me remind you that the mortgage market has historically given millions of individuals access to owner - occupied housing. also worth mentioning is the fact that mortgage lending fared relatively well during the crisis, with the average default rate of residential mortgages remaining below 6 % at all times. in contrast, that observed in the real estate development and construction segment reached levels of more than 36 %. therefore, although it may seem obvious, when we talk about default rates, we are not referring to household mortgages, but primarily to real estate development exposures and to financing for land purchases and other real estate business activities. to use an english expression, we are referring to what is known as “ pipeline risk ”. however, despite the relatively favourable behaviour of residential mortgages, the financial crisis has clearly exposed certain weaknesses in the mortgage market which need to be addressed and which have had a painful social impact and financial consequences that still linger on. we must also recognise that there were highly questionable banking practices before and during the crisis. in many cases, bank managers introduced perverse incentives for mortgage sales, which led to the outcome that is all too familiar. 4 / 15 in recent years, in addition to the dramatic social and economic situation, we have witnessed a period of unprecedented litigiousness and legal uncertainty. much of this litigiousness has notably centred on the mortgage market, according to the complaints data of the banco de espana. a case in point here are floor clauses. the number of complaints filed through the ad hoc system established by rdl 1 / 2017 has come to almost 1. 2 million, with refunds amounting to more than €2, 300 million to date. this high level of litigiousness is also apparent in the courts of justice. 5 / 15 it is worth remembering that litigiousness and the attendant uncertainty is not only very detrimental to banks, but also negative for the customer. uncertainty means that sometimes it is impossible for the costs and risks of a transaction to be known, which may have the effect of freezing up the market. banks can react to legal uncertainty in two ways. first, by limiting or reducing the number of transactions, which ultimately limits access to credit. second, by increasing the cost of new loans, in order to cover the cost of potential litigation. of course, if we apply this to the real estate market, the result is that access to housing becomes more difficult, when, paradoxically, this is precisely what has to be protected. in

addition to that, the fed is continuing to reduce its balance sheet each month by allowing the runoff of maturing securities, which supports the tightening of financial conditions. despite these actions, i believe that policy is barely in restrictive territory today, so more interest rate hikes are needed to get inflation down. in the fomc's november statement, the committee added two new sentences on its view of the future path of policy, elaborating on our " reaction function, " which is the basis for those future decisions. 2 let me explain how i view this new language. the first new sentence is about " where we are going, " which is the level of interest rates at which it will be appropriate to stop hiking. if asked what that sentence means, i would say that, with the current strength and outlook for the labor market, my decision for the " terminal rate " for policy will focus on progress toward our inflation goal. so, assuming the labor market and financial stability remain in check, the endpoint of the tightening path is highly dependent on the evolution of the inflation data. 4 / 6 bis - central bankers'speeches the second new sentence in the statement is about " how " we will get to the terminal rate - that is, the pace of rate increases to arrive at that destination. the fomc language notes the pace will depend on several factors. the first is " the cumulative tightening of monetary policy. " i have noted how significant and aggressive this tightening has been. we have gone from a low interest rate economy to one with fairly significant interest rates ( although in historical terms, rates are still not that high for a tightening cycle ). there is a tendency for fed watchers to view each meeting's policy decision as solely determined by what has happened in the preceding six weeks. for me, this new sentence is an important reminder that each decision we make in the coming months will be heavily influenced by the significant, cumulative effect of the decisions we made earlier this year. another factor listed by the committee was " the lags with which monetary policy affects economic activity and inflation. " in my view, the committee will reach the terminal rate well before inflation reaches 2 percent because of the abundance of evidence that it takes months, and perhaps even longer, for the full effects of a rate increase to work through the economy. considering the cumulative effect of tightening and the likely lags for policy doesn't mean these factors are more important than new information about the economy.