> we of one former member of the federal reserve.

>> before i ask my question, i would like to assure the audience that i am not [unintelligible] >> one question. >> one question. [laughter] as you know, mr. chairman, [unintelligible] is in january. they will be talking about systemic risk in capital markets. [unintelligible] and then to address several key questions relating to the role of the federal reserve and the current financial crisis. these deal with bear stearns,

lehman brothers, and a.i.g. [unintelligible] to the federal reserve, why did the federal reserve said lehman brothers? who made that decision? why was the decision made? what was the decision made not to save lehman brothers? who made that decision? what was the role of the treasury? the federal reserve bank of new york? why did the federal reserve save a.i.g.? he made that decision? [laughter] in my paper [unintelligible] [laughter]

>> when you thought the former member was called that he was some kind of plant? we, as you know, the federal reserve and the treasury spoke to the president, spoke with congress whenever possible and attempted to avoid the systemic collapse of our financial markets, our financial system. we were extremely concerned that the collapse of these connected for -- connected firms in a disorderly way would have a greater effect on the broad economy. the collapse of these forms -- these firms is destructive. we did our best to save, protect, the system from the collapse of these firms, all of them. reason we did not save lehman

brothers was not chores, but as i have said, given the look very limited powers we had was the lending authority against collateral. we were unable but it did not have the tools. it was not a conscious choice but it was something we could not do within our legal authority. that is why it is so essential, again, if we're going to avoid this kind of crisis in the future and avoid the very unpopular and deservedly so bailouts associated with them, we have had a better structured system. congress is working on it. i very much support that approach. >> let me ask one more question. what is the best thing about being chairman of the federal reserve board? [laughter] >> i did to go to the security lines at the airport. [laughter] i can take more than 3 ounces of

food if i want to. -- of fluid if i want to. [applause] >> on behalf of the economic club of washington, we would like to give you this antique maps of the district of columbia and even though it might violate the $20 give you have, it is not by much. [applause] >> we are adjourned. thank you very much. >> at the senate continue debating the health care bill, our hub is a key resource.

you can read and watch the debate on the house, the senate, town hall meetings, and obama as comment. c-span.org/healthcare. for the latest on the health- care debate, we spoke a short time ago with a capitol hill reporter. he is with the congressional quarterly debate over abortion. who are the key players? >> senator nelson of nebraska and the senator from utah. it had entered in the amendment and hope it is going to pass. i can confidently say it will not pass. >> what will the amendments do? >> it will restrict abortion coverage by insurers to operate in the new exchange the bill would create across the nation. it would also prevent a the

option from covering most abortions altogether. >> there seems to be a hold up in getting senator nelson's amendment to the floor. what took so long? >> they wanted to get rid of it last week. the democratic leaders wanted to dispense with it early on in the debate. some interest groups have not had a sufficient chance to review the language of the amendment and sign off on it. they have done that now and is ready. >> can you name democrats who had indicated they may vote for this amendment? >> there are two. senator nelson and senator bob casey. >> how about republicans? >> most of them. the only two that i think will not are snowe and collins, both of maine. the like the language as it is.

>> what are the possible implications of the amendment passed in? >> if the amendment passes, it is likelier that democrats will have senator nelson's vote on the bill. to answer your other question, if it does not pass senator nelson has said he will not support the bill unless some sort of more restrictive abortion language is added. >> with more debate possible this weekend, are you getting any sense of the mood of these senators as they continue working on the bill lacks >> when the more liberal senators come out of those meetings they also say -- always seem to be in a good mood. senator schumer in new york thinks things are moving along well. we talk to moderates and they are not so sure. most importantly on the public option. >> how is it looking on getting

this done by credit by christmas? >> it looks iffy. reid is trying to pull together and the men and, if final changes to a final package of changes for the bill. his boat people have told us we his spokespeople have told us they hope to in the debate on the bill and filing those by the end of the week. >> we thank you. >> sure. thank you. >> what new rules of the internet needed to govern the way information travels over networks? this week, two years on neutrality and the future of the internet. that is tonight on c-span3 -- c- span2. >> this is part of the consumer federation of america annual financial services conference in it -- and is about one hour.

>> our panel this morning is designed to cover a really important issue. that is the effort to assist homeowners who find themselves unable to make their mortgage payments either because they have mortgages that have become unstable and unsustainable or because they have lost jobs in this economy or lost hours in this economy and find themselves threatened with eventual foreclosure. as i do not have to tell you, this is a very real problem. by the end of this year, various estimates on the number of

people who have lost their homes range is anywhere from three to four million three credit squeeze estimated that absent dramatic efforts that as many as 12 million homeowners might lose their homes. we see a dramatic pace of homes receiving notices. the pace continues to be relentless. as the secretary mentioned it is being driven by deteriorating economy and joblessness plaguing our company -- our country. these people know more about the processes and programs undertaken to try to assist homeowners in every way possible. i'm going to introduce them.

phyllis caldwell is chief of the home ownership preservation office and was called to a meeting with the assistant secretary. she sends her regrets and will come down here as soon as the meeting is over. hopefully she will be able to join us. as disappointed as we are that she got called into an important meeting, we are pleased that tom was able to join us. tom has a background in housing and local government and has worked for the national association of realtors, and mortgage insurance firm, the government of the district of columbia, and holds a master's degree from georgetown which is a small, local institution here in washington. debbie is familiar to many of you and is a colleague in the compatriot in the consumer side

of housing and community development work for many years. she and i have worked together on a variety of issues and i have found her to be one of the most informed and passionate advocates in this area. she is currently director of the hurricane relief project which was launched in the aftermath of hurricane katrina. she is plenty of extra duties on issues broadly on a mortgage foreclosures and making homes affordable mitigation programs. throughout most of her career, she has worked for local, community-based organizations to increase access to high-quality, low-cost financial-services and to eliminate discriminatory practices. she had a long tenure at the center -- at the center for community change, a great ally and friend of ours, where i first began working with her. she has a master's degree in urban and regional planning from the university of north carolina chapel hill. at the far end of the table is

the executive director of the hope now alliance which is a nonprofit coalition group of servicers, investors, and other markets. they want to have a coherent response to the crisis developing. from january 2009 to september, of hope now have helped millions of homeowners avoid foreclosure with modifications to the government program and programs initiated with their assistance before the treasury department announced the administration's plans. we have also worked together with the indymac and when she was that option when mortgage. -- together at freddie mac. i know we're going to learn about the work of hope now and its impact on these programs. each presenter was then a few

minutes giving some updates, background, that will form a cohesive idea. without further delay, tom. >> good morning. i want to give you a brief background in the view of where things are with the making homes affordable program. the basic overview for the program was that it was decided to reach up to three into four million people. the program will run through the end of 2012. the basic thrust of this is to bring borrowers who are at risk of imminent default or at a 60 day delinquency and bring their mortgage payments down to 31% debt to income ratio. the way that is done is that the

property has to be owner occupied, have a performing mortgage, cannot be investor- owned, a second home, etc. we can do that for interest-rate reductions, term extensions, and principal forbearances. the incentive structure from the servicers are required to bring down the debt to income ratio down to 30% and then there is a dollar to dollar match from 38% to 31%. borrowers go through a 90 day trial period. after that is complete, the government pays out the incentives. there is a trial. to make sure -- there is a trial. to make sure they will be successful. aside from the debt to income

ratio matched, there are incentives upfront to the servicer, they will be eligible for about $5,000 per year in principal reductions. they are also eligible for pay for success payments at about $1,000 per year for the first three years. that is the essential framework of the program. are our eligibility is book that an npv model that calculates the revenue stream that investors would get if it went into foreclosure were modified the loans. the government incentives are designed to weigh modification more heavily than foreclosure. that is the essential thrust of the program. recently, there were some tweaks made it to that model to facilitate more modifications in

areas that are experiencing rapid home price decline. recognizing that servicers and investors might feel the value today is worth more than the value six or seven months down the road should the borrower defaults. there is an additional incentive for the modification which is something that could tip the scales in favor of modification. one of the key things of the program was to mitigate risk of bob re-default. we have stringent paperwork requirements. there is a hardship affidavit, validation of income, etc. they have to file a form to allow the servicer to pull a tax return. there are a number of things that act as we-underwriting --

