18TH ANNUAL FISHER REAL ESTATE CONFERENCE

U.C. Berkeley

Palace Hotel, San FranciscoApril 22, 2013

OH, THOSE HARD TIMES…

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WHAT A DIFFERENCE A YEAR MAKES Construction is growing faster than at

any time since 2008 2012 was the strongest year of home

sales since the economic crisis began Rising home values lifting 1.4 million

families above water Foreclosure starts are down around the

country and shadow inventories continue to shrink

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WE HAVE A WAYS TO GO

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THE WORK IS NOT YET DONE Need to:

Complete economic recovery Create stable future for the Market

Focus:―Restore housing market―Help families get back on their feet

―Enter new era of housing finance as quickly as possible with a balanced approach

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PRESIDENT’SSTATE OF THE UNION ADDRESS

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IMPORTANT POINTS ON HOUSING

Rebuilding communities and local economies by investing in the hardest hit people and places

Facilitating and maintaining access to credit

Strengthening the FHA Single Family insurance fund

Addressing the long-term housing finance regulatory framework

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OPPORTUNITIES FOR FAMILIES

Choice Neighborhoods Strong Cities, Strong

Communities (SC2) Promise Zones Jobs and local economy

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ACCESS TO CREDIT

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Current efforts― FHA’s Streamline Refinance

program ― Administration’s efforts to open

up refinancing― Senators Boxer, Menendez and

Merkely have proposed legislation

REFINANCE

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LENDER OVERLAYS

We cannot have a healthy housing market without appropriate access

Why overlays? We hear that uncertainty in the

regulatory environment is a big factor

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TAKING ACTION

Consumer Financial Protection Bureau (CFPB)―Ability to Re-pay Rule

Qualified Residential Mortgage (QRM) is next on the regulatory agenda

Engaging in rulemaking on FHA’s version of QM

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LENDER ENFORCEMENT, REPS & WARRANTS

Recent enforcement actions GSEs’ rep and warrant risk Lenders’ concerns- loan default

exposure to the risk of indemnification or a put back, no matter how trivial or immaterial the underwriting flaws or error

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WORKING WITH LENDERS Need to develop clear and

transparent standards on indemnification

Made changes to our own underwriting criteria―Confidence that borrowers can be

successful Consider requiring housing

counseling for certain borrowers

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A STRONGER FHA

FHA played a crucial role in the single family, multifamily and even healthcare mortgage finance market since 2009

Without FHA programs, Moody’s Analytics predicts that house prices would have fallen an additional 25 percent

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AGGRESSIVE STEPS IN 2011 - 2012 Secretary Donovan and FHA

leadership quickly realized there were some significant changes we needed to make―Created an Office of Risk

Management, the first in FHA’s history―Established a higher down payment

for borrowers with credit scores under 580

―Enhanced lender approval guidelines ―Got rid of bad actors

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FHA SINGLE FAMILY

The books of business originated since 2010 are the strongest in Agency history

Like other players in the mortgage industry, FHA faced significant challenges over the past several years

NO financial institution or mortgage insurer has weathered this crisis without pain

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FHA’S MUTUAL MORTGAGE INSURANCE FUND

2012 independent actuary report predicts the Mutual Mortgage Insurance Fund is $16.3B short of having sufficient funds to pay all projected claims over the next 30 years

FY 2013-14 budget proposes shortfall funding in the event it becomes necessary

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Projected losses stem largely from loans originated from 2007-2009 as well as reverse mortgage loans

$14B of these expected losses are the result of loans originated using a Seller Funded Downpayment Assistance program ― FHA got Congress to ban

SOURCES OF LOSSES

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FHA’S PRICING AND CREDIT POLICY STEPS Announced a total of 5 increases, the

highest insurance premium in history Reversed a policy where insurance

premiums were automatically cancelled

Required any borrower with a credit score under 620 to have a maximum DTI of 43%

Mandating higher down payments and higher premiums for jumbo loans

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FURTHER ACTIONS TAKENRevising the loss mitigation

waterfall Launched the Distressed Asset

Stabilization Program Ramping up a claims without

conveyance process to allow direct sales of foreclosed properties to third parties

