give in the role the u.s. has in mexico and central america, it is important to trust this is a legitimate topic and the united nations bodies are allowed to have a discussion in which alternative policies are acceptable topics. host: peter reuter, thank you for your time. here is tomorrow's program. we will be joined by christopher hill as he talks about north korea and the missile that was launched. he will get his perspective on it. harold holzer will join us to talk about the slaves being freed by the emancipation act. those will take place tomorrow. i want to give a shout out to our phone screener phil gray.

he goes on to take new responsibilities at c-span. we wish him well. we will have another program tomorrow at 7:00. we will see you then. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

within pennsylvania major organizations that said we would never run that story if we had it. people told that to me, people told that to my boss. and they were very you've ruin guy's life if he isn't charged. and our response was always, we didn't say he was guilty. we said he's under investigation. and if he doesn't leave the charges we're going to write that too. but this is the truth. he's under investigation and it's more than one alleged victim has come forward. but a lot of news organizations didn't want to touch it. >> later, officials from facebook and other tech nol companies talk about whether

golf regulation gets in the way of innovation in their field. >> the 535 of people in the u.s. house and senate i think by generous count about 35 of them have any sort of background in science or engineering and the rest are sort of living in the middle ages. they don't understand that wind mills don't work if the wind is not blowing. >> you can watch both events starting at 8:00 p.m. eastern on c-span. >> sunday on "newsmakers" we take a look at some of the key 2012 races. 33 seats are up for election this year, 21 on the democratic side, ten republican house and two independent seats. bernie sanders and joe lieberman. committee executive directors, guy cecil and robert jezz mar. "newsmakers" airs sunday at 10:00 and 6:00 p.m. eastern.

>> last week, the head of the agency regulating fannie mae and freddie mac said the two mortgage holding companies could see benefits from reducing loan amounts for some home owners. although no final decisions have been made. edward demarco also defended other programs aimed at helping home owners. following the remarks, potential impact on the housing market of principle reduction program. this event was hosted by the brookings institution here in washington. director demarco has been in his curpt job for almost three years now serving as the regulator and conserve tor of fannie mae and freddie mac since going into

conservatorship in 2008 these have cost taxpayers $185 billion and counting. previously, demarco served as the chief operating officer and deputy director of the office of federal housing oversight a predecessor to the fhfa. also for the deputy commissioner for the social security administration and prior to that soid as director of the office of financial institutions policy at the u.s. department of treasury. for anliffs of public policy issues and other financial institutions. before that he worked at the general accountability office. perhaps you're noticing a pattern here. i think it's safe to say that he has dedicated his professional life to public service. this is something he takes very seriously. which leads us back to his present position. as the "wall street journal" editorial page noted yesterday,

mr. demarco is the career civil servant who drew the short straw and ended up as the act chief of the federal housing financial agency and so direct deer marco sits here today at the center of a controversy having been labeled the nation's top obstacle to economic recovery as well as being called america's most dangerous man. with some members of congress even calling for him to be fired. director demarco also has a tie to brookings. he was a docket ral student at the university of maryland and his advisor was my colleague hank aaron. when we asked hank for his recollection he said, ed was the kind of guy any father would want his daughter to marry. and hank went on to say that he thought ed demarco was the name of the person who was in the cross hairs of various groups he went and checked whether it

was the same person he has known. and he thought, it would have been hard to anticipate that a person as quyet, nice would ever become the center of the dra versey that he is in. i'm sure there are many who share his surprise including the director himself. getting down to the program, he will speak and then my codirector will moderate a question and answer session then we'll have a panel discussion of the principle reduction issues featuring several issues. with that i am going to let director demarco take it away. [applause]

>> good morning, everyone. it really is an honor to be here today. i would like to thank karen for that introduction and welcome. it is a particular privilege for me to have hank aaron here this morning. this is part of the audience. i am very grateful to him for all the support and guidance he gave me and reflecting on what aaron said i can't wait to get done here and call my wife and tell her how lucky she is. over the past six years, many efforts have been launched by the federal government to stem the losses arising from the housing crisis and to keep people in their homes.

some programs have worked better than others but almost all of them require trial and error and were more difficult to actually implement than many people had expected. as conservator of fannie mae and freddie mac, we have been deeply involved in many of these efforts and we have seen our share of successes and missteps. today we find ourselves in the midst of a national debate regarding mortgage principle forgiveness. with home owners, the housing market and the taxpayer, be best served by providing outright forgiveness of mortgage debt for certain home owners who currently owe more than their house is worth today. i'm grateful to the brookings institution to offer some per spectives on this debate and provide some preliminary findings on this issue. i will not be announcing any conclusions today. our work is not yet complete.

but in view of the state of the public policy debate on this subject, i am pleased to have this venue to enhance the public understanding of this difficult question and to explain how fhfa has approached the matter. our reputation has a home for thoughtful debate of challenging public policy questions makes this a most appropriate setting for this endeavor. typically, when i began a speech about fannie mae or freddie mac or the enterprises as i will refer to themics, i set the context by reviewing the legal responsibilities as conservator. i do so because i believe it is essential for people to understand that congress consider the objectives it wanted fhfa to pursue as conservator. these objectives may not be easy to meet but they are clear. fhfa's job is to preserve and

conserve the assets of the enterprises and in their current state that translates directly into minimizing taxpayer losses. we are also charged with ensuring stability and liquidity and maximizing the assistance to home owners. today, however, i want to set the context for my remarks in a different way. i would like to begin with a few words on the human element of this housing crisis. throughout this crisis, each of us know of or have heard about many individual stories of homes lost through foreclosure. one cannot help but have sympathy for those who have suffered such misfor tune, and shurg no one can look at the dislocations and not feel frustration at how so many people and institutions failed us whether through incompetence, indifference, or outright greed or fraud. yet we are also blessed in this country with people and institutions who care, who are strongly motivated to provide

assistance and find solutions. the staff has worked tirelessly since the enterprises were placed into conservatorship to seek meaningful effective responses to the housing crisis. with the staff that fannie mae and freddie mac, at the treasury department and h.u.d., and numerous financial service companies, fmfa has sought to develop and improve on loan modification and loan refinance programs that bring meaningful options to struggling home owners who want to stay in their home. in a moment i will describe these efforts and their progress to date. we know we have much more to do in this area and the strategic plan for conservatorship that we submitted to congress in february identifies that work as one of our three strategic goals. there is another human element in this story that does not seem to receive much attention. clearly, many households got overextended financially. some accumulated debts they couldn't afford when hours or wages were cut or jobs were

lost. others withdrew equity from their homes as house prices soared. others bought houses at the peak often with little money down perhaps in the belief house prices would continue to climb. yet other americans did not do these things. there are families who did not move up to that larger house because they were not comfortable taking the risk. perhaps they had to save for college or retirement and did not want to invest that much in housing and there are people working multiple jobs or cutting back on the family budget in many ways to continue making their mortgage payments through these tough times. any of these families are themselves under water even though they may have made a sizeable down payment. whichever of these categories any particular homeowner falls into, the decline in house prices over the laves few years has reduced the housing wealth of all home owners. federal reserve has estimated

from 2005 through the end of last year the decline in housing wealth amounts to some $7 trillion. six years into this housing downturn the losses persist. the debate continues about how we as a society are going to allocate the losses that remain. asking hard questions in this debate does not make one unfeeling about the personal plight this situation has created for so many. indeed, the majority of those most hurt by this housing crisis did nothing wrong. they were playing by the rules but they've been the victims of timing or circumstance or poor judgment. in short, the human element in this unfortunate episode in our country's economic history stands out and commands our attention. virtually every homeowner has saufered loss. that doesn't make the answers any easier. in poses a deep responsibility to weigh all these factors in seeking solutions including the long term impact on mortgage rates and credit availability of the actions we may take

today. but this is backdrop. my goal today is to answer two questions. what do the enterprises do to assist borrowers through these troubled times in housing and how has fhfa assessed principle forgiveness as an option for assisting troubled borrowers. so let's begin with borrower assistance efforts. some critics have concluded that our refusing to allow principle forgiveness raises questions as to the agency's and enterprises commitment to helping borrowers stay in their home. to put the discussion in context i think it is useful to start by reviewing the current borrower assistance programs. fannie mae and freddie mac have an array of prevention programs for borrowers that are delinquent or in imminent default most of which allow the troubled borrower to stay in their home.

for those current in their mortgage, refinance opportunities allow borrowers to lower their monthly payment or shorten the term of their mortgage. the primary focus of the enterprise's foreclosure prevention program is on providing borrowers the opportunity to obtain an affordable mortgage payment for borrowers who have the ability and the willingness to make a monthly mortgage payment. let's look more closely at foreclosure prevention. start with home retention option which loan modification principle approach. the enterprice's current loan modification programs are designed to help home owners in default and those who are at imminent risk of default. let me say i'm going to be posing a lengthier version of the remarks that i will be making this morning and they go into greater detail about this and some of the other tables that i will will be using in this presentation so i will try

to sum rise some of this as we go along. what this chart shows is that for troubled borrower, seeking a loan modification, the servicer will first work through with the borrower whether they are eligible for and can benefit from a hemple modification. in this chart shows the order of the steps that are taken to reduce the borrower's monthly mortgage payment down to 31% of their current gross monthly income. some borrowers aren't eligible or can't benefit and fannie and freddie have their own standard mod that they also offer. and the second column works through that modification approach as well. again the idea here is to get the borrower into an affordable monthly mortgage payment. you will note in these two columns that they both talk about forebearing on principal.

with a principal forebearance modification, a portion of the loan principle amount is set aside. these are the underwater portion the homeowner does not pay interest on that portion of the loan. this means that the lender allows the homeowner to defer payment on a portion of their principal until they sell their home or later refinance the home. during this period of they are paying no interest. this approach allows the enterprises to reduce the borrower's monthly payment while avoiding an actual principal writeoff. this is the same approach used in many government guaranteed loan programs including the fha program. the enterprise also offer temporary assistance because a loob modification is not always the best solution. for someone who loses their job medical emergency or faces some short term issue a loan mod is not necessarily best. in such cases fannie and

freddie offer payment forebearance plans that allow a booroer to make no or partial payments for a period of time. the enterprises also offer repayment plans for borrowers who fall temporarily behind and just need an opportunity to get caught up and back on track. since the start of the conservatorships in late 2008, fannie and freddie have entered into more than of 60,000 such plans. -- 660,000 plans. the slide shows there are also nonretention options. most troubled borrowers should qualify for a home retention oopings if they have the ability and desire to stay in their home. if the borrower does not want to remain in their home or has experienced a permanent or significant loss of income that makes continued home ownership infeasible the servicer is obligated to consider the borrower for a short sale or deed in lieu or deed for lease. of these short sales are the most common.

in the short sale an enterprise agrees to allow the borrower to sell the home in an arm's length transyags in accept -- transaction and accept the proceeds as payment of the debt. the unpaid balance, fannie and freddie have completed such action since conservatorship. in short, instructions are clear. only after all these home retention and home foreclosure or forfeiture options have been exhausted should the servicer pursue foreclosure. so let's turn to the results. while mortgages owned by other financial institutions are held in private have a much higher delinquency rate than those owned or guaranteed, the enterprises have been leading national foreclosure prevention efforts. own or guaranteed 60% of the

mortgages outstanding but they account for only 29% of seriously drink went loans. even though -- drink wunt loans. fannie and freddie account for more than half of all hample permanent modifications between these and their own loan mods, the ornte prizes have completed 1.1 million loan modifications since entering conservatorship. not only are the enterprises leading efforts in completing loan modifications, the performance of these modifications has been better than that for most other market participants and i would add probably better than most analysts had expected. this chart here shows at various stages after modification what the redefault rate on the loan modifications have been. while there are many issues involved in the decision on

whether the enterprises should employ principle reduction that i will discuss later, date and loan modifications shows that performance on loan mods is not strongly related to current ltv. so take a look at this slide. not a definitive analysis, if current loan to value had a strong effect, we will expect that the more underwater the borrower is, the higher the redefault rate would be. however, fannie mae data that we present shows that performance on modified loans varies -- does not vary much at all across the loan to value ratio. so as you can see, looking at the current loan to value ratio at the time of modification even for those deeply under water, the reperformance rates on these loan mods have been about the same. so what this tells us is that what matters most here is that

the performance on loan modification seems to be more a function of the payment change to the borrower rather than the loan to value. and this slide is showing that the greater the payment decrease that the borrower gets, the better the reperformance rate on the modification. collectively, these efforts have made a meaningful impact on reducing foreclosures. since conservatorship, the enterprises have completed more loan modifications than foreclosures and adding all over actions to the loan mods totals to some 2.1 million foreclosure prevention actions that the enterprises have taken which is more than twice the number of foreclosures that they've completed during this same period. enterprises also offer borrower assistance for those who are current on their loans.

working with the treasury department and the enterprises, developed the home affordable refinance program, exclusive to enterprise owned mortgages, harp allows jurnt water and near underwater borrowers a path as. since april of 2009 the enterprises have acquired 10 million refinanced mortgages of which more than 1 million were harp loans. still, these results if he will short of what we believed we could achieve. consequently we engaged with fannie and freddie, treasury department, and a wide array to identify and resolve impedments to the program. changes took effect last december and already many of the largest lenders are seeing tremendous homeowner interest in this revised harp program and we expect the volume of

harp loans to be increasing in the near future. let me turn now to principle forgiveness. in 2010, to encourage greater use of principal forgiveness for loans with loan to value ratios above 115%, treasury supplemented the original program with the principle reduction alternative. this is an investor option and the program does not require the lender to offer principal reduction even if the servicer determines it to be superior to the standard mod on a net present value basis. the takeup rate has been low and earlier this year treasury announced its intention to

triple its current incentive payments to investors who use this approach. while both the original hample and hample pra focus on a borrowers ability to pay by reducing the monthly mortgage payments 31% of the boroers' month lip income pra also addresses a borrower's willingness to pay by reducing the loan balance. the rationale for the reduction in loan balance is that a borrower whose mortgage exceeds the home's value may not be willing to continue to make monthly mortgage payments. in other words, even though the borrower may achieve an affordable monthly payment, the ability to pay, through a basic mod, a borrower may not continue to have the willingness to pay because they are deeply under water. by forgive principal as part of the modification, the lower loan to value ratio should improve a borrower's willingness to pay.

