>> leaders like leon panetta talked about health important it is to be financially sound because of we are not, devoting money to national defense will not be worth it because we will not have any money to devote to it. >> high-school students for al 57 -- for all 50 states to share their observations and experiences as they interact with members of congress, the supreme court, and the

president. >> there is a lot of partisan ship going on in congress. i am reaching across the aisle. everybody who is here has said that and it makes me wonder why everybody is saying that but it is not actually happening. there is a discrepancy between what they're saying and what they're doing and i never thought about that. >> the u.s. senate youth program tonight at 8:00 eastern on cspan's "q &a." >> this week, sean donovan, the secretary of housing and urban development. we have two housing corresponds to help us with questions. nick will start us off. >> how you measure success of your efforts to solve the housing problem in the u.s.? >> nick, as you know, there are lots of different ways to look

at the housing market and there are lots of different housing markets across the country. it is very different from what is happening in washington or florida or nevada or other places. if i have to look at it over all, at one level, the biggest measure that we can have is whether the average american once again has faith that buying a home is something that is a safe investment in the long term. it is not just a place they are going to raise their kids, where they will be part of a neighborhood -- all of those benefits of buying a home, but it will be a safe investment. ultimately, that comes down to if we will come down -- we will get to a place where housing is rising consistently again in value? we made a lot of progress in many areas. the number of families falling into foreclosure is down by more than 1/2 cents the president can into office and we have seen the

best winter in home sales that we have seen since the beginning of the crisis. we are clearly making real progress. ultimately, the final measure of whether we have broken through and are in full recovery is when housing prices across the board start rising in a consistent way. >> it has been four years we have had home prices fall, foreclosure levels are still very high. do you think the administration has done enough to tackle some of these nagging problems that have been holding back the economy? >> we have made real progress. delinquencies are far down from where they were when the president can into office. the number of people falling into foreclosure is down by more than half and, in fact, if you look over all at where house prices are, they were falling for 30 straight months before the president came into office. they have been rough lake level.

they went up the first year and then they have come back down. in the last few months, we have seen non-a distressed housing prices -- the typical family's selling their home -- those prices have been rising. if you look at the data, it looks as if the distressed ponselle's like foreclosures, those are the prices that have continued to drop over the past few months and that is really concentrated in the markets that were hardest hit. there are lots of in the kid is that we're making success. there is no question we are better off in terms of the responses we have had than what was happening before the president can into office. there is no question we need to do more. i would point to two critical things we need to going forward -- the president has taken a whole set of actions on this front. we need congress to act. we have given the ability of

fannie mae and freddie mac and fha boris, they could save $3,000 per year if they could refinance. we have done that or we can but we need congress to act to give every underwater american who is paying their mortgage the ability to refinance. that is one key thing. and then we need to do more for the markets that are hardest hit and particularly for what we call the shadow inventory, those homes and dragging down home prices like distress sales and the president has proposed a project rebuild that would put about 200,000 construction workers back to work renovating and rebuilding homes that are sitting vacant, dragging down all property values. if we don't sell those homes, we will not solve this problem. if you live next to a home that is going into foreclosure, your own home loses 5-$10,000 in value as soon as the sun goes on

the door. >> the administration is putting heavy pressure on freddie mac and fannie mae to do principle write desperate what you think they should be forced to go ahead and take that approach? >> this is not about force. this is about making the right decision for homeowners and for the taxpayer. there is a lot of agreement -- many economists and those who have looked at this data believed that where you have someone who is deeply under water, where you are in a situation where there is really no light at the end of the tunnel, no sense that even if you pay your mortgage for five years or even a decade that you will get back to building equity again, families will give us some points. we think the data shows that.

