Thank you for coming. It is an interesting time for the Housing Market. I guess we could have said that any time in the last five years are so. Things are changing a bit. After more than five years of declining markets, we seem to be doing somewhat better. Home prices are going up. Foreclosures are at a fiveyear low. On the other hand, we are still suffering from a serious overhang from the crisis. More than 4 million households have lost their homes through foreclosure. This has been bad for families, communities, state and local budgets. Home price declines wiped out roughly 7 trillion in household wealth, left more than 10 million families under water, and away more than their homes are worth. Hardhit communities such as las vegas in san bernadine know, more than half are under water. This is creating some significant problems. The air at a much greater risk of a foreclosure de are at a much greater risk of foreclosure. The borrower has no other commission to fall back on here. We will be discussing more. We will reduce mortgage principal. We can seize this owned by private investors, right down the principal and refinance the loans that are at current market value. This is a quite a heated debate. Local government and consumer groups will have a wait for finely deleveraging debt and avoiding unnecessary foreclosures. The question is whether this is the right policy to fix the problem. Before we get to that, the team has grappled with the problem of under water mortgages for several years. Last year we released the plan for reducing principal through shared appreciation. We have cause on the finance agency to prevent servicers to reduce principal on loans owned by fannie mae and freddie mac. In the back we have these proposals and other materials we have produced on this subject. Back to today. We have a terrific panel of experts. I am looking forward to hearing from them. Raise your hands. He is the chairman of mortgage resolution partners, a firm using Eminent Domain and is in discussions with municipal governments across the country. Prior to his work, he cofounded alternative asset firms. As well as the specialty financial reinsurer. Congressman brad miller is a recently retired representative from North Carolina in the 13th district. During his five terms, he served as a leading champion for consumers and the fight against predatory mortgage lending. Todd is the executive director of the american securitization form, an association for other stakeholders that is supposed to call for using Eminent Domain for mortgages. Previously, he was an associate at at mckey nelson where he worked on Residential Mortgage securitization. Jim was previously the chief business of the sec at the National Community reinvestment coalition. Before that he served as Senior Vice President for planning and research at the fannie mae foundation. Finally will be the director of Housing Finance and policy, and julia gordon. Shed manage a Single Family policy team at the finance agency. She previously served as the senior policy council. Take it away. Thank you. Ok. With going to start questions to the panel and had a conversation up here. After a while we will open the floor to questions from the audience as well. I hope youre thinking about what you like to ask all of the folks out here. We are just going to start with a general question. Where are we in the foreclosure crisis . In particular, how big of a problem is negative equity and for whom . I think a lot of people think that it is behind us and were driving forward. I would argue. It might be the number of about 4 million American Families have lost their homes already. By almost any measurements they will lose their homes if we do not do something. There lots of consequences. There are families that are destructive and taken from their homes. We are talking about three or 5 million more families, as many as 20 million more americans. When you are under water your behavior changes. As you do not spend as much money on anything. The only thing you consume more of is health care. The costs are significant. Foreclosures cost hard dollars and soft dollars. There are property tax issues. The consequences are felt by all of us. What are some roadblocks to solutions . I do not know whether we have hit bottom are not. If something cannot go on forever it will stop. Some of the forces that are pushing down the Housing Market cannot go on forever. We have households about informing. This cannot go on forever. Theyre going to have to replace this. There is still a lot of downward pressure. There are tim million americans owe more on their houses. That means they cannot just sell their house if they get into trouble. And the cycle of foreclosure is causing equity loss, equity loss causing foreclosures is something we have not broken yet. The impediments remain. Problemd this kind of before. The Great Depression the bubble there was not a housing but the stock market. When times were that hard, they had in a foreclosure crisis and they did in the depression. A Home Owners Loan Corporation was a successful, according to arthurdivided bycenter, a historian according to arthur s. Schlesinger is saved the middle class. They bought mortgages at a deep discount from the portfolios of failed banks. Those were in the days before safety and soundness and accounting concerns. There were plenty of banks quite willing to sell mortgages for a bird in the hand. So they bought mortgages at discount, which gave them room to negotiate and reduce the principal. Even though they managed the agency more like social workers and then like lenders, when the agency finally closed down in it turned a profit. We know we can make this work. The mystery is why it has not happened now. Mortgages, the separation between who owns them and who manages them is probably part of it. The safety and soundness and accounting concerns about not willing to recognize losses is probably part of it. The honest to god