evaluation of the companies'underwriting standards and senior - management oversight of the practices used for ensuring compliance with consumer protection regulations and laws. the agencies have been working closely together and are scheduled to begin the on - site reviews in the fourth quarter. the partner agencies will share information about the reviews and make joint assessments of lessons learned. this project should also lay the groundwork for various additional forms of future cooperation to ensure more effective and consistent supervision and consumer protection. legislative responses beyond the actions underway at the regulatory agencies, i am aware that the congress is considering statutory changes to help alleviate the problem of foreclosures. modernizing the programs administered by the federal housing administration ( fha ) is one promising direction. the fha has considerable experience in providing home financing for low - and moderate - income borrowers. it insures mortgages made to borrowers who meet certain underwriting criteria and who pay premiums into a reserve fund that is designated to cover the costs in the event of default. this insurance makes the loans less risky for lenders and investors, and it makes the loans eligible for securitization through the government national mortgage association ( ginnie mae ). historically, the fha has played an important role in the mortgage market, particularly for first - time home buyers. however, the fha's share of first - lien home purchase loans declined substantially, from about 16 percent in 2000 to about 5 percent in 2006, as borrowers who might have sought fha backing instead were attracted to nontraditional products with moreflexible and quicker underwriting and processing. in addition, maximum loan values that the fha will insure have failed to keep pace with rising home values in many areas of the country. in modernizing fha programs, congress might wish to be guided by design principles that allow flexibility and risk - based pricing. to alleviate foreclosures, the fha could be encouraged to collaborate with the private sector to expedite the refinancing of creditworthy subprime borrowers facing large resets. other changes could allow the agency more flexibility to design new products that improve affordability through features such as variable maturities or shared appreciation. in addition, creating risk - based fha insurance premiums that match insurance premiums with borrowers'credit profiles would give more households access to refinancing options. the risk of moral hazard must be considered in designing government - backed programs ; such programs should not bail out failed

housing and mortgage markets. the federal reserve supported placing fannie mae and freddie mac into conservatorship to help stabilize an important source of housing finance. more recently, the federal reserve has announced that it will purchase $ 600billion in debt issued by the housing - related government - sponsored enterprises and in mortgage - backed securities backed by fannie mae, freddie mac, and ginnie mae, which could reduce funding costs for mortgages. it also is supporting foreclosure prevention and neighborhood stabilization efforts, which help reduce unnecessary foreclosures and their costs on communities. limiting foreclosures will also help reduce the risk that house prices will sink significantly below the level justified by fundamentals. the events of the past year and a half have highlighted the need for changes in our financial system. presumably, such changes may include a different balance between bank - based and market - based financial intermediation. as regulators of banks and thrifts, our job is not to determine what this balance should be. rather, our job is, and has been, to create an environment in which, in the short run, banks can step up to fill as much of the gap as possible that has been left by still - dysfunctional markets, consistent with a strong, stable banking system. over time, of course, we will need to work with the congress and the new administration to construct a system of oversight over both markets and institutions that better protects the stability of the financial system and the u. s. economy. see board of governors of the federal reserve system, federal deposit insurance corporation, office of the comptroller of the currency, and office of thrift supervision ( 2008 ), " interagency statement on meeting the needs of creditworthy borrowers ", joint press release, november 12.