in fact, historical data has shown that the probability of default correlates with the borrower's cuncht loan to value ratio. the higher the ratio the greater the likelihood of default. so by forgive principle and reducing a borrower's ratio, the probability of default is reduced and the losses are reduced. this type of relationship between default and current ltv support bid previous anlitic work in fact is embedded in the hamp yet present value model and has been factored into the repeated analyses of principal forgiveness. now, some proponents would limit eligibility in various ways that just precluding it for cash out refinance loans or loans that have mortgage insurance. there is no consensus on what such limits should be nor does the h ranch mp option propose

any beyond the requirements. however, fannie and freddie might apply principal forgiveness it would have to be clear and transparent, having a basis in the conservatorship mandate and the general acceptance of reasonableness if not fairness and it would have to be clearly and publicly described so that more than 1,000 mortgage servicers could apply these rules the same way. so let me look first at our previous analysis. the most basic level, the comparison between the loss mitigation strategies of principal forebearance and principal forgiveness is related to who gets the upside. for both principal forebearance, if a borrower defaults enterprisers lose the same amount. however, if a borrower per forms successfully on the

modification, in a principal forebearance mod the enterprise retains an upside to the foreborne amount but in a modification the borrower retains the upside. so that's what this figure tells us here that the borrower redefaults after the mod, the loss is there either way. if the borrower defaults sometime later but there's been some payment down of principal and house price appreciation, then the investor loss through forebearance could be less than it is through forgiveness. if the borrower is successful as a result of this modification, remains current, stays in the home for a while, house prices recover there's an opportunity for the taxpayer to be repaid that entire principal amount if the forebearance is used but in the case of principal forgiveness the amount that it was forgiven up front remains a loss. now, this basic relationship between principal forebearance

and principal forgiveness largely explains the results and the analyses that fmp hfa provided to representative cummings in january. before more fully describing the analysis one key point is worth reiterating. any analysis involves more than just looking at mmp pv results. at a minimum, we would have to consider the operational cost of implementing the program and the borrower incentive given that three quarters of the enterprise deeply urnt water borrowers are still current on their mortgage. in the analysis in january we did not go beyond the analysis and the results did not indicate the principal forgiveness would produce superior results to principal forebearance. so now let's turn to the latest change to the program, the triple payment incentive.

fhfa is still in the process of analyzing whether the enterprises will offer principal forgiveness as part of hamp with the incentives. this morning i will provide some preliminary findings from refreshing our earlier analysis in incorporating the incentives based on the critiques that our previous work has received. as i noticed earlier, in considering principal forgiveness as a loss mitigation tool besides the impact we also will need to consider operational costs and borrower incentive effects. now, questions were raised about the methodology employed in our earlier analysis. to address these concerns we've made the following adjustments. we've forward drink went borrowers credit scores by 100 points to bet rear flect the current credit stanting of the

borrower rather than where they were at the time the loan was originated. we've raised drink wunt borrowers housing payment to debt ratios, those below 45% have been set at 45% and those above 45% have not been adjusted. this time around, we've applied zip code level rather than state level house price indexes to estimate what the current loan to value ratio of the mortgage is. rather than doing analysis simply forebearance only versus forgiveness only, this time around we have used the full hamp figure and waterfalls to work through what the actual payment to the borrower would be. again, we've incorporated the triple incentive payments that would come to fannie and freddie from doing principal reduction. in addition, the original analysis that we produced

considered all enterprise loans that had a current loan to value above 115%, not just the drink wunt borrowers. this time to provide an estimate of the potential borrower pool, the analysis i'm going to talk about here limits the analysis to those borrowers that are deeply under water, so above 1125% loan to value and are delinquent on their mortgage today. we did allow for some portion of those still current today to roll into delinquency so what we did is assumed 5% of the enterprises who are current on their mortgage, we assumed 5% of them roll into becoming delinchingt and then becoming considered. this wasn't randomly decided. 5% is actually the role rate we saw from the end of december 10eu to the middle of 2011.

so let's look at some of the results here. this slide shows that the enterprise losses on these loans are expected to be almost 64 billion if they are not modified but went through foreclosure. so you can see in the two columns the 63.7 there. now, if we do principal forebearance, the model results tell us that the losses on these loans would be 55.5 billion. if we use the hamppr amp the losses would be 53.7 billion to fannie and fred eafment so principal reduction is better. that is it reduces the losses by 1.7 billion. now, the total potential

incentive payments from the treasury to the enterprises in this analysis would be $9.5 billion. but the expected increptive would be much less, $3. billion, the bottom of the lags column. and the reason for this difference is that the model allows for and predicts that a good number of the borrowers that get this loan modification are still going to default anyway and if they default anyway not all of these payments would actually get paid because the incentive payments from treasury paid out over several years. so in summary, on just a net present value basis this updated analysis shows a positive benefit to the enterprises of $1.7 billion and treasury incentive payments to the enterprises of 3.8 billion. which would imply a net cost to

the taxpayer of 2.1 billion. now, this does not account for any offsetting benefits in terms of greater housing market stability principal reduction reduces total foreclosures relative to doing a standard mod but that benefit is difficult to quantify. as i've noted the results alone are not the sole basis for the decision on whether the enterprises should pursue principal forgiveness. one factor that needs to be considered is the incorrective effect. that means will some percentage of borrowers who today are under water but current on their mortgage be encouraged to claim a hardship or actually go drink wint in an attempt to capture the benefits of prips pal forgiveness? this is a particular concern for the enterprises because unlike other mortgage market participants that can pick and choose where principal forgiveness makes sense, the

enterprises must develop a program to be implemented the same way by more than a thousand seller services. in addition they will the v to publicly announce this program and borrower awareness of the possibility of receiving a principal reduction modification will be heightened among enterprise borrowers. so as opposed to more targeted efforts of individual lenders, with a current opacity of the process there is a greater possibility that borrower incentive effects would take place on an enterprisewide principal forgiveness program. now, it's difficult to model thesgs whate can dos give a sense of how many borrowers would have to successfully become strategic mod fires of this economic benefit provided by the treasury incentives to be eliminated. in this context, a strategic mod fire would be a borrower

that claims a financial hardship or misses two consecutive mortgage payments in an attempt to qualify for hamp and obtain principal forgiveness. this table provide some sense of the results. if principal reduction was successfully done on all 6891,000 borrowers i talked about a few slides ago, the irnte prizes would need to have 90,000 dirnl borrowers strategically modify for that to wipe out the benefit to them of seaving the treasury incorrective payments. but that's unlikely. we are not going to get 100% pul through on loan mods offering principal forgiveness. suppose we were successful on half of the 91,000. then we would need roughly 50,000 strategic mod fires. and if we only had a quarter pull through with principal forgiveness then we would need only 20,000 current borrowers

to strategically modify in order to wipe out the benefit to the enterprises of the incentive payment. and keep in mind in this that the enterprises have about 2 million deeply under water borrowers today who are current on their loans. finally, in considering whether the enterprises should adopt principal forgiveness under hamp, we must also consider operational costs. the direct costs would focus primarily on technology modifications and improvements. we're still evaluating those costs but they're not trivial. there would be other more indirect costs. these include the cost for launching a new program including the development of guidance to and training for mortgage servicers. the indirect costs also include the opportunity costs of diverting existing resources from other loss mitigation activities or from some of the

activities announced in the strategic plan. all these cost factors would have to be carefully considered in coming to a decision to employ principal forgiveness or not. in closing, let me try to sum rise all of this into a handful of conclusions and observations. the issue before us is not about whether fannie mae and freddie mac provide support to families having trouble making their mortgage payment. clearly they already do and it remains fhfa's and the enterprises collective objective to do so. as fhfa makes its decision on whether the enterprises should offer forgiveness with the triple incentives we will look to the issues i've described, the net present value impact, borrower incentive, and the operational costs those are the issues within our responsibility as conservator of the enterprises. whether fannie mae or freddie mac forgive principal or not,

the universe of ornte prize borrowers potentially eligible for a principal reduction is well less than 1 million households or a fraction of the estimated 11 million under water borrowers in the country today. this is not about some huge difference-making program that will rescue the housing market. it is a debate about which tools at the margin better balance two goals. max miesing assistance for several hundred thousand home owns. while minimizing further costs to others. the anticipated benefit is that by reducing foreclosures relative to other modification types, enterprise losses would be lowered and house prizes would stabilize faster there by producing broad bern fits to all participants. the far larger group of underwater borrowers who today have remained faithful to

paying their mortgage obligations are the much greater contingnlt risk to housing markets and to taxpayers. encouraging their continued success could have a greater impact on the ultimate recovery of housing markets and cost to the taxpayers than the debate over which modification approach offered to troubled borrowers is preferable. a key risk in principal forgiveness targeted at delinchingt borrowers is the incentive created for some portion of the current borrower population to cease paying in search of a principal forgiveness modification. in closing, the population of underwater borrowers current and drink quent remains a quee risk. there may still be improvements to current efforts that can mitigate this risk in a cost-effective way. and i want to conclude by saying we remain committed to

working with the administration and with congress obthese difficult questions. because we recognize we all have a shared objective of preventing avoidable foreclosures, minimizing taxpayer losses, and bringing a greater measure of stability to housing markets across the country. thanks very much for having me today. [applause] >> thanks for coming. i think we have a good panel set up to kind of probe into this further. you mentioned, as you suggested you do every time you give this

speech, you talk about your legal responsibilities and one of those is to preserve the assets and properties of agencies and protect the taxpayers. so the key question for your new analysis and you alluded to it is how much these new treasury incentives change the equation. in the role of your legal responsibility, do you view the cost -- so these payments are also payments from the taxpayer. is this any sense viewed as a cost in your analysis or is this money that's coming from another source and therefore if it's enough to fill the hole and make principal reduction worth it? in some sense. that's not your role, that's not your problem. so therefore it's not part of the analysis? >> well, our approach is our responsibility is to conserve assets of the taxpayer. so we're looking at what the cost would be to fannie and fred eafment it can't help us but to be aware that we are

conserving assets on behalf of the american taxpayer and so if we engage in principal forgiveness because there's money being taken from another taxpayer pocket, we are trying to provide transparency, that that is the case. so while it may make fannie and freddie's losses lower, if it makes the overall cost to the taxpayer hire, we're trying to provide clarity to that point. we recognize congress gave us a responsibility and a mandate, it gave the treasury department a different responsibility and mandate and different funding source. now, tarp funds up to now have never been used for any fannie and freddie loan modification but the treasury department is determined the first time this january that if we were to do principal forgiveness modifications that it would use tarp money to fannie and freddie as investors to receive

the investor incentive payment. so we're trying to provide clarity about how this all works but our responsibility is to that of conservators. so it will be how it affects the net present value to fannie and freddie but also these other conversations that i touched on in these remarks. what's the operational cost and what are the borrow ip centive effects which are very hard. >> understanding this was limbry. do you have a sense of when your final analysis will be? >> i believe that this issue really needs to be brought to conclusion. there's an awful lot of new information and obviously the treasury offer is fairly new. so we have to take time to go back through this analysis but we're looking to wrap it up in the next few weeks. >> also again on your responsibility and how you see your role. you mentioned affordability and i think a previous piece you

talked about to make it affordable to the borrower to make the monthly payment. and i notice i tried to squibble quickly, here you distinguish between ability to pay and willingness to pay. it's quite likely that there are underwater borrowers who might be able to afford their mortgage or maybe if you give them a principal forebearance or lower their rate they can afford it but they are so far under water that they make the decision, i'm so far under water i'll never make this up, i'd rather walk away. and i think i got the quote. you said that any principal reduction policy would have to consider i think quote general acceptance of reasonableness if not fairness. so i can see if a principal reduction is helping those people who can completely afford their mortgage but opt not to, many people may view that unfair. maybe that's why this is a tough thing to pass through legislation. but is that going into your calculus in how to do that analysis and how to go forward?

because clearly from a bottom line point of view for fannie and freddie, if you have a borrower who is going to walk unless you get a principal reduction, it's better to give them that reduction. >> be careful about the kind of incentives. by doing that it's really is point. but the point i was trying to make about this being sort of reasonable if not fair was in the context of the situation for fannie and freddie in determining to offer principal forgiveness and then who it would be offered to is different than individual mortgage servicer who may make this decision for their own book of business because that individual mortgage servicer can go through their loan book and decide on whatever factors it wants to use whether to offer that borrower principal forgiveness. there's no regularity to it and that particular servicer can do

its thing in the way it sees best. fannie and freddie to do this they're working through over 1,000 mortgage servicers and they're doing it in everything they do has to be much more transparent. so we have to right write guidance to that gets published and posted publicly that goes out to these thousand plus mortgage servicers that says ok a borrower comes in, a troubled borrower needs a loan modification in order to stay in the house and not go through foreclosure. here's how you go about evaluating that borrower. if we offer forgiveness we have to be clear and transparent about the decision rules these thousand plus servicers are supposed to apply and because there's that amount of transparency and exactly how the rules are apply, it raises a concern for us that that makes it easier to be strategically modified against relative to an individual servicer who doesn't have to provide any of that sort of

transparency to the borrowers in their book. >> if i could follow up i think there's two points there. one is it may make complete sense to give borrower a principal forebearance and b a reduction. but it's hard to distinguish which one is which. i think what you're saying is putting aside the change of behavior, trying to set up rules so you can identify one versus the other is difficult. so you may in effect be faced with a system which is they either both get it which may not be worth it versus they both get principal forebearance. >> that's certainly part of it. and if i may, just to be to clarify a little more on principal forebearance. principal forebearance is doing is in fact taking most or all of the underwater portion of the borrower's loan principal, it's setting it aside, charging zero interest on it, there's no repayment against it. and it's just sits there

silently until the borrower either ultimately forecloses, goes into foreclosure if they fail in their mod, or if the borrower is successful and stays in their home and somewhere way down the road sells the house it takes that foreborne principal that no payments are being made on, lets them sit there, but down the road if the loan modification is successful then the borrower retains that obligation to pay off that foreborne principal amount at the time they sell their house. that gives the taxpayer the opportunity to share in the borrower's up side. if this loan modification has been successful, has allowed the borrower to stay in their home and kind of go along, that's great. i mean, the borrower got that opportunity because the taxpayer provided the loan modification. but the taxpayer then gets to share in that upside down the

road if you do principal forebearance. that's why our point is the borrower is getting the same monthly payment either way. the question really comes on the upside if over the long term these loan modifications are successful, how do we get the taxpayer to share in that upside success of the borrower. >> we may hear about this later. that brings another question. is there a way to bring a share principal model? but >> so that question talks about how in fact principal forebearance is a form of shared appreciation. it's a less complicated form of it because we don't have to do a new loan instrument and the operational tracking of this is much simpler. but it in fact is a form of shared appreciation. it's saying that we're setting aside this foreborne amount and down the road home prices recover, borrowers pay down their mortgage, that the

investor in this case fannie or freddie gets all the up side up to the amount and every dollar up to that the homeowner gets all of it. so it's one form of doing shared appreciation. >> and you talked about this and i think this is a useful exercise that kind of size the impact if you did go full hog on a principal reduction how much could this affect the -- there's 11 million underwater borrowers and how much that would affect the market. one thing i don't think you touched on. the incentive payments, there's a range and i think the range is the payments are lower for people who have been without payment or in the foreclosure process for the longer period of time over six months i think since last payment and those incentive payments are pretty small and i think that's acknowledging that if somebody hasn't paid their mortgage in over six months they might not be recovering and staying in

their house. i looked it up after i saw that and i think the latest numbers there's people in the process is something like 11%. only 11% have paid, been less than six months. that's my question, is this something obviously not the figure into your analysis but this would you gave a number of less than 1 million. that is also addressing this issue. a lot of people might be too far into this that even a principal reduction might not be helpful to them? >> so a couple of things. first in the preliminary findings we reported, the treasury incentives were scaled according to the rules of the program. so the amount of incentive payment did vary on the loan. that was factored in. but to your question about what's the ube verse we're talking about?