the issue is about the numbers and the analysis and whether this is not only good for homeowners but also good for the taxpayer. we believe with the changes we have made over the last few months that that case is compelling. my experience with ed demarco, he is dedicated to making sure that he follows locke and what the conservator is required to do. we believe based on the analysis we have done that the evidence is that principle write-downs should happen in cases where it is not only good for the homeowner but good for the taxpayer. >> mr. demarco is the conserve water in charge of freddie mac and fannie mae. there's also a lot of concern that of the borrowers who have mortgages from fannie mae and freddie mac who are under water,

three out of for paying. if you begin to forgive debts of people who are not paying that the 75% of people who are paying may actually default and drive up costs for the government? >> the vast majority of homeowners don't operate that way. they know that their home is where they will raise their kids, they are part of a community there, the home as much more than an investment. we really know this from studies we have done that the vast majority of folks are not going to just put all that at risk to default on purpose on their homes. what we are talking about is a small group of folks, maybe demographically single folks who are not giving up those same

things to see that there may be, from defaulting, that they could move across the street. there is a small group but we should not punish the vast majority of folks where strategic default is not a risk just to fix what may be a risk with a small percentage. i would also say this is not that hard a problem to design around. take the mortgage servicing settlement we recently reached. in that case, we are putting in protections so that we avoid some of the risk of strategic default. many of the services are simply going to set a date -- servicers are simply going to set a date based on delinquency and there is nothing you can do. you can't make yourself eligible. you cannot start to default on a mortgage and all the sudden get a windfall from that by getting a principal reduction. while i understand the concerns about this, the vast majority of

homeowners or not at risk for strategic default and for those where there is some risk, there's a way to design it so that any program can avoid those risks better your message to mr. demarco is he should not be worried about moral hazard. >> i don't think as said exactly that. this is a reasonable concern in certain circumstances. there are ways to be careful and design around in order to insure that it does not become a real issue. >> de marco is doing his own analysis. what is the comes back and mid- month and says the moral hazard is too high and it is too costly for these two firms that are now in the hands of the government. what next? >> again, my experience is that

what he is focused on independent of whatever his personal views may be, what is his legal responsibility and what does the analysis said. i cannot sit here and prejudge what we might do if he comes back with a different answer. we will have to look at that analysis and understand what his concerns are. there has been a lot of focus on the principal reduction issue but we have worked very well with fhfa. we have made millions more families who are current on their mortgages and other water eligible for refinancing. we have made those changes available over last few months. we already have over 400,000 applications for refinancing for underwater bar was just among five lenders. we are very encouraged by the under -- by the results. let's not just focus on the principal reduction question. there are many ways we can be helpful to homeowners and we

have been working well with fhfa to make those available. >> you also oversee the federal housing administration and the fha as a serious number of borrowers who are under water because they only have to put down a 3.5%. do you think the faa should consider principle forgiveness for borrowers who are deeply underwater on fha-backed mortgages? >> we are doing principal reduction within the authority that we have. we could do partial payments of claims and other processes that help owners stay in their home. if not full forgiveness, in the settlement, we are going as far as we can under our current restrictions. we are looking at whether there are other options and considering whether we might need legislation. that is clearly something we are looking at. "we have been aggressive.

fha did not get into the depth of problems we see with many of the subprime or other lenders. we have been very aggressive on a range of strategies to kelp keep homeowners and their homes. we have done zero well over a million of lost mitigation claims and we see a re-default rate that is below 15% on those loans. we are having success with in the tools we have but that does not mean we arkin -- we're not considering going back to congress for additional tools. >> what is your thought process -- the fha has gone through its desert -- reserves. >> we are seeing improvements in the fha portfolio. only in certain categories are we seeing improvements.