incompetence of servicers, because of the way they are paid. Do not have enough resources to do the job is part of it. But there has not the people who are affected, who aere the investors have not been in a position to cut a deal to limit their losseses. Thank you. Where do you think we are is negative equity a problem for the market or will the problem take care of itself . On the latter question, this might be the only time steven and i will agree on the panel. Prefacing what may come forward. I do agree with steven. Negative equity has been a problem for homeowners. It has been devastating to go from buying a house, putting a down payment down to not allowing money on the house, even if they they were to sell the house. To now owing money on the house. To investors to put up money to lend it to the individuals, whether it was a the securitization process, the privatelabel mortgage, or for the american tax payer. There is 5. 50 trillion mortgage debt is guaranteed by fannie, freddie or ginnie mae. If the underlying collateral is worth less than what is owed on the mortgage, it will not be positive for having let the money to them. All in all there has been a tremendous loss to the American Economy and to the individuals that have borrowed the money. And certainly to the folks who have let that money, whether it is through the american taxpayer, the gses, or the Pension Funds, the mitchell funds and the like who bought and owned private label mortgagebacked securities. To answer the first part of the question, where are we . That is where i would disagree with stephen. We are not heading towards the maelstrom of the storm by starting to come out of the storm. As an example, at the opening mark it remarks, San Bernadino was mentioned as one of the areas,the ground zero of negative home price appreciation. What we have seen there, just evaluating the number of loans in default in that county is that in in juen 2009, it was 31,000, and june, 2010, 21,000, june 2012, 12,000. Over the last four years, the defaultse change and evolin has gone down 61 . That signals to me that we are not in the middle or going into the heat of the storm. That does not mean that that will make life any better for the person that is challenged to make a mortgage payment. It does not make life easier for somebody who has it does signal that as a nation we are moving away from the center part of it and moving towards areas where we have more home price stability. Even markets like phoenix, you have seen appreciation. It has spent 30 yearoveryear through 2012 or you went from a market that was really going down precipitously and now is shooting up with that same. Hilosopvelocity can you talk about this issue from the neighborhood . What is going on out there on the ground . Maybe i can be the Bridge Builder between steven and tom to say that we are seeing improvements across all markets that is a very positive sign. The downside is that the damage has been so heavily concentrated in a handful of states and a handful of communities have been so damaged that even though the numbers are looking positive for those neighborhoods that, they are still struggling. The amounts of underwater debt is contributing to low sales in stores, higher unemployment. And for those families that are getting into foreclosure because of a loss of income or because of the loss of a job, if they could find relief through principal reduction to save their home that would seem from a Public Policy standpoint to be a positive turn of events and would help to promote and stimulate that market even faster than the slow recovery that is experiencing, even in markets like San Bernardino county. So i would say that i do not see us getting into an abyss. I think that part is over. But i do not believe we have reached the proof a point where we can say the markets are recovering so we can walk away. The unfortunate part about this conversation is that we are looking at Eminent Domain which is probably one of the most extreme things that a Public Entity could do, which is the taking of private property when there are so many things that could be done and could have been done better not nearly as extreme to help to mitigate the foreclosure crisis. We look at things like principal reduction through the hamp program. Fannie mae and freddie mac are not pursuing principal reduction. The dollars are already there. It would be a net cost of to the taxpayer and it would help to recover in committees like San Bernardino. It is not happening. Services have a lot more flexibility than they have pursued in order to modify the loans including principal reduction. A financial has been a leader. Others have not followed their lead. There are also things like bankruptcy protection. At a federal level, it was debated in congress, it would cost the American Public nothing. It would allow households that are under financial distress to restructure the debt on their family home and keep it off. If you owned a luxury yacht or a rental property, you can restructure that debt, but you cannot if you have a moderate income. The fact that we are in this conversation is unfortunate because many things could happen before we would have to go to an extreme measure of Eminent Domain. Does everyone agree, the assertion that principal reduction is what has happened . Lets leave Eminent Domain until later in the conversation because it distracts people. Does everyone agree the principal reduction is what we have to provide people underwater to get them to be able to participate in our economy or not . I think principal reduction, particularly for borrowers, who have an ability to meet their mortgage payments, have not had the force, have not had a loss of jobs or income, havet had divorce, they the ability to pay their mortgage and are current on their mortgage as your plan had proposed, i do not think those are our corporate borrowers to go after a principal reduction because they have not signaled an