there's a common estimate that there's 11 million underwater home owners in this country. estimating this is pretty difficult because it involves using house price indexes and there's all sorts of measuring issues with that. but taking all that as it is, right? for fannie and freddie, if we use the house price data, fannie and freddie today have about 2.5, 2.6 million loans that are what we call deeply under water. that is, the current loan to value ratio on these mortgages is above 115%. so 2.5 million. of that, approximately 2 million of them are still paying their mornl every month. so the group that is drink quent or having made a morget payment in four years is on the orlandoer of 500,000 to 6020 borrowers. so that's the universe of folks

that we're trying to reach right now with the various loss mitigation toole i talked about in my speech but that's the 2 million deeply under water and cusht that we're particularly current oobd and that's why the program and the changes we made to harp last year are so important to try to give these folks encouragement. >> we'll take questions from the panel. we have time for a few questions. >> i think there's a microphone. introduce yourself and we're limited on time so keep it to a question. >> sure thing. i'm not going to stand up because of the camera. but two thirds of all of fannie mae's loans in nevada are under water and half of them have a loan to value above 125%. mods are temporary in the sense that after five years the reduced payments will begin to rise again. so i wonder if in place of like

las vegas where amortization and appreciation may not bring these borrower back to positive equity in five years do you think the current modifications are sustainable? >> that's a fair question. i think actually they are. one thing about what happens in five years is the interest rate got lowored to 2% it starts increasing at that point. if there's principal forebearance, that goes for the life of the loan. it does not -- that does not change at the five-year mark. what changes at the five-year mark is resetting of the mortgage interest rate so the mortgage i want rest rate can be lowered as far down as 2%. and after five years it will go up a percentage point and so it hit whatever the current market rate was at the time of the loan mod where most borrowers that's going to be on the order of 4.5%. so there will be a gradual int

increast from 2% to 4.5% that will start at the five-year mark but the other aspects will stay in place including the principal forebearance. and the other thing, clearly when we talk about these underwater borrowers, these are not randomly or uniformly distributed around the country they're concentrated in certain markets that were particularly experiencing a big housing bubble and then a big bursst in the bubble. so most is concentrated in a handful of states. >> ok. i have an analytical question. to what extent did you subject your calculations to the real

estate equivelept of the bank's stress test? that is to say so to what extent did you build into your analysis the possibility that real estate markets might perform significantly better or worse than the best guess? and if so, what was the sensitivity of the calculations to such variations? and a related question to that is and a related question to that -- you stressed the fact that the interventions you are discussing are relatively marginal in the larger sweep of delinquencies. but the impact of even marginal shifts in behavior of homeowners on the course of the housing market coudl have feed -- could have feedback effects on the calculations you are making.

i am asking you for the error properties of your model. >> fair enough. the model assumes home prices stay flat. there are no appreciation or depreciation involved. we do other analyses that do that. in terms of assessing the individual borrower for a loan modification, that is not part of what we do. the incentive effect is part of what we are wrestling with today. that work is not complete. on the one hand, if principal forgiveness achieves its stated objective of accelerating the stabilization of house prices and the feeling that borrowers

are going to continue to stay and we will not seymour foreclosures, that is a positive feedback effect. if principal forgiveness offered to borrowers who are deeply underwater stop paying their mortgage, it creates a sense across the country among the borrowers paying their mortgage that, what am i doing this for? i am at 140, 180 ltv. i am doing this because i have an obligation. but the government is encouraging activity the other way or providing certain people with an opportunity to get this principal -- principal writedown, it is a negative feedback effect. the more we see that kind of behavior, the more it could build on itself. it is interesting the various participants in this debate tend to take one side or the other.

but both are plausible. to your point, the feedback effect in terms of how it may affect borrower behavior is very -- >> what about an increase in prices or a decrease? >> i feel like this is a dissertation defense. i do not believe i can report on that. >> in the back. >> i am with national public radio. could you talk more about the shared appreciation approach? you describe what that was more complicated. $50,000 get pushed back, -- gets pushed back, no interest paid, prices recover. the homeowner would get $25,000 of the upside, fannie and freddie would get $25,000.

it is different from strategic the fall -- strategic default. it is instead to stay with the payments -- it is incentive to stay with the payments. is not actively being considered -- is that actively being considered? >> in a principal forgiveness modification and then a separate agreement, there is a new instrument that does not exist. we would have to figure out the basis for the shared appreciation. operationally, this would be harder to track overtime. the ability to take this loan and -- it would probably have to be on the balance sheet of fannie and freddie, which we are trying to shrink. it would all have to be worked out.

the operational systems, the financial accounting systems that are in place already allow for principal -- principal forbearance. we can do that easily. we know how to track that. it is one way of doing shared appreciation. we are, in the fact, doing shared appreciation mortgages using the technology and tools -- in the fact, doing shared appreciation mortgages using the technology and tools that already exist. >> does that mean you're not considering the more complicated one? or are you descent it is more complicated -- you just saying it is more complicated? >> i will leave it there.

>> let's take one more. >> to what extent do you think the mortgage is no longer backed by collateral? what does that imply about the future return of the private sector? >> let me say this about the underwater borrowers. i talked about how many are fannie and freddie. there are a lot better in private-level -- lot that are in private-level services. what does not yet reported enough is that most americans that are underwater realize -- what does not get reported is that most americans that are underwater realize they signed a contract and they are obligated. they are paying their mortgages. the important point is that

folks who are under water on their mortgage realize that they have an obligation to make their mortgage payments. they continue to do so. they should be encouraged to continue to do so. in terms of bringing private capital back into the market, private capital is going to want to look for a number of things to be fixed relative to the way the market operated over the past decade. a strategic plan for conservatorship that was sent to congress is one measure of the steps that we at fhfa are seeking to take to fix those problems with the mortgage market. we think they are part of what needs to be done in order to attract private capital back into the mortgage market. clearly, private investors are going to look for -- are going to take a whole lot harder look at mortgage credit risks as they reenter the market space. >> i want to thank you again. we have a panel following this. you are always welcome to stay. >> thank you. [applause]

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> a panel of experts discussed the impact of the housing plan on the housing market. this is about 40 minutes. >> i am happy to introduce this panel of experts that will dig a little bit deeper. there are longer bios outside for them. i will give a short bio from left to right. mark fleming is the chief economist for corelogic. next to him is paul nikodem, the executive director and head

of mortgage credit research at nomura securities international. and my right is -- on my right is andrew jakabovics, senior director for policy development and research at the enterprise community partners. he worked at hud and was the director for housing and economics at a center of american progress. on my right is tony sanders, a distinguished professor of real estate finance at george mason university. i have asked them to give brief intros. mark talk about the state of the housing market and the options available. take it away. >> first, i probably need to

apologize. i and my colleagues are the source of the problem that is encircling us. the issue of the concept of principal forgiveness and forbearance focuses on that $700 billion number and what we need to do about it. ed very eloquently describes a lot of these issues. it is not really a problem of $700 billion. folks who are delinquent -- 750,000 of the 11 million. it is significantly less, not 700 billion, but maybe a couple hundred billion dollars of those who are delinquent. the vast majority of these individuals do continue to pay their mortgages. also, this concept of ability

and willingness to pay. we have built models and looked at this analysis carefully to try to understand the willingness component. that is key. how do we innocent individuals to continue to pay on their mortgages -- how do we incent individuals to continue to pay on their mortgages? negative equity is not going away in las vegas in 10 years. when we study the cards at a couple of years ago, we look at it and said, if you assume house price forecasts -- let me be the first to say what house prices are going to do over the next five years to 10 years. we are putting that question -- punting that question. even 10 years from now, the average underwater our work is still going to be under water -- underwater our work is still going to be under water -- underwater borrower is still going to be underwater. what happens five years from now when the borrower who has been paying their mortgage needs to move for a job or something

like that? that is something that will be facing the industry. it has implications that are hard to measure. i do not think anybody has an impact -- has a grip on the impact this will have on labor markets. it is having an impact on the mortgage markets today. one reason we see a low volume of purchases is that people are under water and cannot sell their houses to buy another one. it does get back to this concept of willingness. willingness is an important factor. most of the research shows that ltv 's have an impact. we are in uncharted territory in

terms of how people behave. someone who is so deep under water has less willingness. the point is, it is a big problem. there is a delinquency problem we are trying to address. we published statistics on completed foreclosures. foreclosures are down. in february of this month. the rate is similar to february. we are looking at 800-900 foreclosures per year. why are we not foreclosing on more people? why are these people not being processed through foreclosure. there is a term called for closure liquidation.

those have been put in a process of foreclosure by a servicer. foreclosures have been rising. they have been going up for a number of months. we are doing less foreclosures and a number of foreclosure and liquidation. things are getting better, but they are getting better slowly. this will take a long time. we should be looking at addressing the concept of willingness or those in delinquency to mp om -- to not incent people to go delinquent. what do we do about people who want to pay their mortgages, but 12 years from now are still under water.

>> first of all, in terms of historical performance, take a look at the top part of the slide on the left. i would take a look at the performance of principle modifications as compared to rate modifications. we only have 12-24 months of decent data. the statistics we show is a 12

the payment cut is a big driver of the performance. if you cut the payments, borrowers tend to perform much better. we have the balance reduction and the depth of the pavement cut, the percentage of the payment reduction. both of these factors matter quite a bit. if you take a look at the right path of that chart, you can see that any additional reduction in principal balance through forbearance or forgiveness did not have a meaningful

difference in helping the performance of the borrowers. this is a much bigger deal for borrowers. they perform similarly regardless of the amount of the principal reduction. we just do not have sufficient data to be able to tell what a deep portability issue -- to tell whether the affordability issue is important. if a bar work still has a 120 or 130 ltv in five years, we do not know what their incentive will be over that time. in a lot of cases, we are

hearing from servicers that the modified payment is less than what the borrower would pay if they were forced to rent an equivalent property. comparing against average rent in those cities, we found that average modified borrowers are paying about 10% less of the equivalent if they were kicked out of their homes and forced to rent. if rent is growing 5% a year, this is an incentive for borrowers to default if they think about what they would pay in rent if they were kicked out of their home. if they have a rate modification, that would allow them to lock -- locked in a lower-paid men than they would pay in rent. -- locked in a lower payment

than they would pay in rent. it is definitely a small step to be borrowers. you have to target the bar wars -- it is definitely a small step for the bar worse. -- the borrowers. these modification programs are very specific and it was impossible to tell which would preach -- receive a principal modification. as i was saying before, this cannot be extrapolated to the principle modification programs. the policies would have to be a more institutionalized. we see a number of principle modifications being mpv negative.

thank you very much. >> i will turn to andrew to make the case for principal reduction and put it in a historical context. >> i did not bring slides. the fairness question. the way the mortgage industry is developed, borrowers have no control over what happens to their servicing rights. the modification efforts are hence, you win, tales, you lose. talking about fairness, we have narrowed the box a little. the compensation from a policy perspective needs to get to the point of, if i looked like tony

, we are similarly situated borrowers. if he got lucky enough to get a note held on a bank's portfolio, the bank has unlimited access to modify that note. if i end up with a note to that was sold into a private security and the investor is willing to do a modification, maybe i will get it. if they are not a participant, perhaps i put my calling back into my pocket. there are 31 flavors of h.a.m.p. out there. the perspective that we are going to incentivize borrowers to modify six years after house prices have peaked nationally --

it overstates the likelihood that we will see significant changes in the bar were behavior. the approach to the question of -- changes in borrow were -- borrower be a bit. the mpv test is much more complicated than the average borrower can unwind. there are people out there who may, relative to the other tests, get access to some degree of reduction rather than forbearance as opposed to simple interest rates reduction. if we build it into the water fall the way it exists for other servicers, there are thousands of investors out there. the operational complexity is a little overstated. there is transparency around

h.a.m.p., in general. the modifications are not public, but what goes into the decisions is known. people who have not been strategic are going to become a strategic because there is a waterfall that is not optimizing. that misses the point that there is a tool available even in the current analysis that director demarco provided us today. should they do principal reduction? to not have that tool on the table, we know that private lenders and servicers are doing it for an increasing share of their books of business. to say we are going to do an analysis and we are not going to take that option, we are going

to do a slightly less mpv positive assessment that is less valuable to us does not make a lot of sense. for the long-term stability of the housing market, you are still dealing with severely underwater borrowers. the borrower doesn't need to go back to the lender to get a sale. you are going to stagnate the housing market in places like phoenix and las vegas over the long term to allow that liquidity to come back and allow the next generation of homeowners to buy. while forbearance may have short-term benefits that may outweigh forgiveness out right, you are taking a longer-term view of the housing market as a whole and willingness to pay creeks in. thinking about what the market

will look like in five years is parts of the long-term strategies of what the enterprises should be. i have been our principal reduction for the last five years. it should not be a surprise that i am advocating for it. there are plenty of investors who are buying these notes. there is a consortium of nonprofits that is beginning to acquire notes on the open market and doing these reductions because it makes a lot of sense economically. do not want to capture some of that value. the nonprofits will take them off your hands. they are doing the reductions because the long-term performance of these notes with the principal forgiven this makes a lot of sense.

