Regard. Let me talk about the riskbased pricing. I hear it comes up from time to time. One of the Mission Roles that fha has served is an access point for demographics that otherwise would not gain access to the home buyer market. If you look at the way pse has priced the mortgages today, at the high end of the curve, it gets expensive for nodown payment borrowers. If you can control for qualification, for documentation standards, credits or the ability to repay variables, the down payment should not be a variable and tell you get into a distressed scenario. You can control the distress by making sure the standard is there. We also know down payment is the single biggest barrier to Home Ownership. It particularly in packs those borrowers who do not have large amounts of inherited wealth or disposable net income. It is heavily predominated by firsttime home buyers, African Americans and hispanics. 80 of all mortgages last year getting a loan to the program, because there is no other resource. Given that, those are expected to perform very profitably for fha. My worry would be if you risk based price, you create societal impacts the do not reflect the quality of the loans being originated in the first place and cause a disparate impact unnecessarily. Focus on credit quality and try to avoid terms that create adverse selection. Not over correcting in such a way to have unique outcomes demographically. Anybody to add . Fha does not have too many levers. Would you have a concern that you raise premium so high and drive away the best credit and have a traditional insurance modeled deterioration, where you are now bringing on the weakest credit while driving everyone else away . We have a tricky conceptual issue with fha. If we thought the mortgages would not pay for themselves under the most reasonable economic scenarios, then it would make sense to tighten the credit further or raise the cost further. We have been raising the cost a lot. We are able to do that because we are in a very low interest environment. We may find ourselves in a different in varmint in which they will have less choice. The actuarial estimates are that the fha books of business will more than pay for themselves. What were looking for them to do is pay for the losses we incurred when we were playing a countercyclical role. The phrase i always use, it is inherent to an insurance model. Fha does it for a public purpose. There is a point at which i have had plenty of economists argue that it is not rational for us to charge todays home buyers more than it costs us to pay for the losses of the past. We had a large, traumatic, national emergency. Think of it as the Hurricane Sandy or Hurricane Katrina of the Housing Market. Maybe the Public Sector ought to say the economists say we should write the check for the treasury and we should go back to starting the future homebuyers at a price that is rational. The Financing Mechanism and the like. I think we should do that, with there are limits to how far you can do that. There are limits to what you can do with the pricing. When the private market comes in, theyre going to take those and take the business away from the fha. I will celebrate that, because that is business that the private sector should do. We are waiting for it to come in order to get them into that market. Any changes you think the fha ought to be considering . Sometimes we hear about the fha crowding out private capital. Do you think there is a case to be made to bring the fha loan limits down . No, i do not. The product the problem with this point for the private sector is it is not theyre not all may for the 700,000 and under. It is not there for the 700,000 and over either. The private sector needs to be repaired substantially. It is not there yet. There is great fear, an aura of toxicity over the market. There is lending going on, portfolio lending that is being done out of relationships. This is not at scale. Right now, there is a great deal of work that is being done. Sec is proposing their securitization rules for plumbing. All of that has to be in place with far more sense of security Going Forward there is no alternative. In the meantime, there is a chicken and eggs story here. If we did not have stable markets, that would be a separate reasons. How do we assure that we do not have the kind of crisis . We have to make sure we do not take any major steps away from the support to the market that is there to destabilize the market. The market is strong strong is the wrong word. It is recovering. But it could be destabilized. Picking up on what sarah said, it is totally appropriate that a longterm pricing be adjusted upwards to recover from borrowers in this period. It would be a major mistake to price immediately the loans to recover the next few years. As a longterm prospect, it makes perfect sense. That relates to what david was saying. Another problem with pricing is the logic of it. You do not riskbased price one moment in time. You riskbase price for next year, whenever you see. The bar or risk changes over time with the the bar or the borrower risk changes over time. It changes again the following year and will lead you to price risks. That is exactly what the private market does. The private sector, as we know, was up to 1 trillion at its height. That went down to where it is today, 1 billion. Those are the kind of swings you if you go through the risks that are in the market at the time. Your point is, when people say there is a capital re that comes back, it is not. Is not there yet. I think it will happen. Again, there needs to be the funding in place to have a sense of transparency. I put out there, a major point for quite awhile, the need for transparency, not only for the Public Sector, but particularly for the private sector. That will help bring confidence back. It is not there yet. You talk about sustainability. When we talk about the fha in the medium to longterm, and we have heard some criticism that the down payment standards, 3. 