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Borrowers age 62 or older and with little to no income use their equity to pay bills and expenses while aging in place

HECM is sensitive to both home prices and borrowers age and longevity

HECM loans disproportionately responsible for large amount of expected losses

HOME EQUITY CONVERSION MORTGAGE

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HOUSING FINANCE REFORM Proceed with the important work of

solidifying the long term health of the FHA

GSE reforms need a similar approach―GSEs are now earning profits and

paying back Treasury

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GSE REFORMS Similar approach to GSE reforms- best

practices, industry-wide standards that support our broad range of goals―Preserve the 30-year mortgage―Maintain access to credit for all

households―Keep the market stable

Recognition that GSEs are now earning profits and paying back Treasury but reform remains an important issue

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HUD’S FY 2013-14 PROPOSED BUDGET

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Background – Budget Control Act of 2011Background – The FY2014 Budget at a Glance

$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000FY2012 EnactedFY2014 Request

Despite these tough choices, this budget: Increases gross Budget Authority by 7.3% over FY2012 levels, to

$47.58 billion Maintains housing assistance for every family HUD currently

serves Increases investments in several key initiatives

Because of these discretionary caps, FY2012 set a new baseline – requiring HUD to make tough choices in FY2013 and FY2014 – which are further magnified by Sequestration…

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HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market

oAllows FHA and Ginnie Mae to continue crucial, temporary countercyclical role while building the middle class:$248 billion FHA loan volume anticipated in 2014, providing an

estimated 1.2 million single family mortgages$247 billion GNMA new guarantees anticipated in 2014

oStrengthens financial soundness, assists housing market recovery and brings private capital back to the mortgage market:Continuing to generate receipts for the taxpayer, $18

billion in FY2013 and an estimated $13 billion in FY2014

Supports policies to reduce losses to the Fund Facilitates access to credit for qualified borrowers

HUD’s FY2014 budget request helps reignite America’s engine of economic growth by strengthening the housing market, speeding the recovery, and building a stronger middle class…

The Budget Principles – Bringing Private Capital Back to the Housing Market

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The majority of HUD’s budget is required each year simply to hold ground—keeping current recipients in their homes and providing basic upkeep to the public housing stock…

In FY2014, 84% of HUD’s budget request will be used to:• Renew Existing Rental

Assistance/Operating Subsidies• Fund accrued capital needs of Public Housing• Renew Existing Homeless Assistance Grants

IN A BUDGET FREEZE: Funding for existing families increases with inflation - as a result, other programs must decrease.

For every 1% increase in renewals, other programs must decrease by nearly 5% to keep the budget level

The Budget Principles – Prioritizing RenewalsThe Budget Principles – Prioritizing Renewals

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HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market

Strengthening the Nation’s Housing Markets to Bolster the Economy and Protect Consumers

HUD’s 2014 Budget request helps create ladders to opportunity by strengthening the nation’s housing market, which in turn strengthens the middle class…

Program ($ in millions)2012

Enacted

2013 Sequestrati

on2014

RequestFHA Loan Guarantee Limitation Level $400,000 $400,000 $400,000Ginnie Mae Loan Guarantee Limitation Level $500,000 $500,000 $500,000

Housing Counseling Assistance $45 $45 $55

HUD’s FY 2014 Budget – Strengthening the Nation’s Housing Market

• $248 billion FHA loan volume in 2014, providing an estimated 1.2 million single family mortgages

• $239 billion GNMA new guarantees in 2014

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IN CONCLUSION

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SUSTAINING OUR ECONOMIC RECOVERY Investing in people and communities Facilitating access to credit for

creditworthy borrowers Ensuring that creditworthy, low

wealth, underserved borrowers and affordable housing developers continue to have access to a strong, sustainable FHA

Creating clear rules of the road now and in the future

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