the homeowner loans corp. march loans down to 80% of current ltv. when the notes defaulted, they rented the property out. nod. is an historical it has not led to traditional strategic default. you can contain it by capping the start date. it would be interesting to see what your analysis shows if anyone who is 60 days delinquent and you are dealing with a finite pool rather than an infinite pool. i would like to see that as you make a careful analysis available to the public. >> we will wrap up with tony on

his opening comments. shares depreciation. >> the problem with being the last person on a panel means everyone has already hit on the high points. i am the one person who was relieved to hear mr. demarco say we need more analysis of this. what i want to guard against is what is called anecdotal economic policy. we hear tales that this will help solve the housing market. principal reductions will help out households, which it would. we do not have enough observations yet. mr. demarco touched on it. we are talking about looking at the h.a.m.p. program and you need to get out a certain number of years to see if things actually work.

we have no idea what this looks like. we are guessing. what i am is saying is that this is a major shift in economic policy. do we really want to go out on the harry edge -- hairy edge based on anecdotal evidence that this will work? forbearance is marginally dominated. it is not really just that comparison. there are other ways to get around this problem. i mention shared appreciation mortgages. i am a big advocate of that. i did a study of the bank of scotland shared appreciation mortgage program. the problem with those programs

is the forecast is so -- you forecast to% rise of housing prices and they go up to% -- 2% rise in housing prices and they go up more than 2%. houses in foreclosure transition to the real market. the bank keeps them on its books for two years. there are lots of approaches that are different than simply doing principle reductions. principal reductions i would rank as last. you should do more modifications, forbearance, bank of america, danny back -- and in may and freddie mac can do those as well. here is the other problem.

pandora's box. we open this up and mr. demarco well, thankfully, keep the lid on it. retirees are in deep trouble. the administration comes in and says, instead of h.a.m.p., we will bailout anybody who has lost money in the stock market. what kind of behavior would that breed in the stock market? i will take wild risks because i will get bailed out. even if this is constrained to fannie mae and freddie mark, -- freddie mac, it could happen here. all lenders can do the same thing. or they are going to try. we have no evidence in the long run that it will work. we are going to force private entities to do this. it is dangerous policy even if it works. even if he thinks it works -- we

have done panels before. we know each other as talking points quite well. it is a dangerous precedent that we are asked to consider. it was not 7 trillion in household an equity loss. my other last point is, whatever we did to lose $7.40 trillion in equity and get into this disastrous mess we are in, can we change economic policy to push this down the cliff? thank you very much. >> i will start out with a few questions. i want to start with something i talked about what mr. demarco. on the moral hazard issue, the change of behavior -- the way to deal with that is to base it on historical delinquency. if you were dealing with

previous to the day, you can qualify -- qualify. the incentive payments are much smaller for people who have not paid their mortgage payment in one-six months. the implication there is that they may be beyond help. there might be an incentive payments going for nothing. i am wondering -- and this is for all of the panelists -- does that leave it with a lot of people? that have to be delinquent as of today or yesterday. that is 75% of those. it will not help people who have not paid more than six months. more than 40% have not paid in two years. how many people are left and what kind of a that does this have? >> just structurally, it still

makes a lot of sense. we need a lot of tools to solve this problem. for as many reasons as there are people, we need as many solutions, potentially. to categorically say principal reduction will not be considered under any circumstance seems unnecessary. we are sufficiently sophisticated to be able to craft these solutions that take mpv tests into account. put it at the end of the waterfall. if there are 500,000 borrowers that might be helped in the aggregate on this and at the end of the day only a 50,000 qualify for principal reduction, those are people who are better off because principal reduction is offered rather than an

alternative. egette assets on the gse's books and other things bake into the model that everybody is using for h.a.m.p. and fannie mae to follow -- to say that everybody must use our numbers but we are not going to is also problematic. if every other servicer has access to offer principal reduction where it makes sense -- i would like to see as much transparency on investor decisions and when borrowers are allowed to use the principal reduction, you can required the -- required the same of the gse borrowers. >> i am looking for agreement, so tell me if i am wrong. there are circumstances where a principal reduction on an

individual basis might be the right thing to do. given the way policy is made, can it be nimble enough to distinguish such that you pick the right one and you are not doing principle reductions for an enormous remarked that amount that it would change behavior. if there were those changes of behavior, there would -- it would be less expensive. would that be your critz it? there might be someone who we would have that -- would that be your critique? >> there are a whole -- there is a whole host of households for which it will not work. there is a way to where it might work. i agree. the problem is so small.

we have 14 different programs from the federal government for modifications. those are just administration programs. they do not include any major programs internally. none of these have worked all that well. we are saying, this time it will work. i asked you to be more study, as mr. demarco said he is going to do. is government nimble? [laughter] , on. the federal government is as nimble as a slug. -- come one. >> there is a time and a place for all of these choices, principal reduction is one of

the many choices. there is also the ability to develop objective, net back you based test that do things in the objective -- tests that do things in the objective way. is there a such thing as a perfect model? no. we are looking at this and saying there are some great benefits that have come out of his distress. in the old days, was there such a thing as a net present value test? we took them to foreclosures. we did not do short sales or any significant amount of modifications. the world is more complicated in response to what happens. that is a good thing going forward for the industry that we are going to be better about

addressing the best way to handle these things. i do not know that there is any single or multiple sets of policies that can solve such a big problem that we have other than time. one of the best policies that we have is time. the economy with -- economy will get back on track. these things will age themselves out. time has two need this to it as a policy. the funds to benefit is that it is free. the second benefit is that you cannot go wrong. these are things that hinder us in developing policies today. how much does it cost and where did we go wrong? >> my name is bill and i am and

independent author. there is a gentleman from the chinese embassy here and i am he is listening carefully as well. i look at micro analysis to try to solve a problem as difficult and deep as the great depression. what i do not here is any thinking. i do not know if i am asking for macro numbers. you look at the approach that was taken and the size and scale and intervention during the great depression to meet this problem. i tend to think that is where the answer is. our political economy does not get us to anything that can

satisfactorily deal with this problem accept self healing. and time. i do not think it is going to work. >> i would not say we have not done anything on a macro level. something needs to be done. there are different strategies on how to do this. the one thing i will say is that the federal reserve has been active in trying to help this problem by pushing interest rates to almost japanese levels, getting down to near zero when liquidity -- nothing seems to be working. the said is throwing everything and the kitchen sink at this problem and nothing is firing

up. i am not sure what macro policy could do the same thing. >> another question. somebody in the back over there. >> thanks for your comments. i am from bloomberg government. there seems to be some consensus that principle forgiveness should be one tool in the tool box. the question is should this tool be subsidized so that it is chosen more frequently than the other tools? >> to the extent that we now have some of the analytics -- we will disagree about the modeling capacity and the time frame. the number themselves would bear out when it would make sense and when it would not make sense. h.a.m.p. is not an optimization model. it is a waterfall approach. you could decide to make principal reduction first and

foremost. i do not think anybody is advocating for that either. after you have extended terms, what other options might you do with the residual amount of the value of the notes were the principal balance a value -- militant to be property? that is with the policy decision comes in. to say we will only for bear is shortsighted. given the existing operational comfort that exists with the h.a.m.p. process, it should be fit in line if -- putting it after these other things that are less costly and potentially as effective for slightly underwater bar wars -- are worse -- borrowers.

>> since we have already talked about error models, i will throw out some welfare economics. we talked a lot about what these things cost. we have paid all my shots -- paid homage to the fact that people get our clothes on and those properties are left they can -- people get foreclosed on and those properties are left vacant. the sam could be said for any modification or any kind of this position to rule that prevents the foreclosure from happening. there should be that welfare benefit to society that will offset the cost. stimulating the economy is all about having a benefit to doing

it. the problem we land on is that we often do not talk about our measure these benefits or include them in the calculations because it is extremely difficult to know. we want to talk about trying to get a better handle on measuring what the benefits of these programs are. >> one final question. right up front. >> i want to ask you how this might play out in this political season. for example, there appears to be republicans against any kind of loans were given this. let the market work. they are probably against many other programs and there are some democrats in favor of both or at least some democrats in favor of one.

>> i do not have a political analyst up here. anybody? >> the banner headline, administration forces the markell to do principle reductions the best sources demarco -- forces demarco to do principle reductions. nobody will read the second line. >> i will leave it to the editors to write their headlines. >> the stories are right. you have to read a little into the detail. that is the challenge as you see from the variety of opinions. housing is complicated, as are the solutions. there are differences that you can tell. i got situates its not as far right. -- situated not as far right./

[laughter] the sides are not that far apart. the number that folks are talking about is not staggeringly large. there is an opportunity to provide meaningful relief that was not previously available. we are going to make some mistakes. are the mistakes too great or to frequent for us to go down that path? -- or too frequent for us to go down that path. ? i think the answer is no. i would like to thank mr. tomorrow -- mr. demarco were staying for all the comments. i would also like to thank my

panel. [applause] >> this afternoon on c-span, "the communicators." >> tonight on c-span, we will bring you a panel of reporters that covered this year's biggest stories, including bahrain. >> the crackdown came in waves. they would crack down on a protester and then they would pull back. at a certain point, there was a defining moment when there was the final crackdown when saudi

arabia was invited into bahrain by the ruling family. they did last arrest and started arresting everyone who was ever associated with the democracy protests and toiletry them and some of them were tortured to death. -- and torturing them and some of them were tortured to death. >> it will also talk about the penn state sex abuse story. >> there were a major news organizations in pennsylvania that said, we would never write that story if we had it. people tell that to me and to my boss. they were cleared. you have ruined that died -- that guy's life if he is charged. we did not say he was guilty. we said he was under investigation. if it does not lead to charges,

we will write back, too. he is under investigation and more than one alleged victim has come forward. a lot of news organizations did not want to touch it. >> officials from facebook and other technology companies talk about whether government regulations get in the way of regulation -- innovation in their field. >> by a generous count, about 35 have a background in science and engineering. the rest of them are living in the middle ages. >> you can watch both the dance starting at 8:00 p.m. eastern on c-span -- events starting at 8:00 p.m. eastern on c-span.

>> new rules would require it easier to read monthly statements and more information about insurance policies taken out by banks on behalf of customers. >> this is a dignity-rich area. i should have figured this out if i wanted to get the press and distinguished leaders to come. i would have invited richard cordray more often.

you are here every tuesday, aren't you? what is your focus? >> we have had a number of negative experiences. i like to come to the housing council meeting. >> no good deed shall go

unpunished. here is what we are not here to do today. we are not here to demonize. we are not here -- blame does not get us anywhere. people, experts in what they are against. they can tell you precisely what they do not like. this country was based on what we are for. this center you are in today is one of 10 in the country. we have financial dignity training for children in 4000 schools. etrade funds $1 million a year. they have no branches. somehow, they find $1 million a year for 13 years. they do not give postdated checks. real cash to fund this center and the one in new york city.

i appreciate that. [applause] i did not she was going to be here today, but this is an example of doing good and doing well by doing good. we convert check cashing customers into banking customers. we are turning people cannot find jobs into job creators by making them entrepreneurs. the most important thing we do is something called the 700 credit score community. there was a young lady walking across the street with the green running weights in her hand and she had on this beautiful black running outfit. this is our neighborhood and her community and her home. she has had the same experience

we have had. we have not had one disturbance our problem here in 20 years. there is no plexiglas. there is no security or no cameras. if you treat people with respect, guess what? they treat you with respect. whatever goes around comes around. the only problem with this crisis we have had is that we found that people like transactions and not -- we treated people like transactions and not relationships. if we treat everybody like our grandmother, you would not have a crisis. financial dignity centers -- these are transformational. we have raised credit scores 120%. you come in here with a five -50 credit score and you watch -- you walk out with a 670 -- you come in here with a 550 credit

score and you walk out with a 670 -- 670 credit score. no matter how much ticketing you do or how much complaining you do to the d.c. government, it does not matter. this will be a prime target for tech cashiers, title lending, renting rim stores. that is really low. next to all of these title lenders and such, you have liquor stores. there is a difference between being poor. being broke his economic. people are praying on poverty -- preying on poverty. if you can move these credit --

the credit score 120 points, that liquor store -- liquor store turns into a convenience store. that title lender turns into a credit union and -- or a bank. i do not want anybody to say banks are evil. that is ridiculous. banks have done a great service in this country when they have done their job and done their job well. we want to encourage them to bank in the sea -- in d.c. when you can take a committee to a 700 credit score or a 660 credit score, i do not need director cordray so much anymore. this agency as an honored profession. it is doing important work. the more consumer power we have,

the more can it -- the last consumer protection we need. we changed financial literacy to an end to dignity. we have funded $100 million in private investment. not government money, not handouts. private investment in inner city though investment -- in this city, low income communities. the man who made this suit is living a dignity rich life. he is a responsible home owner. with 2 million people served and 18,000 volunteers, what you should know about me is that my family lost our home to foreclosure. not me, john bryant, but me, my father. this is important to me. the number 1 cause of domestic

abuse in this country is money. police get calls responding to calls -- responding to domestic abuse. most of those calls are routed in arguments over money. black and brown students are flocking out of college. why? money. they can get back in school, not because they did not work hard or because they did not have good moral fiber. it is because they did not have tuition. this is and in dignity. this is a san in the 21st century. my mother and father divorced over money. my brother wanted to go to college. the more money we may, the war

broke we got. we lost everything, but we never lost our dignity. we never lost our work at it. my father lives in that home with dignity today. i am doing well so that i can do good. whatever goes around comes around. $500 billion -- $500 million in mortgages, we have refinance. we have a model that works. we are honored to be the place that the consumer financial protection bureau wanted to do. before i bring out the director, let me say one last thing that directly related to this

gathering this morning this is a middle-class crisis. this is everybody's crisis. whether you are white, black, red, brown, or yellow, you want to keep more green. [laughter] 70% of all americans are living paycheck to paycheck. this is everybody's crisis.

it is everybody's problem and opportunity. what the director is doing will benefit all of america. when we pulled up to do the hope center, i was told the story of daddy king. he served on the board of the bank for 40 years. martin luther king, senior, the father of dr. martin luther king, jr., co-founded a bank called citizens trust bank. it is still in business today. the construction lender on the building we're building in atlanta today is citizens trust bank. we did not target it. they just happen to be there serving the community cares so much about.