5 , they were 3 in 2008. There was a push to eliminate down payments as early as mid 2008. You heard the criticism that this is not helping the people that were trying to help if, in a declining home price environment, folks may be upside down from the minute they walk into the house. Do you think there needs to be a rethink where the down payment limit is, either now or five years from now once the Housing Market is more on the mend . It has a lot to do with what our expectation is in terms of how the economy is going to perform and what will happen to the trajectory of house prices. In an environment where the economy is strong, house prices in most markets are, at worst, flat, generally rising. I would agree that borrowers will be accumulating down payment, reasonably steady income. The risks of default are manageable, covered with in the premiums. The problem is we feel we are in an environment of slower economic growth. There is not a lot of when under the sales, which means that the possibility that you can have recession is more likely because youre starting from a lower growth rate. House prices may be on a much flatter trajectory. Then it is a question about whether the low down Payment Program is necessarily the best, even for the borrower. When you factor in and here is where downpayment does matter, because it is the culmination of a bar or the combination of a borrower, that is the determination of whether you get a default. The possibility that house prices decline in your market. House prices are very sensitive to what is happening in the economy. Then we could see default rates start to move up again. That is a question of how do you balance the benefits for the folks who make it through and gain access to Home Ownership earlier than they would have otherwise or maybe they never would have owned purses the cost of the families that will go through a default and a foreclosure . What is required sustainable Home Ownership . It is a difficult question. It is one we need to be mindful of when we calibrate this Public Policy around how low do we want to push those debt payments. When things are getting better, than you can start lowering the downpayments. That is what we ran into with the subprime problem. If you raise a down payment, Interest Rates are low. It is already difficult for some folks to save. Their equity is gone or their other sources of downpayment have also been hit by the recession. Is there too much emphasis on raising the down payment right now . I think it is. As important as down payment is, at the moment, i do not think we are out of the woods yet. Increasing downpayments now would hurt the fragile recovery we are having in the housing area. I would be very careful to do it now. As we get out and the economy gets better, again, fha has 3 down since 1961. If you price accordingly, that is fine. There is a reason the down payments and loans are sustainable. Once we go back to normal times, whenever that is, i think that we can have that conversation. This debate has gone on since i was commissioner, when the funds went below 2 , the reserve did. I have heard the debate over 3. 5 5 . At the end of the day, is that a measure unto itself that will create immeasurably greater risk control for the fha as opposed to having a good Credit Management protocol that requires underwriting standards that will provide sustainability . You can eliminate risk in its entirety. He can acquire 20 down payments and all sorts of other variables that will ensure that you have no risk. Fha is a neat program. It has an extremely high mortgage Insurance Premium applied every single mortgage that can support and it is a terrible way of putting it, but it is a fact it can help prevent teen delinquency rates. This country was on a housing bubble the was promulgated by bay crisis. You create an unsustainable and farm for anybody participating in that market. It impacted the Housing Market and a whole bunch of other markets that were impacted in a significantly adverse way. I find it really interesting, when you look at the fha portfolio compared to all of the other mortgage portfolios that existed, it is the one that has survived in the most healthy manner compared to any of them, with the worst credit attributes. As recently as 2012, the past both years have caused strain. Even beyond that, it is still going to go positive with the future premium. There is no doubt that a bigger down payment is better. No doubt that more private capital engaged in the market is better for housing. This is the son of an unhealthy market. I have said this continuously. We are in an environment where there is no private capital coming back. Ratings agencies are not trusted. Mortgage insurance as a way to combat so that they will value higher products. Private investors do not trust the mortgagebacked Securities Market unless it has the best loan values. In the interim, we are caught in an environment where were losing support until we have a replacement vehicle in place. We talk about getting the fha out of the market. There is very little time to focus on the pathway to private capital. That is the greatest challenge. You can lower loan limits and those are not the risky loans. If you reduce fhas role, it would hurt home buyers in san francisco. The key thing is hurting the rest. Look at the premiums that are being charged. If we can maintain that focus, the risk regiment focus that the fha has taken on, there is an argument to say, lets not over correct in a time when there is no support system coming down the pipe. You talk about the importance of having good underwriting standards. One of the other criticisms of fha is that it is a Government Agency that is not as nimble. Longterm, if you have 3 down payment, it is one thing to trust that the lenders to use the program will operate according to the guidelines, but does the institution have the bandwidth to change circumstances . Even if it were not as severe as 2006, say we go through a period where Congress Allows downpaymentfunded assistance. How able is the fha to set those proper underwriting