in early 2006. this substantial blow to household wealth has significantly weakened household spending and consumer confidence. another result of the fall in house prices is that around 12 million households are now underwater on their mortgages – that is, they owe more on their mortgages than their homes are worth. without equity in their homes, many households who have experienced hardships, such as unemployment or unexpected illness, have been unable to resolve mortgage payment problems through refinancing their mortgages or selling their homes. the resulting mortgage delinquencies have ended in all too many cases in foreclosure, dislocation, and personal adversity. neighborhoods and communities have also suffered profoundly from the onslaught of foreclosures, as the neglect and deterioration that may accompany vacant properties makes neighborhoods less desirable places to live and may put further downward pressure on house prices. an ongoing imbalance between supply and demand exacerbates these problems in the housing market. for the past few years, the actual and potential supply of single - family bis central bankers ’ speeches homes for purchase has greatly exceeded the effective demand, in part because of the large number of homes that have come back onto the market after moving through the foreclosure process. the elevated pace of foreclosures, unfortunately, is likely to be sustained for quite a while and therefore will continue to put downward pressure on home prices. at the same time, a host of factors have been weighing on housing demand. many households have been reluctant or unable to purchase homes because of concerns about their income, employment prospects, and the future path of home prices. tight mortgage credit conditions have also prevented many households from purchasing homes. although some retrenchment in lending standards was necessary and appropriate given the lax standards that prevailed before the crisis, current lending practices appear to be limiting or preventing lending even to creditworthy households. in the paper, we discussed the benefits and costs of a variety of policy options that have been proposed to respond to these difficult housing issues, including increasing credit availability for households seeking to purchase a home or to refinance an existing mortgage ; exploring the scope for further mortgage modifications, including encouraging short sales and deeds - in - lieu of foreclosure in cases where foreclosure cannot be avoided ; and expanding the options available for holders of foreclosed properties to dispose of their inventory responsibly. any policy proposals, though, will require wrestling with difficult choices and tradeoffs, as initiatives to benefit the

a substantial portion of petroleum revenues is invested in foreign equities and bonds through the government petroleum fund. changes in the oil price influence the size of the fund, but have little effect on the domestic use of petroleum revenues. the petroleum fund acts as a buffer against fluctuations in the oil price, which stabilises the krone exchange rate. the norwegian economy may nevertheless be exposed to disturbances of a type that cannot be absorbed by the petroleum fund. we have to be prepared for fluctuations in the value of our currency that are more in line with the fluctuations observed in other countries. the exchange rate will vary. this means that economic agents cannot assume that the krone will be stable against the euro, the us dollar or a weighted average of foreign currencies. it is the inflation target that is the economy ’ s nominal anchor. the future size of the petroleum fund depends on oil price developments. the fiscal guideline ensures that we only use the return on wealth that has already been accumulated. this makes policy robust to changes in oil prices and ensures that petroleum wealth will be of benefit both today and in the future. the government invests petroleum wealth in foreign securities through the petroleum fund. government wealth is thereby more diversified. these investments have no impact on the norwegian capital market. the norwegian government ’ s most important assets are the government petroleum fund, assets in the national insurance fund and government direct ownership interests in enterprises. the petroleum fund ’ s equity investments are distributed across many countries, and all equity holdings are less than one per cent of a company ’ s total value. the national insurance fund's investments are mainly confined to norway. as a result, changes in the value of the fund's equity portfolio primarily reflect developments in norwegian business and industry. the fund has larger ownership interests in individual companies than the petroleum fund, and wider fluctuations in value. the government has substantial direct holdings in individual enterprises. in general, concentrated ownership requires a more strategic ownership approach and gives rise to higher risk than diversified ownership. the capital market serves as an intermediary between the government as investor and enterprises seeking capital. this market makes it possible to separate the government's choices from companies'choices. the distribution of the government's financial investments and the choice of corporate funding structure should not be based on the notion that we are living in a barter economy. the government can choose the composition, required rate of return and risk profile for its financial investments without regard for the funding requirements of norwegian enterprises.