third re-underwriting the loan. to date, there are over 650,000 by a vacation in place. on average they are saving about $640 per month. that is the good news. the challenges, as it were, is that the conversion rate, as i said they had a 90 day trial. -- 90 try all period before they get to modification. the number is in the low tens of thousands that have converted. we are disappointed in that number. we think our estimate of people who can convert to trial modification is more in the range of 375,000. in the last week, we have

launched a conversion drive and engaged counselors to reconnect with borrowers to make sure paperwork is submitted. we have engaged state, local, and county officials to become resources and the advisers -- resources and advisers. we are holding them accountable for the numbers they have eligible for the decision. we want to help borrowers get their paperwork in to make a time the decision on modifications. we have sent to the top, or the largest servicers, we have a sense these swat teams where we have some fannie mae officials and treasury officials that are there to monitor the operation, address policy questions, and ensure things are moving smoothly during the conversion drive. aside from that, we feel in the biggest challenges to the

program is paperwork. from the rent up, we felt was very important to get as many borrowers second chances as possible. -- from the impact ramp up, we felt it was important. . . guidelines are not necessarily being followed. some people are being moved to

foreclosure in violation of guidelines. a lot of poor people are unable to use the program. these are things we take very seriously and we're working hard for -- on. on a foreclosure program, something that many of you have heard about, we have entered into a dialogue with servicers and hope now attorneys to make sure that there is better communication so that people are not overwhelmed or thrown off if they are being considered for a hand modification and they received a foreclosure notification in the mail. basses -- that is disconcerting and we're trying to rectify that. we're looking at current proposals to see if that can be tweaked in any way to prevent it from happening. unemployment is a challenge. the program was designed nine

months ago under a different set of circumstances. we recognize that growing unemployment poses a unique challenge to the program. the program will not solve the challenges but we recognize that we may need to do more on that. essentially, the way it works now -- if you have on employment income, that can be counted provided it is longer than nine months torture in come on the calculation. that leaves a lot of people not able to get a modification so it is a priority. in the last couple of months, we released a state-by-state data, and and then going forward, we will see more detail as the data trends continue to develop. we're committing to the opening

up transparency. there's also a discussion of making the model of little more publicly available, starting at least with a white paper that goes through what exactly is in there. and so with that, i will turn it over to debbie. >> thank you. a pleasure to be here. to see so many familiar faces in the audience. i would like to talk about of the context for the foreclosure crisis and what the implications are as well as reaction to the government's proposal and the program that tom has been talking about. and also more about what need to -- what we need to be thinking beyond this. very late out the dimensions of the foreclosure crisis. -- barry laid out the dimensions of the foreclosure crisis. it is released the name how many people are facing foreclosure. i was trying to think about some way that we could see it

graphically. and i think i counted the chairs. 1 art two rows of people in this room would recognize the number of families out of a crowd this size of families that are potentially facing foreclosure. many of you either know somebody who has gone through foreclosure or is at risk, or has gone through it on your streator neighborhood. i have a modern -- modest neighborhood, which is very broad and very deep and has profound implications of the future of our country prevent foreclosure crisis, it has been coming in waves. the first wave was the subprime that we heard so much about. the second wave have been the

option arms, particularly high- priced markets, getting people into homes that might not have been affordable. or turned out to not be affordable. the third wave is unemployment. people who have lost their jobs as a result of the crisis and are no all -- no longer able to afford their mortgage. and there may be a fourth wave in the fha market, which is a much smaller part of the market. until just recently. there have been several different aspects and several the reports of the market that have rarely failed. and in order to address the crisis in get the country back on its feet we need to get back to all those parts of the market. one of the things i need to say from the national housing alliance is that this crisis has fallen disproportionately on the

shoulders of people of color. subprime loans were disproportionately targeted at people of color. in the option of arms market, those communities say that they were disproportionately having option on its. -- option arms. also for the latino community than for the country as a culprit and historically the fha market has been targeted to the minority communities. the implications of people, one, two, 3, four times being hit by foreclosure or profound. we've seen hundreds of billions of >> of wealth stripped out of the communities of color as a result of these foreclosures. it will contribute to a huge wealth gap. it is undoing decades worth of community develop efforts all

across the country. it may take those families and those communities generations to recover from this crisis. it is have a ripple effect, not just different waves of different types of lung. it started with some pride market and some expanded to the broader financial market. for small businesses and large businesses, revenue at the state and local level, everyone of us in this and a community were school systems are suffering because there is not enough money, or essential services are suffering because there is not enough money. there are states that cannot pay their bills -- california or new york, taking and i know you instead of the actual cash. -- an iou instead of the actual cash. it is important to take effective steps to try to

intervene and contain this and and the problem. and also that we get it right, what ever we do we get it right. we will not have a lot of fights at this apple. one of the main efforts to -- we will not have a lot of bites at this chapel. one of the main efforts was tom's program. they have been critical in several ways. it is not a choice that existed before. the federal government has a key role to play and it cannot be left to the private sector. that was a major step forward. they have established some important standards for the market. most notably is affordability, if you modify alone, and needs to be affordable. and that debt to income ratio is a huge step for. in florida, if you talk to

homeowners that tell you that services would offer them on modifications that would result in an increase in payments to people who are already over their heads or wooden not have been facing foreclosure. 40% of their income going into the mortgage is not going to work. the obama administration deserves group -- tremendous credit for that. another thing important is the detailed test -- the detailed data that tom mentioned that has been collected, what is happening to people applying for loan modifications and to the program. but about how the services are performing and the outcome that people are experiencing. that will help us understand a lot better how this process work, he was being held, who is not being held in white, so that we can go back and make changes and help some more people. i want to particularly commend the obama administration for collecting information on the race and gender of national origin of people who are

applying for loan modifications and for making that public, i am told. i like to thank the commitment on that. as i said earlier on, this crisis has had a disproportionate impact on communities of color. it is incumbent upon our government to make sure that the solution reaches those people on an equitable basis. it does have some significant limitations. it is a volunteer program grid so servicers sign that to participate but they are not required to participate. that creates an inherent limitations in the government's ability to compel performance or compel compliance. and as tom mentioned, it was the first wave of this crisis and it is not set up to develop -- to deal effectively with the subsequent waves. it is not release sized to address the scope of the problem.

if it meets its goals, we can expect 4 million loan modifications by 2012. barry told us that we're acting 4 million -- we are expecting 4 million modification by 2012. it may be goetz's a third of the way there. tom mentioned some of the problems experienced by borrowers and counselors and attorneys working with borrowers who are trying to access the program. i will not going to those in the detail except to say that there are things that can be done in the short term to make it more effective and efficient. one is to stop the foreclosures, not just foreclosure sales which definitely need to be stopped, or putting someone in foreclosure if they are waiting under -- waiting on a loan

modifications, which is already illegal. but to move people down the road to foreclosure while they're waiting for the modification. it increases the cost to borrowers. it raises the dust -- the stress level. people do not know what their status is and they do not know if they should be in touch with the servicer. it needs to stop altogether . the second thing is stopnb -- is that npv value, the net present value model. it needs to be opened up an improved. people can understand how they are being evaluated. right now, borrowers do not get any permission about what goes into the model, although that should be changing in park beginning in january, but there will still be a lot of information they will not know about what goes into the model and it will not know what comes out of the model. yes, the past or no, you did not

pass. there is no way for far worse to know that their application was handed properly. that needs to change. the needs to be better communication with borrowers. the housing center in louisiana is dealing with the borrower heard just got turned down for eight modification. after having been offered an non-program modification. they said that we considered you, you do not pass because you -- your property equity is not consistent with our program guidelines. ok, do any of you know what that means? it is not really helpful to our work to know that your property equity does not meet our program guidelines. it does not tell them what they could do differently to save their home. so there have been some efforts to improve and -- in