standards . There is no question that the fha any other agency needs to be more organized than what we have today. Fhfa it is 80 years old. It has never required taxpayer money. The fact that we have a 1000 year flat and fha has plans for a 100year flat, it is unfortunate, but it has worked out somewhat well. What we should be thinking about is, how do we take advantage of this opportunity to learn how to do the modernization that roberta talked about . We did learn about kod during this crisis, when fha wanted to change its standards and eliminate a program that was clearly costing it a significant portion, having an agency which does not have the authority to act quickly or to try out new products on a small scale before they decided they make sense on a large scale is not nimble in a federal, statutory set of guidelines. One of the things were trying to develop is, how do we make sure that the fha managers do not have to go back to Congress Every time they want to be able to take steps, to take a Risk Mitigation actions that a private lender would be able to take . You have to be willing to have transparency about how well youre meeting a metrics. The officials who are in charge of managing the fund, they will do that better than a process that has to go through the natural legislative process to get those answers in place. We saw that with down payments. That was a program that many members of congress believe are in the same place. We could not get the week we could not get them to turn the spigot off. It took a long time to get them to go along with it. We need to come up with Risk Mitigation tools for fha. We have not gotten to what the future system should look like. Especially in a world in which we will have the gses and conservatorships will also be transformed into something that protect the taxpayers, that we, in that world, we empower policymakers at fha to be able to protect itself from risk when the emerging system might have hiccups of its own. You coauthored a paper earlier this year looking at whether the agency had done proper modeling for its risk. One of the headlines was a potential 30 delinquency rate on those 2007, 2008, 2009 books. Do you think that the agency has made the kind of changes needed to properly estimate what their potential loss exposure is . We heard in the opening marks, and if you go back and read the last several years of reports, discussions about innovations in the risk analysis. Hopefully some of the work that i have done helps to contribute to that thinking. It raises a broader question, which is, clearly, entering into 2007 and Going Forward, the fha was in choppy water. You want the best compass to try to navigate. There are scarce resources. Doing this these types of risk analysis are very complicated. If you do try to read the book, it is very detailed, very difficult. The issue is, how do we get the best thinking possible . Suppose the innovations that went into this years audit report could have been innovative in 2007. How much better with that have been for the folks who were trying to manage the fha to have that much more earlywarning . We either from more dollars added to get more resources to the fha or adopt a different model. Think of an open source model, where the fha says, we are going to put all of the models up there. We will make the data available. We want to encourage outside researchers to kick the tires and give us your best thinking. Lets try to speed up the learning curve. This was an approach taken by the bank of england when they gained independence and put out their first Monetary Policy report. They put on there website their forecast, the data, the models, and they invited economists to critique the models. They viewed this as a welcome thing. That is a challenge. Are we moving down the learning curve fast enough in terms of doing this kind of risk analysis . If not, then i think we are losing out on the ability to steer the program better. This is something that is worth discussing. Every year, we have heard that the past few years have been bad, but this year is good and next year will be even better. In the following year, it changes a little bit. We have heard the same things a couple of times. How much confidence should we have that the 2010, 2011, 2012 books will hold up very well . The earlier books did have a negative economic value. It is a model that is based on the home price index and Interest Rates. Those are the biggest drivers of the model itself. Some would say the unemployment drives that outcome. Those of the variables were you see the greatest swings. What impact did the reverse Mortgage Program have . It had a particularly the it had a particularly adverse impact this year. That is because of variables that are driving that outcome. If it goes back going back to what joe was saying earlier, we need the economy to keep recovering and the performance would be better. If you look at the study, and i think they have done a good job, there is a variety of stress testing that goes on in this process. They did not show all the simulations, but they did show what variables work. There is an attempt to be far more transparent in the study. Obviously, forecast are forecasts. In order to create a capital ratio or a budget for congress, you have to create a point. The notion, in the real world, youre looking at a range of possible outcomes. The point that was chosen is based on the set of the best assumptions about house prices and when the recovery would come. You can ask most policy makers in any Government Program that is affected by the economy how quickly they thought that those things will start to improve. For the most part, economists were predicting return to growth in the economy and increases in employment sooner. The biggest reason why we thought the next year would be better, we thought the cost of the poor mortgages that originated earlier would be less than they turned out to be. That is because the economy turned out to be weaker and the sustained suck on the business, those peoples