we wanted to be profitable to do good. whatever goes around comes around. wife went to's open up the king center in georgia, she did not have to go begging to the government or anywhere else. home ownership is what daddy king preached. small-business ownership, doing for yourself. this area thrived. it can try again. we want it to be a common occurrence for people to come here as a common, normal way to live. it is very appropriate at this location is the place where the director wanted to make this announcement and the agency wanted to see the good work. this man is a good man. you do not do business with

companies or governments. you do business with people. richard cordray was attorney general in ohio. when he was attorney general, he helped return $2 billion in retirement savings back to the residents of ohio to give them the dignity of being able to do for themselves on retirement. when he was state treasurer, he helped to revitalize a small business program for minorities and under-served small businesses in the state to give people a hand up and not just a handout. he was also at the local level. he was the treasurer of a small city. he helped to get his hands around real issues in real ways. he has a real understanding of the issues. he understands it from 10,000 feet and 10 feet away. nothing says more about his character to me then that he did

not want to do this announcement in washington. it would have been easy to call a press conference. they will get lost on the way here. it was not easy to get here. he did not have to come here and do this. he could have done it at the white house or the capital, any place. but the fact he went to this much effort to place this message here in this community says not only that he is a good man and the this is an honorable undertaking. we should want to do everything we can to make the effort more transparent, lift up the lenders doing of the right way, and make it difficult for lenders who are unethical. you can still make money banking in america and do it honorably.

america is not just in a recession. it is a reset. it is a culture of crisis and virtue of values. he is trying to line up with economic opportunity. it will be difficult and painful. you will be criticized for it. most of my heroes are criticized. today you are not the director of cfpb. today you are an honorable director of operation hope. we will give you the greatest award possible. we will make you an honorary black man. [applause] do not say anything uncool. [laughter] >> i will do my best. i want to thank you for hosting us today. they talk all over the world about what it is like to be in

paris in springtime. we can tell them is just as attractive in the community here today. i want to thank everyone at operation hope and say maybe e- trade appreciates the fact they do not have branches near their branches. maybe that is a good collaboration. i would echo john's remarks. he alluded to the fact he spent six months or more homeless before the age of 18 because of the adversity his family suffered. we're not here to impart any kind of blame on those issues. we're here because we have work to do. we have problems to fix and progress to make. thank you all for coming today. it is not news for me to tell you the american homeowners are struggling. you know it yourselves. at the start of this year,

nearly one in four mortgages was under water. 4.5 million mortgages were in serious trouble. we estimate as many as 10 million homeowners are risk of defaulting on mortgages in the coming years. one problem that has made things harder for struggling homeowners is the state of the mortgage servicing industry that collects payment on behalf of the owners of the loan. this industry has never had a requirement or strong incentive to meet the needs of consumers. even before the crisis, there were already problems with bad practices and sloppy record- keeping. when the financial crisis hit, things got much worse. we have all seen it. when millions of borrowers started defaulting, many servicing businesses focused primarily on the good times began to crumble under the weight of the growing crisis. the servicing industry proved to

be all grasshopper and no ant. it was not prepared to weather the lean periods of the financial cycle. instead of investing in new personnel and processes needed, many mortgage servicers took short cuts that made things worse for homeowners in trouble. the problems that resulted from the shortcuts are virtually unbelievable unless you have experienced them. i have heard the same kinds of stories dating from my days in ohio. we created dozens of task forces to work directly with homeowners as they dealt with these frightening and overwhelming situations. picture every bad customer service experience you have ever had. calls going unanswered. slow processes, mistakes made and not fixed, a cast of characters who never seem to

deal with him more than once. the paperwork submitted and lost repeatedly. will supply that frustration exponentially and you -- now multiplied that frustration exponentially and you begin to get a scope of what america is facing community by community. consider the impact of these problems on families. we're not talking about a $10 overcharge on a utility bill. we're talking about the largest single investment people will make in their lifetime and a matter that goes beyond an economic assessment. we're talking specifically about people's homes. it is a place consecrated by the bonn that only the passage of time and the precious enjoyment of time can create in an enduring way. the swing set your children love, the decade built, the door that swings shut behind you every day you went to work to

earn the money to make the payments to keep the place you called your own. it is not just consumers who suffer. mortgage investors do not benefit from a broken system where servicers do not fulfill their obligations or make reasonable efforts to mitigate losses. the spilled business model widens the pain and destroys -- this failed business model lightens the pain and destroys other businesses. the severity of the problems people experience is compounded by the fact that consumers often have no say in choosing their mortgage servicer. at the time they take out the mortgage, they usually know who is loaning the money. later, the servicing rights man been bought and sold multiple times with a scant notice to the consumer. if the service is shabby and the servicer is indifferent, the customers have no ability to select another provider who will treat them better.

abraham lincoln said the legitimate object of government is to for a community of people would ever the need to have done but cannot do at all or so well for themselves in their separate individual capacities. today the consumer financial protection bureau is launching our effort to protect consumers where they do not have the power to protect themselves. the mortgage servicing rules we are considering reflect two basic common-sense standards. no surprises and no runarounds. they would apply to all mortgage servicers regardless of how they're organized including banks, credit unions, and non- banks servicers. we envision a world where homeowners can expect fair and reasonable treatment when they fall behind on their payment and genuine efforts are made to help them stay in their homes. we intend to require a mortgage servicers to put the service back in servicing.

our first set of rules will address the root problem of transparency lacking. these rules are designed to harm consumers with information they need to avoid costly surprises. we want to make sure consumers know how much they owe, what they're paying, and how the payments are being applied. if consumers fall behind on their mortgage, we want them to know their options to miss the -- to make the best of a difficult situation. to many consumers do not have the right information at the right time. our rules would change that by requiring servicers to send every customer clear monthly mortgage statement summarizing key terms like interest rate and principal obligations, the amount of and due date of the next payment, and recent transaction activities including itemization of charges. it may seem amazing we would have to do this for a basic requirement, but we do.

other rules would require a servicers to revise earlier warning before adjustable interest rates change. if consumers find mortgage servicers are trying to force excessive insurance on them, they would have the ability to head off the unnecessary resolve. we've heard more stories of people having it imposed on them without notice. even when it is a mistake, if you cannot get a corrected unless you can get a live human being willing to work with you to rectify the error. with many services, that was not possible. to address the unacceptable dilemma, we will be considering new rules to ensure servicers do not charge consumers for property insurance purchased by the servicer. if they do, it can be fixed. another fundamental problem to eliminate unpleasant surprises is require servicers reach out early to struggling borrowers.

this would require a that servicers make a good-faith effort to inform borrowers when the first fall behind about the options that can help them to avoid foreclosure. servicers would be required to state clearly how to pursue and exercise the options that would include refinancing and finding available avenues for a loan modification. tools such as forbearance, interest-rate modification, and principal reduction show promise in particular circumstances of helping to keep people in their homes while optimizing the situation for investors. all of these rules would give consumers accurate and relevant information to understand what the servicer is doing, identifying problems as early as possible, and take action before things start to snowball. idea is to bring transparency back to the database transactions between servicers and customers. borrowers know what is going on and can make better choices from a more informed perspective.

the second set of rules would address the root problem of the lack of accountability in the mortgage servicing market. the rules will considering are designed to ensure servicers do not give consumers the runaround. we want a system where payments are credited immediately after they arrive. errors are fixed when they occur. the documents and records are maintained. borrowers can reach someone to help when they are in trouble. for too many consumers all over the country, these things do not happen now. when borrowers are trying to save their homes, getting the runaround can turn a difficult situation into a disaster. people have told us they have submitted information necessary to be considered for a loan modification. time after time, they have had the infuriating experience of being told by another customer service representative that the information cannot be found or there are more documents that must be sent. the rules we are considering would require all servicers to

maintain records accessible and up to date, minimize errors, and make corrections quickly when errors occur. they would require a servicers to improve the loan modification process for consumers. they would have to notify the borrower about loan modification options, the type of documents to provide, and how long it would take to get a modification. there have to give employees full access to all documents to answer questions about the current status of the matter at any given time. if a consumer notifies the servicer of an error, the servicer will be required to acknowledge receiving the notice and respond to it within a specified time frame. many people speak eloquently about their confusion in the face of the inconsistent and vice they have received from different people speaking on behalf of the mortgage servicers. we're considering a rule where

they will be required to provide access to staff. the servicers would need to have systems in place so a consumer can call real human beings with access to all relevant documents including records of prior contact with the customer. the continuity of contact with stop people from getting the runaround. it would help with the maddening situation where the servicers left-hand has agreed to a trial modification of the right hand is closing in on your for closure. the left hand and right hand do not seem to know what the other is doing. people need real human beings with the right information to help them deal with something as monumental and like changing as a prospective foreclosure. this is not a radical idea. it is what community banks have done every day for decades to help troubled borrowers.

it is what hud counselors of step in to do for many homeowners because the mortgage servicers have failed them. it is common sense, common decency, and it should be the law of the land for all mortgage servicers. we're committed to requiring mortgage servicers to put the service back in mortgage servicing. we do not think it is too much to ask of businesses that they not surprise their customers or give them the runaround. how will writing new rules change things for homeowners? government officials have been dealing with a problem for many years. much has been said, but it is not clear things have gotten better for homeowners from what we continue to hear on our new consumer complete line. i have had personal experience with the issue. when i was the state treasurer in ohio in 2007, i served as the co-chair of the state task force

that sought to address the problems of mortgage servicers there were getting to be severe as foreclosure levels were rising. we brought in major mortgage servicers who did business in ohio. we agreed with them on a set of principles of how the retreat their customers. they met with us and sign the papers but did not follow through. we were hindered by incomplete authority and a poor set of tools to ensure compliance. we have little power over the servicers and they knew it. the experience was frustrating for us and the people where were trying to help. it proved largely ineffective. i came to learn the unhappy experience in ohio was reflective of the same unsatisfying struggles that occurred in many other states as well. things are different now that we have a new consumer financial protection bureau on the scene. we realize a one-size-fits-all approach may not be appropriate

for smaller institutions. it is significant power rulemaking jurisdiction is comprehensive over the entire a mortgage servicing market including banks and non-banking entities. we will be able to back up any new rules we right with supervision and enforcement authority for the first time at the federal level. this allows us to examine mortgage servicers to make sure they're following the law and to enforce the law against them when they fail to do so. from building on reports partners that have documented problems in mortgage servicing. problems were determined to violate the law and be so pervasive that constituted unsafe and unsound practices that adversely affected the function of the broader mortgage market. the recent settlement that has been approved in federal court

was an important step forward on the road to renewal. it was a partial step. it covered only certain financial institutions and categories. it did not encompass the independent servicers who specialize in servicing subprime or delinquent loans. we are already using the tools to extend protections to consumers against shabby customer service and outright lawbreaking that has been thoroughly documented. by considering the new rules and examining servicers, investigating enforcement matters as they arise, and responding to individual customer complaints. as we continue to engage in the work, we will collaborate with our sister regulators to fashion solutions. we recognize we share a common interest in reforming the mortgage servicing market for them and consumers.

the rules we are considering are just the beginning of our push for better mortgage markets. we envision a world in which consumers know what is happening, where errors are less frequent and more readily corrected, and were all reasonable efforts are made to enable responsible homeowners who fall behind in payments to remain in their homes. by fixing the root causes of mortgage servicing problems in ensuring transparency and accountability, consumers would have clear information about options and would be in a better position to hold services -- servicers accountable. if we look at what occurred, the harm spawned by the problems in mortgage servicing may be the greatest of all. if we're going to make life better for the american consumer and strengthen the economy, in the past is more important. we must and we will dedicate ourselves to improving how

homeowners are treated in the most vulnerable moments of their lives. it weighs heavily upon my mind. it is making a deep imprint on our work at the consumer bureau. we are determined to make a difference for american families who deserve better treatment at the hand of their mortgage servicers. thank you for your time and attention today. [applause] >> i am the director -- the director will be taking a few questions this morning. raise your hand, give your name and affiliation, and ask your question. >> i am a realtor in washington, d.c., and i have been through the foreclosure process. i have had many clients call me

to say i am behind on my mortgage, can you help me? i am a realtor and not a mortgage lender. my first response is to call the mortgage company and let them know what is going on. i have lived through that. i went into foreclosure. i let my mortgage company no months in advance -- know months in advance i was going to run into trouble. they did not want to hear it. it is important in mortgage companies operate with the homeowners before they run into trouble if they are made aware of it. it was a very difficult process. they did not care. when i did fall behind, it was as if i had not warned them or let them know i needed help. it did not happen. is there anything you can put into place to make them work with the homeowner before the homeowner has defaulted?

>> i appreciate the question. it goes to the heart of what we're beginning to accomplish as we propose the new rules. it is the case that for homeowners in that situation, they are confused. it has never happened to them before. they do not know where to turn. we spent several years of the local level encouraging people to call the lender and impressing upon them the lender does not typically want the house. they want a payment. we did not understand how difficult it is for the homeowner to even know who their lender is and get a response. the rules we are proposing is about making sure mortgage servicers are required to do early intervention. when the homeowner reaches out to them, they have to respond quickly and provide information about options. when the homeowner does not reach out to them, they reach out to the homeowner and provide information. they are required to keep the information comprehensive and

accurate and correct errors that occur. they have often been very different about that. this should not become a debt collection exercise the runs towards for closure. instead, there's ample consideration given and the consumer knows their options for avoiding foreclosure and being able to stay in the home. getting a loan modification or the other processes that are often available. if the consumer gives incomplete information, it defeats the ability to use the process. >> i am listening to the details of your announcement. we need you more than i thought we did. we're about to be -- we are about financial empowerment, but

certain things are beyond our reach. dealing with some home loan services loan lightherding -- dealing with some home loan services is like herding cats. there were 1000 investors that represented the mortgages that have to be coordinated and talked to any 10-minute workshop. you could not negotiate a deal. the company is using its credibility to force responsibility from the servicer. that was one day and one even. then it is back to business as usual. operation hope has 150,000 people we have served.

it is chasing around servicers, please call back. we did not get that payment or will not accept it. there are uneven rules and an uneven playing field. there is no more important mission than what you have done. >> you mentioned operation hope stands in the shoes to be the housing counselors that helps people navigate the process. the reality is that has not been any easier for the housing counselors to navigate the process than the homeowners. but they have one advantage. they have done it before, several times. they have a sense of how to proceed. for the homeowner, a foreclosure is often a once-in-a-lifetime event. you know how it can change the trajectory of people's lives. they are babes in the woods who do not know where to go or

where to turn. they need responsibility out of mortgage servicers. that is what we now have the power to require and in force. we expect it to make a real difference. you and your organization have worked with thousands of people who have been through the process. it has been immensely difficult, more difficult than it should have been, and more difficult than it will be when we get the rules in place. >> thank you for your time this morning. we certainly believe financial education is the component of this. can you speak to the intersection of consumer education in your efforts as well as some resources you have available? you also launched a new consumer education website.