communication. we need to do more. we're looking for to getting that detailed data like we get on the home disclosure mortgages act. it can be very helpful for the people at the local level to pay -- to figure out where the program at their level is working, which services are doing a good job in which her not, which communities facing foreclosures are getting help in which not, and to intervene and make it work better. we hope that that will come quickly in the new year. principal reduction is an option but not a requirement. services are allowed to take a portion of the principle that they owe and bear it off to the end of the longer you pay off at the long but you did not pay interest in the meantime. that is good but not always good enough. to be able to reduce the principal balance that you owe, to realign the value of the property and the amount of debt to carry on the property is

important to make loan modifications are research -- a success. there's a lot of research showing this to be the case. we need to have an appeals process. it is a complex program and there are a lot of places were far worse need someone to intervene on their behalf and in need someplace they can go outside of their servicer where they can get someone to make sure that they -- that their application was handled properly. and the last thing i wanted to mention was about those who enter bankruptcy ball they are undergoing processing for loan modifications. they're allowed to offer loan modifications in bankruptcy, but they routinely deny it hamp mods, and if someone starts the hamp process and then enters

bankruptcy, they get kicked out. when you think about it, it does not make a lot of sense. in bankruptcy, what can you do? you can m limit -- eliminates second mortgages, often a source of problem in terms of the debt that people are caring, and also the dead on the property. and you can reduce people's non- mortgage debt. deccan be an anchor -- that can be an anchor dragging people down. the loan modification in the end is a much -- has a much greater chance of success. we're reaching out to people who have trouble and i hope that as a change the administration will make. a couple of suggestions about things that hamp is not designed to do but we think it's important to bring this crisis to close. , bringing stability back to the

housing market into the economy. one is that lost mitigation, the effort of servicers working together with far worse to bring together to find a way to make this affordable. we're borrowers cannot make mortgage payments, they should be able to sit down with their servicer and work out a payment that makes it manageable. there ought to at least be an attempt to do that. does not happen on a voluntary basis so it needs to be mandatary. we need to address the problem of unemployment rate this is on the radar screen print of what people are thinking about how to do this. there's a program in pennsylvania that some of you may be familiar, which on the advocates cite is viewed as a potential model. it provides three-year loans to people to make their long mortgage payments while they are

unemployed. and then they can pay that back overtime after getting a job. something that addresses the unemployment problem is really important. i think it is time to come back and revisit the idea bankruptcy reform, and given the ability -- giving the ability to judges in bankruptcy court to modify mortgages which they currently do not have. this got a huge effort earlier this year and then failed and congress. but there is beginning to be an interest in revisiting it because folks are seeing that without that leverage out there, without that stick that goes along with the carrot that programs white hamp provide, that servicers do not have enough incentive to change their practices and procedures and really get people into loan modifications. and finally, the last thing we ought to be considering is something that civil-rights groups called for, i want to say a year-and-a-half ago, a moratorium on foreclosures until

we can figure out a way to contain them. there are a lot of people going into foreclosure every month then we are able to get help to predict consequences of that are tremendous. on all of us. and i think it would help us all to just put that on hold for the time being until we can figure out a way to make the other systems work and get help people -- help to people that really needed. and with that, i will stop. >> good morning. i am paid shorts -- fayed schwartz -- faith shorts. i'm going to talk about hope now and focus on the goals to change the landscape to make a difference to reach bars at risk of foreclosure, the council borrowers at risk of foreclosure, and looked at all the alternatives to avoid

foreclosure before they go to a foreclosure sale. the alliance was formed 26 months ago with the last administration talking to the whole industry that are a lot of good ideas and you're not talking to each other and coordinating how to approach this effort. the are 45 members and companies in sight of hope now, 34 are servicers. we have all mortgage insurance companies, fannie mae, freddie mac as members, we have all the high-approved non-profit counseling agencies. -- the houd-approved non- profit counseling agencies. the industry trade groups that are part of that as well. it is hard to measure success

with the waves that debbie noted. any interest on loans that are also spilling and, that was also in the subprime market. mr. de, there's a great data base on equity in the mortgages. it is important for further discussion on equity -- 10.7 million people are under water on their mortgage, 23% of all first mortgages. nevada has 65% of the mortgages under water. arizona 48%. michigan, 37%, and california, 35%. for those states, it is an average of 40% of mortgages under water for it and the rest of the country, is 14% on average. we know from hope now because

they collect data that approximately 3.5 million people are 60 days past due. we know that since december 2007, the department of labor, 7.3 million or more jobs lost. we had significant shifts on foreclosures, more economic now, they're not foreclosing our rate of three times the rate of subprime loans. option forms a significant resets -- options arms have significant resets as noted. you'll see that in the data for that shift is taking place there are 650,000 trial hamp longs and process. there's been a big push since the beginning of the year. the capacity of servicers is a

huge issue. to be efficient and execute is a huge issue, one that everyone is working on. the old model of loan servicing has been change. there are 20 special servicers are the industry. they're dealing with just distressed servicing. there are door knockers going out, a lot of third parties helping server search trying to work through this issue, and it goes on and on. hope now has been focused initially on one at a free people who had never contacted their loan servicer or bank. or they could not get through, whatever. we saw this waves coming, a significant number of people who were never even in the conversation. we need to bring them in and get counseling and meet with the server search and like all the alternatives to avoid foreclosure.

while we were a voluntary initiative, no one knew who would pay for the hotline if there borrowers went and got council. they gave guidance that you could reimburse the hot wind through that. that was helpful since we have had millions of calls, and mr. dan they had 8000 called 324 hours a day, seven days a week, 600 counsellors man those lines. we worked a number of events across the country. it had fifty five cents we started. we were with the federal reserve banks and the treasury, fannie mae, freddie mac, and counselors on the ground to bring in borrowers and work with them in getting counselors and meeting servicers face to face. while largely a success, they

don't affect the problem in a real way because it is a large problem. but they are very meaningful. in the changing landscape, we are looking for current day decision. but, long way -- we have come a long way and we're working with treasury on that model. going forward, because of a change in plans dead, we're looking at documentation for hamp mods. many have never talked to their services, getting them to come into me, but there is a lot to the process. we're looking at that model to a therapist at the government's program to complete these mods. we are also looking on the ground. high risk regions -- to have 4000 people helped is fantastic in two days, but when there are thousands out there, it is there

a way to sustain the market's, service the counselors, to work with them over time, and make a difference in that region? we're looking hard that. what other method of outreach, we have expanded our web site to now look at a hope alone model, so that there is no more lost documentation and they can make decisions quickly with the completed application. it seemed like a simple thing but interestingly it took a long time to even get to this. we have six different counseling creating -- counseling agencies that created it and design it. that will tell the council will let -- where it is in the process. it has been piloted this month.

we hope to scale that up shortly. but see, what else can i note on that? it goes back to the data, to wrap up. barry noted the millions of people at risk. the data that we have collected for the last 24 months indicates the same. we have 40 million loans from 27 national servicers. some of the key data elements that have been important, we wrapped up collection because of the government program sliding, we want to wrap up a non- governmental data reporting. but we did have some interesting statistics that have shifted, and it shows the landscape changed from subprime to prime. here are a few october statistics. 94,000 borrowers with the

foreclosure sale. 67,000 or prime. 26,000 were subprime. that is a leveling off of subprime because there were so much focus on managing that product early on. fourposter starts in october were 222,000, 158,000 of prime and 63 of subprime. many loans have been worked out for proprietary models or payment plans through october. in addition to that, 650,000 in- process processhamp mods are under way. 3.3 million people have been touched through october of this year. there are 700,000 foreclosure sales this year.

the foreclosure starts are escalating and a pipeline of distressed borrowers is very large. it does not enter what is happening going forward. history may not be able to repeat itself there. here for the data. let me just say, wrapping up, i concur with tom and debby, a lot of good work going on. making sure that loans to not go to foreclosure that have not been reviewed appropriately for hamp. it is a legal contract i don't think it is as voluntary as i keep hearing your requirement is that we have to look at those loans that are eligible for hamp. that is a legal contract. it is not really voluntary once they sign up. i am optimistic you will see more on that. i agree that no loans to go through foreclosure -- many of

us are part of that effort. and i think we have to focus on the unemployment rate it will threat all of our work, but that the proprietary mods, hamp mods, unemployment can really unravel everything. we work with the department of labor and many agencies to get an automated version of the unemployment use so that we get good information quickly when we are reviewing the eligibility hamp. many of them do not pass the npv with unemployment benefits. so that is very important. it is a very frightening issue, and as an industry, the government these delicate new products such as equity sharing, principal right down, refinances said the investors can get some of it back.

