##igation arrangement between the lender or servicer and the distressed borrower. the federal reserve, in conjunction with the other federal banking agencies ( which include the office of the comptroller of the currency, the federal deposit insurance corporation, and the office of thrift supervision ), the conference of state bank supervisors and the national credit union administration, has issued guidance urging lenders and servicers to pursue such arrangements, when feasible and prudent, as an alternative to foreclosure. for the lender, servicer, and investor, working out a distressed loan with a struggling borrower makes economic sense if the net present value ( npv ) of the payments under a loss - mitigation strategy exceeds the npv of proceeds that would be received in foreclosure. loss mitigation can be advantageous to both the borrower and the lender because the costs associated with foreclosure can be very substantial. historically, the foreclosure process has usually taken from a few months up to a year and a half, depending on state law and whether the borrower files for bankruptcy. anecdotal evidence suggests that the time to complete a foreclosure has been increasing recently, as the number of foreclosures has risen and the average time that properties remain on the market has lengthened. the losses to lenders and investors from foreclosures include not only the missed mortgage payments during that period, but also the costs of taxes, legal and administrative fees, real estate owned sales commissions, and maintenance expenses. additional losses arise from the often significant reduction in value when a property is repossessed even in stable housing markets, particularly if the property is unoccupied for some period. in fact, a recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that total losses exceeded 50 percent of the principal balance. whether the losses are that large in all cases is difficult to know, but what is known is that the foreclosure process itself destroys considerable value. the existence of such costs raises the real prospect that, by restructuring distressed loans in those cases in which the borrower wants to stay in the home, borrowers, lenders, servicers, and investors may all be able to achieve a better outcome than is attainable if the foreclosure process is allowed to run its course. lenders, servicers, and investors have historically relied on repayment

nontraditional mortgages, particularly the " payment shock " if the loan's interest rate increases, or when the consumer is required to make fully amortizing payments. it is important for consumers to have the information necessary to understand the features and risks of these types of mortgages. as bankers create more complex products, they should pay particular attention to improving the quality of their disclosures and sales practices, so that consumers can clearly understand the features of those products. the federal reserve is committed to improving the information consumers receive about these products, including improving the disclosures required under the u. s. truth in lending act. as we work to improve the understanding of disclosure information to consumers, the federal reserve also engages in outreach activities and conducts research to help us better understand consumer behavior and inform our judgment with regard to the best approaches to achieve consumer understanding. to this end, we sponsor consumer surveys, hold public hearings, discuss issues with our consumer advisory council, and conduct consumer focus groups and other types of consumer testing. conclusion the topics i have focused on this morning, portfolio concentration risk in cre, improved risk sensitivity of basel ii, enterprise wide compliance of bsa / aml and clear communication to consumers about complex products, emphasize that risk management needs to be integrated into daily operations of banks. as an organization chooses to accept more risk exposure to implement its strategies, it is imperative that the organization strengthen its risk management practices appropriately. a bank should clearly understand the implications of the risks it chooses to accept, ensure that the risk mitigants it has chosen work effectively, and that capital is strong enough to support the bank throughout an extended period of unexpected losses. i would also like to note that the federal reserve has an excellent working relationship with the financial services authority and the bank of england. we have worked together effectively on bankspecific issues and broader questions of regulatory policy and financial stability. while there is a wide range of issues with which supervisors must grapple, including those i have discussed today, i believe that supervisory cooperation can indeed create a safe and sound global marketplace while allowing financial institutions to remain prosperous.