have you thought to make it required to have a website at the top of the disclosure? >> that is a good suggestion. that is one reason why we like to come to these events. people have ideas and suggestions that will help us do our work better. you are referring to the launch of our cfpb app tool on our website. developed a large number of questions and answers that we knew were likely to be encountered in grappling with these situations. we realized we ought to make publicly available so that people can benefit by it across the country. i would echo what john said. what we want is not just to of

the federal agency that protect consumers but a federal agency and many other organizations that enable consumers to protect themselves. it gives them the know-how, understanding, and appreciation of why things are important by checking their credit report. it then gives them the ability to do it. for us, is helping consumers muscle of and understand how to be informed about financial literacy about these large decisions they make that affect their futures like mortgages and retirement. we want to bring the decisions down to be more accessible where the choices are simpler and expressed in straightforward language so people can understand how to compare and choose. for a lot of consumers, there is a sense of defeat as they embark

on financial literacy. they know they do not know what they should know. they know they need to know more. they're not sure they would ever will -- they ever will. it is a matter of bringing decisions to the public and bringing the public to the decisions. if we can do both, i think we can succeed. >> we have time for one last question. >> on mortgage servicing, what you are announcing today -- >> one thing i think mr. bryant is mentioning is that there is so much information coming down on consumers the settlements, the independent foreclosure review. i am seeing is hard for me to keep up let alone the average consumer. is there any effort to help the

homeowner and consumers to know what resources are available to them. and maybe it is only available through a housing counseling now. even that is a lot to ask of that particular person. i am trying to get a sense of the bigger issue and how do we direct people to the places they can get the most help? >> that is an excellent point you raised. it is notable in an area where federal and state agencies pay little attention until maybe just a couple of years ago. we left them to their own devices. that did not work well for anyone. there has been a rush of activity the foreclosure prevention efforts the agencies have undertaken. it has complicated it further for people dealing with a

waterfall of information coming from different sources. attorney generals are in charge of the settlement information. here we come with comprehensive rules to address the whole market. i think they're badly needed. it will be incumbent upon us. it will be a measure of our success. we will work together to try to put the information together in single flows for people and make it accessible for them. it is one thing to inform consumers. it is another thing to make the decisions available simpler so people can have confidence in their ability to make the choices well. we will continue to work with our federal agencies and state attorneys general. part of it will be to take the different choices that exist now and make sure there is a clear

set of information people can access. that is something we will try to do with our tools. a lot of it involves close cooperation as we go about our work. >> one more question. >> i do not work. i cannot pay the mortgage out of my monthly check. we are afraid if we let the lenders know that they're going to take the house away from us because there is nobody to -- what would you say? >> refinance, modify? >> you can or cannot pay? >> i cannot pay out of my disability checks. it is quite a bit.

i can make it. if they find out my mother has passed away, will they take a home away from us because there is nobody working estimate will they try to refinance the home? >> i would say two things. you should not bury your head in the sand and assume the mortgage owner will not know. they will know. if payments are not being made, they will know soon enough. if you are able to make the payments, that eases the situation. if you find there is a point where you can no longer make the payments, there is no point in pretending they will not find that out. they will know that. if you have trouble and cannot make payments, you can contact the consumer bureau. we have a help line for mortgage problems including people who may be facing foreclosure. we can help to try to navigate this for you with whoever your lender or servicer is.

operation hope does some of the same work as well. if you get to the point where you are no longer making payments and cannot keep up, you can come to us and we will work with you to work with your servicer. >> can you add someone else to the refinancing? >> let me get that. it is a great question to end on. the rector -- director has said if you get in trouble, contact his agency. there are protections in place that did not exist before. there are resources that did not exist before. with what has been announced today, you have a level playing field with the rights for borrowers even for prospective services. you are not there yet. you are in a good position. you are making payments. you can afford to make the payments. you have the dignity and respect

of wanting to make payments. operation hope will stand behind you and do everything we can to make sure the lender respect the fact you can make your payment. you are doing that and desire to do that. i cannot imagine anyone wanting to throw you out of your house because your mother has passed and you are paying on disability. we will work with you. this is an example of a great partnership. there are many resources. you do not need to go very far, just 5 feet after the announcement. [laughter] >> thank you all. >> one last thing. [unintelligible] [laughter] [applause] [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

>> on sunday, we take a look at key 2012 senate races. 33 seats are up for election this year. 21 on the democratic side. 10 in the republican house. and 10 independent states. -- seats. our guests are the democratic and republican republican committee directors. "newsmakers" shares at 10:00 a.m. and 6:00 p.m. eastern on c- span. >> our specific mission is to work for american civil rights to remain at a critical part of foreign policy. when we are evaluating our foreign policy moves globally, human rights can never be the only consideration, but it has to be part of the dialogue. >> katrina swett is the founder

of the lantos foundation for human rights. >> whether it relates to the war on terror or a policy with russia and the upcoming issue of whether the united states should pass the accountability act, whether or not we're going to stay on the record as saying human rights matter in russia and china. >> more on sunday night at 8:00. been nearly 10 years since the release -- >> it has been nearly 10 years since the release of the book. the fourth volume will be published. here he is on a "q&a" in 2008 with an update on how volume

four was taking shape. >> it is a book not just about lyndon johnson. it is about john kennedy and robert kennedy and the interplay of their personalities. it is a complicated story i do not think people know of two very complicated people. robert kennedy and lyndon johnson. i had to really go into that and try to explain it. it is part of the start of the way through the end of john's presidency. chronologically, johnson is dealing with the 1965 voting act. >> watched the rest of this interview and other appearances online at the c-span video library. watch for our upcoming interview on may 6. >> last week, "the nation"

magazine hosted a panel discussion on changing the u.s. tax code with representatives from a number of self-described think tanks. the buffett rule would require those earning more than $1 million a year to pay at least 30% of their income in taxes. the senate is scheduled to take a vote on that rule on monday when it returns from a two-week recess. >> we're going to get started. i am the executive director. i also serve as the secretary of the ada education fund. i want to welcome you here today. i am excited about the panel we have put together. i want to hand it over to will rice, our director program and

policy. we will get going. thank you. >> thanks. i am the director of program and policy for the americans for democratic action education fund. ada is the nation's largest -- longest established liberal advocacy group. we were founded in 1947 -- >> being founded in 1947 by people like eleanor roosevelt, hubert humphrey, and a host of other progressive preliminaries. -- luminaries. for the past year, the fund has been holding a series of monthly congressional briefings where we try to bring important national topics to the congressional staffers as well as other citizens. this was the latest. this event is also part of the commonwealth project, which is a joint venture of ada and the coffee party usa. i have a list of people here to thank.

hold your applause until the end. i want to thank our honorary post for today to dedication, the congressional progressive caucus. also, the office of senator brown has been invaluable in getting us this base and all of the attendance facilities. diana has been the point person on that. over on the house side, amanda is a staffer and she has been very helpful in publicizing this event internally and externally. then i want to thank our organizational partner, united for i fear economy. -- united for a fair economy.

the work on issues out of boston. specifically, tim sullivan and other who helped with lunch and publicity. i want to thank the staff and volunteers of ada, which includes the executive director of the americans for democratic action, our communications director, and volunteers. today's topic. have to make the tax system more fair -- how to make the tax system fair has been a hotly debated topic this election year. with the nation facing record budget deficits at the same time as slow economic growth, the question of how to raise the revenue necessary to address both is an extremely urgent one right now. next monday, the senate is going to be considering the so- called buffett rule, which would raise taxes on very wealthy people who have a lot of investment income. earlier this year, the house

voted down a budget, the ryan budget, that move in the opposite direction. but, spurred by phenomenon such as the occupy movement and warren buffett's secretary's tax rate, the question of who should pay how much has come to the floor. that is why we are here today. we are going to address this issue with an all-star cast, a dream team, and the other team -- term you want to use for a whole bunch of people who know what they are talking about. at the end of their discussion, we will accept questions from the audience. we have a hand-held microphone that will come around to you. if you're watching remotely come on c-span or -- remotely, on c-span or the internet, you can tweak questions to this address right here. @adaedfund

if you are watching this on tape, we have all gone home. i would like to turn our program over to john nichols, the washington correspondent for the nation magazine. he is also the associate editor of the "capital times" in madison, wisconsin. he published "uprising, how wisconsin renewed the politics in protest from madison to wall street." we can thank everyone. a plug for everyone i just think. -- applaud for everyone i just thanked. welcome mr. nichols. [applause] >> thank you. right up front, i want to thank united for a fairy economy and ada. will pulled this together and pull us into this position. i think we are very excited because it is rare to have this collection of people together

at such a critical moment. the president of the united states literally was talking about these issues today. he is on the road. many pundits believe framing his whole reelection campaign now around many of the issues that we will be discussing today. it is incredibly appropriate and timely for us to be in this position. i think that will is one of the more visionary people in america to have put us here today. i also want to note that senator brown did not just arrange a room. he also is one of the senators to i think is more intensely engaged in tax policy than anybody else. he has a constant fascination. while he is not with us, i assume he is watching in his office on c-span. 100 years ago, robert and la follette -- propose an amendment to the republican

party's platform. it read, we collect the revenues to sustain our national government through tax consumption. these taxes upon the consumer are levied upon articles of universal use. they bear most heavily upon the poor and those of moderate means. other countries tax income and inheritance as a progressive rate. the burdens of our people should be equalized. wealth should bear its share. amazingly enough, the republican party of 1912 adopted some elements of that proposal. over the hundred years after, the party wrestled with the issue and may not have come down in the same place. i cite the low follette proposal to remind people that this is not a new conversation. we are not a right thing --

writing at this point without a -- arriving at this point without a lot of history and a lot of frustration. getting fair taxation, an idea of an equitable tax policy to the forefront to the popular debate is one of the great challenges. we seem, for a variety of reasons, to be edging towards a point where that might happen. i give complement to paul ryan, the house budget committee chair, because he has forced some of these issues and gone to what many people see as extremes. he forced people to talk about tax policy in ways they have not up to this point. president obama has countered with discussion of the buffett rule. this begins to address some of these issues. we will go a lot further than the buffett rule today. today, we will try to explain why it is so very hard to get a good honest debate about tax policy going in america.

and, in our congress. we will look at why it is so important to have these debates and daytime whe -- at a time when the alternative fuels to be an austerity discussion. we are talking about what ideas could and should be in play at this moment. we will talk about what our prospects are, politically, for bringing them into play. and, we will discuss the fascinating tension of some -- penchant of some wealthy americans to suggest that they should pay more taxes. i know. a novel motion, which we have some real experts on. i'm going to begin with rebecca thiess. before i go to rebecca, i let me take us around the panel. then we will go to rebecca. what the heck are you doing on this panel?

>> i have a microphone. this is so cool. i am making progress. i wanted to talk into a microphone. it is one of my favorite things. i am always at these things. i have been doing this since 1975. you can argue that i am to blame for everything wrong in the world when it comes to taxes. i take no credit for religious strife. to say that people think, oh man, this is always going one way against us, that is not true. we have had some very amazing victories in we have had some staggering losses. are we better off than we were then? hard to say. we certainly have done some good things as well as bad. i am looking forward to pushing that rock up much closer to the top of the hill before it falls back down on me again. >> you do this as the director of citizens for tax justice? you are supposed to throw that

in there. >> -- that is my title. >> you have been banging away at it. we'll ask you why you have not had more successes in a moment. it rebecca? >> hello. i am an analyst at the economic policy institute and i mostly focus on budget policy. with a little bit of tax policy and social security thrown in there. the things i have been most involved with have been putting together our numerous budget alternatives, which i have really enjoyed doing. we have a document called investing in america's economy that came on november 2010. it is basically your ideal budget picture for the next 25 years, i think. and then we also have been assisting the progressive caucus in putting together their budget alternatives over the last two years. their budgets just came out a few weeks ago and i highly encourage you to check them out.

i spent a good deal of time working on that. >> rebecca thiess is with the economic policy institute and the congressional caucus. it is got 78 votes. a little bit of work there. mike lapham, what have you been up to? >> i am the responsible well -- wealth project director at united for a fairy economy. -- fair economy. faireconomy.org if you want to look it up online. i manage the top 5% who have been used as the poster children for tax cuts. we get them to get into the congress where the voice of greed is well representative in to give a voice. to say, we need higher taxes on folks like us. we also tried to get their voices into the media and corporate boardrooms on

corporate accountability. i would say, we were just at the white house and some of our folks were talking with president obama, who just gave a speech on why we should have the buffett rule. i would venture that i might be the only person who could advocate repealing all of the bush tax cuts. we can come back to that. >> we will have a wrestling match. [laughter] some of the folks you have gotten to speak up for raising their taxes include? >> well, bill gates senior. his son founded microsoft or something like that. he has been a big advocate for the state tax. -- estate tax. we have 2000 people signed on. wealthy people who have signed on in favor of having a strong he state tax. -- estate tax. >> dean baker?

>> i am dean baker. and the co-director of the center for economic policy. i am usually in a -- i am usually macro economist. i usually like to tell people that there is a housing bubble. that will crash and ruin the economy. i get ignored. [laughter] >> he will tell you things today that will really matter many years from now. >> exactly. the background there is that is important we understand the macroeconomics context. unfortunately, people make this fiscal policy and they act as though the macroeconomic factors do not matter. and they do matter. what you should know is that the surplus in the '90s were wrong because the congressional budget office was wrong concerning their macroeconomic projections.

right in 1996. we had 6% unemployment in 2000. bill clinton would have not had a balanced budget. the other thing i would like to mention the unpack on economics is that when we look at our long run budget deficits, it is a health care story. it is not public, it is the private sector health care. if we do not six, none of us can did if we do not fix it, none of us can think of enough taxes to pay for it. -- if we do not fix it, none of us can think of economic taxes to pay for it. the speculation tax has the effect of increasing equality in making the financial sector more efficient by eliminating a lot of waste in the financial sector in eliminating a lot of the high-income people. the best way to direct -- get rid of the problem of the money going to the top 1% is to tax it off the top. if they do not get it, we do not have to worry about it.

>> dean baker. financial transaction tax is a big goal of national nurses united. you got a mention in the budget. it is in play. tom harkin bringing it up. chuck marr, you have scoped around -- spoke to run the little bit. what brings you here? >> i am mike lapham from the senate on budget policy priorities where i work on tax issues. right now, the hot topic for us is the ryan budget, which hopefully we will get to talk about today. also the whole issue of tax reform, which i like to raise some flights about. -- flags about. heading into the really big debate this year which is what to do about the bush tax cuts, where we think the for steps to be -- a first step should be. to let sunsets expire. >> thank you. elspeth gilmore, resources

generation.

>> absolutely. i want to say that the way occupy has shifted the debate has been huge. we are at a moment when the folks in this room, the people i works with, and the staffers, had a chance to move that moment forward and figure out how to capitalize on that.

