GSE Restructuring
• Private Profit and Taxpayer Loss System must go away
– Subsidized Hedge Fund (Investment Portfolio) must go away
• Government backing essential for simple mortgages that do not require innovation … brings lower (and actuarially fair) mortgage rates for consumers … without geographic or income discrimination
– Pure Privatization means too-big-to-fail and potential taxpayer bailout
• Private market solution essential for innovation outside of the simple mortgages … Profit and Loss without placing too-big-to-fail taxpayer risk
Economic Baseline Outlook
• Moderate GDP Expansion 2.5% to 3% in the next 2 years
• 1.5 to 2 million annual job additions yearly in the next 2 years
• Unemployment rate of 9% in 2011 … and normal 6% in 2015
Housing Outlook
• Mortgage Rates rising to 5.5% by year-end 2011 and 6% in 2012
• Home values – no meaningful change in the national price in the next 2 years
• Home sales to be choppy but overall improving in line with job growth … 5.2 million in 2011 (up from 4.9 m in 2010, but same as in 2000)
• Affordability conditions are too compelling
• There maybe a pent-up demand. 27 million additional people from 2000 but same home sales as in 2000.
• Upside surprise if underwriting moves to ‘normal’ away from over-stringency