This might include actions to 1)  prudently expand access to mortgage credit for homebuyers, including by limiting putback risks that discourage loan origination and addressing problems with appraisals;  2)  eliminate frictions and lower costs to refinancing for all borrowers with prime conforming loans;  3)  enable borrowers who are “underwater” on their loans but continue to make their monthly payments to earn accelerated principal reduction over time;  4)  provide bridge financing for borrowers with proven ability to service their debts who lose their jobs and may take longer than normal to find new jobs in today’s weak labor market; and  5)  manage the disposition of homes repossessed by creditors in a manner supportive of large-scale conversion into rental units. I am encouraged by the recent decision by the Federal Housing Finance Agency (FHFA) to make it easier for certain borrowers with high loan-to-value ratios to refinance. I hope this initial step will be followed by others that collectively move in the direction of stabilizing house prices. I believe this would not just be good economic policy, but it would also be extremely beneficial for taxpayers, who now effectively own the credit risk of those home loans guaranteed by Fannie Mae and Freddie Mac. On the fiscal policy front, ongoing support for demand from the public sector at a time when many households are deleveraging sustains jobs and incomes.
Our focus as the supervisor of the banking sector will remain in having institutions that are well capitalized and liquid, and that continuously improve their standards of risk management. In our forthcoming communication with banks, we shall pay special attention to how they assess and monitor credit, market and liquidity risks; and how they include the results of this process in the management decisions. Finally, I want to stress again the importance of economic reforms that would ensure stronger economic growth in the medium term, and will provide for more effective banking activity. The objective of such reforms must be to improve the productivity and competitiveness of our economy through: reducing uncertainties over the direction of future developments by identifying the right policies and reforms; creating a favorable fiscal, legal, business and political climate that will promote investments in the economy; improving the workforce education and specialization; generating the benefits of economies of scale through integration of businesses in the regional or European market; and increasing the efficiency of the public and private sector through the improvement of governance. In the financial system, the reforms must focus on deepening and broadening the financial market, with the objective of improving access to finance, improve efficiency and reduce risks. I hope that this forum will bring up new ideas on how to overcome current challenges that the real economy and the financial sector is facing.