>> thank you. i think it is significant for anybody to bring something to the forefront because it is never easy. rebecca, you have been working a lot on the history of tax policy. i realize that this very moment there are people across america who are thinking, i wonder what is on some other channel? i would like you to give us a sense of how important understanding where we came from is to understanding where this debate is today. >> i will run through this quickly. we are coming up on the hundred anniversary of the 16th amendment. that is next february. >> the 16th amendment? >> of course, it allowed the government to put in place the income tax. a big moment in our nation's history. i will go back before that to begin with. we had a federal income tax during the civil war. that was instituted because we needed revenue to help pay for the war. it proved to be unpopular. it was done away with in the 1870's. some politicians tried to bring it back later. it was found to be unconstitutional. i am not a constitutional scholar, i cannot explain why. maybe somebody else here can.

>> they said it was communism. [laughter] >> ok. as we got through the progressive era, people became in favor of the income tax. you saw william howard taft support it. we saw teddy roosevelt support its and an inheritance tax . >> for some of the folks in 20 -- 1912, that was the liberal and conservative wing of the republican party. >> an interesting thing to mention is that both teddy roosevelt and franklin roosevelt framed the income tax as fairness. they did not from a tax revenue. obama is doing the same thing. it is an issue of fairness, not paying for the war or foodthose are issues, as well. fairness and closing the important. so, with woodrow wilson's election, we saw the 16th amendment and the income tax come into place. tax rates were immediately

raised during world war roman one to help pay for that war. they came down significantly throughout the 1920's under harding and coolidge. the great depression hit and federal revenues took a really big hit. you saw fdr, like i said, come out not only for, you know, america, but for tax fairness in 1935. he propose significantly what we might call soaking the rich. he ended up raising top rates to 79%. i recently read that when he did that, he raised the threshold to $5 million, which is $78 million into the's world. only john rockefeller pay its that tax rate. -- pays the tax rate. we saw world war ii, and taxes

went up again. you could not do much again on the wealthy. their tax rates were high. what happened was we saw a significant base broadening. taxes really went up significantly during world war ii. they came down moderately after the war, but not as much as you might think due to fears of inflation and soviet expansion, which did not allow us to cut the military budget very much. we had high military spending. we could not bring taxes down too much. kennedy and reagan were the two presidents -- kennedy was assassinated before he could actually push through. they were the two president who brought tax rates down. to wrap up, what is important to mention over the last 40 years in tax policy is that we have seen some pretty interesting trends. the first of which is falling

marginal income-tax rates. they used to be 91% baccarat the time of world war ii and they fell to 28% under reagan. they are now 35%. that was put in place by president george w. bush. we have also seen a decline in the income threshold. so, they used to be up around $3 million. now, it is $380,000. that is the amount of money that is taxed at the top rate. we have seen corporate income revenue fall by about half as a share of gdp. profits have not fallen. we have also seen a substantial increase in payroll tax rates. -- i am sorry. so security and medicare. >> thank you. as you went through that history, i noticed bob mcintyre rolling his eyes and nodding.

i told staff not to do that. -- taft not to do that. [laughter] you have been at this since ford was president. you have seen victories. tax fairness can win. you have also seen some frustrating battles. give us a sense of where we are at now as regards a tax fairness fight and also, why is it hard to bring these issues to the forefront and to get a real debate on tax fairness? >> there is any change in the republican party since the liberal years of ronald reagan. that is been a big difference. reagan, you know, put through what could possibly be the worst tax bill in the history of the u.s. in 1981. he was advised by people like newt gingrich and he was told

that if he cut taxes on rich people and corporations, it would increase revenues and he could pay for his defense. he believes that because he was a believing kind of man. when that did not work out, not one year later when he was told there was a budget hole, and reagan looked at him and said, you mean tip o'neill was right? [laughter] speaker of the house of the time. democrat. for the rest of his term, reagan raised taxes by closing on some of the loopholes he had opened up. in 1986, we went along way to getting rid of tax shelters in the individual side of the tax code and making the corporate income tax into what it was supposed to be. that was a good thing.

how did we do it? the stars were lined, but we had a bipartisan congress. we had a democratic house. a republican president. the public was energized. i take some credit for that because i was putting out reports regularly about how general electric and most of the other big corporations were not paying taxes. we made them pay for a while. republican party changed. democratic party lost interest in tax reform. things started to frizzle away. we are having a more interesting debate about who should pay for government, whether we should pay for government, whether we should have tax breaks for millionaires or medicare. that is a nicely to frame it. it is a true story. should we give corporations big

tax breaks whether it is to move jobs offshore to do it they are doing? should we repair the infrastructure so business can succeed in this country? a lot of business people prefer the latter. unfortunately, their lobbyists that are as powerful. i think the public gets annoyed to hear that general electric and boeing and so many other companies are making these enormous profits and they might vote for a guy who says he is going to do about -- do something about it. i do not mean mitt romney making it more negative. >> is obama that guy? is he -- >> he is talking about the buffett rule, but is he saying the kind of thing you are talking about? >> we are working on him. [laughter] he wants to get rid of the loopholes, but he wants to use the money to lower the corporate tax rate because, in his vision, i guess, corporations are paying the perfect amount in taxes. 1.2% of gdp, which is compared

to 4% back during the kennedy administration. >> i think we can talk him out of this. mike, you are at the white house. >> the question is, do we want a tax policy that works for the 1% or the 99%? you know? that is the problem. our tax policy, over the past several decades, has benefited the top 1%. and in their income has gone up. taxes have gone down and we are saying we cannot afford to invest in education and infrastructure. there is this myth out there that one wealthy person, we have to get off of the on japan or who gets all the work -- we have to get off the entrepreneur who gets all the work. we have to get government off

its back. everyone who is rich is a small business person? we have to keep taxes low. otherwise they will not invest and do stuff, right? the reality is, you know, business people do not make business decisions based on the tax rate. i represent a whole bunch of leaders. >> he ran a business for a long time. >> my family was in the paper business for a long time. i was not making a lot of the decisions. >> take one of our responsible members. he said for 25 years on the management committee, nobody ever mentioned the tax rate around that table. it does not come up. business person after business person reinforces the fact that this is not -- the idea we have to keep taxes low or capital gains rates low so that people will invest is hogwash. it is undermining our country by saying we cannot afford to invest. invest in the things that made these people rich .

>> these are outlined in a new book. >> i happen to have written a book called "the self-made myths." there's my book. >> there you go. >> it is true. it is hurting our country. >> the concept that -- one of the elements we want to stick on is the concept that a wealthy person, who may not even be running a business, is potentially going to create jobs. something will happen. >> right. >> romney's money in switzerland will do something. [laughter] >> the one person investing and buying, does not create new jobs. there was a guy who wrote an op-ed in the seattle times by saying he has billed big companies, but i am not a job creator. we need a strong middle class are there is nothing to build companies for. >> chuck marr? >> there a logical ideas. things that need to be done. i know that you were senior adviser for budget policy at

the national economic council. you were also the policy leader and you worked with the budget committee. i would assume that you are personally responsible for these things not happening. [laughter] why don't we get to a realistic debate about tax policy? what are the pressures on congress that prevent us from getting there? >> we are having a debate right now. in the last few decades, what happened is, in the late 1980's with president h. w. bush, he went back on his tax policy. there was a conservative revolt. you had this grover norquist deal -- one side of the table has become a sort of litmus test of against texas. -- against taxes. the top priority is taxes on high-income people. there is a drive to lower their

taxes. one side of the table is pushing for lower taxes. now, as some mention, we do have this moment of public opinion where after decades and decades of greater inequality, where you do have incomes at the top rising so sharply and middle-class people becoming more stagnant and more difficult, that debate really has been impossible to avoid. that has bubbled up. you have a different public dynamic now. you are getting this debate on the buffett rule because of that. as you debate the bush tax cuts, you do have this one side who would be reluctant to give anything on that. the public, if there is this debate, which there will be, is siding with -- high income people are doing fine.

they did great during the 1990's. we do not need to give them more tax cuts. a lot of budget decisions are coming. they will hit middle-class, working class people and everyone has to be part of that. >> digging in deeper and one thing on working around congress. is there money in politics? is that a component to this? >> money is rampant in politics. it is not so much money. if you think about the corporate tax debate, there is a big debate right now over whether the united states should say to taxes on foreign profits -- whether they should be taxed.

the romney plan, all of the plans, say we should not have a tax. we should have these zero tax rate on foreign profits. why should we encourage china -- investment overseas over investment in ohio? from a company perspective, for multinationals, that is in their interests. i think, you know, what needs to happen is they need to be elevated somewhat because if they can be put in terms that people understand and people get engaged, we have a better chance -- >> is focusing the attention that overcomes the lobbying pressures. >> very much so. let me take you in there because one of the things you have tried to do is to bring some folks into the debate to get attention and to say, as wealthy people, we think we should be taxed more. they are not simply saying, we are patriots.

there is a sense of a -- how you create a civil society. how you create a functional society. talk to me about that . >> just building off of what mike was saying before. we want what is good for the 99%. i think that what we are saying -- what we are all saying is is what is good for the -- what is good for the hundred%. that is what you are talking about in terms of building a civil society. the young people i work with and the people i talk to that immobilizing are around this -- we are seeing public infrastructure with a safety net. we know there is health care, education. the people that are affected by that are not only -- i went to private school, so maybe i was that impacted, but my entire community is full of people who are relying on public education.

i want my kids to go to public schools. i want to not have to be in communities where people are courting wealthy and not having to -- and having to live in that scarcity mentality and worrying, but having a collective net for all of us to have been not just -- not only the 99%, but the 1%, as well. >> dean baker? you come in addition to saying there was a housing bubble and concerns we want to look ahead to, you have been talking about their taxation, their tax policies, about the role that tax policy plays him in making that civil society. if we have a consensus on the panel, we might be in a moment where we could do some things. if we recognize there are going to be some people that say we should not do any tax reform -- for people who believe we are in a moment, what are the initial

steps we should take? >> the most obvious thing that is on the table is the bush tax cuts. they expire at the end of the year. i think it should be a no- brainer that we want to raise the top tax rate to 39%. for people to forget in the 1990's the economy did well when those jobs creators paid the higher tax rate. i do not see harm in raising that hire. 43%, 44%. even 50%, that is not a problem. a couple of the other things -- we have created this big gap in tax rates on capital gains income and dividend income in order -- in ordinary income. that is why you have any for the buffett rule because you have the buffetts of the world getting the income. people are paying 25% off of

middle income people. if you got rid of that gap -- ronald reagan said, we will have people make money the old- fashioned way, by working and investing. one of the things that it was created the same tax rate for capital gains, dividends, and ordinary incomes. it got rid of hiding income as capital gains and dividends. people cheating the government. that would be a great thing to go back that way. reagan was right. >> reagan is coming out very well. >> there are a few other things. people talk about deductions in the tax code. that is to be expected.

what you can do, and i think you get support from people across the board to, economists across the board, you can cap that. make a $400,000. the government does not have to subsidize some to get a million- dollar home. caput at $400,000. that takes clear of the middle class. that is a great weight to get money. president obama proposed to cap the rate at which you take deductions. we can have wealthy people giving big deductions to charities or whatever, but they would only be able to take the deduction and a 20% rate, the same as a middle-class person. good thing to do. the last thing i will mention that does not often get talked about, but would be a good idea, the federal reserve board holds about three trillion dollars in assets -- $3 trillion in assets. when they hold those assets, guess what happens to the money? it gets paid back to the treasury. the treasury cut $80 billion from the set last year. -- got $80 billion from bell

said last year. -- the fed last year. the fed holds -- plans to not hold that money. i will not go into other issues. there is a lot of money there. in washington, they have the view that the fed is a church and they believe in a separate of church and state sometimes. the fed is not a church. it is the creation of congress. congress cannot tell the said what to do. that is a good way to get $800 billion for the budget. >> we are talking real money. >> that is over a decade. >> let me give you a quick sauce. i want to hear about a financial transactions tax. >> it is great that this has gained momentum.

it is getting a lot of play in europe. it is likely france will have the financial speculation tax and many other countries and the european union are going in the same direction. this sounds strange to people. i say this to people and they say, you cannot do that. i say you have to tell the stupid people in england because they are getting $30 billion a year in revenue and they just tax stock trades. they're not taxing credit defaults swaps. if you had a robust tax, you could get as much as $150 billion per year. the tax proposed by tom harkin and others were scored as raising $400 billion over the next decade. that is a low tax. that is paid almost exclusively by a wall street-types. they will say, your 401k held over. he will not even notice. anybody who notices is doing something they should not be doing. it is a great tax. i am glad to see it being

talked about. >> bob? we're hearing a lot about personal taxes. corporate taxes? anything we should be talking about? >> that is what we should be talking about in tax reform. the individual side, i mean, it is complicated and we do too many things through the internal revenue service. the mortgage interest deduction and the charitable deduction and so forth, they are not undermining taxpayers. on the corporate side, it is an absolute mess. on average, the big companies are paying half what they are supposed to. some of them are playing full freight . >> what do you mean? >> they're not paying its. on average. that is right. some of them are. some of them are paying 35% and some are paying nothing. that is a weird way to even run an economy as compared to a tax system. who has a lobbying power in washington?

if you argy and you hire lobbyists, well, you do not pay taxes. -- ge and you hire a lobbyist, well, you do not pay taxes. i have no problem with retail stores paying 35%. i just saw ge ought to, also. if you close the loopholes allowing this to go on, you could raise close to two trillion dollars over a decade. that is a lot of money. it is more than anybody has talked about raising taxes, even by their phony baloney standards when they are cutting taxes but say they are raising taxes. we more than some symbols and the president has ever talked about. way more than -- weigh more than simpson bowles and the president has ever talked about. >> in the context of the citizen united movement, how realistic is it to suggest that we will be able to get a tax fairness with regard to corporations?

is it a political challenge? >> how realistic was a doing ronald reagan would sign onto a program that was a lot like what i just described? it will take effort. it will take leadership. we need a president to start being a little bolder on the issue. if he gets there, the american public will be with him and congress, despite the fact that they are frightened to death of corporate money being used against them, they are out -- they are more frightened of voters not liking them. >> mike, we have touched down a lot of stuff. take me down the state tax -- the state tax road. it was just go as far as -- >> for the record, before we run out of time, i suggested rolling back of the bush tax

cuts, not because i think we should not have some of those in place for lower-income folks, but we believe that that is the way we will get them. we will not always get an agreement on where we should draw the line, but, if we get rid of them all and go back to 2001 and start from there and give tax cuts to people who really need them man -- to really need them, that will put money back in the economy. the estate tad -- tax, we have been trying to work on this. bill gates senior signed on. the estate tax has been weakened over 10 years. it is not to the point where the exemption is $5 million per person, $10 million per couple. that is higher than it needs to be before you start paying. the mcdermott legislation says