we have a number of lenders that have held off for some time on foreclosing. so the number of homes that have been building up in that category has grown. second of all, we have made a lot of loans in the wake of the crisis. fha has been a key lifeline to many homeowners around the country. the size of our portfolio has grown. as the newer loans start to reach a point where you typically see a lot of defaults, that is where those loans are now and that is what is trying -- driving the increase. the underlying numbers for fha are improving significantly. to the second part of your question -- we have taken a series of steps to make sure that fha remains in a positive financial status. we have just recently increased premiums. as part of the settlement

investigations we have done, very intensive investigation of all of our biggest service service and now that the settlement was just approved this week, we will very shortly be getting $900 million to inject back into the fund. all of those things along with the broader progress we see in the economy make me confidence that fha is headed in the right direction but we also have to. to. be vigilant. if we see new signs of a slowdown are other problems that might cause the fha fund to go negative, we will take further action. >> we have about 10 minutes left democratic is tight right now and without the fha, there are many folks who would not be able to qualify for a long and that would make it harder for the housing market. do you think that taxpayers

should be willing to accept some loss loss on the fha given the important role it is playing? >> there is no question that we have to balance the risk that we are taking with taxpayer dollars, after all. when we came into office, there is no question that fha was taking too much risk and we were funding loans with seller- funded down payments that were effectively no down payments. we have ended that practice and taken a number of steps to decrease the risk. we also have to balance that risk and recognize first that there are millions of families who could be successful homeowners. they will only be able to access homeowners with a limited down payment. we think those are good risks to take of those are homeowners

that have shown they can be successful and responsible. second of all, if we go too far in either raising fees are cutting access, we really risk cutting off our nose to spite our face in the sense that we could stall the very housing recovery which is the most important thing we can do to help protect the taxpayer by helping to fund. that is a very delicate balance that we have had to strike. i think about what are reasonable losses every day for the fha. we think we have gotten that balance right. we have strengthened the fund. we have gotten tougher with our lenders and we have increased premiums, increased underwriting standards in terms of down payments and other things but we don't want to go too far. there are some out there who are calling for steps that do go too far. i am concerned about those who would say there should be no

avail ability whatsoever of low downpayment landing particularly for first-time home buyers of -- or those who have been traditionally excluded from the market. >>, more will we be relying heavily on freddie mac and fannie mae and the fha to support this market? what is your time frame to wind down freddie mac and fannie mae? >> we are taking the very steps laid out in that strategy. it is having an effect. the fha mortgage share has been shrinking over the last few years because of those steps. the increases in premiums that we talked about that were put into a fact, the changes we have made on underwriting, we did support the decision of congress to lower the loan limits for

fannie mae and freddie mac. we were support of of doing the same for fha. we are following through on the plan that we laid out for how to shrink the footprint of fannie mae, freddie mac, and fha. we have to be careful about doing this. the worst thing we could do for the taxpayer is to do something that would set a tail spin off in the housing market. if we withdraw credit to quickly or make changes to quickly that would hurt the availability of credit, we will end up hurting taxpayers. the most important thing we can do is to make sure that all the existing investments, forget about new loans, but all the existing investments are protected. as goes the housing market, so goes those investments. >> your administration has talked a lot about wanting to bring private capital back into the mortgage market and you

helped shepherd the $25 billion mortgage foreclosure settlement that was signed off by a judge this past week. investors have raised a number of concerns. they don't like the fact that banks are able to get credit for their punishment by writing down loans they don't own. will that make it harder the way that investors still they are being mistreated to bring private capital back into the mortgage market? >> let's look at what the settlement did. we had a situation and where there was the potential for 50 different state attorneys general to bring separate cases against these services to end up with effectively 50 different systems of servicing these mortgages and for closing and i could of been a disaster in terms of getting private capital back into the market. many of these markets, many of

the foreclosure process is in these markets have been frozen, essentially, because of a huge uncertainty about what will happen. there's a real uncertainty about servicing and what the standards will be for servicing the loans that has kept lenders from making new loans are making them at a higher cost. >> hasn't does become frozen because banks did not follow lot? >> i agree. i'm not talking about the cause. we needed a single comprehensive national set of standards, strong tough standards, that whole the banks accountable for how to service these loans and how the foreclosure process would work. because of the servicing settlement, we got a technical. -- we got that. overall, the servicing

settlement is not only going to be a big plus for homeowners -- there will be millions of homeowners help -- but in addition, investors and private capital will be more confident about investing in housing and mortgages because of the settlement. i think that is important concept. you are asking about some specific provisions that we have heard about. we worked hard to make sure that the interest of investors was protected in a settlement. we made it very clear that nothing in the settlement contradicts the requirement that when a servicer is modifying a long, it would have to be in the interest of the investors. it would have to be a positive economic impact for the investors. we also worked hard to make sure that when eight first claim is being written down that a seconds lien would be reduced as well.

