we recommended that fhfa be more engaged.to the enterprise. >> wouldn't that have been -- to allow the modification? >> i'm sorry? >> to allow the modifications? somebody has to pay for the. was fhfa going to have to absorb some of the? >> well, one of the issues we looked at is whether or not the treasury was going to be paying for the administrative effort of the enterprises. that was a point of contention. it was never i had out in the agreement. >> well, we wish you well in your job. >> thank you, senator. >> senator reed. >> thank you very much, mr. chairman, and thank you, mr. linick, for your efforts. your very clear in your september 23 if that the fhfa has too few examiners, which goes to the very basic ability to conduct their operations. can you confirm that, in fact, is your conclusion? and second, what can they do to increase the examiners? otherwise they are underresourced and not effective. >> well, the fhfa told us that they have too few examiners, and we concur. with that assertion. we've recommended a number

it's a concern to us because fhfa coss on examination shortages caused concern and get fhfa as weak as a regulator barraza conservator, it's important that fannie and freddie's operational risk program be strong. because they go hand-in-hand. so that is why operational risk is a critical element to oversight and accountability. in terms of what is preventing the agency from doing, from enforcing this and requiring fannie mae to develop an operational list program, i don't know why. it's rather shocking since they have been telling fannie for five years that they needed operational risk program. they have broad authority as conservator. they can fire people and as regulator, they certainly can issue a cease-and-desist order and the like. they have promised that they will implement an effective operational risk program by 2012 and we are monitoring them. >> can you give examples of -- are not being allocated to prioritize oversight and how this could impact fhfa's ability to limit taxpayer losses? >> we have issued a report on examination capacity at the agency and this report reflected

it is of concern to us because fhfa's own examination shortages havei cost shortagesf fhfa -- have causedi have. is important that they be strong because they go hand in hand. that is why operational risk is a critical element to oversight and accountability. in terms of what is preventing the agency from enforcing this, requiring fannie mae to develop an operational risk program? i don't know why. is rather shocking, since they have been telling fannie for five years they needed operational risk program. that have broad authority as a dancer for her. they can fire people, and as regulator, they can issue cease and desist orders and the like. they have promised they will implement an effective risk program by 2012, and we're monitoring that. >> can you give examples of areas where staff and resources are not being allocated to pareto's oversight, and how does it impact fhfa's ability to limit taxpayer losses? >> we have issued a report on examination capacity at the agency. this report reflected what the agency told us about staffing shortages resulting in limited testing transactions, sca

in the legislation that created fhfa.while conservatorship is meant to be short term, it's turned into a multiyear event. i'd like to recap it in the form of a multichapter story, a story we're still writing. importantly, however, the final chapter of the story has to be written by congress. chapter one was the establishment of the conservatorships themselves in september 2008 with the treasury support agreements, the board and executive management changes, and the effort to assure employees and market participants alike that the companies were open and operating so that america's housing finance system would continue to operate. from day one, fhfa made clear it was entrusting day-to-day operations to the new company management, but reserving for itself key strategic critical business decisions. the next chapter began in early 2009 with the effort to establish a uniform, robust, loan modification program to assist troubled mortgages. the development. hamp -- the development of the hamp program and proprietary programs con

fhfa -- fha is an entity that if it did not exist, we would try to created or something similar to it. it did not come into existence on a whim. there were severe problems in the 1930's and fha gave us this exotic problem -- product known as the 30-year loan. at the time, it was anathema. it was not commonplace. it was something that we have now and we think little of the notion of getting one. at one time, it was very difficult to get a 30-year loan, if not impossible. because you had big balloons and you had to refinance and people of little means or modest means, middle-income americans, they did not get homes to the extent that they do today. do you have empirical evidence to support the actual impact if you have had in the area of homes being sold by realtors, the impact on builders, the impact on manufacturing, the impact goes beyond the simple purchase of a home? which is important, but you have empirical data that deals with these other industries and how they are important -- affected? >> that data certainly exist. i do not have it. but absolutely there is no doubt that what

with recent changes from fhfa, more refinances are on the way.oday, because we provided responsible for us opportunities to stay in their homes, the number of families falling into foreclosure is down 45% since early 2000. more than i put 3 million mortgage modifications have been started since that time. central to this progress has been the fha, which has undertaken commission that congress set for it after the great depression. by taking over 1 million loss mitigation actions to help families keep their homes and helping to point to 5 million for some home buyers realize the dream of homeownership. 56% of our first-time homebuyers in the last two years and 60% of african-americans and hispanic home buyers last year alone. as the report we discussed today finds while we've been through the second worst housing counter in the history of the country, fha, unlike many other institutions retains a positive fund balance and the current book of business is strong. specifically the actuarial reports insurance on loan since janet 2009 post in economic

fhfa has a single director. other agencies do have a board, it can work both ways. but congress created us and gave us a director, we're trying to implement that law. it's difficult not having a director in place as the chairman mentioned, a level playing field -- >> is the threshold pretty high meaning that unless a rule that you create threatens the stability of the entire financial system, it cannot be challenged. that's a, that's a pretty high threshold, is it not? >> i don't know how to evaluate that in the abstract. i know this provision -- >> well, don't do it in the abstract. i mean, would you agree that unless you create a rule that destabilizes the entire financial system, that that's a pretty big threshold for any of the other regulators to challenge whatever you solely decide against? >> again, it's a standard that doesn't apply to any other agency in government, solely to the consumer bureau. it is a high hurdle, but not an inappropriate one, i think, because we will be consulting regularly both in the examination function and as they do safety and soun

the acutarial predicted was that 5.6% decline, it appears we got third quarter data yesterday from fhfa and case-shiller. it appears likely the decline this year will be smaller than that 5.6%. it is now year-over-year about just under 4%. and their prediction, moody's analytics prediction for 1.3% increase next year in home prices. so, i will tell you that is the base case that the acutarial is run off of. >> so we, the predictions have been more gloomy than actuality over the last several months and if the predictions hold, the fha will not need an infusion of federal fund? >> under the base case that's correct. i will note though however, that obviously we can't predict the future. that the predictions last year, the performance this year has actual been somewhat worse than was predict by moody's last year and that is why we are evaluating a series of steps that we could take and that we expect to be as part of our, included in our -- >> you ought to be planning for everything but the best estimate is home prices will go up infinitesimally next year and if they even go down by 4%, fh