but we need some products to deal with principal writedowns. just a note about that. any modification, it is usually a courtesy npv test pass it. there's some interference with that in the modification. capacity, capacity, capacity is my focus. i'll close with that. >> phyllis, would you join us? i alerted ever want to your late arrival and i wanted to give you a chance answer some of the questions that we are having. >> just in time for the fund. >> that is exactly right. let me briefly introduce fellas. she's at the department of treasury, the director of the

office of home ownership preservation. before doing this job, phyllis was president of the washington area women's foundation, a terrific group here in washington that the fabulous work in the area. it is a public foundation, focused on improving the lives of women and girls in the washington area. she was president of the community banking group, 20 years of experience in sales and management and banking, it included citicorp and ernest and young. we'll work together where she is one of the great leaders and community development financing funding. thank you for joining us. just to recap some progress made, importance to us by the administration, hope now, and others.

rising, changing sets of issues with unemployment, paid options arms, interest-only pushing through the system, the subprime, right or wrong, has been largely digested. and now we have a whole new set working its way through the snake. as debbie said, a host of outstanding policy issues have not been fully addressed yet or dressed in the result. bankruptcy reform, a significant piece of balancing the interests of lenders and borrowers, defeated in the senate earlier this year. the future is unclear. principal writedowns, reductions, focusing on the discriminatory impact of this work, stopping for car sales who are in or applying for hamp modifications. it is a lot to deal with. i will turn this over to you. we have a terrific group of four people here who are deeply

knowledgeable about the world of modifications as anyone. let me ask people to come up to the microphone so that you can have all of those burning questions answered. oh, c'mon, you guys. i know there are? two here. let me start by asking you, as you have begun the work to move try mods to permit m -- to permanent mods, what are the issues? is there a sense that this is not on pays? what are you seeing are the obstacles, and what steps -- and the consumer advocates take? what steps do you think servicers could be taking the fix them? >> i would say that for the last

three days we have had teams of people from treasury out at the top eight servicers which covered 85% of the market looking at what they are doing. and we asked them to divide their population into those loans were they had all the documentation in and they needed to get decisions made and communicated to those bars, because they had taken time to bring in the documentation. we had another group where we had far worse to had some documentation in but not enough, and we as the servicers to address the specific plans on how they were going to get additional documents and, and then a group that had no documents and and another that had not been paying. what we saw from reports in the field, for those borrowers that had all their documents and am waiting on decisions, there are some decisions where there are

not clear guidelines in the program. we have been addressing issues at 36 questions a day on how they can interpret things within the hamp guidelines to get decisions made. the other challenge that we have been seeing is that there is a longer time, if you will, from once decisions get made it to get documents out and signed. they are telling us rather clearly that we may not see the completed close by the end of december, but they are having a huge increase in documents out to the bars. -- to the far worse. where documents are incomplete, that is the biggest challenge in my view. that is one where there are multiple sites to a very complex issue. some are saying that there are -- there needs to be further clarification in terms of income

verification. that is the largest but that, if you will, of documents where there is a problem. a second is getting that tax reform and the turnaround time from the irs. by that time they get the form back, the form has expired. they're stuck with whether they go back to the bar work or not. -- deparle or borrower -- whether they go back to the borrower or not. by the time they get to those, they are beyond 60 days and the irs will not take them. we're trying to do something about that immediately said that people do not go back into the queue -- esso that people do not go back into the queue. and we need to do better out reacreach where servicers have t

done their part. there've knowledge in places where they did not ramp up in time. that raises the situation where they are sending back packages, door knockers, and even get cards out to bars and they are not getting the documents back. -- to borrowers and they are not getting the document pack. that is where we are. it has been a fascinating research project. the real goal is to see how much we can push through or pull through this by the end of the year. >> grab one of the microphones. >> treasury is having a better time getting through the system them far worse are. it is a big problem. -- through the system than the borrowers are. we want to know what will happen to people who have submitted

their documents but the servicer does not move things along by the end of the extension period, and people can be very worried about sending their stuff and then they have not heard. the 60 days that they were told that they have is going to expire. i want to make a point that your comments really raised, not what you're getting at, but from the counseling world, one of the problems that we experience is that counselors are going to the same step over and over again with borrowers because of the system. we are eager to see this web portal where documents can be uploaded electronically. you don't have to worry about fax being jammed. we have a network of councilors who are working hard with far worse going through the same step repeatedly because of the problem at the servicer and and

are not being paid for that. -- at the servicer end and are not being paid for that. there is not out there to pay for those services. and it is not structured to lead and agency keep staff and pay for staff. that is another piece to talk about this morning and needs to be addressed if we get to this crisis. -- if we get through this crisis. >> i am with the arizona consumer council. tell those in -- television and arizona has been flooded with people offering solutions to their problems. in addition to this, but we've done phone calls that are going to people, telling them that they have a solution, and these people go to the people and then there are up from costs. they train their assets with these upfront costs.

and after that com, they get up after what appeared they simply do not know where to go. i did not know whether you had any succession -- suggestions that we can assist them in trying to save their homes before their loss? >> without staff resorting to fee-for-service, and other sources? >> from our perspective, we recognize that foreclosure scams or a huge problem. -- are a huge problem purred on our web site, we have a lot of -- are a huge problem. on our web site, we have a lot of information describing what these are. it makes borrowers aware and

make it clear in all our literature that making home affordable programs are free and you do not have to pay. that is a sense of what our efforts are. there is a broader group that fannie and freddie and hope now and other groups are part of with government agencies specifically to target mortgage fraud through a combination of public awareness campaigns, prosecutions, and what not. i think they have a web site. stoploanscam.org or something like that. it should have some resources. >> we'll work on prosecuting some companies with hope now has a witness. our web site was mimicked,

people calling up and saying that it was hope now. i would call up and ask them, who are you? and they would say that they were the hope now alliance. and i would say, really? the ftc is where consumers complain about that. we have literature that we hand out at our at our reach events. i would direct those people right into the ftc. consumers have to go there directly. >> can they obtain materials from hope now to distribute to their constituents? >> absolutely. >> and the psa's would be available for local consumer organizations for radio stations? we will let you know when that turns up.

>> it is coordinated. of what to -- i wanted to add an ironic note to the question that you read. many of the servicers have hired third-party contractors to go out and knock on people's doors. ironically, some people actually got the message about the law cams and they are now working with those people. what we hear is that a third- party contractors do not identify themselves as coming from the servicer. it is some other company, and the borrower, who has heard do not get sucked into one of thesescams will not deal with them. it seems like it should be an easy fix that has not been fixed yet. >> the morning. i'm with fannie mae. i particularly want to say how much i appreciate your comments about the loss of wealth to the

minority communities, and as lenders retreat, you know that is only going to exacerbate the problem. in other ways, something was not mentioned today in terms of foreclosures, what we hear from some of our partners, strategic foreclosures three families who are not in the delinquency situation but a situation that may be more appropriate for a harp, which we did not talk about today, deciding to foreclose and in some cases they have investment properties, they will foreclose on their primary residence, and move into an investment property. or you have a situation where the family -- the spouse may decide to go purchase a home and foreclose on the current home where the mortgage is not in both parties' names. i am wondering if in some of the outreach, hope now considers

doing harp the dance or do they focus exclusively on the refi portion? >> the home affordable refinance program. i'll be honest with you. >> some people may -- may not know that your >> with fannie mae and freddie mac, you can refinance up to 125% of pay equity loan. and it was meant to be held for homeowners. it was meant to be a principal write-down opportunity with an equity sharing upside. i am not convinced and this is not anything negative about it. it is a great attempt but we need a stronger refinancing product that deals with negative