$1 million or $2 million for couples. obama to texas $3.5 million. that is weaker -- obama's says $3.5 million. that is weaker. there is a letter circulating concerning the rollback of the tax cuts and cutting capital gains, having a strong the state tax and then saying this corporate tax reform. -- strong estate tax. increase the capital gains rate. anyway, that is a matter to congress. >> that what is titled our tax code is written to benefit the 1%. >> rights. there are forms out back if you are here in the room. if not, you can find it -- >> you are a entrepreneurial activists. >> we need to get the voices of

wealthy people. those voices making huge difference, when it is the people who would be taxed. >> i just wanted to throw in a little bit about philanthropy. >> let me throw a little frame on it. there are an awful lot of folks that say, if we got rid of taxes altogether, rich people could do nice things. and take care of everything. you are dubious about that. >> i am. that is everything being talked about. i am excited to move on all of these. the financial transactions stuff is going on in europe, that is exciting. whenever we can move through, i feel like i'm not a policy expert, but whenever we can move through moments over the years is exciting. to put the context of philanthropy -- i work with wealthy individuals. i am a wealthy individual. i work with people who work in

philanthropy. what the amount of money that -- the amount of movie that we -- the amount of money we are moving is nothing compared to what is needed for public infrastructure and all the things we're talking about funding. nothing compared to what the government is moving. just to really put it in that context of what ever we can move forward at any given point. the amount of money will not be covered by individuals. what we give through charity is a completely different ball game. also, what -- when we talk about rights or moral imperatives, it is health care, education. are we leaving that to charity? probably not. >> cannot be voluntary. that is a critical point to underline. often the way that our media

covers these discussions, that there is a sense that there are these wealthy people and if we get out of their way, they could do good things. sometimes, they do. we raised those instances of to be greatly celebrated. -- up to be greatlyb celebrated. backy? we have been talking about what we cannot do. can we save social security, medicare, and medicaid? they seem to be so central to the current debate. can we say that without fair taxation, some kind of tax policy? is it possible to save them? >> that is an easy question. >> i like easy questions. >> i do not think so.

in order to do it in a fair and equitable way, the answer is no. i will say, first of all, it is sort of drives me crazy that people talk about social security at that point in the game. social security is perfectly fine for another 25 years. you know, we have a huge trust fund. you will hear the social security report is coming out soon. you will hear people screaming about cash income deficits. the reality is, social security is taking in less money because fewer people are working. we have a high unemployment rate. that is what we need to be focusing on, now fixing social security. we need to get people working and paying their payroll taxes, income taxes, and the social security thing can wait until our economy recovers. that said, i think that an

answer to the social security problem, now i'm talking about, which i said people were not doing, is raising the payroll tax cap. you can raise that. just to back up, the payroll tax cap is about $110,000. that means that income above that is not taxed at 6.2%. or 12.4%. whatever threshold you want to go with. if you raise that cap, you can still pay a higher benefits to the wealthy people who would be paying that tax and you can solve almost the entire 75-year social security shortfall. asking people who make, you know, $1 million a year, $200,000 a year, to pay taxes on all of their income instead of the first $110,000 of it. that can serve our problems to resolve our problems.

>> that is a 4-tax fairness concept. --for tax fairness concept. >> with rising income inequality, we have actually seen a greater percentage of income above that cap. if we use to cover 90% of income, now it covers 84% of income. income inequality has really increased 70-- health care is a mess. with the affordable year cack -- with the affordable care act, president obama raised taxes. it is about a trade-off. if we want to continue funding medicare, medicaid, paul ryan does not think so, but i do. >> speaking of paul ryan, chuck? is there anything about paul ryan plan -- is in play. that is obviously, as much as

the president takes his megaphone and speaks about the buffett rule, paul ryan has become the central figure. he is much discussed as a possible vice presidential candidate. they're democrats that are excited about that prospect. -- there are democrats that are excited about that prospect. is he talking about tax fairness, or an extreme that would be kind of what we have now on steroids? >> right. mr. ryan's budget is divided between spending and tax type -- spending and tax side. his spinning his charge. he goes after all people, medicare, very harsh cuts in food security and a whole range of programs. it puts the main part of the government on a downward track. almost an impossible level over time.

the spending side is very harsh. his tax side is in sharp contrast to that. on the tax side, he starts with making all of the bush tax cuts, including the high income once, permanent. on top of that time he goes much further. he sort of talks about how he will have deficit neutrality. he never says anything how he would raise money. he just talks about the cuts, which are tilted towards the high income people. the most prominent is he poses to take the top tax rate down to 25%. that will be the lowest rate since herbert hoover. coupled with the same tax rate for corporations. the result is, his specific tax cut on top of the four trillion dollars of president bush, he

did say the other four and a half trillion dollars deeper. -- digs another $4.5 trillion dollars deeper. the one local he takes off the table is the capital gains rate. -- a one lupo he takes out the table is the capital gains rate. -- the one loophole he takes off the table is the capital gains rate. you are left on the table the mortgage interest deduction, the exclusion for health care. all things that tend to middle- class people. those things can be reformed, as being mentioned. president obama's proposal to reform those, that would raise the 500 chilean dollars -- $500 billion. he is implying that the top priority is to cut taxes for the highest income people. before we go to questions, i want to ask two more things. dean, you do an analysis about how the media covers economics. how did we get to a point where

the most talked about tax plan of the moment is seemingly a plan for redistribution of the wealth of board? >> it is remarkable. what is striking about paul ryan plan, nobody knows what chuck just said. that tuesday did not make it clear, but you have to understand the paul ryan plan gets rid of most of the budget. the congressional budget office, under his direction, if we just assume his numbers and that he wants to keep the military spending at its historic levels, somewhere between 2200 -- 2040, and 2050, the rest of the government disappears. the food and drugs administration, the national -- all of that disappears because there is no money.

that is what he signed off on. the fact that is treated seriously, that is incredible reporting. basically, i am sorry, it this is a lunatic budget. you have all of these people running around watching this series proposal on the table. that is not serious reporting. risch -- reporter should have been pointed out that he proposed getting rid of the federal government in 30 years. nobody did that. >> right. there was a little moment when paul ryan plan first came out where he was saying, you know, we will cut four trillion dollars off the debt and we will do that by increasing tax cuts for the wealthy. obama said, we will cut four trillion dollars by rolling back those tax cuts. there was a moment of conversation. >> that is healthy to have that

conversation. >> to have people look at that and say, where is our priority. -- ? do we want to find the money? we did not have that conversation. do we have to stop -- we have to stop coddling the rich. we have to stop saying we need the tax cuts for the rich and we need to have that voice saying, in 2010, 93 -- you all saw this, 93% of the income gains went to the top 1%. you have $80 on average. it is bad. it is getting worse, right? to say that rich people cannot afford it --

>> fred harris ran for president on the slogan, take the rich off of welfare. >> that is a call to outraged that should soak up the crowd. [applause] i would like to have questions from the audience. if you are watching this from home and it is not some other day than today, you can tweet questions to this event. i will try to be the medium for those questions. if you are here physically, just raise your hand. john will call on you. i have been waiting all day to say this. wait for the microphone because we are on c-span.

>> we have a gentleman right here. we have about a half hour left. we will ask folks -- if you have a long and extensive statement to make about tax policy, you might want to submit that for the record and go straight to the question. >> i am from the center for economic and social justice. philosophy goes through a man who developed a concept called the binary theory of economics. the plan for moving beyond the marxist model and the keynesian model -- he challenged both. neither of whom thought individuals owning the means of production was an important goal. i see behind us the ada

education fund. you had two of the heroes. you had walter ruther, whom i worked for some years ago, and senator hubert humphrey. both of whom congratulate did kelso and supported the idea of democratizing ownership. the problem i have is that there is no discussion at all about the system. it is assumed that the tax system as a whole is a good system. we will tinker with it in terms of what we do. that is unfortunate. there is a plan i'd like to call to the attention -- >> i would like you to tell people where they can find that plan on the web. >> it is cesj.org.

>> i will go to bob mcintyre. you have been dealing with this forever. do we have a claim we should work in? >> we have to have a tax system. >> ron paul will not agree with that. >> he has not just repudiated the 21st century. he has repudiated the 18th century. george washington put together the constitutional convention that gave us the federal government power to tax. abraham lincoln instituted the first income tax. teddy roosevelt ran for president as a third-party candidate and split the republican voted.

>> you are basically saying we have a framework. >> you have people who would like to go back to the 19th century and have all our taxes be sales taxes. >> there is the scientology movement tax plan called the fair tax. you have the flat tax's like dick armey, who want to -- taxes like dick armey wants. another tax plan has turned into a tax shelter for rich people. in the loophole and up as a tax shelter for rich capitalists.

>> that is what my mother, who spent her lifetime as a tax preparer, always says. let's go to this gentleman in the back row. >> a question about capital gains. there have been discussions about capital gains rates. people argue that capital gains basis are not indexed for inflation. in exchange for raising capital gains tax rates, do you index -- index to account for a change in rates? does anyone have any idea what the gains exercise over a year are? >> who wants to grab a piece of capital gains? >> we talked about it when inflation was high. it is low now, so it doesn't matter much.

the problem is this. if you index gains and do not indexed debt, you have created a tax shelter. you will borrow money and deduct the interest. you will make money by losing money. number 2, realizing capital gains is a voluntary thing. we already have an exemption on any kind of break that we do get. it seems to be unnecessary. >> to build on that, he makes a telling point. it is an optional tax. you only pay it wants. what people probably do not know is that if one buys stock at $10 when you are a young person and you grow old and it goes to $100 and you make a huge

gain, if you die without selling it, the capital gains is completely forgiven. wealthy people make a tremendous amount of wealth and income from that over their lifetime and borrow against it. that money is never taxed. >> or you could give it to charity. >> you are not going to have perfect fairness in the system. >> i would want to maintain separation. i would not tax capital gains at that rate. raising it to 28%, i do not see that we have to do some special dispensation for that. >> just a quick word about putting dollar amounts on capital gains. there is definitely a pretty interesting debate about behavioral responses and what

actually happens if you change the rate at which we tax capital income. there is a great congressional research report. i am for getting the name of it. she goes into great detail about research done on behavioral responses and why the joint committee on taxation may be low balling their estimate on how much revenue we would get. >> do you have another question for us? can you stand up so we can see you? it will help. thank you. >> cbo has said that taxes are effectively progressive. it is about 28% on average. you have state and local which is another 6%. 34% of all income over $250,000

goes to federal, local, or state government. the average taxation is 28%. the system is effectively progressive. cbo has shown that over about five reports in 10 years. tax system issues like compliance and excessive legal system costs. it is about 22% universally. those are progressively incurred as the wealthiest people are in the courts dealing with the regulatory problems. it is probably about 26% for that. add to the 34%, 60% of all of the income over $250,000 is in government-related costs. >> thank you.

do you want to attack that? >> 28% sounds plausible. that does not bother me. the compliance costs -- i have not seen that. >> they are not compliant costs. they are avoidance costs. people do it because they are trying to lower their taxes. if you look at our tax system, it is mildly progressive the way it is. if you look at combined taxes, it is mildly progressive. income is not progressive. it is skewed toward the wealthy. we have a class of people who can afford to pay a lot more. >> there is real confusion. that statement about 28% was of

the income over 250,000 dollars. we have some hard working job creators, they are play -- paid 28% on that $1. people often miss that. a lot of people are worried that wherever we set the floor, they are going to end up with $1,000,100. . a lot of confusion on that. >> we have somebody texting in. no one is more surprised than me. someone sent a question. actually, three questions. you can choose which one you want to ask. he is an occupier or nose and occupier. he wants to know what occupy can do to shed more light on the tax justice question that has not gotten the attention it deserves.

and what are the revenues that the buffet tax would actually generate? >> elspech, you have -- elspeth, you have spent a lot of time talking to occupy folks. it strikes me that occupy wall street -- which is more than that -- it is a national movement that is in more than one place. there is a discussion about the inequality of wealth at the core of it. is it beginning to be more focused on how we can address that any quality? >> i would like to go back to what i was saying before about the opportunity for us to seize the moment. the question this person asked -- i think there is a way that

there needs to be -- we need to be mobilizing around this and talking about this conversation for legislation to move in washington. there needs to be popular support. there is a way that occupy can continue the conversation and keep people mobilized. i do not know it occupies the place solutions should be talking about. i do not think it needs to be -- >> no one is suggesting occupy should come up with all of these solutions. but you might want the president to get a little more focused on some of these issues. >> talking about occupy in response to that question, the key role is to keep the conversation going and mobilized. i can talk about my own trajectory and learning about taxes. five years ago, i was in a different place. people are beginning to think

about the role of government differently and think about the wealth disparities and how it is impacting people. we should tie it to a larger analysis. that is going to be what is going to allow my generation to have a different perspective. >> you want to throw something in. >> occupied, together with warren buffett -- those two things together, the pressure from the bottom and someone say, i should pay more taxes, that makes it possible for obama to say we should have a buffet rule. the buffet rule is a camel's knows. -- x -- the campbell's camel's nose.

it stars the conversation on a national level about, should we tax the wealthy more? >> it is about where you live. we have focused this discussion about tax policy on washington and on congress at the federal level. tax policy also plays out at the local and state level. can also be unfair. we had a great discussion on the legislative exchange council. we focus a lot of attention on how this national group develops model state policy on tax issues. is it important to keep your eye on the broad prize rather than think this is a d.c. the base? >> it is huge. the federal tax code is somewhat progressive, or less so than

they used to be. state taxes are regressive. they fall much harder on lower income people. lower income people pay the heaviest share of sales taxes and pay a much higher share than wealthy people. state taxes hit lower and moderately income people. >> if i can jump in on the state taxes, i am steely one from the international monetary fund. they did -- stealing and one from the international monetary fund. they recommended a financial activities tax. and entered transition -- transactions at the state level are exempt from sales tax. you go to the bank and that is not taxed. i also talked to a high powered

talks -- wall street attorney. they could tax the transfer of mortgages issued against properties in that state. >> it also might slow down all of the gamy -- gaming, mr. housing bubble. >> we have a question in the back. >> could you stand up so that we can see you? >> i am with a anti-party organization. one of the -- part of the tax code that folks to not always realize when it comes to fairness is the tax credits for low-income working families. earned income tax credits, child credits. the center of budget tells us that they do more than any other to lift americans above the poverty line. the poverty line. can you talk about how you