from an investor's point of view, it's not perfect. we will have congress's weapon and we can look to make changes in the future or improve from their perspective the way this works. overall, this will be very strongly positive for getting private capital back into the market. many of the uncertainties and problems have been cleared. >> how did you arrive at the settlement terms, $25 billion ta? many critics say what has been given to banks has been something they are already doing. >> if you have seen banks writing down at a level anywhere in near $25 billion, permanently writing down loan balances, i would like to see it.

we have not seen it. the primary focus of this in addition to the $5 billion in cash penalties was to get banks starting to do real serious principal reduction and that clearly is not happening any significant scale right now. in terms of how we arrived at those numbers, we started as hud long before anybody hurt the workrobo-signing. we found an egregious violations of fha requirements. with combined those findings with work the department of justice had done. the bankruptcy trustees there at the department of justice along with state attorneys general -- we went through and looked at what mistakes did we find and if we were to go after every one of those violations, taken to

court, and everyone, we thought we could probably recover 30 or $35 billion. that is the way we arrived at the scale of the settlement. these were not easy negotiations when we began and banks were helping to pay far less than that. other than the importance and scale of the settlement, this is one of the many steps we are taking. we have made real progress in helping underwater homeowners refinance. that will be a huge benefit. we are making progress on principal reduction in other areas. we talked about that for fannie mae and freddie mac clones. it is a very big important step, the largest federal-status settlement in history but also one step with and all the other steps we're taking in the administration.

>> in january, 2009, you are coming in and knowing everything you have been for the past three years, what are two or three things you might have done differently when attaching the housing crisis? >> maybe the most important thing we have learned is how difficult it is to get the service service and all the various players in our housing market to move to helping homeowners. >> would you have required them to do certain things? >> we would have put more requirements and as for the settlement is important. the president and i realized we had an opportunity through the enforcement action. to dold force service servirs

things we had provided incentives for. we learned that there were many barriers in the market to being able to help homeowners. the conflicts between mortgage insurers and those who held the loan, the conflicts between different investors in these pools and the conflicts between first lienholders and second lienholders -- those of the kind of things that stopped our programs from reaching more homeowners. we went back barrier by barrier and work with the private sector and others to fix those and we are now seeing the results of this. over 400,000 applications came in in just the past few weeks for a refinancing program so that is encouraging. the housing sector has

lagged in terms of the recovery and it is still hurting. when will it be time to take more aggressive action? >> there is no question if you look at the history that we acted very quickly and very decisively in this area. within just a few weeks of the president taking office, we launched the most aggressive set of actions in housing that i think the country has ever seen on modifications of loans, we have had almost insulted families more we modify their loan. on refinancing, we lost a home buyer tax credit that had a real impact on the market and, between our working fha and fannie mae and freddie mac, we made sure that capital remained available. all that are important steps but nobody ever said and nobody should have believed that this was a crisis, the worst housing

crisis. seen since the depression. look at where we were before with home prices dropping 30 straight months and of the progress we have matted, cutting forecloses and have and, right now, with sales of the highest level that have been since the crisis. we've made progress but whistle of many steps to go about thank you for being on newsmakers. >> thank you. back with our reporters. your first question was how does it ministration measure success when it comes to the housing industry? what do you make of his answer? >> he gave a reasonable answer but the one americans to feel like they can buy a home again with mortgage rates this low with home prices down by 1/3 from the peak, that is certainly foreseeable. the sense that you get is that there is a feeling that this will be easier. the housing crisis would be the housing crisis would be easier to tackle that