equity on what principle can be written down to get you into those products. and that equity sharing going forward, because we have not seen the momentum in these programs. i do not know it is reaching the population of negative equity across the country. douglas i don't know that a lot of families are even aware of the refi. >> we should talk with that -- talk about that. that would help. >> last question. >> i counsel people locally go into foreclosure. those foreclosure scams were people reach out and request up- front funding are legal. i've seen them in d.c. calling them scams are misleading because in most in this sodalities -- -- most

municipalities fairly low. it's unfortunate but keep that in mind. although the treasury program is very well intended, it is not indexed to the price of the home. as a result, just as we have seen the first-time homebuyer credit stop up the demand or supply of the low-priced homes, it strikes me by not making it based on a percentage of home by you, we're emphasizing homes on the lower end and we name -- we may not be reaching to the higher end. if that thousand dollar payment makes a hundred thousand >> home mortgage modifiable but does not make the $400,000 home

modify out, i wonder if you would index that based on percentage. >> the indexing of the percentage of the servicers. i just wanted to make that clear. >> maybe we can flesh that question out a little more. the basic framework is that the loan has to be a performing loan. do not confuse the up front servicer incentive fee, used to incentivize them actually modifying loans, with the dollar for dollar support from 38% to 31%. that is where you would get that affordability mattress. we do not really look at the size of the mortgage, but just what can be done with it, if that makes sense. the goal is to predict the servicers will write it down to

38% debt to income, and then there is a dollar to dollar incentive to bring that down to 31%. and the size of the mortgage does not matter. >> are you see more success with lower-priced mortgages than higher-priced mortgages? have you seen data like that at all? >> the data that we have seen, it is too soon to tell. you can do an informed basis on that. >> i would add that part of the effort around this conversion tried is to get that kind of data to look at the outcome of the programs. there is acknowledgement with the treasury that the programs started in march of last year and it was under development leading up to that in a very different home market. one of the things that is always an ongoing process is looking at how the program may need to be developed and adapted to

changing market conditions. but right now it is too soon to tell. >> to wrap up. i think this question will gain more urgency has pay option arms -- as pay option arms reset. i suspect a higher proportion of these loans might have been financed with these kinds of loans. and there, hamp mechanisms through no fault of their own is a very ineffective tool. they are already paying very little interest, so lowering the interest rate on that home is not going to reduce their payments efficiently. i know the administration is aware of that. we have brought that to their attention at all different angles. this is where principal reductions may come into play. we have another panel. i see people filtering in and we want to keep on schedule. please join me in welcoming -- thanking our panel. [applause]

>> more now from the consumer federation of america's panels. this panel looks at the government plans to provide new consumer protection against consumer lending. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> we have a very distinguished panel who i will -- who i will introduce in the second. we only have an hour. we have lots of thoughts and lots of ideas, i have asked our panelists not to actually have opening statements. i am just going ask a series of questions and we will go through where we are today, the lack of consumer protections, and why we are where we are today -- what is happening in terms of consumer protection right now between what the federal reserve is doing, but hud is introducing, what is

happening in the congress, and the third question i will ask is, what else needs to be done? what is your model or regulations seem to look like? i am the executive director of the national association for consumer advocates. i also run a project called the institute of foreclosure or recourse systems. we find and train attorneys around this country to represent homeowners in foreclosures. it is pretty clear to me and my colleagues. to my immediate left is kathleen ryan. she is a senior counsel for the federal reserve board division of community affairs. forgive me for reading. otherwise i would screw it up. she is primarily responsible for the drafting and interpreting the rules implementing the truth in lending act she is also working on matters on the

foreclosure at. the equal opportunity credit act. before joining the federal reserve, she was an attorney with the department of justice. she graduated from the washington college of law and american university. and a proper person from the government to talk to us about this. to her left is john courson. he is the president and chief executive officer for mortgage bankers association. he became the association's president -- the by allied has said he is going to become the president in january 2009. my calendar tells me that we're past that date. he had been involved in the mortgage industry for over 40 years. he was chairman in 2003. john became has a lifelong career working for a company in denver. he really has been in the mortgage industry for a long

time for it before completing his degree, he originated loans as a producing bank manager in the denver suburbs. after graduation, he worked as a loan officer for of both commercial and residential mortgages where he would take over the branch office and become the president and ceo at its michigan headquarters. his president and chief executive officer of the central pacific mortgage officer. from 2004 to 2008, john courson served as the director of the california housing financing agency. certainly a wealth of knowledge for the market had -- industry. to john's left is mike calhoun, president of the center for responsible lending. truth in advertising -- i have

known him for quite a long time work on this for a long time. i will be brief. he works for an non-profit research organization dedicated to their terms for low wealth family. cr.r.l. has worked for regul ations to modify pay that lending and other three he currently serves as the vice chair of the federal reserve consumer advisory council. certainly we have a very distinguished panel to talk about these topics. we would jump right in. my goal is ask questions. feel free to interrupt each other if someone says something that you find incredibly provocative or say that you really want to agree with you. which may not happen, but we

will see. [laughter] and i'll do my best not to an sec -- and serve my own personal opinions. the first question, i will start with john. as we all know we're in a world where we had this terrible mortgage market collapse. foreclosures are happening, loans were made that should not be made. how are the problems that we're facing today, how much was a lack of effective policy-making and a lack of good regulation on the federal level? >> i thank you for the question. has he read my biography, the years -- i had been in the business for 50 years. don't think i shuffle around and eat soft goods in the office. over the last 24 months, what we have seen is remarkable.

my take is that first of all there is lots of blame to go round. we had incredibly rapidly rising real-estate prices around the country, particularly in the coastal areas. we had an incredible amount of excess of liquidity in wall street seeking investors. we had real estate and home builders pushing to sell product into this liquidity. they're pushing prices up. we certainly had loan officers and mortgage folks that were originated products to shoot into the securities, holding these new products that are out there. we had borrowers who clearly were pushing and incentived to move into properties, the price of wage and payments of which were going to become problematic.

we have lots of blame to go around. but i would say also that we have to be careful as we seek to correct some of these issues, that we do not overreact. i think the last thing we want to do is stifle competition and put fences around innovation. but i would also say from our industry standpoint that clearly it is time that we need to make sure that we look at product parameters. core products versus other products and how they get dealt with in both the origination stage by those originating and borrowers. it is incredibly important that we take a look at the credit box. we know that credit became so easy, that in fact far worse were able to be put into products and into loans that turned out to be a problem for them.

i have gone back and the market will correct some of this. and from a lender standpoint, those long products -- those loan products, we have the responsibility to make sure that they are transparent and there needs to be accountability. as we move through this panel, we will talk about how these goals are going to be cheap. >> mike, talk about where we are today and what was lacking from regulation from your perspective? >> as many of you know, the center for responsible lending is also affiliated with the community development financial institution, landing in 48 states. we take 100% of the credit risk on the loans that we have done. we are actively involved in the modification efforts that you

have talked about after last session. i think we saw a couple of things here. first of all, we saw a great demonstration of what is referred to as bad credit driving good credit out of the market. .

