Residential Outlook

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