18 th Annual Fisher Real Estate Conference

1. Palace Hotel, San Francisco April 22, 2013 U.C. Berkeley 18th Annual Fisher Real Estate Conference

2. Oh, those hard times…

3. 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 What a difference a year makes

4. We have a ways to go

5. 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 The work is not yet done

6. President’s state of the union address

7. 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 Important points on housing

8. Opportunities for families • Choice Neighborhoods • Strong Cities, Strong Communities (SC2) • Promise Zones • Jobs and local economy

9. Access to credit

10. refinance • Current efforts • FHA’s Streamline Refinance program • Administration’s efforts to open up refinancing • Senators Boxer, Menendez and Merkely have proposed legislation

11. We cannot have a healthy housing market without appropriate access • Why overlays? • We hear that uncertainty in the regulatory environment is a big factor Lender overlays

12. 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 Taking Action

13. 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 Lender enforcement, reps & warrants

14. 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 Working with lenders

16. 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 A stronger fha

17. 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 Aggressive steps in 2011 - 2012

18. 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 FHA Single Family

19. 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 FHA’s Mutual Mortgage insurance fund

20. 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

21. 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 FHA’s Pricing and credit policy steps

22. Revising 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 Further Actions Taken

23. 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

24. 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 Housing Finance reform

25. 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 GSE reforms

26. HUD’s FY 2013-14 proposed Budget

27. Background – Budget Control Act of 2011 Background – The FY2014 Budget at a Glance 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… • 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

28. HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market The Budget Principles – Bringing Private Capital Back to the Housing Market 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… • Allows 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 • Strengthens 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

29. The Budget Principles – Prioritizing Renewals The Budget Principles – Prioritizing Renewals 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

30. HUD’s FY 2013 Budget – Strengthening the Nation’s Housing Market HUD’s FY 2014 Budget – Strengthening the Nation’s Housing Market HUD’s 2014 Budget request helps create ladders to opportunity by strengthening the nation’s housing market, which in turn strengthens the middle class… Strengthening the Nation’s Housing Markets to Bolster the Economy and Protect Consumers • $248 billion FHA loan volume in 2014, providing an estimated 1.2 million single family mortgages • $239 billion GNMA new guarantees in 2014

31. In conclusion

32. 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 Sustaining our economic recovery