>> as opposed to role-based regulation. i remember discussions we had during the past four years, they said they were adamantly opposed to any rules for their lending. they had rules that said things like there should not be excessive fees. there should not be excessive payment penalties. you should assess the bar were's ability to repay. that goes back to guidance in mid-1980's. none of those stand up to the pressure of the market. this is what it takes to close the deal and put it into the secondary market. if we do not have rules and do not on line with market incentives, one example i give as well we support fiduciary duty for brokers, california had

a fiduciary duty for brokers. i do not think many people would hold california as a model of responsible lending over the past four years. it was a individualized inquiry verses if you want to close a deal, this is what you need to do. >> thank you. i want to have this discussion before we move on and then go. you talk about accountability and transparency. what role did you see with the failure of regulation where the system had a lack of accountability and can you envision a regulatory structure that could make the market -- make the market move in that direction? >> i do. i think the other piece of that, particularly for non-depository lenders, the inconsistency. the regulation comes

substantially at the stakes. i have been very active in a number of states and it is very inconsistent as to what those regulations are and enforcement. it is one thing to have laws on the books and we have had a lot, but a lack of enforcement of that has been as much as any. on the transparency and accountability peace, i know to will be talking about disclosures, we have a process that consumers do not understand. to be very candid, i think a lot of people originated those loans did not understand. it is so complex and the ease of entry into becoming a part of the industry in states was too .

we support the safe act. that is going to get accountability that we do have a federal standard that is going to require education and licensing. those are the types of things we need to do across the board at a federal level to ensure that all borrowers play by the same rules and standards. >> thank you. let me ask you a question you probably cannot answer. you are responsible for lending since 1994, they have had the ability to declare practices and unfair. there has been a lot of movement. was there a failure? you can give the obvious disclaimer before to say.

you look back at the last 14 years and the lack of rulemaking, were there signs that could have been addressed? >> for the record, my disclaimer is that i am on the staff at the federal reserve board what i say represent my own opinion, not necessarily that of the federal reserve. in looking back, the board had this authority since 1994. we did use it in the early 2000's to lower the triggers to lower the mortgage market. we began to look into our own institution to see underwriting weaknesses and beginning in 2006, which began the process of looking very closely at how we can use our authority to address these abuses. chairman burnett keys book many

times about the causes of the crisis and -- chairman and 90 spoke many times about the causes of the crisis. he has said better than i could. we agreed that had there been the type of regulation that we talked about, very clear with enforcement in place, certainly a lot of heart troubles would not have -- a lot of our trouble would not be as serious. the board's -- the rules issued in 2008, that was one of our primary charges. to look at what happened and insure that it does not happen again. >> thank you. you answer that extremely well. let me ask you an easier question. what about the role you instituted in 2008 and talk

about the proposed lending role you are considering. >> in 2007, we looked at the practices and the subprime market and help reduce this unfair and deceptive authority to ensure the something like this does not happen again. we proposed and finalized rules that apply to virtually all creditors, those federal supervised and not, and at preventing some of the underwriting abuses in these -- in the subprime market and the broader market. there are four basic protections. there is a requirement that the assessment is made, they have to document in come, escrow must be in place, and prepayment

penalties are restricted for lunch with payment shock. with the payment can change in the first few years of the loan, there cannot be a prepayment penalty. for other loans, they are restricted for the duration. we thought these were important protections and clearly supported by the data we looked at in developing rules. there were also some protections put into place for the broader mortgage market. we worked with the ftc and look at advertising copy and targeted specific practices that we believe were deceptive or misleading. several of these, just to throw out an example, the use of the word "fixed." we now regulate how advertisers can use the word fixed. other practices in the broader mortgage market that were targeted were abuses in servicing and abuses with

appraisals. there are certain practices for servicers that are no longer acceptable and appraisals. the board prohibited brokers and creditors to state the value of a loan. those are the rules and those went into effect october 1. the escrow rules have a later time date because of some of the issues setting up that infrastructure. that was not the end of the board's response to the crisis. as many of you know, we put out in july a comprehensive overhaul of the disclosure scheme for home equity lines of credit. we used consumer testing and developed disclosures that are much more risk-focused. it attempts to get across very clearly and plainly and concisely what the risks they

are facing could be and giving them the information that they need to try to determine if this loan is good and affordable. in addition, we have proposed some restrictions on originator conversations. the board have proposed a disclosure-based approach to the problem of premiums and some of the incentives that those provide for originators to bar loans that are not good for them. the board found that that would not work. the staff was charged with continuing to consider how the board might address these concerns. in this proposal, we have proposed restrictions on a rigid compensation and on the retail side. they are aimed at neutralizing that incentive and incentive- based payment to steer borrowers to a higher interest rates in a

way that we believe is unfair. that proposal is coming up december 24. it is a large proposal. we urge everybody to look at it if you have not already and comment on it. if you do not have time to read it, look at the disclosures and tell us what you think about those. that feedback is tremendously helpful. we need that feedback. >> thank you. i want to ask the other panelists to focus on what the federal reserve has done up to this point in what the proposals are. let's focus on what the federal reserve has done. mike, if you want to comment on the rulemaking that the fed did and the proposed landing. what did you like about it and what concerns do you have?

>> i think the first point is that this is highly significant rule making. it has been somewhat under the radar given all the publicity about the activities on capitol hill. we should focus particularly on the pending rule making regarding yields for premiums and other aspects of mortgage lending. we have applauded the fed for their work on the higher cost loans that are not the traditional high cost but are referred to as subprime. those are important reforms. the work on the ysb's had been eight long lingering problem. we worked on a roll at hud that

would have largely eliminated them. that reversed in 2001 which essentially created a complete block of the hud limits. as a result, we felt -- we saw them explode after -- over the last six or seven years to great detriment. we talked with a lot of lenders who said that they feel they are being held up and essentially brokers are coming to them and asking what the best bid is. one of the most important reforms in the proposed rule would be to prohibit mixing back and in front and fees. a broker could not receive both a payment from the lender and an

up-front fee from the broker. our research strongly supports that. it shows that when those fees are both present, they tend to be additional fees. the theory of justification is that it is a substitute and you were getting a credit of up- front fees. there have been numerous studies by academics, a recent one was released by hud that shows when you release those fees, just pay higher fees, they are to positive. they are extremely difficult for borrowers to understand. it is not a problem beckon be addressed by disclosure. >> this is right and our

wheelhouse. we have spent an incredible amount of time and are still working on the new regulations. i will limit my remarks on that but i will like to come back and talk about disclosures later. at this point, in terms of compensation, i want to differentiate a little bit. i have already established the fact that i am a senior citizen so i will tell you that i remember the first time there was ever premium pricing on a mortgage loan. that totally changed the way people were able to be compensated. a yield-spread premium in itself is a good thing. when it gets mixed in with the compensation, it is going to be paid to the originator of that ysp where it goes off the tracks. i have testified many times and i look at them as a teacher totter. added interest rate at par with

the bar were placed there on closing costs -- bar work pays their own closing costs, they pay one or more discounts. if they truly pay that to bring it back to win equilibrium, that is one side. the other side is when the borrower wants to pay a higher rate and that is used to pay costs directly associated with the loan. that was the concept when it started. where it goes up the tracks as when it gets involved in the originator compensation. but we talk about that. we represent the mortgage bankers. the rule that we are preparing our comments on and also the same issue as you know is included in multiple locations on capitol hill, we look at that and say that if we are going to change compensation and if we are going to go back and look at

features in loans that caused issues, i say to that let's take increase board -- grease board and looked at all the loan products and features that we know gave us the issues that we face today. prepayment penalties, stated in come, we could go through an entire list. if we are going to limit compensation, i think it is appropriate for those loans that brought us the problems we have to limit originator's compensation. i have no issue with that. the core products, the 30-year fixed, those loans have been here day in and day out. there is tight competition. are a worse have gotten those loans and we cannot have issues there. i think we focus on the products that brought us that.

it the other things in the debate that has been interesting, there is a word called underages. we have to be careful when we craft these loans. you do not want to craft a loan, many times an officer will be willing to reduce the amount of compensation they get to still retain that loan to compete with another lender that has offered another -- offered another and better right. to do this, we know what we are trying to solve for, there are interesting issues on the downside that we also have to consider. >> i want to save time for questions. a couple things are pending in washington.

the federal reserve working with hud and fha, we have the new rules coming in terms of the closing process. are you working with the federal reserve on that? what is the level of operation and what is your take on what is going to be happening beginning jan., one? >> the board has always been in support alwayshud's -- of hud 's efforts. we think this is a significant step in the right direction. we think there is a benefit of exploring if we can combine and better harmonize the scheme. that is something we are actively engaged with hud right now. we are in discussions with them.

we are fairly confident that we can improve this for the borrowers and the industry. consumer testing for both has been done. if they cannot be combined, in what ways can we make this work better and more synchronized fashion for everybody? at the same time, hud's rules will take effect. >> i am like a dog with a bone. i started on this 12 years ago. i came in from california twice a month. to the department's credit, after 12 years, you got a rule out of them. my take is that i think we have taken a step backwards.