inability or a life event that will cause them to go into default. So we should punish them for the fact they have been paying a proper way so that when we go and provide principal reduction, youre saying, you have been a good guy, so you do not get it. That guy has been bad, we do it to him. Is that what you are proposing . I am not saying it will put them in the stockade because they are paying. What they are saying what i am saying is if they show no signs of distress, they have an ability to pay debt markets. The borrower if they lose their job and they have the ability to pay it, every service surf should like to some kind of principle Forbearance Program for them. In the hopes that that borrower would be able to get a job. In the next 6 or 9 months and resume paying carry to say every borrower who is underwater, lets cut away their mortgage principal. That is a mess of disservice off to the 5. 50 trillion the american taxpayer has lent out to fannie mae and freddie mac. But also to the private label security de bt that neutral funds have loaned to those borrowers as well. You cannot say that we should give away money to these types of borrowers just because they are unfortunate that they have gone under water. Useful nk it would be to hear more about your proposal and about the issue so we can get it on the table. So the first thing, i think it is important for people to understand that and tom made a good point of this earlier which is americas the bulk of the balance as tom pointed out are actually ensured by freddie and fannie. That has cost us as taxpayers a few hundred billion dollars so far for that guarantee. There is a small segment around 4. 7 million loans that are called private label securitizations. When you hear about Mortgage Backed security, about 4. 7 million borrowers, about a trillion dollars as tom indicated. We focus on that segment, the p. L. S. Segment because those bondholders, the investors in those securities do not have the benefit of the United States government guarantee on their performance. They live or die on the fact that you pay your mortgage or you dont. Because of that, the securities trade at market. They reflect the fact that there are huge problems in that community. I brought one slide in. Right now is a perfect time to put the slide up. Just to frame this. Just so i can see it here. If that is ok. From one underage fannie maes third quarter. This is the United States view of the p. L. S. Sector with respect to the portion of the bonds they own. They own some of those bonds and under their rules they tell us what they think about the underlying mortgages and these are the numbers you want to look at. Fannie mae says there is about 28 billion on their balance sheet, exposure to mortgages in this sector. They expect a 50 default rate. This is before. Going forward on their existing holdings. 50 default rate and when it defaults and goes into foreclosure, they expect a 66 loss under that mortgage. Half the mortgages, 2 3 of the principal written down. It tells you fannie mae believes there are roughly 2. 25 more foreclosures coming. We think fannie and freddie and the banks have other avenues. All the programs you talked about for reform and helping these homeowners. Most of those programs are not eligible to be used in this sector. The p. L. S. Homeowner has very few options. Our thesis is allowing these homeowners to write down the mortgages, you rereduce the am of foreclosures and allow them to stay in their home. Thats our objective. How do you do that . How do you write down the principal . They are owned by trusts. It would be great if we could go to the trustee or servicer who owns the trust and say you know, youre going to have 50 of your people defaulting and lose 2 3 of your money and by the way, your bonds already trade reflecting that. You have taken that loss already. Why dont we allow the homeowner to stay in the house and simply write down their mortgage . The trustee and servicer cannot write those down. Cannot sell them. There is a whole bunch of things they cant do. They are stuffed in that trust. Stuck in that trust. What is the way we can get that Home Mortgage taken out of that trust and put in the hands of someone who has a reason to want to help that homeowner. We looked around and decided the only way you could get that loan out of that trust was using a power that community has had that that was given to it in the constitution of the United States and handed down to the state constitution and that is the power of condemnation. Ive said this before. Im not as dumb as i look. If we could find any other way than using Eminent Domain, dont you think we would come up with another idea . There is no other way. Thats how we got there. A local community now can condemn that mortgage and take it out of the trust. By the way, pay the trust fair value. Fannie mae will tell you what the fair value is. They have already done it right here. Thats in essence a program that we have were discussing with some several dozen communities around the United States. Thank you, senator. Is there really no other way . Steve argues that there is an inability for servicers to write down principal on private label securitized loans absolutely false. Writing down a principal has been increasing over time on private label securitized loans. There is no ability for a servicer of a fannie or freddie loan to actually write down. There is a big distinction there. Second, he says that we, m. R. P. , cant figure out a way to get these loans out. It is because m. R. P. Doesnt actually own the loan. What they are proposing at the core of its proposal is m. R. P. Wants to take loans from somebody else. That is what Eminent Domain is all about. The person does not want to sell you those loans so you grab them without that persons consent. Well come back to legal issues throughout the discussion here. Sticking to the policy side of it, there is a reason you cant get out of the trust. T