we have disagreements. we have taken what i think was an in adequate statement to begin with an added pages to it to make it less understandable. we have moved in the wrong direction. clearly, as we talked about, there needs to be one form. we need to combine the forms. borrowers cannot understand them. they want to know very simply, to cash they have to bring to closing and what is the payment. we also know that we have to tell them more than that. by putting it in multiple pages is not the issue. the issue of tolerances and so on, we were supporting tolerances on closing costs 12 years ago. it must be simplified and become one form. we have to have them all in

apr. if anyone called anyone of our branch offices and asked what our apr was, it was either an attorney or a regulator. it was not a bar over. -- it was not a bar a were -- borrower. we need to show them if they're getting the best deal. >> do you want to respond? xdç>> on the hud role, we thint was in advance. to add conflict, i would disagree that one of the problems was that bar a worse shopped on the basis of a monthly payment whether they could afford that first payment. the market tripped up that first

payment and that is one of the big reasons we're in the mess that we are in right now. one of the very positive things about the respa form, the first page focuses on how you born borrowers about hybrid loan could be tripped up. -- about how your loan could be tripped up. we would agree that less is more. you very quickly hid information overload were adding additional things, even though you want them to be there, diminished greatly the value of the disclosure. what we have seen is mortgages are ridiculously complex. some of it is inherently so. we are not going to fix it with disclosure or even financial literacy. we should improve both of those

but we need to move back to rules that on-line market incentives. the fundamental problem is a loan that is upsold with higher interest rate is a more viable loan on wall street where they're going to buy it. wall street has a huge incentive to get those loans and everybody in the system knows those loans are more viable and everybody is going to try to extract higher fees from the originator to the wall street securitized their -- securitizer. you generally prohibit prepayment penalties. if you cannot block the bar were into the loan, the ability -- if you cannot lock feet borrower

into the loan, there is a limit on up selling. another broker will, and put them into a better alone. likewise with up-front fees. the major transformation in our system has been that revenue now comes from prepayment penalties and upfront fees rather than interest rate which is simple, transparent, and has built in market forces that prevent the worst abuses. i believe strongly that is the system we need to move back to to allow for exceptions but put very heavy protections on those that go outside of that box. >> one word about the annual percentage rate. >nobody would maintain that the annual percentage rate alone is enough to help consumers shop or to know what they're getting into, just like disclosures are

not enough. i think the annual percentage rate continues to have value for consumers and one thing the board has done it is to try to make that more representative by putting all the fees and costs in. we have tried a different approach to disclosure. in the proposed disclosure forms, the consumer sees the rates offered to them on a craft in relation to the average prime offer rate for the best credit around the country and in relation to the threshold for sub prime lending. it is a "you are here" type of message. we have been successful and alerting people as to whether they are getting a loan that compares to their credit worthiness. they could compare apr's and have good reason to think that

that is not what consumers do. this is an attempt to create that for them and given that context. this is the rate in this is the rate you are being offered by others. i wanted to alert you to that. >> we agree with that notion. the notion of an apr out exceptions that does not get confusing. that is a concept we agree with. congress is involved with all sorts of things. talk a bit about the big thing you have heard about is the financial product agency. what effect will that have?

we heard that bill may have that. what are your thoughts about the mortgage market bill? >> i will be brief. a few points, there has been a lot of focus on cfta. we strongly support the creation of cfta. it is not a cure all. we still need separate bills and that is the point that mr. frank is making by including in the package that he has proposed a mortgage reform bill that sends a definite -- sets definite benchmarks. cfpa, the primary principle and

the goal was to set up an agency focused on consumer protection with independence from the provincial regulator. we have often seen overlap between safety and soundness and consumer protection. quite often, there is conflict. one example that -- that we are focusing on is overdraft fees. they are safe and sound for banks. they have been devastating for account holders, particularly low income account holders that are driven out of the financial system. one of the most disturbing developments is on the senate side. there is talk about going back to where we all started.

we're branching the labels and putting cfta possibly back into the agency with a provincial regulator. that would be a major step backwards in our view. >> do you want to comment about that? >> we looked at this. we recognize that mortgage lending and mortgage banking industry has a loss of credibility in the eyes of regulators, consumers, borrowers, the press, we stepped back and put forth as a direct correlation of what is going on

a mortgage improvement and regulatory act. what we are advocating for is the one a federal regulator for provincial and consumer protection. we want to be like the banks. we want a federal regulator. if we think there should be a uniform national standard. every bar were in this country i -- every borrower will know what the rules are and everybody will follow those. we regulate everybody at the federal level. we have worked hard and are continuing to work hard to gain that provision into the legislation. hopefully we will succeed. it is a bold step for us. it is a step that we need. there are those that say, and i

have been on panels with state regulators that this sets their hair on fire, we are saying they play a very important role. they would help establish these standards. they are the people that could approve who does business in their state. they could do the examinations and enforcement. that is an incredibly important role for them. let's give all the borrowers high standards. >> i will pass on that. let me move on to the last question. we will give other people an opportunity. the last question is one that is more general. in some ways, you have entered it. -- you have answered it.

and a perfect world, what type of regulatory structure do you envision? these you want to talk a little bit about what you think market regulation should look like with the obvious the -- office disclaimer that you need to talk about the world going forward and what needs to happen? >> i have already given my disclaimer. i think we have laid the groundwork for a federal mortgage going forward. we should continue disclosures and finalize those revisions and get them out. take steps to make originator constitution fair for consumers. i think this would go a long way. i think other developments are excellent steps toward ensuring a more fair market for

everybody. we talked about supervision, enforcement, vigorous enforcement, level playing field, those are all very important things for having a well functioning mortgage market in the future. the board is taking steps with their increased supervision. all of these things will combine to make the world better for consumers and mortgages. >> i would go back to my previous statement because i do not want to put any more red meat out here. i think that the key is that we are taking some right steps. the disclosures need to be handled. there are some items in the cfta that are appropriate. the only caution is where is

equilibrium? i get concerned that particularly on the legislative side, we embed in legislation items that we do not know what the market is going to look like in five years. i am concerned that we do not stifle competition by taking the fulcrum too far. much of this will be dealt with on the regulatory side as opposed to the legislative side. we are vigilant to make sure that, any time you start putting credit criteria and underwriting criteria, loan criteria, into legislation, down the road, we are going to look at this and say we put a fence around some think we should not have. that is my only caution. >> i think the most important thing is to align market incentives. even in our depressed market today, there are a whole lot of

mortgages being made. to think that regulators or private enforcement are sufficient to oversee all of those, much less fix them once you discover and try to bring a remedy for a bad mortgage, it is damage control at that point. the best system is something that uses as much as possible to align incentives to encourage the most successful lenders to be those who offer fair and sustainable mortgages. that is not what we have had over the last 10 years. wright line makes it easier for lenders. i would urge that is the direction that% the market. >> if anybody wants to take questions, we will take questions from the audience.

when we are waiting for somebody to step of, you talked about a national standard and the role of state enforcement. what is the advocate response in creating a national standard? >> i think the best rebuttal to that is here we are after the greatest financial crisis that our country has seen since the great depression. everybody agrees it was caused by the problems in the mortgage market that set it off. we have been unable at the national level to enact mortgage standards that even begin to address the problem. to hold that up as the model that every time there is a problem at the -- in the mortgage market, we are going to go back to congress and have them enact a new national standard that is going to have

one rule across the country. that does not seem to be realistic in the context of our political system. the second is we did see localized problems. we saw a steady from the university of north carolina that showed states that enacted predatory lending laws to prevent some of the abuses in mortgages have done better in terms of foreclosures in this crisis. we also learn from those states that some of them went too far in some places. this is critical as opposed to have the federal government and congress enact a rule every time we want to address something. i do not see that as a workable solution. >> can i come back? >> please step up if you want to ask a question. >> we would empower the regulator to provide the

regulation and standards. we agree with you. that cannot happen through a congressional meat grinder we are talking about a regulator that would establish the standards. there are states that have done an excellent job in terms of passing laws and working at very high levels, much to the chagrin of many of our members. people might be surprised if you go into the state's and look at the consumer protection standards. maybe that is the national standard. let's look at this and be realistic. there is no question that the standard will have to be at a very high level. >> i think that will be the last word on that topic.

this will be a great debate now and in the future. does anybody have any questions for the panel? we have answered all of the problems that have to do with the mortgage market? i will ask another question we were not prepared to ask. this has happened within the last week or two. will talk about the billfha program and what changes -- we will talk about the fha program and what is happening there. what do you think about what the fha is doing in terms of their lending? >> our members are the originators of fha loans. i clearly think that the new announcements on insurance funds

were a wake-up call. i think the secretary and commissioner aggressively grasped that issue and even before the announcement of the fund, some of the steps they're taking and we have been working very closely with them. we have been advocating for higher net worth requirements for originators. we have been advocating for a higher credit standard. but virtually none of our members are originating loans that were based on the ha -- fha criteria. we had advocated for higher standards. we have been an active participant. fha was 3%. it is now maybe 40%.

it is a brave new world of more core products. the natural level of fha is going to be somewhere around 20% or 25%. it is an important tool for low to moderate-income buyers and first-time home buyers. we need to make sure that continues. >> the want to add to that? this will have an impact for low and moderate income borrowers. >> i want to speak against the often repeated argument that one of the core problems was that we tried to make too many homeowners. there were some borrowers who had no potential that got loans. our portfolio has been studied

and our bar wars that were subprime have performed almost as well as prime fixed-rate borrowers. it has been much more that these were junk mortgages and not jumpn borrowers. i think it is a mistake to dampen our expectations about widening homeownership to the american family. fha is a microcosm of what we have seen. their motto is a microcosm of what we have seen in the last years. there are the ultimate distribute model with very little skin in the game. they are 100% in shirt. -- there are 100% in shared. sured.

they are dealing with the core problem that we had over the last year. fha needs to be preserved. we support the efforts they have made to put more skin in the game. those lenders that sell the loans to fha are on the hook for any violations were there are correspondent lenders that make the originating of the loan. you have corresponded lenders that are rabbinate -- that originated fha loans. presently, if the correspondent lender in cages and fraud, the lenders are not on the hook for that.

that is a lot of the problem we saw in the mortgage market and we applaud them for taking the steps to address that problem. >> thank you. >> i am a consumer advocate from sacramento. i am curious with regard to cfta, the industry's or your thoughts on every kid better looking out for consumers -- on a regulator looking out for consumers. >> that is my home town. we really have not had a dual regulation. we think it is a mistake to separate the provincial

regulation from the consumer protection regulations. clearly, we need to have resources and the standards created in those regulators to assure it is at the highest level. from a mortgage banking standpoint, we would take that federal consumer standard that will be promulgated through the cfta and would give a federal regulator to the provincial side. >> because you want to avoid what some people are calling adversarial relationships between regulators that are dealing with security and those dealing just with the consumer issue?

>> i am not an inside a washingtonian. inter agency an interdepartmental push and pull tactics are not something that is new. when you have one lender tow regulators, many of the functions -- 1 lender with two regulators, how did you handle that? everybody is going to try to lob the ball to the other guy. >> i would like to comment on that but i will not. >> we seem to work quite well with the idea of not having the environmental protection embedded in the department of commerce.

businesses are somehow able to deal with the department of commerce and the epa and with the department of labor and a bunch of other agencies. there are a lot of models that show that this could work and there are safeguards in the cfta proposals that require coordination. if you put them together, they are on the seat. -- on the hot seat. the foremost concern is going to be safety and soundness. that will conflict with pressure from consumer protection and those in need to be balanced -- and those will need to be balanced. >> my question is looking forward to see what the impact

of this crisis is going to be on consumers and credit scores. we are going to have millions of people who have gone through foreclosure and have been delinquent and have other credit problems, their credit scores will be in the tank. these have been a critical factor in making decisions about who has access and at what price. and what the comment about distinguishing between just borrowers and just mortgages, there are a lot of borrowers who were sold a product that was a jump product. it hit on their credit score and that might not be reflective of their actual risk but rather the fact that there were sold a jump product.

what do we do about that? do we discard credit scores? do we retool the system? do we will people out of the market for how many years it takes to rehabilitate their credit? how do we deal with the problem? >> a pretty big question. anybody want to take a shot? it is a very -- >> i am the new ceo and may be the shortest term. i look at credit scores and having been in the business for years, it is just one tool. that is the key. underwriting is not a science. it is an art. where we are going to have problems is where different regulators start to establish floors of scores for products.

depending on where that floor is, there is a notable difference between what happens between a score four different scenarios. where we have to be vigilant, if we put the floor there, what does that mean? what does a person that is analyzing somebodies credit, what is their ability to make a credit judgment? underwriting is looking at the bar were in the loan and making a credit judgment -- taking a look at the borrower and the loan and making a credit judgment. i cannot think there should be a hard fast rule that says they can or cannot. it is a tool but not the only tool. >> part of the problem is that there was sent over dependency -- there was an over dependency.

is that credit score became overly important, are we going to let it continue to be overly important or are we going to be able to ignore it for a large segment of the population because so many were damaged because what had been happening. can we ignore credit scores and go back to the traditional underwriting? i think that is what you are saying. thank you for both the question and the better rephrasing of the point about what the cause of the crisis was. just as before, it is the secondary market that is establishing the standards for lending because very little lending was done on a portfolio basis for the lender was holding on to the loan. if you do not solid, you do not make it. -- s if -- sell it, -- a if you

cannot sell it, you do not make it. i think there needs to be pushed back for the fha for standards and pricing. there was very onerous pricing put into place for borrowers with lower scores because of being put into bad loans. one problem is that we are in new territory. we have not gone through a crisis like this generated by loan products before. how do you show -- how you know what the characteristics will have on the risk of future default? everybody is airing on the side of caution. -- erring on the side of

caution. we need to maintain channels of credit, particularly for low income borrowers and in communities of color. >> thank you. i want to thank our panel. i think as you hear different perspectives, there is room here to solve this problem. i think there is a collective sense that there is something broken and there is room to improve. as you listen, there is room for it to happen. i want to thank the panel. [applause] c-[captioning performed by

national captioning institute] [captions copyright national cable satellite corp. 2009] >> as the senate continues to debate the bill, the health care how is a key resource. you can read key versions of the bill, watching videos on demand, debate from the house, congressional hearings, town hall meetings, and president obama's meetings and speeches.

it is at c-span.org/healthcare. >> who are the key players? >> senator ben nelson and senator orrin hatch. they have introduced the amendment and hope it passes. i can confidently say it will probably not. >> what will the abortion amendment do? >> it would restrict abortion coverage by insurers to operate in these new exchanges. it would forbid the public option from covering most abortions altogether. the only abortions it could cover would be those related to rape or or the mother's life is in danger. >> there seems to be another holdup. what took so long? >> democratic leaders wanted to get rid of it last week.

senator hatch objected to that. he said anti-abortion interest groups had not had enough time to review the amendment. >> can you name democrats that have indicated they may vote for this amendment? >> there are two of them. there may be two others but i am not sure. >> committee republicans will vote against it? >> most of them. the only two that i think will not are those from maine. they like the word as it is. >> what of the possible implications -- what are the possible implications if this passes? >> if it passes, it is likely they will have senator nelson's vote. if it does not pass, senator nelson said he will not support the bill unless some sort of

more restrictive abortion language is added. >> more -- with more health care debate possible this week in, are you getting a sense of the mood of senators? >> we have been staking out these meetings. when the more liberal senators come out of the meetings, they seem to be in a good mood. but they say things went well. charles schumer said that he thinks things are moving along well. when we talk to moderates, they are not so sure. they did not think they're that close to a deal on the major issues. >> how does it look for getting it done by christmas? >> be iffy -- iffy. senator reid is trying to pull final changes to the bill together. a spokesman told us yesterday they hope to start fin